Document:

<PAGE>

                                                                     EXHIBIT 4.5

                          THIRD FORBEARANCE AGREEMENT

     THIS THIRD FORBEARANCE AGREEMENT ("Agreement") is made as of this 15/th/
day of January, 2001 by and among CMI CORPORATION, an Oklahoma corporation
("Borrower"), MACHINERY INVESTMENT CORPORATION, an Oklahoma corporation, CMI
LIMITED PARTNERSHIP, an Oklahoma limited partnership, CMI CEDAR FALLS, INC., an
Iowa corporation, CMI JOHNSON CORPORATION, an Illinois corporation, BROWNWOOD
ROSS COMPANY, a Texas corporation, RM BARTON CO., INC., an Oklahoma corporation,
CMI SALES CO., L.L.C., an Oklahoma limited liability company (hereafter
collectively "Guarantors") and PRINCIPAL LIFE INSURANCE COMPANY ("Noteholder").

                                   WITNESS:

     WHEREAS, pursuant to a Note Purchase Agreement dated as of September 1,
1996 and amended by a First Amendment dated as of May 8, 1998 and a Second
Amendment dated as of March 24, 2000 (as amended, the "Note Agreement"),
Borrower borrowed $30,000,000 from Noteholder on the terms, conditions and
provisions set forth in the Note Agreement and accompanying Notes; and

     WHEREAS, Events of Default occurred and are continuing under the Note
Agreement and Borrower and Noteholder have heretofore entered into two prior
Forbearance Agreements dated as of September 29, 2000 and December 4, 2000; and

     WHEREAS, as security for repayment of all amounts due under the Note
Agreement Borrower entered into and caused the Guarantors to enter into Security
Agreements ("Security Agreements") granting a pari passu security interest in
collateral defined therein to both Noteholder and the lenders ("Lenders") under
a Restated Credit Agreement dated as of February 3, 2000, as amended ("Credit
Agreement"); and

     WHEREAS, Borrower's defaults under the Note Agreement, including payment
defaults, are continuing and Borrower has requested that Noteholder forbear from
enforcing rights and remedies available to Noteholder under the Note Agreement
and applicable law in exchange for the consideration set forth herein.

     NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto and for other good and valuable consideration including the payments and
performance of Borrower as set forth hereafter, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows with the
intent of being legally bound thereby:
<PAGE>

                                   SECTION 1
                                   ---------

                              GENERAL PROVISIONS
                              ------------------

     1.1. Borrower hereby confirms and reaffirms all of its obligations and
undertakings to Noteholder as set forth in the Note Agreement and Notes and
warrants and represents that Noteholder has fully performed each and all of its
duties and obligations thereunder.

     1.2. Except as expressly stated and limited by this Agreement, (i) Borrower
and Noteholder hereby reaffirm without exception all of their respective rights,
privileges, duties and obligations under the Note Agreement to the same extent
as if all of said provisions were repeated herein and (ii) nothing set forth
herein shall in any manner delay or diminish the rights and privileges of the
Noteholder under the Note Agreement.

     1.3. All terms used and not otherwise expressly defined herein shall have
the meanings ascribed to them in the Note Agreement.

     1.4. Borrower expressly acknowledges and agrees that nothing in this
Agreement or otherwise shall in any manner modify or diminish Borrower's
obligation to pay a Make-Whole Amount with respect to any payments required
hereby or otherwise made by Borrower which constitute principal reductions other
than Required Prepayments provided for pursuant to Section 8.1 of the Note
Agreement.

     1.5. Borrower and the Guarantors acknowledge and agree that the funds
obtained by Borrower under the Note Agreement have been utilized continuously
for the direct and indirect benefit of the Guarantors and that the Guarantors
have and will obtain immediate and continuing benefits from the forbearance
heretofore provided and provided for pursuant to this Agreement. Borrower and
the Guarantors further agree that the Guarantors have previously acknowledged
liability to Noteholders for the full and timely repayment of all amounts due
from Borrower under the Note Agreement and the Notes and have further provided a
security interest in certain of their assets as collateral for the repayment of
all obligations owed to the Lenders and the Noteholder. As a condition of
Noteholder's forbearance hereunder, the Guarantors have agreed to evidence their
existing guarantees by execution of a Guaranty Agreement concurrent with
execution of this Agreement.

     1.6. Borrower acknowledges that it also conducts operations through non-
United States entities and agrees, when and as requested by Noteholder, to
provide Guaranty Agreements resulting in such entities becoming liable for
repayment of all amounts owed under the Note Agreement and the Notes unless
provisions in financing documents relating to such entities which were already
in existence at the time of execution of this Agreement prohibit or preclude
such entities from entering into an agreement to guarantee repayment of
indebtedness owed by Borrower to the Noteholder and the Lenders.

                                       2
<PAGE>

     1.7. Borrower and Guarantors agree that all collateral pledged by them
pursuant to the Security Agreements shall remain as a perfected lien and
encumbrance against Borrower and Guarantors until all amounts due pursuant to
the Credit Agreement, the Note Agreement and this Agreement have been repaid in
full. When and as requested, Borrower and Guarantors shall take such actions and
execute such documents as may become necessary from time to time to perfect,
further perfect or continue perfection of the liens and encumbrances granted in
favor of Lenders and Noteholder pursuant to the Security Agreements and, in
addition thereto, shall pay all expenses and filing fees associated with the
creation and maintenance of said liens and encumbrances.

                                   SECTION 2
                                   ---------

                                  FORBEARANCE
                                  -----------

     2.1. Borrower requests and Noteholder hereby agrees, subject to the terms,
covenants, conditions and limitations contained herein, to forebear from
exercising rights under the Note Agreement, Guaranty Agreement and Security
Agreements for a period of time which will terminate immediately and without the
requirement for any notice to Borrower on the earlier of (i) Borrower's failure
to fulfill any of its payment or other performance obligations hereunder, (ii)
any Event of Default under the Note Agreement other than Events of Default which
exist on the date hereof or would, assuming the provision of notice by
Noteholder, exist on the date hereof, (iii) repayment of all amounts, including
Make-Whole Amounts, now or hereafter due and owing under the Note Agreement and
the Notes, (iv) expiration or termination of the forbearance provided to the
Borrower by Lenders pursuant to a Third Loan Modification and Forbearance
Agreement dated as of January 15, 2001 ("Third Loan Modification") or (v)
expiration of the forbearance period as provided herein or in the Third Loan
Modification.

     2.2. Borrower's forbearance pursuant to the terms and conditions of this
Agreement will initially extend from January 15, 2001 through 5:00 p.m. CST on
June 30, 2001 subject, however, to earlier termination as provided in Section
2.1 above. Absent the occurrence of any termination event as described in
Section 2.1 above, Borrower may further extend the forbearance period in
additional increments through September 30, 2001, October 31, 2001, November 30,
2001, December 31, 2001 and January 31, 2002 providing Borrower has made all
payments, including fee payments, due pursuant to the terms hereof.

     2.3. As a condition to the forbearance provided for herein, Borrower shall
concurrent with execution of this Agreement pay to Noteholder all interest due
on the Notes through and including January 31, 2001 in the amount of
$1,115,055.16 as calculated in accordance with the Note Agreement and prior
Forbearance Agreements. Borrower shall also pay all fees and expenses incurred
by Noteholder, including but not

                                       3
<PAGE>

limited to the fees and expenses of Noteholder's counsel, incurred in connection
with the negotiation, execution and enforcement of this Agreement within ten
days of receipt of an invoice for such amounts.

     2.4. In consideration of the forbearance provided hereunder, Borrower shall
pay to Noteholder as a condition thereof the following forbearance period fees:

--------------------------------------------------------------------------------
    FORBEARANCE PERIOD                 FEE                       DUE DATE
--------------------------------------------------------------------------------
 January 15-June 30, 2001          $389,610.38             Upon execution hereof
--------------------------------------------------------------------------------
 July 1-September 30, 2001                None                Not applicable
--------------------------------------------------------------------------------
    October 1-31, 2001               38,961.04              September 30, 2001
--------------------------------------------------------------------------------
    November 1-30, 2001              77,922.08               October 31, 2001
--------------------------------------------------------------------------------
    December 1-31, 2001             116,883.11               November 30, 2001
--------------------------------------------------------------------------------
    January 1-31, 2002              155,844.15               December 31, 2001
--------------------------------------------------------------------------------

     2.5. So long as forbearance continues pursuant to this Agreement,
Noteholder agrees to refrain from exercising its rights to (i) realize upon or
otherwise foreclose its security interests and mortgage liens in and on all
collateral pledged by Borrower or Guarantors pursuant to the Security Agreements
or otherwise, (ii) take actions to collect amounts owing under the Note
Agreement beyond those payable pursuant to this Agreement and (iii) demand, call
upon or otherwise enforce the Noteholder's rights against the Guarantors
pursuant to the Guaranty Agreement to be entered into by the Guarantors as a
condition hereof.

     2.6. Except as expressly set forth in this Agreement, Borrower acknowledges
and agrees that the Noteholder has not undertaken or agreed, directly,
indirectly or by course of dealing, to renew, extend or modify in any way the
obligations of Borrower or Guarantors under the Note Agreement, the Security
Agreements or the Guaranty Agreement. With the exception of the Noteholder's
forbearance from the exercise of its remedies as expressly set forth in Sections
2.1 and 2.5 above, nothing in this Agreement shall constitute a waiver,
termination or diminishment of any of the Noteholder's rights under the Note
Agreement, the Security Agreements or the Guaranty Agreement.

