Document:

MORTGAGE LOAN PURCHASE AGREEMENT

      THIS MORTGAGE LOAN PURCHASE AGREEMENT dated as of February 28, 2005 by and
between  FIRST  HORIZON  HOME  LOAN  CORPORATION,   a  Kansas  corporation  (the
"Seller"), and FIRST HORIZON ASSET SECURITIES INC. (the "Purchaser").

      WHEREAS,  the Seller owns certain Mortgage Loans (as hereinafter  defined)
which  Mortgage Loans are more  particularly  listed and described in Schedule A
attached hereto and made a part hereof.

      WHEREAS, the Seller and the Purchaser wish to set forth the terms pursuant
to which the Mortgage Loans,  excluding the servicing rights thereto,  are to be
sold by the Seller to the Purchaser.

      WHEREAS, the Seller will simultaneously  transfer the servicing rights for
the Mortgage Loans to First Tennessee Mortgage Services, Inc. ("FTMSI") pursuant
to the Servicing  Rights  Transfer and  Subservicing  Agreement (as  hereinafter
defined).

      WHEREAS,  the  Purchaser  will engage FTMSI to service the Mortgage  Loans
pursuant to the Servicing Agreement (as hereinafter defined).

      NOW, THEREFORE, in consideration of the foregoing, other good and valuable
consideration,  and the mutual terms and covenants contained herein, the parties
hereto agree as follows:

                                    ARTICLE I
                                   Definitions

      Agreement:  This  Mortgage  Loan  Purchase  Agreement,  as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms hereof.

      Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a day
on which banking  institutions  in the City of Dallas,  or the State of Texas or
New York City is located are  authorized or obligated by law or executive  order
to be closed.

      Closing Date: February 28, 2005

      Code:  The  Internal  Revenue  Code of 1986,  including  any  successor or
amendatory provisions.

      Cooperative Corporation: The entity that holds title (fee or an acceptable
leasehold  estate)  to the  real  property  and  improvements  constituting  the
Cooperative  Property  and  which  governs  the  Cooperative   Property,   which
Cooperative  Corporation must qualify as a Cooperative Housing Corporation under
Section 216 of the Code.

      Coop Shares: Shares issued by a Cooperative Corporation.

      Cooperative  Loan:  Any  Mortgage  Loan  secured  by  Coop  Shares  and  a
Proprietary Lease.

<PAGE>

      Cooperative  Property:  The real  property and  improvements  owned by the
Cooperative  Corporation,  including the allocation of individual dwelling units
to the holders of the Coop Shares of the Cooperative Corporation.

      Cooperative  Unit:  A single  family  dwelling  located  in a  Cooperative
Property.

      Custodian:  First Tennessee Bank National Association,  and its successors
and assigns, as custodian under the Custodial Agreement dated as of February 28,
2005 by and among The Bank of New York,  as  trustee,  First  Horizon  Home Loan
Corporation, as master servicer, and the Custodian.

      Cut-Off Date: February 1, 2005.

      Cut-off  Date  Principal  Balance:  As to any  Mortgage  Loan,  the Stated
Principal Balance thereof as of the close of business on the Cut-off Date.

      Debt Service Reduction:  With respect to any Mortgage Loan, a reduction by
a court of competent  jurisdiction in a proceeding  under the Bankruptcy Code in
the   Scheduled   Payment  for  such   Mortgage  Loan  which  became  final  and
non-appealable,  except such a reduction resulting from a Deficient Valuation or
any reduction that results in a permanent forgiveness of principal.

      Deficient  Valuation:  With respect to any Mortgage Loan, a valuation by a
court of competent jurisdiction of the Mortgaged Property in an amount less than
the  then-outstanding  indebtedness under the Mortgage Loan, or any reduction in
the amount of principal to be paid in connection with any Scheduled Payment that
results in a permanent  forgiveness of principal,  which  valuation or reduction
results  from an order of such  court  which is final  and  non-appealable  in a
proceeding under the United States Bankruptcy Reform Act of 1978, as amended.

      Delay  Delivery  Mortgage  Loans:  The  Mortgage  Loans for which all or a
portion of a related  Mortgage  File is not  delivered  to the Trustee or to the
Custodian  on its  behalf on the  Closing  Date.  The  number of Delay  Delivery
Mortgage Loans shall not exceed 25% of the aggregate number of Mortgage Loans as
of the Closing Date.

      Deleted   Mortgage   Loan:   As   defined  in   Section   4.1(c)   hereof.

      Determination  Date:  The earlier of (i) the third  Business Day after the
15th day of each month,  and (ii) the second  Business Day prior to the 25th day
of each month,  or if such 25th day is not a Business  Day, the next  succeeding
Business Day.

      GAAP:  Generally applied  accounting  principles as in effect from time to
time in the United States of America.

      Insurance Proceeds:  Proceeds paid by an insurer pursuant to any insurance
policy,  including all riders and endorsements thereto in effect,  including any
replacement  policy or policies,  in each case other than any amount included in
such Insurance Proceeds in respect of expenses covered by such insurance policy.

                                       2
<PAGE>

      Liquidation Proceeds:  Amounts, including Insurance Proceeds,  received in
connection with the partial or complete liquidation of defaulted Mortgage Loans,
whether  through  trustee's  sale,  foreclosure  sale or  otherwise  or  amounts
received in connection  with any  condemnation or partial release of a Mortgaged
Property.

      MERS:  Mortgage  Electronic  Registration  Systems,  Inc.,  a  corporation
organized and existing under the laws of the State of Delaware, or any successor
thereto.

      MERS Mortgage  Loan:  Any Mortgage Loan  registered  with MERS on the MERS
System.

      MERS  (R)  System:   The  system  of  recording   transfers  of  mortgages
electronically maintained by MERS.

      MIN: The Mortgage Identification Number for any MERS Mortgage Loan.

