Unassociated Document


    [CONFIDENTIAL
      TREATMENT HAS BEEN REQUESTED BY FAMILYMEDS GROUP, INC. CONFIDENTIAL PORTIONS
      OF
      THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE
      SECURITIES AND EXCHANGE COMMISSION.]

    SUPPLY
      AGREEMENT

     

    


     

    This
      Supply Agreement dated this _____ day of _________________, 2007, between
      Familymeds Group, Inc. (hereinafter, known as "Customer") and McKesson
      Corporation ("McKesson") shall be to establish a multi-year program for the
      supply of prescription drugs and other health and beauty care products by
      McKesson to retail pharmacies owned or operated by Customer (referred to herein
      as "Pharmacies" or "Stores"). The parties hereto agree as follows: 

     

    
      	
              1.
                

            	
              MERCHANDISE
                

            


    

     

    
      	 	
              A.
                

            	
              For
                purposes hereof, "Merchandise" shall comprise all items normally
                stocked
                by McKesson Drug Distribution Centers servicing the 48 contiguous
                states,
                including prescription drugs, OTC drugs, health and beauty aids and
                sundries. McKesson reserves the right at all times to determine what
                Merchandise it will stock and/or sell or discontinue from inventory
                based
                upon product quality, manufacturer indemnity, insurance, and other
                policies and standards determined by it, and in the event McKesson
                deletes
                from its available inventory items of Merchandise, Customer shall
                have the
                right to purchase such products from any other source of its choosing.
                This Agreement shall not apply to products sold to Customer by McKesson
                subsidiaries, divisions, or other business operations other than
                McKesson's pharmaceutical distribution centers.


            


    

     

    
      	 	
              B.
                

            	
              Customer
                may from time to time request that certain private label and other
                products (collectively, "Additional Products") be stocked by McKesson
                to
                satisfy Customer's reasonable needs. Such request shall be in writing
                and
                shall be accompanied by a utilization estimate of such Additional
                Products. The stocking of any such Additional Products shall be at
                the
                sole option of McKesson and if agreed to by McKesson, shall be subject
                to
                any minimum purchase or other commercial terms of sale established
                by
                McKesson and any additional inventory-related considerations deemed
                relevant by McKesson. All manufacturers of such Additional Products
                must
                offer industry standard trade terms and must meet McKesson's standard
                indemnification, insurance and other requirements to become an approved
                vendor. 

            


    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    


    
      	
              2.
                

            	
              TERM
                

            


    

     

    The
      term
      of this Agreement shall be for the three (3) year period commencing on


    December
      28, 2006, and during such period Customer agrees to designate McKesson as its
      primary supplier of Merchandise and to purchase from McKesson substantially
      all
      of 

    the
      requirements of its retail Pharmacies for Merchandise and other items covered
      

    hereunder.
      Each twelve month period ending on December 27 during the term of this


    Agreement
      shall constitute a “Contract Year”. 

    


    
      	
              3.
                

            	
              ORDERING
                AND DELIVERY 

            


    

     

    
      	 	
              A.

            	
              Prescription
                products will be delivered to Customer's Pharmacies up to five (5)
                times
                per week. Orders transmitted by 6:00 p.m. local time Sunday through
                Thursday will be delivered the next day.


            


    

     

    
      	 	
              B.

            	
              In
                the event that the primary distribution center servicing the Customer
                is
                temporarily out of stock of any prescription items, such distribution
                center will utilize McKesson's National Distribution Network to make
                those
                items available for Store order within 72 hours, at Customer's expense.
                If
                the item is not available within the McKesson network, it will be
                drop-shipped from the vendor if stock is available.
                

            


    

     

    
      	 	
              C.

            	
              Notwithstanding
                anything to the contrary herein, McKesson shall not be obligated
                either to
                source or ship any Merchandise from a McKesson pharmaceutical distribution
                center that is not the primary distribution center servicing Customer
                or
                to facilitate any drop shipment if, in either case, any such shipment
                or
                sourcing is prohibited by any law, regulation or governmental requirement
                or would require that McKesson make additional expenditures in order
                to
                comply with any law, regulation or governmental requirement regarding,
                or
                otherwise affecting, such shipment or sourcing.


            


    

     

    


    
      	
              4.
                

            	
              PAYMENT
                TERMS 

            


    

     

    
      	 	
              A.
                