                                   SECTION 3
                                   ---------

                      PAYMENTS OF PRINCIPAL AND INTEREST
                      ----------------------------------

     3.1. During the forbearance period and continuing thereafter if the
forbearance period is terminated by reason other than the full repayment of all
amounts owed to Noteholder under the Note Agreement, the Borrower shall pay
interest (computed on the basis of a 360-day year of twelve 30-day months on the
amounts due under the

                                       4
<PAGE>

Notes on the last day of each month at the same rates payable to the Lenders
pursuant to Section 3.4 of the Third Loan Modification; provided, however, that
in no event shall the interest rate on amounts payable by Borrower to the
Noteholder be less than 9.68% per annum.

     3.2. During the forbearance period, in lieu of the principal reduction
payments provided for in the Note Agreement, the Borrower shall make the
following principal reduction payments to Noteholder on the dates indicated:

   --------------------------------------------------------------------------
                   DATE                         PRINCIPAL REDUCTION PAYMENT
   --------------------------------------------------------------------------
            February 28, 2001                           $547,730.64
   --------------------------------------------------------------------------
              March 30, 2001                             547,730.64
   --------------------------------------------------------------------------
              April 30, 2001                           1,707,849.71
   --------------------------------------------------------------------------
               May 31, 2001                              622,029.09
   --------------------------------------------------------------------------
              June 29, 2001                            1,084,537.20
   --------------------------------------------------------------------------
              July 31, 2001                              777,475.83
   --------------------------------------------------------------------------
             August 31, 2001                           1,066,349.45
   --------------------------------------------------------------------------
            September 28, 2001                           829,209.14
   --------------------------------------------------------------------------
             October 31, 2001                            514,006.65
   --------------------------------------------------------------------------
            November 30, 2001                            383,556.84
   --------------------------------------------------------------------------
            December 31, 2001                            433,660.73
   --------------------------------------------------------------------------
             January 31, 2002                        Remaining Balance
   --------------------------------------------------------------------------

     3.3. Notwithstanding the principal reduction schedule set forth above or in
the Note Agreement, Borrower acknowledges and agrees that Events of Default
permitting acceleration pursuant to Section 12.1 of the Note Agreement have
occurred and are continuing and that, as a result thereof, the Noteholder hereby
exercises its right to accelerate in accordance with the provisions of said
Section 12.1. Borrower acknowledges and accepts such acceleration and agrees
that it does not dispute or contest it. As part of the forbearance provided for
under this Agreement, however, (i) Noteholder agrees to accept the principal
reduction payments set forth above in lieu of demanding immediate full repayment
for so long as the forbearance period remains in full force and effect pursuant
to the provisions of this Agreement and (ii) Noteholder agrees to defer
assessment and calculation of the Make-Whole Amount otherwise due pursuant to
Section 12.1 of the Note Agreement until the later of the termination of the
forbearance periods provided pursuant to this Agreement by full repayment to
Noteholder of all amounts owed under the Note Agreement or the date on which
Noteholder hereafter elects in its sole discretion to assess and calculate the
Make-Whole Amount if this Agreement terminates by reason of events other than
full repayment.

                                       5
<PAGE>

     3.4. With the sole exception set forth in this Subsection, Borrower
acknowledges and agrees that the provisions of Sections 8 and 12.1 of the Note
Agreement with respect to payment of Make-Whole Amounts to the Noteholder shall
remain in full force and effect. The sole exception relates to principal
reduction payments made pursuant to this Agreement which shall be treated as
follows:

          (a)  Principal reduction payments received pursuant to Section 3.2
above will be first applied to Required Prepayments due on September 15, 2000
and, when and as due, September 15, 2001 pursuant to Section 8.1 of the Note
Agreement without assessment of a Make-Whole Amount;

          (b)  Principal reduction payments made by Borrower at such times and
in such amounts as are in excess of (or made earlier than the due date of) the
Required Prepayments mandated by Section 8.1 of the Note Agreement shall be
conclusively deemed to be Optional Prepayments made pursuant to Section 8.2 of
the Note Agreement except that (i) Noteholder waives the requirement for prior
written notice of such payments set forth in Section 8.2 of the Note Agreement
and (ii) the Make-Whole Amount payable with respect to all but the January 31,
2002 principal reduction payments shall be subtracted from the principal
reduction payments specified in Section 3.2 above at the time such payments are
received resulting in a lesser amount being applied to reduction of principal
instead of requiring Borrower to make the full principal reduction payments plus
the Make-Whole Amount;

          (c)  Borrower's partial or full repayment of principal owed under the
Note Agreement from the proceeds of refinancing or other sources shall include,
in addition to the principal amount thereof, the Make-Whole Amount attributable
to such repayment pursuant to the terms and conditions of the Note Agreement in
the same manner as if initiated by the Borrower as an Optional Prepayment under
the Note Agreement without regard to the provisions of this Agreement.

     3.5. All payments made by Borrower or obtained from Guarantors pursuant to
the Note Agreement or this Agreement shall be final and irrevocable when made;
provided, however, that in the event Noteholder is required to transfer payments
to the Lenders pursuant to a First Amendment to Intercreditor Agreement dated as
of January 15, 2001 or receives transferred payments from the Lenders thereunder
then, in such event, (i) any payments made by Noteholder to Lenders will
automatically and without further action result in an increase in Borrower's
indebtedness to Noteholder in the amount of such payment(s) with a corresponding
decrease in Borrower's indebtedness to Lenders or (ii) any payment received by
Noteholder from Lenders will result in a decrease in Borrower's indebtedness to
Noteholder in the amount of such payment(s) with a corresponding increase in
Borrower's indebtedness to Lenders. In the event a Make-Whole Amount becomes due
and payable to Noteholder as a result of such transferred payment in accordance
with the provisions of the Note Agreement and this Agreement, the Make-Whole
Amount will be invoiced by Noteholder to Borrower and will be paid by Borrower
within 10 days of invoice.

                                       6
<PAGE>

                                   SECTION 4
                                   ---------

                        REPRESENTATIONS AND WARRANTIES
                        ------------------------------

     The Borrower and each Guarantor (as applicable) hereby represent and
warrant as follows:

     4.1. Borrower's execution and delivery of this Agreement and the
performance of its obligations hereunder and thereunder (i) are and will be
within its corporate powers; (ii) are duly authorized by Borrower's board of
directors; (iii) are not and will not be in contravention of any law, statute,
rule or regulation, the terms of Borrower's Certificate of Incorporation or its
Bylaws; (iv) do not require any consent or approval (including governmental)
which has not been given; and (v) will not result in the imposition of liens,
charges or encumbrances on any of Borrower's properties or assets, except those
in favor of the Lenders and Noteholder pursuant to the Security Agreements.

     4.2. This Agreement and the Guaranty Agreement when duly executed and
delivered, will constitute the legal, valid and binding obligations of Borrower
and each Guarantor, enforceable in accordance with their respective terms.

     4.3. The Notes currently have an outstanding principal balance of
$28,822,430.00.

     4.4. Borrower and Guarantors hereby acknowledge and agree that: (i) the
Noteholder has fulfilled its obligations, if any, to Borrower and Guarantors
arising under all prior or currently outstanding agreements of any kind through
the date hereof; (ii) neither Borrower nor any Guarantor has any claims or
defenses with respect to their respective obligations under the Note Agreement,
the Security Agreements or the Guaranty Agreement.; (iii) Borrower and
Guarantors hereby expressly waive any and all defenses, counterclaims, setoffs
or other rights they might hold, individually or collectively, which could
result in a reduction of the indebtedness owing by Borrower or Guarantors to
Noteholder (except for the payment thereof); and (iv) Borrower and each
Guarantor acknowledge and agree that the Noteholder has no obligation to advance
any additional funds to Borrower.

                                   SECTION 5
                                   ---------

                             COVENANTS OF BORROWER
                             ---------------------

     In addition to any and all covenants set forth in the Note Agreement,
Security Agreements and Guaranty Agreement, Borrower and each Guarantor, as
applicable, hereby covenant and agree to the following:

                                       7
<PAGE>

     5.1. Borrower shall make payments to Noteholder as set forth herein.

     5.2. Borrower shall provide Noteholder, upon request, information
concerning Borrower's efforts to refinance any of Borrower's obligations to the
Lenders and Noteholder.

     5.3. Borrower will continue to provide Noteholder within 30 days of the end
of each month a consolidated and consolidating Financial Statement.

     5.4. Contemporaneously with the closing of this Agreement, the Borrower
shall provide Noteholder with evidence of its agreement with Lenders wherein
Lenders have agreed (i) to forbear from exercising their remedies until a date
on or after the end of the forbearance period set forth herein and (ii) to a
schedule of principal reductions at a rate acceptable to Noteholder.

                                   SECTION 6
                                   ---------

                      CONDITIONS PRECEDENT TO FORBEARANCE
                      -----------------------------------

     6.1. Noteholders shall have no obligations under this Agreement to provide
forbearance and Borrower shall not be entitled thereto until interest calculated
at the rate set forth in Section 3.1 of this Agreement has been paid to
Noteholder for the period through and including January 31, 2001, until the
initial forbearance fee due pursuant to Section 2.4 of this Agreement has been
paid to Noteholder, until the Guaranty Agreement and this Agreement have been
executed, as applicable, by Borrower and each Guarantor and until the Third Loan
Modification and the additional documents referenced therein have been executed,
as applicable, by Borrower and each Guarantor.

     6.2. Concurrent with execution hereof, all parties to the January 15, 2001
First Amendment to Intercreditor Agreement shall have executed said First
Amendment.

                                   SECTION 7
                                   ---------

                               EVENTS OF DEFAULT
                               -----------------

     The occurrence of any of the following shall constitute an Event of Default
under this Agreement and under the Note Agreement:

     7.1. Borrower fails to make any payment as and when due pursuant to the
terms of this Agreement or the Third Loan Modification.