      MOM Loan:  Any  Mortgage  Loan as to which  MERS is  acting as  mortgagee,
solely as nominee for the  originator of such  Mortgage Loan and its  successors
and assigns.

      Mortgage: The mortgage, deed of trust or other instrument creating a first
lien on the property securing a Mortgage Note.

      Mortgage File: The mortgage  documents listed in Section 3.1 pertaining to
a particular Mortgage Loan and any additional  documents required to be added to
the Mortgage File pursuant to this Agreement.

      Mortgage Loans: The mortgage loans  transferred,  sold and conveyed by the
Seller to the Purchaser, pursuant to this Agreement.

      Mortgage Loan Purchase  Price:  With respect to any Mortgage Loan required
to be purchased by the Seller pursuant to Section 4.1(c) hereof, an amount equal
to the sum of (i) 100% of the unpaid  principal  balance of the Mortgage Loan on
the date of such purchase,  and (ii) accrued  interest thereon at the applicable
Mortgage  Rate  from the  date  through  which  interest  was  last  paid by the
Mortgagor  to the first day in the month in which  the  Mortgage  Loan  Purchase
Price is to be distributed to the Purchaser or its designees.

      Mortgage   Note:   The  original   executed  note  or  other  evidence  of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.

      Mortgaged  Property:  The  underlying  property  securing a Mortgage Loan,
which,  with  respect to a  Cooperative  Loan,  is the  related  Coop Shares and
Proprietary Lease.

      Mortgagor: The obligor(s) on a Mortgage Note.

      Principal  Prepayment:  Any  payment  of  principal  by a  Mortgagor  on a
Mortgage  Loan that is received in advance of its  scheduled Due Date and is not
accompanied  by an amount  representing  scheduled  interest  due on any date or
dates in any month or months subsequent to the month of prepayment.

                                       3
<PAGE>

      Proprietary  Lease:  With  respect  to any  Cooperative  Unit,  a lease or
occupancy  agreement  between a Cooperative  Corporation and a holder of related
Coop Shares.

      Purchase Price: $349,873,462.96

      Purchaser:  First  Horizon  Asset  Securities  Inc.,  in its  capacity  as
purchaser of the Mortgage Loans from the Seller pursuant to this Agreement.

      Recognition Agreement:  With respect to any Cooperative Loan, an agreement
between the  Cooperative  Corporation  and the  originator of such Mortgage Loan
which establishes the rights of such originator in the Cooperative Property.

      Scheduled Payment: The scheduled monthly payment on a Mortgage Loan due on
the  first day of the month  allocable  to  principal  and/or  interest  on such
Mortgage Loan which, unless otherwise specified herein, shall give effect to any
related Debt Service  Reduction  and any  Deficient  Valuation  that affects the
amount of the monthly payment due on such Mortgage Loan.

      Security  Agreement:  The security agreement with respect to a Cooperative
Loan.

      Seller: First Horizon Home Loan Corporation, a Kansas corporation, and its
successors and assigns, in its capacity as seller of the Mortgage Loans.

      Servicing  Agreement:  The servicing  agreement,  dated as of November 26,
2002 by and between  First  Horizon Asset  Securities  Inc. and its assigns,  as
owner, and First Tennessee Mortgage Services, Inc., as servicer.

      Servicing Rights Transfer and Subservicing Agreement: The servicing rights
transfer  and  subservicing  agreement,  dated as of  November  26,  2002 by and
between First Horizon Home Loan Corporation, as transferor and subservicer,  and
First Tennessee Mortgage Services, Inc., as transferee and servicer.

      Stated  Principal  Balance:  As to any Mortgage Loan, the unpaid principal
balance of such Mortgage Loan as specified in the  amortization  schedule at the
time relating  thereto (before any adjustment to such  amortization  schedule by
reason of any  moratorium or similar waiver or grace period) after giving effect
to any previous partial Principal Prepayments and Liquidation Proceeds allocable
to principal  (other than with respect to any  Liquidated  Mortgage Loan) and to
the payment of principal due on such date and irrespective of any delinquency in
payment by the related Mortgagor.

      Substitute  Mortgage Loan: A Mortgage Loan substituted by the Seller for a
Deleted Mortgage Loan which must, on the date of such  substitution,  (i) have a
Stated  Principal  Balance,  after  deduction  of the  principal  portion of the
Scheduled  Payment due in the month of  substitution,  not in excess of, and not
more than 10% less than the Stated  Principal  Balance of the  Deleted  Mortgage
Loan;  (ii) have a Mortgage Rate not lower than the Mortgage Rate of the Deleted
Mortgage  Loan;  (iii) have a maximum  mortgage  rate not more than 1% per annum
higher or lower than the maximum  mortgage  rate of the Deleted  Mortgage  Loan;
(iv) have a minimum  mortgage  rate  specified in its related  Mortgage Note not
more than 1% per annum  higher or lower than the  minimum  mortgage  rate of the
Deleted  Mortgage  Loan;  (v) have the same  mortgage  index,  reset  period and
periodic  rate as the Deleted  Mortgage Loan and a gross margin not more than 1%
per  annum  higher  or lower  than  that of the  Deleted  Mortgage  Loan (vi) be
accruing  interest at a rate no lower than and not more than 1% per annum higher
than,  that of the Deleted  Mortgage Loan;  (iv) have a  loan-to-value  ratio no
higher than that of the Deleted  Mortgage  Loan;  (vii) have a remaining term to
maturity  no  greater  than  (and not more  than one year less than that of) the
Deleted  Mortgage  Loan;  (viii) not be a  Cooperative  Loan  unless the Deleted
Mortgage  Loan was a Cooperative  Loan and (ix) comply with each  representation
and warranty set forth in Schedule B hereto.

                                       4
<PAGE>

      Trustee:  The Bank of New  York and its  successors  and,  if a  successor
trustee is appointed hereunder, such successor.