            	
              The
                payment terms for the Merchandise covered by this Agreement are as
                follows: 

            


    

     

    Seven
      (7) Day Payment Terms 

     

    Payment
      for Merchandise delivered to Customer’s retail Pharmacies shall be paid by
      Customer as follows: Invoices are due and payable within seven days from invoice
      date via EFT or ACH. 

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    
      	 	
              B.

            	
              For
                purposes of this Agreement, "due and payable" means that Customer
                shall
                make any payments due hereunder on such earlier date as shall be
                required
                to provide McKesson with good funds in hand on each of the designated
                due
                dates specified in this Payment Terms section of this Agreement.
                

            


    

     

    
      	 	
              C.

            	
              If
                any of the above-specified due dates falls on a weekend day or holiday,
                payment is due and payable on the preceding business day.
                

            


    

     

    
      	 	
              D.

            	
              McKesson
                requires the use of EFT or ACH payment method. Cost of Goods will
                be
                increased by XX% if Customer for any reason does not pay via EFT
                or ACH.
                

            


    

    
      	 	
              E.
                

            	
              Any
                payments made after the due date indicated herein shall result in
                a XX
                percent (XX%) (or the maximum amount permissible under applicable
                law, if
                lower) increase in the purchase price of the Merchandise. A XX percent
                (XX%) service charge (or the maximum amount permissible under applicable
                law, if lower) will be imposed semi-monthly on all balances delinquent
                more than fifteen 

            


    

    (15)
      days. 

     

    
      	 	
              F.
                

            	
              Customer
                agrees to render payment in full to McKesson on the applicable due
                date as
                specified in this Agreement without (i) making any deductions, short
                payments, or other accounts payable adjustments to such payment
                obligation; or (ii) seeking to condition such remittance on any demand
                for
                or receipt of proofs of delivery. Any accounts payable adjustments
                claimed
                by Customer shall require prior written authorization of McKesson
                and must
                be supported by accompanying detail documenting the basis for any
                such
                requested adjustments. 

            


    

    
      	 	
              G.
                

            	
              This
                Agreement is conditioned upon Customer's maintaining a sound financial
                condition throughout the term hereof and to that end, Customer agrees
                to
                promptly substantiate in writing, at McKesson's request, the existence
                of
                such condition with financial statements and any other supporting
                information required by McKesson. 

            


    

     

    
      	 	
              H.
                

            	
              Each
                company doing business with McKesson is required to negotiate its
                payment
                terms and credit line with McKesson individually, based upon such
                company's individual financial and risk characteristics. Nothing
                in this
                Agreement is intended to be, nor shall it be construed as, a binding
                obligation or continuing commitment by McKesson to extend credit
                or
                payment terms options and all such terms and conditions shall be
                subject
                to the review and approval of McKesson's Financial Services Department.
                

            


    

     

    
      	 	
              I.

            	
              McKesson
                reserves the right, in its sole discretion, to change a payment term
                (including imposing the requirement of cash payment upon delivery)
                or
                limit total credit, if (i) McKesson concludes there has been a material
                change in the Customer's financial condition or an unsatisfactory
                payment
                performance; or (ii) Customer ceases to meet McKesson's credit
                requirements or McKesson determines that the Customer is likely to
                cease
                meeting such requirements. Upon the occurrence of any of the
                above-specified events and with one day’s written notice, McKesson further
                shall be entitled to suspend or discontinue the shipment of any additional
                orders to Customer's Pharmacies. 

            


    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    


    
      	
              5.
                

            	
              COST
                OF GOODS 

            


    

     

    
      	 	
              A.
                

            	
              In
                consideration for the cost of goods pricing (“Cost of Goods”) specified
                herein, Customer expressly commits to purchase a minimum of $XX (net
                of
                returns, allowances, rebates and all credits and adjustments issued
                and
                exclusive of drop shipped purchases) per Contract Year in Direct
                Store
                Pharmacy Delivery ("D.S.D.") volume of Merchandise from McKesson
                during
                the term of this Agreement ("Volume Purchase Commitment"). If at
                any time
                after the first two (2) months of this Agreement Customer has not
                achieved
                the appropriate pro rata purchase volume, measured monthly, based
                on its
                Volume Purchase Commitment, McKesson, in addition to the other rights
                and
                remedies available to it hereunder, reserves the right in its sole
                discretion to redetermine the Cost of Goods pricing specified below.
                

            


    

     

    
      	
              B.
                