                                       8
<PAGE>

     7.2. Borrower or any Guarantor fails to perform any obligation imposed upon
it, them, or any one of them under this Agreement, the Guaranty Agreement or the
Security Agreements.

     7.3. The occurrence of any Event of Default under the Note Agreement other
than Events of Default thereunder which exist and are continuing as of the date
of this Agreement

     7.4. Any act, event or occurrence which entitles or causes the Lenders to
terminate the forbearance provided by them pursuant to the Third Loan
Modification.

                                   SECTION 8
                                   ---------

                                   REMEDIES
                                   --------

     8.1. Notwithstanding anything to the contrary contained in this Agreement,
upon the occurrence of an Event of Default in described in Section 7 hereof: (i)
all Noteholder obligations and all of Borrower's rights under this Agreement
shall terminate forthwith without notice or opportunity for cure and (ii)
Noteholder shall have the unconditional right to exercise any and all rights and
remedies provided to it under the Note Agreement, this Agreement, the Security
Agreements, the Guaranty Agreement or under applicable law without notice and
without any contractual or equitable opportunity for cure on the part of
Borrower.

                                   SECTION 9
                                   ---------

                                 MISCELLANEOUS
                                 -------------

     9.1. All WHEREAS clauses are incorporated herein by reference and are
binding upon Borrower and each Guarantor.

     9.2. Except as expressly modified by the terms hereof, the provisions of
the Note Agreement, the Security Agreement, the Guaranty Agreement and all other
documents evidencing obligations owed to Noteholder will remain in full force
and effect, as herein ratified and affirmed.

     9.3. Borrower and each Guarantor waive any and all rights of set-off,
including any statutory right of set-off which may be applicable, that they may
have against Noteholder, whether any such liabilities owed to Borrower or any
Guarantor by Noteholder are direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising.

     9.4. Borrower and each Guarantor acknowledge and agree that Noteholder's
right of assignment under the Note Agreement, the Security Agreements and the

                                       9
<PAGE>

Guaranty Agreement shall also extend to this Agreement and that upon written
notice by Noteholder, Borrower and/or each Guarantor will render performance of
their obligations to any assignee(s).

     9.5.  Borrower and each Guarantor acknowledge and agree that all of
Noteholder's expenses incurred in connection with the preparation and
negotiation of this Agreement, and in enforcement of Noteholder's rights under
this Agreement, the Note Agreement, the Security Agreements and the Guaranty
Agreement, including Noteholder's reasonable attorneys' fees and expenses,
constitute additional obligations owing under the Note Agreement and this
Agreement and are secured in the same manner as the other obligations of
Borrower and Guarantors to Noteholder.

     9.6.  The relationship between Noteholder and Borrower is that of a
lender and borrower. Borrower, Guarantors and Noteholder agree and acknowledge
that Borrower and Noteholder are not partners or joint venturers, and there is
no relationship or circumstances existing that would impose a fiduciary duty
upon the Noteholder with respect to Borrower or Guarantors.

     9.7.  No third party beneficiary relationship is intended by the parties
hereto nor shall any such relationship be created by the execution, delivery or
performance of this Agreement.

     9.8.  In the event any one or more of the provisions in this Agreement
or in any other instrument or document referred to herein or executed in
connection with or as security for obligations owed under the Note Agreement or
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable, such provision(s) shall not affect any other instrument or
document referred to herein or executed in connection therewith. In lieu of such
invalid, illegal or unenforceable provision, there shall automatically be added
a provision as similar in terms and effect to such invalid, illegal, or
unenforceable provision as is possible which shall be valid, legal and
enforceable.

     9.9.  Borrower and Guarantors have had the opportunity to fully review
the form and content of this Agreement with counsel of their choice; understand
the nature of and quality of the releases, covenants and agreements made by
Borrower and Guarantors herein; acknowledge that Noteholder is forbearing from
exercising its lawful rights in consideration of the Borrower's and Guarantors'
releases, covenants and agreements herein, and enter into this Agreement freely
and without duress, in their respective best interests.

     9.10. This Agreement may be amended or extended only by a written
instrument executed by all the parties hereto. No waiver of any term or
provision hereof shall be effective unless reduced to writing and signed by the
party to be charged with such waiver. Noteholder has no obligation to further
extend the forbearance of its exercise of rights and remedies beyond what is
expressly set forth herein. Any decision by Noteholder to grant one or more such
extensions or similar concessions: (i) shall be made by Noteholder only in
writing and in its sole discretion and (ii) shall not create an

                                       10
<PAGE>

express or implied obligation on the part of Noteholder to grant further
extensions or concessions.

     9.11.  Borrower, Guarantors and Noteholder have jointly negotiated and
prepared this Agreement. Accordingly, any rule of construction pursuant to which
an ambiguity herein would be construed against the drafter of this Agreement
shall not apply to this Agreement.

     9.12.  This Agreement shall be construed in accordance with and governed by
the law of the State of Illinois, and shall be binding on and inure to the
benefit of Borrower, Guarantors and Noteholder, their respective successors and
assigns. All obligations of Borrower and Guarantors and all rights of Noteholder
under this Agreement shall be in addition to and not in limitation of those
provided by other agreements or applicable law. Borrower and Guarantors
irrevocably agree that, subject to Noteholder's sole election, all suits or
proceedings arising from or related to this Agreement, the Security Agreements,
or the Guaranty Agreement may be litigated only in courts (whether State or
Federal) sitting in Oklahoma City, Oklahoma, Chicago, Illinois or Des Moines,
Iowa and Borrower and Guarantors hereby irrevocably waive any objection to such
jurisdiction or venue. BORROWER AND GUARANTORS HEREBY WAIVE THEIR RIGHT TO TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE
NOTE AGREEMENT AND THE GUARANTY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO.

     9.13. THIS AGREEMENT AND ALL INSTRUMENTS, AGREEMENTS AND DOCUMENTS
ATTACHED HERETO, REFERRED TO HEREIN OR EXECUTED IN CONNECTION HEREWITH,
INTEGRATE ALL THE TERMS AND CONDITIONS BETWEEN THE PARTIES AND CONSTITUTE THE
ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER THEREOF,
AND SUPERSEDE ALL PRIOR DISCUSSIONS, NEGOTIATIONS AND COMMUNICATIONS WHETHER
ORAL OR WRITTEN. NONE OF THE PARTIES HERETO SHALL BE BOUND BY ANY PROMISES,
REPRESENTATIONS, WARRANTIES OR AFFIRMATIONS NOT CONTAINED IN THIS AGREEMENT, IN
AN AGREEMENT, INSTRUMENT, OR DOCUMENT ATTACHED HERETO OR REFERRED TO HEREIN OR
EXECUTED IN CONNECTION HEREWITH.

     9.14. The Borrower and the Guarantors (by their acceptance hereof)
hereby voluntarily, knowingly, irrevocably and unconditionally waive any right
to have a jury participate in resolving any dispute (whether based upon
contract, tort or otherwise) between or among the Borrower or any Guarantor and
Noteholder arising out of or in any way related to this Agreement, any other
related document, or any relationship between Noteholder and the Borrower. This
provision is a material inducement to the Noteholder to forbear as described
herein.

     9.15. This Agreement may be executed in a number of identical separate
counterparts, each of which for all purposes is to be deemed an original, but
all of which

                                       11
<PAGE>

shall constitute, collectively, one agreement. No party to this Agreement shall
be bound hereby until a counterpart of this Agreement and the Third Loan
Modification has been executed by all parties hereto.

     9.16. THE BORROWER (IN ITS OWN RIGHT AND ON BEHALF OF ITS RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, INDEPENDENT CONTRACTORS, ATTORNEYS AND AGENTS)
AND GUARANTORS (IN THEIR OWN RIGHT AND ON BEHALF OF THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES, INDEPENDENT CONTRACTORS, ATTORNEYS AND AGENTS) (THE
"RELEASING PARTIES") JOINTLY AND SEVERALLY RELEASE, ACQUIT, AND FOREVER
DISCHARGE NOTEHOLDER AND ITS DIRECTORS, OFFICERS, EMPLOYEES, INDEPENDENT
CONTRACTORS, AGENTS AND ATTORNEYS (THE "RELEASED PARTIES"), TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE STATE AND FEDERAL LAW, FROM ANY AND ALL ACTS AND
OMISSIONS OF THE RELEASED PARTIES, AND FROM ANY AND ALL CLAIMS, CAUSES OF
ACTION, COUNTERCLAIMS, DEMANDS, CONTROVERSIES, COSTS, DEBTS, SUMS OF MONEY,
ACCOUNTS, RECKONINGS, BONDS, BILLS, DAMAGES, OBLIGATIONS, LIABILITIES,
OBJECTIONS, AND EXECUTIONS OF ANY NATURE, TYPE, OR DESCRIPTION WHICH THE
RELEASING PARTIES HAVE AGAINST THE RELEASED PARTIES INCLUDING, BUT NOT LIMITED
TO, NEGLIGENCE, GROSS NEGLIGENCE, USURY, FRAUD, DECEIT, MISREPRESENTATION,
CONSPIRACY, UNCONSCIONABILITY, DURESS, ECONOMIC DURESS, DEFAMATION, CONTROL,
INTERFERENCE WITH CONTRACTUAL AND BUSINESS RELATIONSHIPS, CONFLICTS OF INTEREST,
MISUSE OF INSIDER INFORMATION, CONCEALMENT, DISCLOSURE, SECRECY, MISUSE OF
COLLATERAL, WRONGFUL RELEASE OF COLLATERAL, FAILURE TO INSPECT, ENVIRONMENTAL
DUE DILIGENCE, NEGLIGENT LOAN PROCESSING AND ADMINISTRATION, WRONGFUL SETOFF,
VIOLATIONS OF STATUTES AND REGULATIONS OF GOVERNMENTAL ENTITIES,
INSTRUMENTALITIES AND AGENCIES (BOTH CIVIL AND CRIMINAL), RICO ACTIVITIES,
SECURITIES AND ANTITRUST LAW VIOLATIONS, TYING ARRANGEMENTS, DECEPTIVE TRADE
PRACTICES, BREACH OR ABUSE OF ANY ALLEGED FIDUCIARY DUTY, BREACH OF ANY ALLEGED
SPECIAL RELATIONSHIP, COURSE OF CONDUCT OR DEALING, ALLEGED OBLIGATION OF FAIR
DEALING, ALLEGED OBLIGATION OF GOOD FAITH, AND ALLEGED OBLIGATION OF GOOD FAITH
AND FAIR DEALING, WHETHER OR NOT IN CONNECTION WITH OR RELATED TO THE NOTE
AGREEMENT, SECURITY AGREEMENTS, GUARANTY AGREEMENT OR THIS AGREEMENT, AT LAW OR
IN EQUITY, IN CONTRACT IN TORT, OR OTHERWISE, KNOWN OR UNKNOWN, SUSPECTED OR
UNSUSPECTED UP TO AND INCLUDING THE EXECUTION DATE OF THIS AGREEMENT (THE
"RELEASED CLAIMS"). THE RELEASING PARTIES FURTHER AGREE TO LIMIT ANY DAMAGES
THEY MAY SEEK IN CONNECTION WITH ANY FUTURE OR UNRELEASED CLAIM OR CAUSE OF
ACTION, IF ANY, TO EXCLUDE ALL PUNITIVE AND EXEMPLARY DAMAGES, DAMAGES
ATTRIBUTABLE TO LOST PROFITS OR OPPORTUNITY, DAMAGES ATTRIBUTABLE TO MENTAL
ANGUISH, AND DAMAGES ATTRIBUTABLE TO PAIN AND SUFFERING. THE RELEASING PARTIES
FURTHER COVENANT NOT TO SUE