                                   ARTICLE II
                                Purchase and Sale

      Section 2.1 Purchase Price. In consideration  for the payment to it of the
Purchase Price on the Closing Date, pursuant to written  instructions  delivered
by the Seller to the  Purchaser  on the  Closing  Date,  the Seller  does hereby
transfer,  sell and convey to the Purchaser on the Closing Date, but with effect
from the Cut-off  Date,  (i) all right,  title and interest of the Seller in the
Mortgage  Loans,  excluding  the  servicing  rights  thereto,  and all  property
securing such Mortgage Loans,  including all interest and principal  received or
receivable  by the Seller  with  respect to the  Mortgage  Loans on or after the
Cut-off  Date and all  interest and  principal  payments on the  Mortgage  Loans
received on or prior to the Cut-off Date in respect of  installments of interest
and  principal  due  thereafter,  but not  including  payments of principal  and
interest  due and payable on the Mortgage  Loans on or before the Cut-off  Date,
and (ii) all proceeds  from the  foregoing.  Items (i) and (ii) in the preceding
sentence are herein referred to collectively as "Mortgage Assets."

      Section 2.2 Timing.  The sale of the Mortgage Assets  hereunder shall take
place on the Closing Date.

                                  ARTICLE III
                             Conveyance and Delivery

      Section 3.1 Delivery of Mortgage  Files.  In connection  with the transfer
and  assignment  set forth in Section  2.1 above,  the Seller has  delivered  or
caused to be delivered to the Trustee or to the  Custodian on its behalf (or, in
the case of the Delay  Delivery  Mortgage  Loans,  will  deliver  or cause to be
delivered to the Trustee or to the  Custodian on its behalf  within  thirty (30)
days  following the Closing Date) the following  documents or  instruments  with
respect to each Mortgage Loan so assigned (collectively, the "Mortgage Files"):

      (a)   (1) the  original  Mortgage  Note  endorsed  by manual or  facsimile
            signature  in  blank in the  following  form:  "Pay to the  order of
            ________________,    without   recourse,"   with   all   intervening
            endorsements  showing  a  complete  chain  of  endorsement  from the
            originator  to the Person  endorsing  the  Mortgage  Note (each such
            endorsement  being  sufficient  to  transfer  all  right,  title and
            interest  of the  party so  endorsing,  as  noteholder  or  assignee
            thereof, in and to that Mortgage Note); or

                                       5
<PAGE>

            (2) with respect to any Lost  Mortgage  Note, a lost note  affidavit
from the Seller  stating that the original  Mortgage Note was lost or destroyed,
together with a copy of such Mortgage Note;

      (b)   except as provided  below and for each  Mortgage  Loan that is not a
            MERS Mortgage Loan, the original recorded Mortgage or a copy of such
            Mortgage  certified by the Seller as being a true and complete  copy
            of the  Mortgage,  and in the case of each MERS Mortgage  Loan,  the
            original  Mortgage,  noting the  presence of the MIN of the Mortgage
            Loans and either language indicating that the Mortgage Loan is a MOM
            Loan if the Mortgage  Loan is a MOM Loan or if the Mortgage Loan was
            not a MOM  Loan  at  origination,  the  original  Mortgage  and  the
            assignment  thereof to MERS,  with  evidence of recording  indicated
            thereon, or a copy of the Mortgage certified by the public recording
            office in which such Mortgage has been recorded;

      (c)   a duly  executed  assignment  of the Mortgage in blank (which may be
            included in a blanket  assignment or  assignments),  together  with,
            except as provided below, all interim  recorded  assignments of such
            mortgage (each such assignment,  when duly and validly completed, to
            be in recordable form and sufficient to effect the assignment of and
            transfer to the  assignee  thereof,  under the Mortgage to which the
            assignment relates);  provided that, if the related Mortgage has not
            been returned from the  applicable  public  recording  office,  such
            assignment  of  the  Mortgage  may  exclude  the  information  to be
            provided by the recording office;

      (d)   the  original or copies of each  assumption,  modification,  written
            assurance or substitution agreement, if any;

      (e)   either the original or duplicate  original  title policy  (including
            all riders thereto) with respect to the related Mortgaged  Property,
            if available,  provided that the title policy  (including all riders
            thereto) will be delivered as soon as it becomes  available,  and if
            the  title  policy  is not  available,  and to the  extent  required
            pursuant to the second  paragraph  below or otherwise in  connection
            with the rating of the Certificates, a written commitment or interim
            binder  or  preliminary  report  of the  title  issued  by the title
            insurance or escrow company with respect to the Mortgaged  Property,
            and

      (f)   in the case of a  Cooperative  Loan,  the originals of the following
            documents or instruments:

            (1)   The Coop Shares, together with a stock power in blank;

            (2)   The executed Security Agreement;

            (3)   The executed Proprietary Lease;

                                       6
<PAGE>

            (4)   The executed Recognition Agreement;

            (5)   The  executed  UCC-1  financing  statement  with  evidence  of
                  recording thereon which have been filed in all places required
                  to perfect  the  Seller's  interest in the Coop Shares and the
                  Proprietary Lease; and

            (6)   Executed UCC-3 financing  statements or other  appropriate UCC
                  financing  statements  required  by state  law,  evidencing  a
                  complete and unbroken  line from the  mortgagee to the Trustee
                  with evidence of recording  thereon (or in a form suitable for
                  recordation).