            	
              Subject
                to the terms and conditions of this Section, the Cost of Goods for
                Merchandise delivered to Customer shall be Cost plus the applicable
                markup
                as specified below. Except in the case of contract items as discussed
                below, "Cost" for the purposes of this Agreement shall mean the
                manufacturer's published acquisition cost (exclusive of cash discounts)
                on
                the date of McKesson's invoice to Customer, adjusted for selected
                bonus
                goods, manufacturers' off-invoice allowances, and manufacturers'
                deal
                prices to be made available to Customer in accordance with McKesson's
                established policies. For purchases of Merchandise with respect to
                which
                Customer has entered into a vendor contract with a manufacturer ("Contract
                Products") loaded with McKesson, "Cost" shall mean the "bid price"
                of the
                product as set forth in the vendor contract.


            


    

     

    
      	
              C.
                

            	
              The
                Cost of Goods hereunder shall be in accordance with the pricing provisions
                set forth below. Customer hereby agrees to maintain a minimum chain-wide
                monthly average volume of $XX in D.S.D. prescription drug and OTC
                product
                purchases (net of returns, allowances, rebates and all credits and
                adjustments issued and exclusive of drop shipped purchases) per Store
                from
                McKesson throughout the term of this Agreement ("Monthly Volume
                Commitment"). Customer shall at the time of implementation of service
                under this Agreement be charged Cost minus XX% on Rx product purchases
                and
                Cost plus XX% on OTC product purchases. The Customer's Cost of Goods
                thereafter shall be subject to quarterly review by McKesson and will
                be
                adjusted no later than ten (10) days following the close of the quarter,
                if and to the extent necessary, to reflect the Customer's then current
                chain-wide monthly average purchase volume.


            


    

     

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    Chainwide
      Monthly Average Volume (net of returns, allowances, rebates and all credits
      and
      adjustments issued and Cost Plus Markup (Based on 7 - day Payment Terms per
      Section 4.A) 

     

    
      	
              Rx
                

            	
              OTC

            
	
              XX

            	
              XX

            
	
              XX

            	
              XX

            
	
              XX

            	
              XX

            
	
              XX

            	
              XX

            
	
              XX

            	
              XX

            


    

    


    exclusive
      of drop shipped purchases) 

    From
      XX

     

    


    
      	
              Contract
                Products 

            	
              Cost
                Plus XX% 

            
	 	 
	
              Drop
                Shipped Products 

            	
              Cost
                Plus XX% 

            


    

     

    Specially
      Priced Merchandise.
      The
      purchase price for selected Merchandise, including but not limited to
      multi-source generic pharmaceuticals, repackaged pharmaceuticals, private label
      products, HBC/OTC products, medical surgical supplies, home health care/durable
      medical equipment, certain antibiotics, Merchandise acquired by McKesson from
      vendors not offering customary cash discounts or other terms, and other
      specialty; slow moving; non-pharmaceutical; and/or net-billed Merchandise will
      not be based upon the cost-plus pricing described in the Cost of Goods pricing
      schedule above, but will instead be billed in accordance with the terms and
      conditions established by McKesson (including applicable markup) for such
      Merchandise. Merchandise described in this paragraph is sometimes referred
      to as
      "Specially Priced Merchandise." 

     

    
      	
              D.
                

            	
              The
                above-specified Cost of Goods pricing is based on and contingent
                upon
                Customer's continued compliance with its commitment herein to maintain
                the
                following minimum purchase (net of returns, allowances, rebates and
                all
                credits and adjustments issued and exclusive of drop shipped purchases)
                percentage ratios throughout the term of this Agreement:
                

            


    

     

    1. Rx
      purchases to total purchases of Merchandise of XX%
      ("Rx
      Purchase Percentage Commitment"), and 

    2. McKesson
      OneStop Generics purchases to total Rx purchases of XX%
      ("McKesson OneStop Generics Purchase Percentage Commitment"). 


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


    


    If
      Customer fails during any three-month period of this Agreement to achieve either
      its Rx Purchase Percentage Commitment or McKesson OneStop Generics Purchase
      Percentage Commitment, McKesson, in its sole discretion, reserves the right
      upon
      such occurrence to forthwith reprice the Rx/OTC Cost of Goods set forth in
      Section 5.C. 

     

    
      	
              E.

            	
              The
                above-specified Cost of Goods pricing schedule (including contract
                product
                pricing) is subject to adjustment with respect to the products of
                any
                manufacturer that offers a cash discount that is below the industry
                standard cash discount to McKesson during the term hereof.
                