                                       12
<PAGE>

THE RELEASED PARTIES ON ACCOUNT OF ANY OF THE RELEASED CLAIMS, AND EXPRESSLY
WAIVE ANY AND ALL DEFENSES THEY MAY HAVE IN CONNECTION WITH THEIR DEBTS AND
OBLIGATIONS UNDER THE NOTE AGREEMENT, SECURITY AGREEMENTS, GUARANTY AGREEMENT
AND THIS AGREEMENT WITH THE EXCEPTION OF PAYMENT. THIS PARAGRAPH IS IN ADDITION
TO AND SHALL NOT IN ANY WAY LIMIT ANY OTHER RELEASE, COVENANT NOT TO SUE, OR
WAIVER BY THE RELEASING PARTIES IN FAVOR OF THE RELEASED PARTIES.

     IN WITNESS WHEREOF, this Agreement has been executed and delivered to be
effective as of the date first above written.

                                 CMI CORPORATION

                                 BY: ___________________________________
                                       Jim D. Holland
                                       Title:  Senior Vice President and
                                               Chief Financial Officer

                                       Notice Address:
                                       P.O. Box 1985
                                       Oklahoma City, Oklahoma 73101-1985
                                       Fax:  405-787-6020

                                 CMI SALES CO., L.L.C. an Oklahoma
                                 limited liability company

                                 By:   CMI Corporation
                                       an Oklahoma corporation
                                 Its:  Manager

                                 BY: ___________________________________
                                       Jim D. Holland
                                       Title:  Senior Vice President and
                                              Chief Financial Officer

                                       Notice Address:
                                       P.O. Box 1985
                                       Oklahoma City, Oklahoma 73101-1985
                                       Fax:  405-787-6020

                                       13
<PAGE>

                               CMI Limited Partnership, an Oklahoma
                               limited partnership

                               By:  CMI Corporation
                                    an Oklahoma corporation
                               Its: General Partner

                               BY:  _____________________________
                                    Jim D. Holland
                                    Title:  Senior Vice President

                                    Notice Address:
                                    P.O. Box 1985
                                    Oklahoma City, Oklahoma 73101-1985
                                    Fax:  405-787-6020

                               MACHINERY INVESTMENT CORPORATION

                               BY:  _____________________________
                                    Jim D. Holland
                                    Title:  Vice President

                                    Notice Address:
                                    P.O. Box 1985
                                    Oklahoma City, Oklahoma 73101-1985
                                    Fax:  405-787-6020

                               CMI CEDAR FALLS, INC.

                               BY:  _____________________________
                                    Jim D. Holland
                                    Title:  Vice President

                                    Notice Address:
                                    P.O. Box 1985
                                    Oklahoma City, Oklahoma 73101-1985
                                    Fax:  405-787-6020

                                       14
<PAGE>

                               CMI JOHNSON CORPORATION

                               BY:  _____________________________
                                    Jim D. Holland
                                    Title:  Vice President

                                    Notice Address:
                                    P.O. Box 1985
                                    Oklahoma City, Oklahoma 73101-1985
                                    Fax:  405-787-6020

                               BROWNWOOD ROSS COMPANY

                               BY:  _____________________________
                                    Jim D. Holland
                                    Title:  Vice President

                                    Notice Address:
                                    P.O. Box 1985
                                    Oklahoma City, Oklahoma 73101-1985
                                    Fax:  405-787-6020

                               RM BARTON CO., INC.

                               BY:  _____________________________
                                    Jim D. Holland
                                    Title:  Vice President

                                    Notice Address:
                                    P.O. Box 1985
                                    Oklahoma City, Oklahoma 73101-1985
                                    Fax:  405-787-6020

                                       15
<PAGE>

                              PRINCIPAL LIFE INSURANCE COMPANY

                              By: Principal Capital Management, LLC,
                                  a Delaware limited liability company,
                                  its authorized signatory

                              By:  _______________________________

                              By:  _______________________________

                                      Notice Address:
                                      801 Grand Avenue
                                      Des Moines, Iowa  50392-0800

                                       16<PAGE>

                                                                   Exhibit 10.32

                               RETENTION AGREEMENT

     THIS RETENTION AGREEMENT (this "Agreement") is made and entered into as of
________________, by and between HORIZON PHARMACIES, INC., a Delaware
corporation (the "Company"), and ______________________ ("Employee").

                                   WITNESSETH:
                                   ----------

     WHEREAS, Employee is an employee of the Company or one of its subsidiaries;
and

     WHEREAS, the Company wishes to continue to retain Employee in its employ,
to receive Employee's assistance in the consummation of any "Change of Control
Transaction" (as defined hereinafter) and to provide continuity of management of
the Company before and after the Change of Control Transaction.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and certain other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

     1. Term of Agreement.
        -----------------

     (a) This Agreement shall become effective immediately prior to the
consummation of a "Change of Control Transaction" and shall continue until the
earliest of:

          (i) the date that the Company terminates this Agreement in writing for
     "Cause" (as defined hereinafter);

          (ii) ten (10) days after the date on which the Company terminates this
     Agreement for any reason other than for Cause and pays the "Severance
     Amount" (as defined hereinafter) to Employee, in a single lump sum payment;

          (iii) the date of the death or total disability of Employee; or

          (iv) the date that Employee terminates this Agreement for any reason
     other than a breach of this Agreement by the Company.

     (b) For purposes of this Agreement, "Change of Control Transaction" shall
mean:

          (i) a sale, transfer or other conveyance of all or substantially all
     of the assets of the Company on a consolidated basis;

          (ii) the acquisition of beneficial ownership (as such term is defined
     in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
     amended (the "Exchange Act")) by any "person" (as such term is used in
     Sections 13(d) and 14(d) of the Exchange Act),

                                       1
<PAGE>

     directly or indirectly, of securities representing fifty percent (50%) or
     more of the total number of votes that may be cast for the election of
     directors of the Company;

          (iii) the commencement (within the meaning of Rule 14d-2 promulgated
     under the Exchange Act) of a "tender offer" for stock of the Company
     subject to Section 14(d)(2) of the Exchange Act; or

          (iv) the failure at any annual or special meeting of the Company's
     stockholders following an "election contest" subject to Rule 14a-11
     promulgated under the Exchange Act, of any of the persons nominated by the
     Company in the proxy material mailed to stockholders by the management of
     the Company to win election to seats on the Board, excluding only those who
     die, retire voluntarily, are disabled or are otherwise disqualified in the
     interim between their nomination and the date of the meeting.

     (c) For purposes of this Agreement, the following terms shall have the
meanings ascribed to them below:

"Severance Amount" shall mean the sum of the following:

          (i) Employee's "Annual Compensation" for a period of two and 99/100
     (2.99) years; and

          (ii) any applicable "Gross Up Payment."

"Annual Compensation" shall mean the sum of the following:

          (i) Employee's annualized base salary as of the date of termination of
     employment; and

          (ii) an amount equal to the greater of Employee's bonus during either
     of the two (2) years preceding the year in which the Change in Control
     occurs or the Employee's anticipated bonus for the year in which the
     termination of employment of Employee occurs.

     (d) For purposes of this Agreement, the term "Cause" shall mean (i)
Employee's commission of any action constituting a criminal felony (other than
automobile related violations) or other serious crime; (ii) Employee's willful
and continued refusal to follow reasonable instructions of the Board of
Directors of the Company which are material to the Company's operations or
prospects and only after the Board of Directors of the Company provides written
notice to the Employee which identifies with reasonable specificity the manner
in which the Employee refused to follow such instructions and Employee has been
provided a reasonable opportunity to cure such deficiency; or (iii) Employee
devoting less than substantially all of his full time during normal business
hours to the Company and which is not promptly cured after written notice from
the Board of Directors of the Company to the Employee.