      In the event that in connection  with any Mortgage Loan that is not a MERS
Mortgage Loan the Seller cannot  deliver (i) the original  recorded  Mortgage or
(ii) all interim recorded assignments  satisfying the requirements of clause (b)
or (c) above, respectively,  concurrently with the execution and delivery hereof
because such document or documents  have not been  returned from the  applicable
public  recording  office,  the  Seller  shall  promptly  deliver or cause to be
delivered to the Trustee or the Custodian on its behalf such  original  Mortgage
or such  interim  assignment,  as the case may be, with  evidence  of  recording
indicated  thereon upon receipt thereof from the public recording  office,  or a
copy thereof,  certified, if appropriate,  by the relevant recording office, but
in no event  shall any such  delivery  of the  original  Mortgage  and each such
interim assignment or a copy thereof, certified, if appropriate, by the relevant
recording  office,  be made  later than one year  following  the  Closing  Date;
provided,  however,  in the event the Seller is unable to deliver or cause to be
delivered by such date each Mortgage and each such interim  assignment by reason
of the fact that any such  documents  have not been returned by the  appropriate
recording office, or, in the case of each such interim  assignment,  because the
related Mortgage has not been returned by the appropriate  recording office, the
Seller shall deliver or cause to be delivered  such  documents to the Trustee or
the Custodian on its behalf as promptly as possible upon receipt thereof and, in
any event,  within 720 days following the Closing Date. The Seller shall forward
or cause to be forwarded to the Trustee or the  Custodian on its behalf (i) from
time  to  time  additional  original  documents   evidencing  an  assumption  or
modification  of a Mortgage  Loan and (ii) any other  documents  required  to be
delivered by the Seller to the Trustee.  In the event that the original Mortgage
is not  delivered  and in  connection  with the  payment in full of the  related
Mortgage Loan and the public  recording  office  requires the  presentation of a
"lost instruments  affidavit and indemnity" or any equivalent document,  because
only a copy of the Mortgage can be delivered with the instrument of satisfaction
or  reconveyance,  the Seller shall  execute and deliver or cause to be executed
and delivered such a document to the public recording  office. In the case where
a public recording office retains the original  recorded Mortgage or in the case
where a Mortgage is lost after  recordation in a public  recording  office,  the
Seller shall deliver or cause to be delivered to the Trustee or the Custodian on
its behalf a copy of such Mortgage  certified by such public recording office to
be a true and complete copy of the original recorded Mortgage.

      In addition,  in the event that in  connection  with any Mortgage Loan the
Seller  cannot  deliver  or cause to be  delivered  the  original  or  duplicate
original  lender's title policy (together with all riders  thereto),  satisfying
the  requirements  of clause  (v) above,  concurrently  with the  execution  and
delivery  hereof  because the related  Mortgage has not been  returned  from the
applicable public recording  office,  the Seller shall promptly deliver or cause
to be delivered to the Trustee or the  Custodian on its behalf such  original or
duplicate original lender's title policy (together with all riders thereto) upon
receipt  thereof from the applicable  title  insurer,  but in no event shall any
such  delivery of the original or duplicate  original  lender's  title policy be
made later than one year following the Closing Date;  provided,  however, in the
event the Seller is unable to deliver or cause to be  delivered by such date the
original or duplicate  original  lender's title policy (together with all riders
thereto)  because the related  Mortgage has not been returned by the appropriate
recording  office,  the  Seller  shall  deliver  or cause to be  delivered  such
documents to the Trustee or the  Custodian on its behalf as promptly as possible
upon receipt  thereof and, in any event,  within 720 days  following the Closing
Date.

                                       7
<PAGE>

      Notwithstanding anything to the contrary in this Agreement,  within thirty
days after the Closing Date,  the Seller shall either (i) deliver or cause to be
delivered to the Trustee or the  Custodian  on its behalf the  Mortgage  File as
required  pursuant to this Section 3.1 for each Delay Delivery  Mortgage Loan or
(ii) (A)  substitute or cause to be  substituted a Substitute  Mortgage Loan for
the Delay  Delivery  Mortgage Loan or (B)  repurchase or cause to be repurchased
the Delay Delivery  Mortgage Loan,  which  substitution  or repurchase  shall be
accomplished  in the manner and subject to the  conditions  set forth in Section
4.1 (treating each Delay Delivery  Mortgage Loan as a Deleted  Mortgage Loan for
purposes of such Section 4.1),  provided,  however,  that if the Seller fails to
deliver  a  Mortgage  File for any  Delay  Delivery  Mortgage  Loan  within  the
thirty-day period provided in the prior sentence,  the Seller shall use its best
reasonable efforts to effect or cause to be effected a substitution, rather than
a repurchase of, such Deleted  Mortgage Loan and provided  further that the cure
period  provided  for in  Section  4.1  hereof  shall not  apply to the  initial
delivery of the Mortgage File for such Delay Delivery  Mortgage Loan, but rather
the Seller shall have five (5)  Business  Days to cure or cause to be cured such
failure to deliver.

                                   ARTICLE IV
                         Representations and Warranties

      Section 4.1  Representations  and Warranties of the Seller. (a) The Seller
hereby represents and warrants to the Purchaser, as of the date of execution and
delivery hereof, that:

            (1) The  Seller is duly  organized  as a Kansas  corporation  and is
validly  existing and in good standing under the laws of the State of Kansas and
is duly  authorized and qualified to transact any and all business  contemplated
by this  Agreement  to be  conducted  by the  Seller  in any  state  in  which a
Mortgaged  Property is located or is otherwise not required under applicable law
to effect such  qualification and, in any event, is in compliance with the doing
business laws of any such state,  to the extent  necessary to ensure its ability
to enforce each Mortgage Loan and to perform any of its other  obligations under
this Agreement in accordance with the terms thereof.

            (2) The Seller has the full  corporate  power and  authority to sell
each Mortgage Loan, and to execute,  deliver and perform,  and to enter into and
consummate  the  transactions  contemplated  by  this  Agreement  and  has  duly
authorized  by all  necessary  corporate  action on the part of the  Seller  the
execution,  delivery and  performance  of this  Agreement;  and this  Agreement,
assuming the due  authorization,  execution  and  delivery  thereof by the other
parties  thereto,  constitutes  a legal,  valid and  binding  obligation  of the
Seller, enforceable against the Seller in accordance with its terms, except that
(a)  the  enforceability  thereof  may be  limited  by  bankruptcy,  insolvency,
moratorium,  receivership  and other similar laws relating to creditors'  rights
generally and (b) the remedy of specific  performance  and  injunctive and other
forms of  equitable  relief  may be  subject to  equitable  defenses  and to the
discretion of the court before which any proceeding therefor may be brought.