            


    

     

    
      	
              F.

            	
              It
                is further understood and agreed by the parties that if Customer
                fails to
                maintain a minimum chain-wide average volume of $XX in D.S.D. prescription
                drug and OTC product purchases (net of returns, allowances, rebates
                and
                all credits and adjustments issued and exclusive of drop shipped
                purchases) per Store per month 

            


    

    from
      McKesson during any consecutive three (3) months of this Agreement 

    (excluding
      the first three (3) month period of this Agreement), such failure shall


    constitute
      a default under this Agreement by Customer. 

     

    
      	G.	
              For
                the avoidance of doubt, nothing herein will entitle Customer to receive
                or
                share in any fees, discounts, rebates or other consideration received
                by
                McKesson from a vendor or its affiliates for any services rendered
                by
                McKesson or any other action or forbearance by McKesson, including
                without
                limitation any fees, discounts, rebates or other consideration received
                by
                McKesson pursuant to a core distribution agreement, inventory management
                agreement or any other similar agreement with the vendor or its
                affiliates. 

            


    

     

    


    
      	
              6.
                

            	
              RETURNED
                GOODS 

            


    

     

    Subject
      to any separate policy and/or terms and conditions for returned goods adopted
      by
      McKesson for purposes of complying with any applicable law, rule or regulation
      of any state (including without limitation the State of Florida), McKesson
      will
      process returned goods for items purchased by Customer from McKesson, in
      accordance with McKesson's Returned Goods Policy (which is subject to change
      by
      McKesson, effective upon thirty 

    (30)
      days' prior notice to Customer), as follows: 

     

    
      	 	
              1)
                

            	
              Definitions
                

            


    

     

    
      	 	
              a)

            	
              Saleable
                Merchandise 

            


    

     

    • Merchandise
      is determined saleable by McKesson based upon the ability to resell the item
      without special handling, refurbishing or other expense; or 


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


    • Saleable
      Merchandise must have dating of current month plus XX months remaining until
      expiration. Exceptions to this dating policy are: 

    


    
      	 	
              i)

            	
              Refrigerated
                and other temperature-controlled Merchandise; or
                

            


    

     

    
      	
            	ii)	
              Merchandise
                deemed permanently short-dated by McKesson and manufacturers/suppliers.
                

            


    

     

    In
      the
      above-specified instance as set forth in Section 1(a)(ii), Customer shall be
      permitted to return the Merchandise with current month plus three 

    (3)
      months remaining until expiration. 

     

    
      	 	
              b)

            	
              Unsaleable
                Merchandise 

            


    

    • Merchandise
      with less than current month plus XX months remaining until expiration (except
      as otherwise provided in Section 1(a)); 

    • Torn
      or
      damaged packaging; 

    • Labels
      attached (prescription or price sticker); 

    • Soiled,
      stained or worn; 

    • Safety
      or
      security seals not intact; or 

    • Merchandise
      requiring special handling (i.e. biological or other temperature-controlled
      products) that does not include Customer's signature to assure that the
      Merchandise has been stored and protected under proper conditions specified
      by
      the manufacturer/supplier. 

     

    McKesson
      reserves the right to determine whether Merchandise is saleable or unsaleable
      upon inspection of the returned item. 

     

    
      	 	
              c)
                

            	
              Florida
                Pedigree Product 

            


    

     

    All
      returns of prescription drug (“Rx”) Merchandise that meet the conditions set
      forth in Section 2(e) below will be deemed returnable. 

     

     

    
      	
              2)
                

            	
              Merchandise
                Authorized For Return to McKesson


            


    

     

    
      	 	
              a)
                

            	
              Saleable
                and Unsaleable Merchandise that was purchased from McKesson unless
                otherwise blocked for return (determined by manufacturer/supplier
                or
                McKesson); 

            


    

     

    
      	 	
              b)
                

            	
              Unsaleable
                Merchandise purchased from McKesson which can be returned by McKesson
                to
                the manufacturer/supplier according to their policy;
                

            


    

     

    
      	 	
              c)
                

            	
              McKesson
                Private Label Merchandise (Valu-Rite®,
                Health Mart®,
                SunmarkTM,
                etc.); and 

            


    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    
      	 	
              d)

            	
              Manufacturer/supplier
                recall or market withdrawal in original manufacturer containers.
                Authorized returns of partials require the Customer to include pill
                counts, NDC and lot number for any Merchandise not returned in its
                original manufacturer container. 