                                       2
<PAGE>

     (e) Upon a termination of the Employee's employment without Cause after the
occurrence of a Change of Control Transaction, the Company shall maintain in
full force and effect and for the Employee's benefit, for a period terminating
on the earlier of (i) two (2) years after the date of termination of such
employment, or (ii) the Employee's obtaining full-time employment with a new
employer, all life, health and disability benefits and programs in which
Employee was a participant immediately prior to such termination of employment.

     (f) In the event that the Employee becomes entitled to the payments
provided by the foregoing provisions of this Section 1 (the "Agreement
Payments"), if any of the Agreement Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code (or any
similar tax that may hereafter be imposed), the Company shall pay to the
Employee, as a part of the Severance Amount, an amount (the "Gross-up Payment")
to reimburse the Employee for such Excise Tax, plus any federal, state or local
income tax or Excise Tax upon the Gross-up Payment provided for by this
subsection (f). If the amount of the Gross-up Payment cannot be finally
determined on or before the day on which the Severance Amount is to be paid
pursuant to subsection (a), the Company shall pay to the Employee on such day an
estimate, as determined in good faith by the Company (after consultation with
its tax advisors), of the minimum amount of such payments and shall pay the
remainder of such payments as soon as the amount thereof can be determined, but
in no event later than the thirtieth (30th) day after payment of the Severance
Amount pursuant to subsection (a).

     (g) Notwithstanding anything contained in this Agreement to the contrary,
in the event that at the time of a Change of Control Transaction the Employee
and the Company shall have entered into an employment agreement which is then in
effect and such employment agreement contemplates that the Employee shall be
entitled to receive certain severance or other payments in connection with a
Change of Control Transaction, then the Severance Amount payable hereunder shall
be reduced by the aggregate amount of any severance or other payments paid to
Employee pursuant to such employment agreement.

     2. Compensation, Benefits and Responsibilities.
        -------------------------------------------

     (a) The Change of Control Transaction shall not result in (i) any material
diminution of the scope of Employee's duties and responsibilities for the
Company, or (ii) a reduction in Employee's base salary and employee benefits (it
being understood that the changes, if any, employee benefits shall be viewed in
their entirety and not on a plan by plan basis). In the event that the Company
should breach this provision, Employee may terminate his employment and such
termination shall be deemed to be a termination by the Company without "Cause,"
thereby entitling Employee to receive the Severance Amount.

     (b) It is contemplated that Employee shall remain located in the
metropolitan area in which Employee resides on the date hereof and shall perform
duties for the Company consistent with his current position with the Company;
provided, however, Employee may from time to time be required to do such
traveling as the Board of Directors of the Company may reasonably request. If
the Company should require Employee to relocate more than thirty (30) miles,
Employee may

                                       3
<PAGE>

terminate his employment and such termination shall be deemed to be a
termination by Company without "Cause," thereby entitling Employee to receive
the Severance Amount.

     3. Assignment; Successors in Interest. The terms and conditions of this
        ----------------------------------
Agreement shall inure to the benefit of and be binding upon the successors and
assigns (whether direct or indirect, by purchase, merger or reorganization) to
all or substantially all of the business or assets of the Company and the heirs,
executors and personal representatives of Employee. The parties hereto recognize
that this Agreement shall continue if more than one Change of Control
Transaction occurs and as such Change of Control Transactions may occur from
time to time so long as the Employee is employed by the Company as of the date
of each such Change of Control Transaction.

     4. No Obligation to Continue Employment. This Agreement is not an
        ------------------------------------
employment contract and does not create any obligation on the part of the
Company or any of its subsidiaries to continue to employ the Employee prior to a
Change of Control Transaction.

     5. Waiver. Failure to insist upon strict compliance with any of the terms,
        ------
covenants or conditions of this Agreement shall not be deemed a waiver of such
term, covenant or condition, nor shall any waiver or relinquishment of any right
or power hereunder at any one or more times be deemed a waiver or relinquishment
of such right or power at any other time or times.

     6. Attorneys' Fees. If Employee prevails with respect to the resolution of
        ---------------
any dispute hereunder, he shall be entitled to reasonable attorneys' fees,
arbitration costs and any court costs associated with any legal action brought
by him to enforce his rights under this Agreement.

     7. Severability. If any provision of this Agreement is held to be illegal,
        ------------
invalid or unenforceable under present or future law, such provision shall be
fully severable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision were never a part hereof, and the
remaining provisions shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance.

     8. Notice. Any notice, consent, demand, request, approval or other
        ------
communication to be given hereunder by any party to another shall be deemed to
have been duly given if given in writing and personally delivered or sent by
overnight delivery service, telegram, facsimile transmission, telex or United
States mail, registered or certified, postage prepaid, with return receipt
requested, to the following addresses:

         If to the Company:              Horizon Pharmacies, Inc.
                                         531 West Main Street
                                         Suite 100
                                         Denison, Texas  75020
                                         Attn: President

         If to Employee:                 Such address as indicate on the payroll
                                         records of the Company

                                       4
<PAGE>

Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the third calendar day after posting, in the case of
notice so given by overnight delivery service, on the date of actual delivery
and, in the case of notice so given by telegram, facsimile transmission, telex
or personal delivery, on the date of actual transmission or, as the case may be,
personal delivery.

     9. Entire Agreement. This Agreement contains the entire agreement between
        ----------------
the parties with respect to its subject matter and supersedes any and all prior
understandings, agreements or correspondence between the parties.

     10. Termination of Agreement. In the event that a Change of Control
         ------------------------
Transaction has not occurred prior to the third (3rd) anniversary of this
Agreement, then either the Company or the Employee may terminate this Agreement
without liability, whereupon it shall become void and of no further force or
effect.

     11. Amendment of Agreement. This Agreement may not be amended or extended
         ----------------------
in any respect except by a writing signed not only by all parties hereto.

     12. Arbitration. All disputes, differences and controversies arising under
         -----------
or in connection with this Agreement shall be settled and finally determined by
arbitration in the city of Dallas, Texas under the prevailing rules of the
American Arbitration Association. Any party hereto shall be entitled to cause
judgment on the decision or award of the arbitrator(s) to be entered by any
court of competent jurisdiction.

     13. Governing Law. The substantive laws of the State of Texas shall govern
         -------------
this Agreement, its terms and conditions, and the rights and obligations of the
parties hereto.

     THIS AGREEMENT CONTAINS ARBITRATION PROVISIONS WHICH MAY BE ENFORCED BY THE
PARTIES HERETO.

                                       5
<PAGE>

     IN WITNESS WHEREOF, this Agreement has been executed by the undersigned as
of the date first above written.

COMPANY:                      HORIZON PHARMACIES, INC.

                              By:
                                 -----------------------------------------------
                                   Printed Name:  Ricky D. McCord
                                   Title:  President and Chief Executive Officer

EMPLOYEE:

                              --------------------------------------------------
                              Printed Name:
                                            ----------------------------

                                       6
<PAGE>

                                                                       Exhibit A
                                                                       ---------

                                     FORM OF
                             STATEMENT OF RESOLUTION
               ESTABLISHING A SERIES OF SHARES OF PREFERRED STOCK
                                       OF
                            HORIZON PHARMACIES, INC.

To the Secretary of State of the State of Delaware:

         Pursuant to the provisions of Section 151(g) of the General Corporation
Law of the State of Delaware, Horizon Pharmacies, Inc., a Delaware corporation
(the "Corporation"), hereby submits this Certificate of Designation setting
forth the following statement for the purpose of establishing and designating a
series of preferred stock and fixing and determining the relative rights and
preferences thereof:

         The following resolution, establishing and designating a series of
shares of preferred stock and fixing and determining the relative rights and
preferences thereof, was duly adopted by the Board of Directors of the
Corporation on February 6, 2001:

         RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, as amended (the "Certificate"), the Board of Directors hereby
creates a series of the Corporation's preferred stock, $.01 par value per share
(the "Preferred Stock"), and hereby states the designation and number of shares,
and fixes the relative rights, preferences, and limitations thereof as follows:

         Series A Junior Participating Preferred Stock:

         Section 1. Designation and Amount. The shares of such series shall be
                    ----------------------
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 150,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that, (i) no such increase shall
increase the number of shares of Series A Preferred Stock to a number which
would cause the aggregate number of shares of Preferred Stock then outstanding,
plus the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Preferred Stock, to exceed
the total number of authorized shares of Preferred Stock; and (ii) no such
decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock. In the event of such
increase or decrease in the number of shares of Series A

                                      A-
<PAGE>

Preferred Stock, the Corporation shall execute, acknowledge and file with the
Secretary of State of Delaware a certificate setting forth a statement that the
specified increase or decrease therein has been authorized and directed by a
resolution or resolutions adopted by the Board of Directors. In case the number
of shares of Series A Preferred Stock shall be decreased, the number of shares
so specified in such certificate shall resume the status which they had prior to
the adoption of this Certificate of Designation

         Section 2.   Dividends and Distributions.
                      ---------------------------

                  (A) Subject to the rights of the holders of any shares of any
         series of Preferred Stock (or any similar stock) ranking prior and
         superior to the Series A Preferred Stock with respect to dividends, the
         holders of shares of Series A Preferred Stock, in preference to the
         holders of common stock, par value $.01 per share (the "Common Stock"),
         of the Corporation, and of any other junior stock, shall be entitled to
         receive, when, as and if declared by the Board of Directors out of
         funds legally available for the purpose, quarterly dividends payable in
         cash on the last business day of November, February, May and August in
         each year (each such date being referred to herein as a "Quarterly
         Dividend Payment Date"), commencing on the first Quarterly Dividend
         Payment Date after the first issuance of a share or fraction of a share
         of Series A Preferred Stock, in an amount per share (rounded to the
         nearest cent) equal to the greater of (i) $.25 or (ii) subject to the
         provision for adjustment hereinafter set forth, one hundred (100) times
         the aggregate per share amount of all cash dividends, and one hundred
         (100) times the aggregate per share amount (payable in kind) of all
         non-cash dividends or other distributions, other than a dividend
         payable in shares of Common Stock or a subdivision of the outstanding
         shares of Common Stock (by reclassification or otherwise), declared on
         the Common Stock since the immediately preceding Quarterly Dividend
         Payment Date, or, with respect to the first Quarterly Dividend Payment
         Date, since the first issuance of any share or fraction of a share of
         Series A Preferred Stock. In the event the Corporation shall at any
         time declare or pay any dividend on the Common Stock payable in shares
         of Common Stock, or effect a subdivision or combination or
         consolidation of the outstanding shares of Common Stock (by
         reclassification or otherwise than by payment of a dividend in shares
         of Common Stock) into a greater or lesser number of shares of Common
         Stock, then in each such case the amount to which holders of shares of
         Series A Preferred Stock were entitled immediately prior to such event
         under clause (ii) of the preceding sentence shall be adjusted by
         multiplying such amount by a fraction, the numerator of which is the
         number of shares of Common Stock outstanding immediately after such
         event and the denominator of which is the number of shares of Common
         stock that were outstanding immediately prior to such event.