                                       8
<PAGE>

            (3) The execution and delivery of this Agreement by the Seller,  the
sale of the Mortgage Loans by the Seller under this Agreement,  the consummation
of any  other  of the  transactions  contemplated  by  this  Agreement,  and the
fulfillment of or compliance  with the terms thereof are in the ordinary  course
of  business  of the Seller and will not (a) result in a material  breach of any
term or  provision  of the  charter or  by-laws of the Seller or (b)  materially
conflict with,  result in a material  breach,  violation or acceleration  of, or
result in a material default under, the terms of any other material agreement or
instrument  to which the  Seller is a party or by which it may be bound,  or (c)
constitute a material violation of any statute,  order or regulation  applicable
to  the  Seller  of  any  court,  regulatory  body,   administrative  agency  or
governmental body having  jurisdiction over the Seller; and the Seller is not in
breach or  violation of any material  indenture or other  material  agreement or
instrument,  or in violation of any statute,  order or  regulation of any court,
regulatory body,  administrative agency or governmental body having jurisdiction
over it which breach or violation may materially  impair the Seller's ability to
perform or meet any of its obligations under this Agreement.

            (4) No  litigation  is  pending  or,  to the  best  of the  Seller's
knowledge,  threatened  against the Seller that would  prohibit the execution or
delivery of, or performance under, this Agreement by the Seller.

            (5) The Seller is a member of MERS in good standing, and will comply
in all material  respects  with the rules and  procedures  of MERS in connection
with the servicing of the MERS Mortgage Loans for as long as such Mortgage Loans
are registered with MERS.

      (b)   The Seller hereby makes the representations and warranties set forth
            in Schedule B hereto to the Purchaser, as of the Closing Date, or if
            so specified therein, as of the Cut-off Date.

      (c)   Upon  discovery  by  either of the  parties  hereto of a breach of a
            representation  or warranty  made pursuant to Schedule B hereto that
            materially  and adversely  affects the interests of the Purchaser in
            any  Mortgage  Loan,  the party  discovering  such breach shall give
            prompt  notice  thereof  to  the  other  party.  The  Seller  hereby
            covenants that within 90 days of the earlier of its discovery or its
            receipt  of written  notice  from the  Purchaser  of a breach of any
            representation  or warranty made pursuant to Schedule B hereto which
            materially  and adversely  affects the interests of the Purchaser in
            any  Mortgage  Loan,  it shall  cure  such  breach  in all  material
            respects,  and if such  breach is not so cured,  shall,  (i) if such
            90-day period expires prior to the second anniversary of the Closing
            Date, remove such Mortgage Loan (a "Deleted Mortgage Loan") from the
            pools of mortgages listed on Schedule B hereto and substitute in its

                                       9
<PAGE>

            place a Substitute  Mortgage  Loan, in the manner and subject to the
            conditions  set  forth  in  this  Section;  or (ii)  repurchase  the
            affected  Mortgage Loan or Mortgage  Loans from the Purchaser at the
            Mortgage  Loan  Purchase  Price in the manner set forth below.  With
            respect to the  representations  and  warranties  described  in this
            Section which are made to the best of the Seller's knowledge,  if it
            is  discovered  by  either  the  Seller  or the  Purchaser  that the
            substance of such representation and warranty is inaccurate and such
            inaccuracy materially and adversely affects the value of the related
            Mortgage   Loan  or  the   interests  of  the   Purchaser   therein,
            notwithstanding  the Seller's lack of knowledge  with respect to the
            substance of such representation or warranty,  such inaccuracy shall
            be deemed a breach of the applicable representation or warranty.

            With respect to any  Substitute  Mortgage Loan or Loans,  the Seller
shall  deliver to the  Trustee or to the  Custodian  on its behalf the  Mortgage
Note,  the Mortgage,  the related  assignment  of the  Mortgage,  and such other
documents and  agreements as are required by Section 3.1, with the Mortgage Note
endorsed and the Mortgage  assigned as required by Section 3.1. No  substitution
is permitted to be made in any calendar month after the  Determination  Date for
such month.  Scheduled Payments due with respect to Substitute Mortgage Loans in
the  month  of  substitution   will  be  retained  by  the  Seller.   Upon  such
substitution,  the  Substitute  Mortgage  Loan or Loans  shall be subject to the
terms of this Agreement in all respects,  and the Seller shall be deemed to have
made with respect to such  Substitute  Mortgage Loan or Loans, as of the date of
substitution,  the  representations  and warranties  made pursuant to Schedule B
hereto with respect to such Mortgage Loan.

            It is understood and agreed that the obligation under this Agreement
of the Seller to cure,  repurchase  or replace any  Mortgage  Loan as to which a
breach has occurred and is continuing  shall  constitute the sole remedy against
the Seller respecting such breach available to the Purchaser on its behalf.

      The representations  and warranties  contained in this Agreement shall not
be construed  as a warranty or guaranty by the Seller as to the future  payments
by any Mortgagor.

      It is understood  and agreed that the  representations  and warranties set
forth in this Section 4.1 shall  survive the sale of the  Mortgage  Loans to the
Purchaser hereunder.