            


    

     

    
      	 	
              e)

            	
              Florida
                customers may only return Rx Merchandise that meets all of the following
                conditions: 

            


    

     

    
      	 	
              i.

            	
              Rx
                Merchandise that was ordered by mistake; misshipped by McKesson or
                received damaged; 

            


    

     

    
      	 	
              ii.

            	
              Customer
                must provide a valid invoice number when requesting the return;
                

               

            


    

    
      	 	
              iii.

            	
              Requests
                for Return Authorization (“RA”) for Rx Merchandise must be made within XX
                days of original invoice date; 

            


    

     

    iv. Rx
      Merchandise returned to McKesson must contain the identical lot number and
      quantity provided on the RA; 

    v. Rx
      Merchandise returned to McKesson must be received within XX days of the date
      of
      the request for the RA; and 

    


    
      	 	
              vi.

            	
              Customer
                must sign the oath statement on the RA that each specific unit of
                Rx
                Merchandise being returned was purchased on the invoice referenced
                and was
                stored properly while in the Customer’s custody and control.
                

            


    

     

    If
      the
      conditions set forth in Section 2(e) i-vi are not fully met, McKesson will
      deem
      the Merchandise as unsaleable and apply the credit issued and pricing conditions
      set forth below for unsaleable Merchandise. 

     

    Customer
      must provide signed verification certifying that proper conditions for storage,
      handling and shipping have been maintained for all Merchandise returned to
      McKesson. 

     

    Excluded
      Merchandise: 

     


    
      	 	
              •

            	
              Merchandise
                not purchased from McKesson; 

            


    

    
      	 	
              •

            	
              Merchandise
                not physically carried by McKesson;


            


    

    
      	 	
              •

            	
              Merchandise
                not eligible for return to the manufacturer/supplier or deemed collectible
                by McKesson; 

            


    

    
      	 	
              •

            	
              Saleable
                Merchandise returned that does not meet proper storage conditions;
                

            


    

    
      	 	
              •

            	
              Unsaleable
                returns of Customer’s private label Merchandise;
                

            


    

    
      	 	
              •

            	
              Merchandise
                not in its original container; 

            


    

    
      	 	
              •

            	
              Overbagged
                or "robot-ready" Merchandise; 

            


    

    
      	 	
              •

            	
              Merchandise
                requiring refrigeration except for Merchandise shipped by McKesson
                in
                error or received damaged; 

            


    

    
      	 	
              •

            	
              Repackaged
                Merchandise that has less than XX months dating or is defined as
                Unsaleable Merchandise; 

            


    

    
      	 	
              •

            	
              ScanPakTM
                Unit Dose and ScanPakTM
                Multi Dose Merchandise that have less than XX months dating or are
                defined
                as Unsaleable Merchandise;

            


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	
              •

            	
              Merchandise
                discontinued by manufacturer/supplier and no longer stocked by McKesson;
                

            


    

    
      	 	
              •

            	
              Partial
                bottles, liquids and other containers except for recalls of Merchandise
                other than Controlled Substances; 

            


    

    
      	 	
              •

            	
              Schedule
                II Controlled Substances will be evaluated on individual return requests;
                

            


    

    
      	 	
              •

            	
              Merchandise
                damaged or defaced at the Pharmacy location or on the shelf; or
                

            


    

    
      	 	
              •

            	
              For
                Florida accounts, any Rx Merchandise not meeting the stated policy
                and
                required processes in Section 2(e) above will be considered unsaleable
                and
                subject to the credit issued and pricing conditions applicable to
                unsaleable items as specified below.


            


    

    



    


    3)
      Credit
      Issued 

     

    McKesson
      will provide the following credit based on the pricing rules outlined below
      in
      Section 5 as calculated from invoice date to credit request date: 

    

      
        	
                Saleable*
                  

              	
                0
                  -
                  30 days XX 31+ (or no invoice provided)XX


              


      

       

      Received
        Damaged 0
        - 15
        days XX or
        Short-dated 16+
        (or
        no invoice provided) XX 

       

      
        	
                Recall**
                  

              	
                XX,
                  if and to the extent McKesson 

              
	 	
                recovers
                  an equal percent from the 

              
	 	
                manufacturer/supplier.
                  