                  (B) The Corporation shall declare a dividend or distribution
         on the Series A Preferred Stock as provided in paragraph (A) of this
         Section 2 immediately after it declares a dividend or distribution on
         the Common Stock (other than a dividend payable in shares of Common
         Stock); provided, that, in the event no dividend or distribution shall
                 --------  ----
         have been declared on the Common Stock during the period between any
         Quarterly Dividend Payment Date and the next subsequent Quarterly
         Dividend Payment Date, a

                                      A-
<PAGE>

         dividend of $.25 per share on the Series A Preferred Stock shall
         nevertheless be payable on such subsequent Quarterly Dividend Payment
         Date.

                  (C) Dividends shall begin to accrue and be cumulative on
         outstanding shares of Series A Preferred Stock from the Quarterly
         Dividend Payment Date next preceding the date of issue of such shares,
         unless the date of issue of such shares is prior to the record date for
         the first Quarterly Dividend Payment Date, in which case dividends on
         such shares shall begin to accrue from the date of issue of such
         shares, or unless the date of issue is a Quarterly Dividend Payment
         Date or is a date after the record date for determination of holders of
         shares of Series A Preferred Stock entitled to receive a quarterly
         dividend and before such Quarterly Dividend Payment Date, in either of
         which events such dividends shall begin to accrue and be cumulative
         from such Quarterly Dividend Payment Date.

         Accrued but unpaid dividends shall not bear interest. Dividends paid on
         the shares of Series A Preferred Stock in an amount less than the total
         amount of such dividends at the time accrued and payable on such shares
         shall be allocated pro rata on a share-by-share basis among all such
         shares at the time outstanding. The Board of Directors may fix a record
         date for the determination of holders of shares of Series A Preferred
         Stock entitled to receive payment of a dividend or distribution
         declared thereon, which record date shall be not more than sixty (60)
         days prior to the date fixed for the payment thereof.

         Section 3. Voting Rights. The holders of shares of Series A Preferred
                    -------------
Stock shall have the following voting rights:

                  (A) Subject to the provision for adjustment hereinafter set
         forth, each share of Series A Preferred Stock shall entitle the holder
         thereof to one hundred (100) votes on all matters submitted to a vote
         of the stockholders of the Corporation. In the event the Corporation
         shall at any time declare or pay any dividend on the Common Stock
         payable in shares of Common Stock, or effect a subdivision or
         combination or consolidation of the outstanding shares of Common Stock
         (by reclassification or otherwise than by payment of a dividend in
         shares of Common Stock) into a greater or lesser number of shares of
         Common Stock, then in each such case the number of votes per share to
         which holders of shares of Series A Preferred Stock were entitled
         immediately prior to such event shall be adjusted by multiplying such
         number by a fraction, the numerator of which is the number of shares of
         Common Stock outstanding immediately after such event and the
         denominator of which is the number of shares of Common Stock that were
         outstanding immediately prior to such event.

                  (B) Except as otherwise provided herein, in any other
         Certificate of Amendment creating a series of Preferred Stock or any
         similar stock, or by law, the holders of shares of Series A Preferred
         Stock and the holders of shares of Common Stock and any other capital
         stock of the Corporation having general voting rights shall vote
         together as one class on all matters submitted to a vote of
         stockholders of the Corporation.

                                      A-
<PAGE>

                  (C) Except as set forth herein, or as otherwise provided by
         law, holders of Series A Preferred Stock shall have no special voting
         rights and their consent shall not be required (except to the extent
         they are entitled to vote with holders of Common Stock as set forth
         herein) for taking any corporate action.

         Section 4.   Certain Restrictions.
                      --------------------

                  (A) Whenever quarterly dividends or other dividends or
         distributions payable on the Series A Preferred Stock as provided in
         Section 2 are in arrears, thereafter and until all accrued and unpaid
         dividends and distributions, whether or not declared, on shares of
         Series A Preferred Stock outstanding shall have been paid in full, the
         Corporation shall not:

                      (i)   declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking junior (either
                  as to dividends or upon liquidation, dissolution or winding
                  up) to the Series A Preferred Stock;

                      (ii)  declare or pay dividends, or make any other
                  distributions, on any shares of stock ranking on a parity
                  (either as to dividends or upon liquidation, dissolution or
                  winding up) with the Series A Preferred Stock, except
                  dividends paid ratably on the Series A Preferred Stock and all
                  such parity stock on which dividends are payable or in arrears
                  in proportion to the total amounts to which the holders of all
                  such shares are then entitled;

                      (iii) redeem or purchase or otherwise acquire for
                  consideration shares of any stock ranking junior (either as to
                  dividends or upon liquidation, dissolution or winding up) to
                  the Series A Preferred Stock, provided that the Corporation
                  may at any time redeem, purchase or otherwise acquire shares
                  of any such junior stock in exchange for shares of any stock
                  of the Corporation ranking junior (either as to dividends or
                  upon dissolution, liquidation or winding up) to the Series A
                  Preferred Stock: or

                      (iv)  redeem or purchase or otherwise acquire for
                  consideration any shares of Series A Preferred Stock, or any
                  shares of stock ranking on a parity with the Series A
                  Preferred Stock, except in accordance with a purchase offer
                  made in writing or by publication (as determined by the Board
                  of Directors) to all holders of such shares upon such terms as
                  the Board of Directors, after consideration of the respective
                  annual dividend rates and other relative rights and
                  preferences of the respective series and classes,

                                      A-
<PAGE>

                  shall determine in good faith will result in fair and
                  equitable treatment among the respective series or classes.

                  (B) The Corporation shall not permit any subsidiary of the
         Corporation to purchase or otherwise acquire for consideration any
         shares of stock of the Corporation unless the Corporation could, under
         paragraph (A)(iii) or (iv) of this Section 4, purchase or otherwise
         acquire such shares at such time and in such manner.

         Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
                    -----------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and shall resume the status they had prior to the adoption of
this Certificate of Designation and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set forth
herein, in the Certificate or in any other Certificate of Amendment creating a
series of Preferred Stock or any similar stock or as otherwise required by law.

         Section 6. Liquidation, Dissolution or Winding Up. Upon any
                    --------------------------------------
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (i) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received one dollar ($1.00) per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of shares of
Series A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
one hundred (100) times the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (ii) to the holders of shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except distributions made ratably
on the Series A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (i) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

         Section 7. Consolidation, Merger, etc. In case the Corporation shall
                    --------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly

                                      A-
<PAGE>

exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to one hundred (100) times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.

         Section 8. No Redemption. The shares of Series A Preferred Stock shall
                    -------------
not be redeemable.

         Section 9. Rank. The Series A Preferred Stock shall rank, with respect
                    ----
to the payment of dividends and the distribution of assets, (i) junior to all
series of any other class of the Corporation's Preferred Stock; and (ii) senior
to all series and classes of the Corporation's Common Stock.

         Section 10. Amendment. The Certificate shall not be amended in any
                     ---------
manner which would materially alter or change the powers, preferences or special
rights of the Series A Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock, voting together as a single class.

         Section 11. Fractional Shares. Series A Preferred Stock may be issued
                     -----------------
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.

Dated as of February 6, 2001.

                               HORIZON PHARMACIES, INC.

                               By:
                                  ---------------------------------------------
                                  Printed Name:  Rick D. McCord
                                  Title:  President and Chief Executive Officer

                                      A-
<PAGE>

                                                                       Exhibit B
                                                                       ---------

                          [Form of Rights Certificate]

Certificate No. R-
                                                                 ________ Rights

         NOT EXERCISABLE AFTER DECEMBER 31, 2010 OR EARLIER IF REDEMPTION OR
         EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT
         AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER
         CERTAIN CIRCUMSTANCES DESCRIBED IN THE RIGHTS AGREEMENT, RIGHTS ISSUED
         TO OR HELD BY ANY PERSON WHO IS,WAS OR BECOMES AN ACQUIRING PERSON OR
         AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE
         RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH
         PERSON, OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND
         VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
         BENEFICIALLY OWNED BY A PERSON WHO IS, WAS OR BECAME AN ACQUIRING
         PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
         TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
         CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID IN THE
         CIRCUMSTANCES SPECIFIED IN SECTION 11(a)(ii) OF THE RIGHTS AGREEMENT.]

------------
The portion of the legend in brackets shall be inserted only if applicable and
shall replace the preceding sentence.

                                      B-
<PAGE>

                               Rights Certificate
                            HORIZON PHARMACIES, INC.