                                    ARTICLE V
                                  Miscellaneous

      Section 5.1  Transfer  Intended as Sale.  It is the express  intent of the
parties  hereto that the  conveyance of the Mortgage  Loans by the Seller to the
Purchaser be, and be construed  as, an absolute sale thereof in accordance  with
GAAP and for  regulatory  purposes.  It is,  further,  not the  intention of the
parties that such  conveyances  be deemed a pledge  thereof by the Seller to the
Purchaser.  However,  in the  event  that,  notwithstanding  the  intent  of the
parties,  the  Mortgage  Loans are held to be the  property of the Seller or the
Purchaser,  respectively,  or if for any other reason this  Agreement is held or
deemed to create a security  interest in such  assets,  then (i) this  Agreement
shall be deemed to be a security  agreement  within the  meaning of the  Uniform
Commercial  Code of the State of Texas and (ii) the  conveyance  of the Mortgage
Loans provided for in this  Agreement  shall be deemed to be an assignment and a
grant by the  Seller  to the  Purchaser  of a  security  interest  in all of the
Mortgage Loans, whether now owned or hereafter acquired.

                                       10
<PAGE>

      The Seller and the Purchaser  shall,  to the extent  consistent  with this
Agreement,  take  such  actions  as may be  necessary  to ensure  that,  if this
Agreement were deemed to create a security  interest in the Mortgage Loans, such
security  interest would be deemed to be a perfected  security interest of first
priority under applicable law and will be maintained as such throughout the term
of the  Agreement.  The Seller and the  Purchaser  shall  arrange for filing any
Uniform Commercial Code continuation  statements in connection with any security
interest granted hereby.

      Section 5.2 Seller's Consent to Assignment. The Seller hereby acknowledges
the  Purchaser's  right to assign,  transfer  and convey all of the  Purchaser's
rights under this  Agreement to a third party and that the  representations  and
warranties made by the Seller to the Purchaser  pursuant to this Agreement will,
in the case of such assignment,  transfer and conveyance,  be for the benefit of
such third party.  The Seller hereby consents to such  assignment,  transfer and
conveyance.

      Section  5.3  Specific  Performance.  Either  party or its  assignees  may
enforce specific performance of this Agreement.

      Section 5.4 Notices.  All notices,  demands and requests that may be given
or that are  required  to be given  hereunder  shall  be sent by  United  States
certified mail,  postage prepaid,  return receipt  requested,  to the parties at
their respective addresses as follows:

                           If to
                           the Purchaser:            4000 Horizon Way
                                                     Irving, Texas 75063
                                                     Attn: Larry P. Cole

                           If to the Seller:         4000 Horizon Way
                                                     Irving, Texas 75063
                                                     Attn: Larry P. Cole

      Section 5.5 Choice of Law. This Agreement shall be construed in accordance
with and governed by the  substantive  laws of the State of Texas  applicable to
agreements  made and to be performed in the State of Texas and the  obligations,
rights and remedies of the parties hereto shall be determined in accordance with
such laws.

                  [remainder of page intentionally left blank]

                                       11
<PAGE>

      IN WITNESS  WHEREOF,  the Purchaser and the Seller have caused their names
to be signed hereto by their respective officers thereunto duly authorized as of
the 28th day of February, 2005.

                         FIRST HORIZON HOME LOAN CORPORATION, as Seller

                         By:
                            --------------------------------------------------
                                  Terry McCoy
                                  Senior Vice President

                         FIRST HORIZON ASSET SECURITIES INC., as Purchaser

                         By:
                            --------------------------------------------------
                                  Alfred Chang
                                  Vice President

<PAGE>

                                   SCHEDULE A

                              [BEGINS ON NEXT PAGE]

                      [Available Upon Request From Trustee]

<PAGE>

                                   SCHEDULE B

             Representations and Warranties as to the Mortgage Loans

      First  Horizon  Home Loan  Corporation  (the  "Seller")  hereby  makes the
representations  and  warranties  set forth in this  Schedule  B on which  First
Horizon Asset Securities Inc. (the "Purchaser") relies in accepting the Mortgage
Loans.  Such  representations  and  warranties  speak  as of the  execution  and
delivery of the Mortgage Loan Purchase Agreement,  dated as of February 28, 2005
(the "MLPA"),  between First Horizon Home Loan Corporation,  as seller,  and the
Purchaser  and as of the Closing  Date,  or if so  specified  herein,  as of the
Cut-off Date or date of origination of the Mortgage Loans, but shall survive the
sale,  transfer,  and  assignment of the Mortgage Loans to the Purchaser and any
subsequent  sale,  transfer and  assignment  by the  Purchaser to a third party.
Capitalized  terms used but not otherwise  defined in this Schedule B shall have
the meanings ascribed thereto in the MLPA.

      (1)   The information set forth on Schedule A to the MLPA, with respect to
            each Mortgage  Loan is true and correct in all material  respects as
            of the Closing Date.

      (2)   Each Mortgage is a valid and enforceable first lien on the Mortgaged
            Property subject only to (a) the lien of nondelinquent  current real
            property taxes and assessments and liens or interests  arising under
            or as a result of any  federal,  state or local law,  regulation  or
            ordinance relating to hazardous wastes or hazardous  substances and,
            if the related Mortgaged Property is a unit in a condominium project
            or Planned Unit  Development,  any lien for common charges permitted
            by statute or homeowner association fees, (b) covenants,  conditions
            and  restrictions,  rights of way,  easements  and other  matters of
            public  record as of the date of  recording of such  Mortgage,  such
            exceptions   appearing  of  record  being  generally  acceptable  to
            mortgage  lending  institutions  in the  area  wherein  the  related
            Mortgaged  Property  is located  or  specifically  reflected  in the
            appraisal  made in connection  with the  origination  of the related
            Mortgage  Loan,  and (c) other matters to which like  properties are
            commonly subject which do not materially interfere with the benefits
            of the security intended to be provided by such Mortgage.

      (3)   Immediately  prior to the  assignment  of the Mortgage  Loans to the
            Purchaser,  the Seller had good title to, and was the sole owner of,
            each Mortgage Loan free and clear of any pledge,  lien,  encumbrance
            or security interest and had full right and authority, subject to no
            interest or participation of, or agreement with, any other party, to
            sell and assign the same pursuant to this Agreement.