              
	
                Unsaleable**
                  

              	
                XX,
                  if and to the extent McKesson recovers an equal percent from the
                  

              
	 	
                manufacturer/supplier.

              
	
                Florida
                  Saleable Returns 

              	
                XX,
                  if all conditions in Section 2(e) above are met.
                  

              


      

       

    

    *All
      saleable Home Healthcare Hub Merchandise is eligible for a maximum XX credit
      value based on pricing rules outlined below in Section 5. 

     

    **Notwithstanding
      anything in this Agreement to the
      contrary, with regard to unsaleable products, recalls, market withdrawals and
      any other manufacturer/supplier initiated returns (collectively, "Unsaleable
      and
      Recalled Products"), in the event a pharmaceutical manufacturer/supplier fails
      for any reason to pay McKesson for the cost of or any amounts due with respect
      to any Unsaleable or Recalled Products returned to McKesson by the Customer
      or
      the Customer's agent, the Customer agrees that the Customer will be responsible
      for the collection of any unpaid monies due from the manufacturer/supplier,
      and
      shall fully reimburse McKesson for any credits or other forms of advance,
      including deductions, that have already been paid to or received by the Customer
      for such Unsaleable or Recalled Products.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    
      	
              4)
                

            	
              Customer
                Eligibility McKesson
                reserves the right to designate if the Merchandise returned by Customer
                is
                eligible for return, and to determine the appropriate percentage
                of credit
                to be provided. 

            


    

     

     

    
      	
              5)
                

            	
              Pricing
                on Returned Goods 

            


    

     

    McKesson
      will use the invoice price when Customer provides a valid invoice number.
      

     

    If
      no
      invoice number is provided, the following pricing rules will apply:


     

     

    
      	 	
              •

            	
              Customer
                will be credited the contract price for Merchandise which is a Contract
                Product on the date that return authorization is created.
                

            


    

    
      	 	
              •

            	
              Customer
                will be credited a weighted average price based on the Customer's
                past
                twelve (12) month purchase history for Non-Contract Rx/OTC Merchandise.
                

            


    

    
      	 	
              •

            	
              Customer
                will be credited the lowest price paid by the Customer over the past
                twelve (12) months for Non-Contract Generics Merchandise.
                

            


    

    
      	 	
              •

            	
              Customer
                will be credited the manufacturer's/supplier's published acquisition
                cost
                (exclusive of cash discounts) on the date of the of the return
                authorization for Non-Contract Merchandise purchased more than twelve
                (12)
                months prior to the date the return authorization is created.
                

            


    

    


    Any
      handling charges will apply where appropriate to the determined price.


     

    Final
      credit will be issued based upon the condition and timing of the returned goods
      to McKesson. 

     



    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


    
      	
              6)
                

            	
              Notification
                of Changes 

            


    

     

    McKesson
      reserves the right to change the above stated Returned Goods Policy at any
      time
      with 30 days' notification to Customer, including without limitation
      implementing modifications required to meet applicable federal and/or state
      laws
      and regulations, FDA and other regulatory guidelines, and any additional
      restrictions applicable to returned Merchandise. 

     

    
      	
              7.
                

            	
              CUSTOMER
                SUPPORT 

            


    

     

    
      	 	
              A.
                

            	
              A
                National Account Executive will be assigned to Customer's headquarters
                and
                will hold regular meetings and business reviews to identify business
                opportunities and address Customer's needs as reasonably required.
                

            


    

     

    
      	 	
              B.
                

            	
              The
                designated National Account Manager will become the first contact
                for
                headquarters when Customer requires assistance for issue resolution.
                

            


    

     

    
      	 	
              C.
                

            	
              National
                Account Customer service personnel will be available at the McKesson
                Premier Service Center from 8:00 a.m. Eastern Time to 6:00 p.m. Eastern
                Time Monday through Friday. Technical and emergency support is available
                24 hours a day, seven (7) days a week.


            


    

     

    
      	 	
              D.
                

            	
              Customer
                will be provided the names and telephone numbers of its key contacts
                at
                McKesson as well as the names and telephone numbers of McKesson's
                designated support personnel. 

            


    

     

     

    
      	
              8.
                

            	
              CONTRACT
                MANAGEMENT 

            


    

     

    
      	 	
              A.
                