         This certifies that ________________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of February 6, 2001 (the "Rights Agreement") by
and between Horizon Pharmacies, Inc., a Delaware corporation (the "Company"),
and Computershare Investor Services, L.L.C., (the "Rights Agent"), to purchase
from the Company at any time after the Distribution Date (as such term is
defined in the Rights Agreement) and prior to 5:00 P.M., Dallas, Texas time, on
December 31, 2010 at the designated office of the Rights Agent, or at the office
of its successor as Rights Agent, one one-hundredth of a fully paid and
nonassessable share of Series A Junior Participating Preferred Stock, $.01 par
value (the "Preferred Stock"), of the Company at a purchase price of Twenty
Dollars ($20.00) per one one-hundredth a share of Preferred Stock (the "Purchase
Price"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and the Form of Certification of Status duly
executed, along with a signature guarantee and such other and further
documentation as the Rights Agent may reasonably request. The number of Rights
evidenced by this Rights Certificate (and the number of one one-hundredths of a
share of Preferred Stock which may be purchased upon the full exercise hereof)
set forth above, and the Purchase Price set forth above, are the number and the
Purchase Price as of February 23, 2001, based on the Preferred Stock as
constituted on such date. As provided in the Rights Agreement, the Purchase
Price and the number of one one-hundredths of a share of Preferred Stock which
may be purchased upon the full exercise of the Rights evidenced by this Rights
Certificate are subject to change and adjustment upon the happening of certain
events. Capitalized terms not defined herein have the respective meanings
specified in the Rights Agreement.

         Upon the occurrence of a Section 11(a)(ii) Event, if the Rights
evidenced by this Rights Certificate are Beneficially Owned by (i) an Acquiring
Person or any Affiliate or Associate of such Acquiring Person, (ii) a transferee
of an Acquiring Person or any Affiliate or Associate of such Acquiring Person
who becomes a transferee after such Acquiring Person becomes such, or (iii)
under certain circumstances specified in the Rights Agreement, a transferee of
an Acquiring Person or any Affiliate or Associate of such Acquiring Person who
becomes a transferee prior to or concurrently with such Acquiring Person
becoming such, such Rights shall become void, and no holder hereof shall have
any right to exercise such Rights from and after the occurrence of such Section
11(a)(ii) Event.

         This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
incorporated herein by reference and made a part hereof, to which Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the suspension of the exercisability of the Rights
represented hereby under the circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at

                                      B-
<PAGE>

the principal executive office of the Company and at the designated office of
the Rights Agent and are also available upon written request to the Secretary of
the Company.

         This Rights Certificate, with or without other Rights Certificates,
upon surrender at the designated office of the Rights Agent, along with a
signature guarantee and such other and further documentation as the Rights Agent
may reasonably request, may be exchanged for one or more Rights Certificates of
like tenor and date evidencing Rights entitling the holder to purchase the same
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Rights Certificates surrendered. If this Rights Certificate shall be exercised
in part, the holder shall be entitled to receive, upon surrender hereof, one or
more Rights Certificates for the number of whole Rights not exercised.

         Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Rights Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right, or (ii) may be exchanged, in whole or in part, for
shares of Preferred Stock or shares of the Company's Common Stock, $.01 par
value.

         No fractional share of Preferred Stock will be issued upon the exercise
of any Rights represented hereby (other than fractions which are integral
multiples of one one-hundredth of a share of Preferred Stock), but in lieu
thereof a cash payment will be made as provided in the Rights Agreement.

         No holder, as such, of this Rights Certificate shall be entitled to
vote, to receive dividends or other distributions or to exercise any preemptive
rights, or shall be deemed for any other purpose to be the holder of shares of
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise hereof; nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any other matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement) or to receive dividends, subscription rights
or other distributions, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised in accordance with the provisions of the
Rights Agreement.

         This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by an authorized signatory of the
Rights Agent.

                                      B-
<PAGE>

         IN WITNESS WHEREOF, this Rights Certificate has been executed by the
Company by the duly authorized facsimile signature of a proper officer of the
Company and a facsimile of its corporate seal has been imprinted hereon and duly
attested by the duly authorized facsimile signature of a proper officer of the
Company.

Dated as of February 6, 2001
                                       HORIZON PHARMACIES, INC.

                                       By
                                         ---------------------------------------
                                         Name:
                                              ----------------------------------
                                         Title:
                                               ---------------------------------

[CORPORATE SEAL]

ATTEST:

Countersigned:                         ,
              -------------------------
                    as Rights Agent

By
  ---------------------------------
         Authorized Signature

Date of Countersignature:                   ,        .
                         -------------------  -------

                                      B-
<PAGE>

                      [Reverse Side of Rights Certificate]

                          FORM OF ELECTION TO PURCHASE
                          ----------------------------

                    (To be executed by the registered holder
                    if such holder desires to exercise Rights
                     represented by this Rights Certificate)

To Horizon Pharmacies, Inc.

         The undersigned hereby irrevocably elects to exercise ______________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of such Rights (or other securities
of the Company or of any other persons that may be issuable upon exercise of all
Rights) and requests that certificates for such shares of Preferred Stock (or
other such securities) be issued in the name of:

Please insert social security
or other identifying number:
                            -----------------------

--------------------------------------------------------------------------------
(Please print name and address)

--------------------------------------------------------------------------------

If such number of Rights shall not be all the Rights represented by this Rights
Certificate, a new Rights Certificate for the remaining unexercised Rights shall
be registered in the name of and delivered to:

Please insert social security
or other identifying number:
                            ----------------------

--------------------------------------------------------------------------------
(Please print name and address)

--------------------------------------------------------------------------------

Dated:                     ,
       -------------------- --------

                                    --------------------------------------------
                                    Signature

                                      B-
<PAGE>

Signature Guaranteed:

         Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Rights Agent, which requirements include
membership or participation in STAMP or such other "signature guarantee program"
as may be determined by the Rights Agent in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

                             CERTIFICATION OF STATUS

           The undersigned hereby certifies by checking the appropriate boxes
that:

         (1) this Rights Certificate

                       is
             --------

                       is not
             --------

being exercised, assigned or transferred by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement); and

         (2) after due inquiry and to the best knowledge of the undersigned, it

                       did
             --------

                       did not
             --------

acquire the Rights evidenced by this Rights Certificate from any person who is,
was or subsequently became an Acquiring Person or an Affiliate or Associate
thereof.

                                    --------------------------------------------
                                    Signature

Date:                      ,
       --------------------  -------

                                      B-
<PAGE>

                                     NOTICE
                                     ------

         The signature(s) on the foregoing Form of Election to Purchase and
Certification of Status must correspond to the name written upon the face of
this Rights Certificate in every particular, without alteration or enlargement
or any change whatsoever.

         In the event the Certification of Status set forth above is not
completed, the Company will deem the Beneficial Owner of the Rights represented
by this Rights Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement) and, in
the case of the issuance of a new Rights Certificate, will affix a legend to
such effect on any Rights Certificates issued in exchange for this Rights
Certificate.

                                      B-
<PAGE>

                      [Reverse Side of Rights Certificate]

                               FORM OF ASSIGNMENT
                               ------------------

                (To be executed by the registered holder if such
               holder desires to transfer this Rights Certificate)

     FOR VALUE RECEIVED hereby sells, assigns and transfers unto___________
                 (Please print name and address of transferee)

this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________
Attorney, to transfer the within Rights Certificate on the books of the within-
named Company, with full power of substitution.

Dated:                     ,
      ---------------------  -------

                                    --------------------------------------
                                    Signature

Signature Guaranteed:

         Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Rights Agent, which requirements include
membership or participation in STAMP or such other "signature guarantee program"
as may be determined by the Rights Agent in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

                                      B-
<PAGE>

                             CERTIFICATION OF STATUS

         The undersigned hereby certifies by checking the appropriate boxes
that:

         (1)  this Rights Certificate

                      is
             --------

                      is not
             --------

being sold, assigned or transferred by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate thereof (as such terms are defined
in the Rights Agreement); and

         (2)  after due inquiry and to the best knowledge of the undersigned, it

                       did
             --------

                       did not
             --------

acquire the Rights evidenced by this Rights Certificate from any person who is,
was or subsequently became an Acquiring Person or an Affiliate or Associate
thereof.

                                    ------------------------------------------
                                    Signature

Date:                               ,
     -------------------------------  ------

                                      B-
<PAGE>

                                     NOTICE
                                     ------

         The signature(s) on the foregoing Form of Assignment and Certification
of Status must correspond to the name written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.

In the event the Certification of Status set forth above is not completed, the
Company will deem the Beneficial Owner of the Rights represented by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
such terms are defined in the Rights Agreement) and, in the case of an
Assignment, will affix a legend to such effect on any Rights Certificates issued
in exchange for this Rights Certificate.

                                      B-
<PAGE>

                                                                       Exhibit C
                                                                       ---------

                     SUMMARY OF RIGHTS TO PURCHASE SHARES OF
                  SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

         On February 6, 2001, the Board of Directors of Horizon Pharmacies, Inc.
(the "Company") declared a dividend of one preferred stock purchase right (a
"Right") for each outstanding share of Common Stock, $.01 par value, (the
"Common Stock"), of the Company. The dividend is payable on February 23, 2001
(the "Record Date") to the shareholders of record of Common Stock at the close
of business on such date. Each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock, $.01 par value (the "Series A Preferred Stock"), at a price of
Twenty Dollars ($20.00) per one one-hundredth of a share of Series A Preferred
Stock (the "Purchase Price"), subject to adjustment. The description and terms
of the Rights are set forth in the Rights Agreement dated as of February 6, 2001
(the "Rights Agreement") by and between the Company and Computershare Investor
Services, L.L.C., as Rights Agent (the "Rights Agent"). Capitalized terms not
defined herein have the respective meanings specified in the Rights Agreement.