      (4)   As of the date of origination  of each Mortgage  Loan,  there was no
            delinquent  tax or  assessment  lien  against the related  Mortgaged
            Property.

      (5)   There is no valid offset,  defense or  counterclaim  to any Mortgage
            Note or Mortgage,  including the  obligation of the Mortgagor to pay
            the unpaid principal of or interest on such Mortgage Note.

                                      B-1
<PAGE>

      (6)   There are no mechanics'  liens or claims for work, labor or material
            affecting  any Mortgaged  Property  which are or may be a lien prior
            to, or equal with, the lien of such Mortgage, except those which are
            insured  against by the title  insurance  policy referred to in item
            (11) below.

      (7)   To the best of the Seller's  knowledge,  no  Mortgaged  Property has
            been  materially  damaged  by water,  fire,  earthquake,  windstorm,
            flood,  tornado or similar  casualty  (excluding  casualty  from the
            presence of hazardous  wastes or hazardous  substances,  as to which
            the Seller makes no  representation)  so as to affect  adversely the
            value  of the  related  Mortgaged  Property  as  security  for  such
            Mortgage Loan.  With respect to the  representations  and warranties
            contained within this item (7) that are made to the knowledge or the
            best  knowledge  of the  Seller  or as to which  the  Seller  has no
            knowledge,  if it is  discovered  that  the  substance  of any  such
            representation   and  warranty  is  inaccurate  and  the  inaccuracy
            materially and adversely  affects the value of the related  Mortgage
            Loan, or the interest therein of the Purchaser, then notwithstanding
            the Seller's lack of knowledge with respect to the substance of such
            representation  and  warranty  being  inaccurate  at  the  time  the
            representation  and  warranty  was made,  such  inaccuracy  shall be
            deemed a breach of the  applicable  representation  and warranty and
            the Seller  shall take such action  described  in Section  4.1(c) of
            this Agreement in respect of such Mortgage Loan.

      (8)   Each Mortgage Loan at origination  complied in all material respects
            with applicable local,  state and federal laws,  including,  without
            limitation,  usury, equal credit opportunity, real estate settlement
            procedures,  truth-in-lending  and disclosure laws and  specifically
            applicable  predatory and abusive lending laws, or any noncompliance
            does not have a material  adverse effect on the value of the related
            Mortgage Loan.

      (9)   No  Mortgage  Loan is a "high cost loan" as defined by the  specific
            applicable predatory and abusive lending laws.

      (10)  Except as reflected in a written  document  contained in the related
            Mortgage  File,  the Seller has not  modified  the  Mortgage  in any
            material respect; satisfied, cancelled or subordinated such Mortgage
            in whole or in part;  released  the  related  Mortgaged  Property in
            whole or in part from the lien of such  Mortgage;  or  executed  any
            instrument of release,  cancellation,  modification  or satisfaction
            with respect thereto.

      (11)  A lender's  policy of title  insurance  together  with a condominium
            endorsement and extended coverage endorsement,  if applicable, in an
            amount at least equal to the Cut-off Date Principal  Balance of each
            such  Mortgage  Loan or a commitment  (binder) to issue the same was
            effective on the date of the origination of each Mortgage Loan, each
            such policy is valid and remains in full force and effect.

      (12)  To the best of the Seller's knowledge, all of the improvements which
            were included for the purpose of determining  the appraised value of
            the Mortgaged Property lie wholly within the boundaries and building
            restriction lines of such property, and no improvements on adjoining
            properties encroach upon the Mortgaged Property, unless such failure
            to be wholly within such  boundaries and  restriction  lines or such
            encroachment, as the case may be, does not have a material effect on
            the value of such Mortgaged Property.

                                      B-2

<PAGE>

      (13)  To the best of the Seller's knowledge, as of the date of origination
            of each Mortgage  Loan, no  improvement  located on or being part of
            the Mortgaged  Property is in violation of any applicable zoning law
            or  regulation  unless  such  violation  would  not have a  material
            adverse effect on the value of the related  Mortgaged  Property.  To
            the best of the Seller's  knowledge,  all inspections,  licenses and
            certificates  required  to be made or  issued  with  respect  to all
            occupied portions of the Mortgaged Property and, with respect to the
            use  and  occupancy  of the  same,  including  but  not  limited  to
            certificates of occupancy and fire underwriting  certificates,  have
            been made or obtained from the appropriate  authorities,  unless the
            lack thereof would not have a material  adverse  effect on the value
            of such Mortgaged Property.

      (14)  The Mortgage Note and the related Mortgage are genuine,  and each is
            the  legal,  valid and  binding  obligation  of the  maker  thereof,
            enforceable in accordance with its terms and under applicable law.

      (15)  The proceeds of the  Mortgage  Loans have been fully  disbursed  and
            there is no requirement for future advances thereunder.

      (16)  The related Mortgages  contain customary and enforceable  provisions
            which render the rights and remedies of the holder thereof  adequate
            for the realization  against the Mortgaged  Property of the benefits
            of the security, including, (i) in the case of a Mortgage designated
            as a deed of  trust,  by  trustee's  sale,  and  (ii)  otherwise  by
            judicial foreclosure.

      (17)  With  respect  to each  Mortgage  constituting  a deed of  trust,  a
            trustee,  duly qualified under  applicable law to serve as such, has
            been  properly  designated  and  currently so serves and is named in
            such Mortgage, and no fees or expenses are or will become payable by
            the holder of the  Mortgage to the trustee  under the deed of trust,
            except in  connection  with a  trustee's  sale after  default by the
            Mortgagor.