         Until the earlier to occur of (i) ten (10) days after the first public
announcement that a Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any Subsidiary of the
Company or any entity holding Shares of Common Stock for or pursuant to the
terms of any such plan) (an "Acquiring Person"), either alone or together with
its Affiliates and Associates, has become the Beneficial Owner of fifteen
percent (15%) or more of the outstanding shares of Common Stock, and (ii) ten
(10) Business Days (or such later date as may be determined by action of the
Board of Directors prior to the time any Person becomes an Acquiring Person)
after the commencement of, or the announcement of an intention to commence, a
tender or exchange offer the consummation of which would result in any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any Subsidiary of the Company or any entity holding
Shares of Common Stock for or pursuant to the terms of any such plan) becoming
the Beneficial Owner of fifteen percent (15%) or more of such outstanding shares
of Common Stock (the earlier of clause (i) and (ii) being hereinafter called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificates, with a copy of this Summary of Rights attached thereto.

         The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Stock. Until the
Distribution Date (or the earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date, either upon transfer of
outstanding shares of Common Stock or the original issuance of additional shares
of Common Stock, will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or the earlier redemption or expiration
of the Rights), the surrender for transfer of any certificate for shares of
Common Stock outstanding as of the Record

                                      C-1
<PAGE>

Date, without such notation and whether or not a copy of this Summary of Rights
is attached thereto, will also constitute the transfer of the Rights associated
with the shares of Common Stock represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Rights Certificates") will be mailed to the registered holders of
the shares of Common Stock as of the close of business on the Distribution Date,
and such separate Rights Certificates will thereafter constitute the sole
evidence of the Rights. Each share of Common Stock issued after the Distribution
Date and prior to the earlier of the redemption or expiration of the Rights,
pursuant to the exercise of any option, warrant, right or conversion or exchange
privilege contained in any option, warrant, right or convertible or exchangeable
security (other than the Rights) issued by the Company prior to the Distribution
Date, shall also include the right to receive a Right (unless the Board of
Directors expressly provides to the contrary at the time of issuance of any such
option, warrant, right, convertible or exchangeable security) and Rights
Certificates evidencing such Rights shall be issued at the time of issuance of
such shares of Common Stock.

         The Rights are not exercisable until the Distribution Date. The Rights
will expire on December 31, 2010 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case as described below.

         The Purchase Price payable, and the number of shares of Series A
Preferred Stock or other securities, cash or property issuable, upon exercise of
the Rights are subject to adjustment from time to time to prevent dilution (i)
in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A Preferred Stock, (ii) upon the grant to the
holders of shares of Series A Preferred Stock of certain options, warrants or
rights to subscribe for or purchase shares of Series A Preferred Stock at a
price, or securities convertible into or exchangeable for shares of Series A
Preferred Stock with a conversion or exchange price, less than the then current
market price of the shares of Series A Preferred Stock, or (iii) upon the
distribution to the holders of shares of Series A Preferred Stock of evidences
of indebtedness or assets (other than a regular quarterly cash dividend at a
rate not in excess of 125% of the rate of the last regular quarterly cash
dividend theretofore paid or a dividend payable in shares of Series A Preferred
Stock) or options, warrants or rights (other than those referred to above).

         The number of outstanding Rights and the number of one one-hundredths
of a share of Series A Preferred Stock issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the Common Stock or
a stock dividend on the Common Stock payable in shares of Common Stock or a
subdivision, consolidation, combination, or reclassification of the Common Stock
occurring, in any such case, prior to the Distribution Date.

         Shares of Series A Preferred Stock purchasable upon exercise of the
Rights will not be redeemable. Each share of Series A Preferred Stock will be
entitled to a minimum preferential quarterly dividend payment of $.25 per share
but will be entitled to an aggregate dividend of one hundred (100) times the
dividend declared per share of Common Stock. In the event of liquidation, the
holders of the shares of Series A Preferred Stock will be entitled to a minimum
preferential liquidation payment of one dollar ($1.00) per share, plus an amount
equal to accrued

                                      C-2
<PAGE>

and unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment, provided that the holders of the shares of Series A
Preferred Stock shall be entitled to an aggregate payment of one hundred (100)
times the payment made per share of Common Stock, as adjusted to reflect any
dividend on the Common Stock payable in shares of Common Stock or any
subdivision, combination or reclassification of the Common Stock. Each share of
Series A Preferred Stock will have one hundred (100) votes, voting together with
the Common Stock. Finally, in the event of any merger, consolidation or other
transaction in which shares of Common Stock are exchanged, each share of Series
A Preferred Stock will be entitled to receive one hundred (100) times the amount
received per share of Common Stock. These rights are protected by customary
antidilution provisions.

         Because of the nature of the dividend, liquidation and voting rights of
the Series A Preferred Stock, the value of the one one-hundredth interest in a
share of Series A Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.

         In the event that any Person, together with its Affiliates and
Associates, becomes the Beneficial Owner of fifteen percent (15%) or more of the
Shares of Common Stock then outstanding, proper provision shall be made so that
each registered holder of a Right will thereafter have the right to receive upon
exercise thereof at the then current Purchase Price of the Right that number of
shares of Common Stock of the Company having a market value of two times such
Purchase Price. Notwithstanding the foregoing, after the occurrence of the event
described in this paragraph, all Rights which are, or (under certain
circumstances specified in the Rights Agreement) were, Beneficially Owned by an
Acquiring Person or any Affiliate or Associate thereof will be void. Under no
circumstances may a Right be exercised following the occurrence of a transaction
described in this paragraph prior to the expiration of the Company's right of
redemption.

         In the event that, on or after the first public announcement by the
Company or an Acquiring Person that an Acquiring Person has become such (the
"Share Acquisition Date"), the Company is acquired in a merger or other business
combination transaction or fifty percent (50%)or more of its consolidated assets
or earning power are sold or transferred (in one transaction or a series of
transactions other than in the ordinary course of business), proper provision
shall be made so that each registered holder of a Right (except Rights which
have become void as specified above) will thereafter have the right to receive,
upon the exercise thereof at the then current Purchase Price of the Right, the
number of shares of common stock of the acquiring company (or of another Person
affiliated therewith as provided in the Rights Agreement) which at the time of
such transaction will have a market value of two times such Purchase Price.

         At any time after any person becomes an Acquiring Person and prior to
the time such Person, together with its Affiliates and Associates, becomes the
Beneficial Owner of fifty percent (50%) or more of the outstanding shares of
Common Stock, the Board of Directors of the Company may exchange the Rights
(other than Rights which have become void), in whole or in part, at the exchange
rate of one share of Common Stock, or one one-hundredth of a share of Series A
Preferred Stock (or of a share of a class or series of the Company's preferred
stock

                                      C-3
<PAGE>

having equivalent rights, preferences and privileges), per Right, subject to
adjustment as provided in the Rights Agreement.

         With certain exceptions, no adjustment in the Purchase Price will be
made until the cumulative adjustments required equal at least one percent (1%)
of the Purchase Price. No fractional shares of Series A Preferred Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a share of Series A Preferred Stock), but in lieu thereof a payment in cash
will be made based on the market price of the shares of Series A Preferred Stock
on the last trading day prior to the date of exercise or exchange.

         At any time prior to the earlier of (i) the tenth (10th) Business Day
after the Share Acquisition Date (subject to one or more extensions by a
majority of the Disinterested Directors), and (ii) the Final Expiration Date,
the Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a redemption price of $.01 per Right, appropriately adjusted to reflect
any stock split, stock dividend, subdivision or combination or any similar
transaction occurring after the date of the Rights Agreement (the "Redemption
Price"); provided, however, that, under certain circumstances specified in the
         --------  -------
Rights Agreement, the Rights may not be redeemed unless there are Disinterested
Directors in office and such redemption is approved by a majority of such
Disinterested Directors. The redemption of the Rights may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion shall establish. After the redemption period has expired,
the Company's right of redemption may be reinstated, under the circumstances
specified in the Rights Agreement, which include the concurrence of a majority
of the Disinterested Directors, if an Acquiring Person shall have reduced to ten
percent (10%) or less the number of outstanding shares of Common Stock
Beneficially Owned in a transaction or series of transactions not involving the
Company and not constituting specified transactions which result in a discounted
Purchase Price under the Rights Agreement. Immediately after any action by the
Board of Directors directing the redemption of the Rights, the right to exercise
the Rights shall terminate and thereafter the registered holders of the Rights
shall be entitled to receive only the Redemption Price per Right.

         The term "Disinterested Director" means any member of the Company's
Board of Directors who is unaffiliated with an Acquiring Person or any Affiliate
or Associate thereof and was a member of the Company's Board of Directors prior
to the time that an Acquiring Person became such and any successor of a
Disinterested Director who is unaffiliated with an Acquiring Person or any
Affiliate or Associate thereof and is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the Company's Board of
Directors.

         Prior to the Distribution Date, the terms of the Rights may be
supplemented or amended by the Board of Directors of the Company in any manner
and thereafter the Rights may be supplemented or amended by such Board of
Directors, without the approval of any holders of the Rights or the Rights
Certificates, in certain respects which shall not adversely affect, as
determined by the Company, the interests of such holders; provided, however,
that the Rights Agreement cannot be amended to lengthen (i) any time period
unless (A) such lengthening is approved by a majority of the Disinterested
Directors and (B) such lengthening is for the benefit

                                      C-4
<PAGE>

of the holders of the Rights, or (ii) any time period relating to when the
Rights may be redeemed if at such time the Rights are not then redeemable.

         Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.

         A copy of the Rights agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. Copy
of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is hereby
incorporated herein by reference.

                                      C-5

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