      (18)  As of  the  Closing  Date,  the  improvements  upon  each  Mortgaged
            Property are covered by a valid and existing hazard insurance policy
            with a  generally  acceptable  carrier  that  provides  for fire and
            extended  coverage  and  coverage  for  such  other  hazards  as are
            customarily required by institutional single family mortgage lenders
            in the area where the Mortgaged Property is located,  and the Seller
            has  received no notice that any  premiums  due and payable  thereon
            have not been paid; the Mortgage obligates the Mortgagor  thereunder
            to maintain  all such  insurance  including  flood  insurance at the
            Mortgagor's cost and expense.  Anything to the contrary in this item
            (18) notwithstanding, no breach of this item (18) shall be deemed to
            give  rise  to  any  obligation  of  the  Seller  to  repurchase  or
            substitute  for such affected  Mortgage Loan or Loans so long as the
            Seller maintains a blanket policy.

                                      B-3
<PAGE>

      (19)  If at the time of  origination  of each Mortgage  Loan,  related the
            Mortgaged  Property  was in an area then  identified  in the Federal
            Register  by the  Federal  Emergency  Management  Agency  as  having
            special flood hazards,  a flood  insurance  policy in a form meeting
            the then-current  requirements of the Flood Insurance Administration
            is in  effect  with  respect  to  such  Mortgaged  Property  with  a
            generally acceptable carrier.

      (20)  To the  best  of the  Seller's  knowledge,  there  is no  proceeding
            pending or threatened for the total or partial  condemnation  of any
            Mortgaged Property, nor is such a proceeding currently occurring.

      (21)  To best of the Seller's knowledge, there is no material event which,
            with the  passage of time or with notice and the  expiration  of any
            grace or cure  period,  would  constitute  a  material  non-monetary
            default,  breach,  violation  or event  of  acceleration  under  the
            Mortgage or the related Mortgage Note; and the Seller has not waived
            any material  non-monetary  default,  breach,  violation or event of
            acceleration.

      (22)  Any leasehold  estate  securing a Mortgage Loan has a stated term at
            least as long as the term of the related Mortgage Loan.

      (23)  Each  Mortgage   Loan  was  selected  from  among  the   outstanding
            adjustable-rate  one- to four-family  mortgage loans in the Seller's
            portfolio  at the Closing Date as to which the  representations  and
            warranties made with respect to the Mortgage Loans set forth in this
            Schedule  B can be  made.  No such  selection  was  made in a manner
            intended    to    adversely    affect   the    interests    of   the
            Certificateholders.

      (24)  The Mortgage Loans provide for the full  amortization  of the amount
            financed over a series of monthly payments.

      (25)  At origination,  substantially  all of the Mortgage Loans had stated
            terms to maturity of 30 years.

      (26)  Scheduled  monthly  payments made by the  Mortgagors on the Mortgage
            Loans  either  earlier or later than their Due Dates will not affect
            the  amortization  schedule  or  the  relative  application  of  the
            payments to principal and interest.

      (27)  The  Mortgage  Loans  may be  prepaid  at any  time  by the  related
            Mortgagors without penalty.

      (28)  Some of the Mortgage  Loans in Pool I and Pool II are jumbo Mortgage
            Loans which have Principal  Balances at origination  that exceed the
            then  applicable  limitations for purchase by Fannie Mae and Freddie
            Mac.

                                      B-4
<PAGE>

      (29)  Each Mortgage Loan in Pool I and Pool II was  originated on or after
            October 18, 2004 and September 13, 2004, respectively.

      (30)  The latest  stated  maturity  date of any Mortgage Loan in Pool I is
            February  1, 2035,  and the  earliest  stated  maturity  date of any
            Mortgage  Loan in Pool I is  November  1, 2034.  The  latest  stated
            maturity date of any Mortgage Loan in Pool II is March 1, 2035,  and
            the earliest stated maturity date of any Mortgage Loan in Pool II is
            October 1, 2034.

      (31)  No Mortgage Loan was delinquent  more than 30 days as of the Cut-off
            Date.

      (32)  One Mortgage Loan has a  Loan-to-Value  Ratio at origination of more
            than 95%.  Generally,  each Mortgage Loan with a Loan-to-Value Ratio
            at origination of greater than 80% is covered by a Primary Insurance
            Policy issued by a mortgage  insurance company  acceptable to Fannie
            Mae or Freddie Mac.

      (33)  Other  than  the  Class  II-A-R  Certificates,  each  Mortgage  Loan
            constitutes  a  "qualified  mortgage"  within the meaning of Section
            860G(a)(3) of the Code.

      (34)  No  Mortgage  Loan is a "high cost loan" as defined by the  specific
            applicable  predatory  and abusive  lending  laws.  In addition,  no
            Mortgage  Loan  is a  "High  Cost  Loan"  or a  "Covered  Loan",  as
            applicable (as such terms are defined in the then current Standard &
            Poor's LEVELS(R) Glossary which is now Version 5.6 Revised, Appendix
            E) and no  Mortgage  Loan  originated  on or after  October  1, 2002
            through March 6, 2003 is governed by the Georgia Fair Lending Act.

      (35)  Appraisal  form 1004 or form 2055 with an  interior  inspection  for
            first  lien  mortgage  loans  has  been  obtained  for  all  related
            mortgaged   properties,   other   than   condominiums,    investment
            properties,  two to four unit properties and exempt properties,  for
            which appraisal form 1004 or form 2055 has not been obtained.

            Appraisal  form 704, 2065 or 2055 with an exterior  only  inspection
            for  junior  lien  mortgages  combined  with  first  lien  mortgages
            (including  home equity  lines of credit) has been  obtained for all
            related mortgaged  properties,  other than condominiums,  investment
            properties,  two to four unit properties and exempt properties,  for
            which  appraisal  form  1004 or form  2055  has not  been  obtained.
            Appraisal  form 704, 2065 or 2055 with an exterior  only  inspection
            for all  other  junior  lien  mortgages  has been  obtained  for all
            related  mortgaged  properties,  other than those related  mortgaged
            properties that qualify for an Automated Valuation Model.

                                      B-5Unassociated 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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00079-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00079-of-00352.parquet"}]]