            	
              McKesson
                agrees to service all manufacturers' contracts negotiated by Customer,
                provided such manufacturers are approved suppliers of McKesson that
                have
                satisfied its indemnification, insurance, credit and other requirements
                and provides terms acceptable to McKesson, including without limitation
                pricing, payment terms and returned goods policies. Merchandise will
                be
                supplied at Customer's negotiated bid price plus McKesson's applicable
                markup as described above in the Cost of Goods section.
                

            


    

     

    
      	 	
              B.
                

            	
              Customer's
                eligibility for participation under a vendor contract must be authorized
                by the vendor and Customer's group purchasing organization, if applicable,
                before the contract is loaded by McKesson for Customer. Customer
                shall be
                liable for unpaid chargebacks resulting from eligibility issues.
                

            


    

     

    
      	 	
              C.
                

            	
              In
                the event a vendor (i) makes an assignment for the benefit of creditors,
                files a petition in bankruptcy, is adjudicated insolvent or bankrupt,
                or
                if a receiver of trustee is appointed with respect to a substantial
                part
                of the vendor's property or a proceeding is commenced against it
                which
                will substantially impair its ability to pay on chargebacks or (ii)
                otherwise defaults in the payment of chargebacks to McKesson, Customer
                shall be invoiced and become liable for the unpaid chargebacks allocable
                to its purchases from such vendor.


            


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


    
      	
              9.
                

            	
              GENERIC
                PHARMACEUTICALS 

            


    

     

    Customer
      agrees to fully participate in McKesson's OneStop Generics Program through
      its
      auto-substitution feature and to thereby designate this program as Customer's
      primary source of generic pharmaceuticals. A quarterly rebate shall be paid
      to
      Customer in accordance with the following schedule based on such participation:
      

     

    Quarterly
      McKesson OneStop Generics Purchases as a Percentage of Total Rx Purchases (All
      Purchases net of returns, allowances, rebates Quarterly Rebate % on Net and
      all
      credits and adjustments issued McKesson OneStop Generics Purchases
and
      exclusive of drop shipped purchases) (Rebate amounts are not cumulative)


    XX 

     

    XX

     

     

    *Notwithstanding
      anything in the foregoing, in order to qualify for the highest rebate percentage
      on the above-specified McKesson OneStop Generics rebate schedule (XX%), Customer
      must attain the specified minimum McKesson OneStop Generics to Rx Product
      purchases ratio of XX% and must also purchase annualized McKesson OneStop
      Generics volume of $XX. If Customer fails to meet the above-specified $XX
      purchase volume threshold, the XX rebate percentage tier shall not apply. For
      example, if the McKesson OneStop Generics to Rx Product purchases ratio is
      XX%
      but the annualized quarterly volume is $XX, Customer would qualify for a XX%
      rebate. 

     

    
      	
              10.
                

            	
              SYSTEM
                SERVICES AND EQUIPMENT 

            


    

     

    The
      following systems and services will be made available to Customer by McKesson
      if
      and to the extent that such systems and services are being made generally
      available to other customers of McKesson, it being understood, however, that
      McKesson shall have the right to eliminate or replace any of the following
      systems and services, provided that McKesson eliminates such service or system
      for McKesson customers generally: 

     

    
      	 	
              A.
                

            	
              Telxon
                electronic order entry equipment, including the wand (the “Telxon”) at no
                charge upon such Store’s request. The Telxon remains the property of
                McKesson at all times. Within 30 days of the closing of any Store,
                closing
                of a Store account, or the replacement of any non-functioning Telxon
                with
                a new Telxon, Customer agrees to return each Telxon or Telxons supplied
                to
                the Customer. If the Customer fails to return any Telxon to McKesson
                as
                specified above, Customer agrees to pay to McKesson the amount of
                XX for
                each Telxon not returned. Additionally, if the Customer returns any
                Telxon
                to McKesson without the wand, a charge of XX will apply. McKesson
                will
                provide, upon request, an inventory of Telxons supplied to the Customer,
                including each Telxon’s serial number and the Store to which the Telxon
                was supplied. 

            


    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    
      	 	
              B.
                

            	
              Access
                to Supply Management Online ("SMO") for each Customer Store, each
                location
                where Customer has a web link access, and for Customer's Headquarters,
                at
                no charge. SMO is an advanced Internet application allowing on-line,
                real-time access to customer information and services, including
                purchase
                histories, accounts payable information, and ordering capability.
                

            


    

     

    
      	 	
              C.
                

            	
              Item
                price stickers, at no charge, with Customer custom pricing, where
                required, and other features such as:


            


    

     

    1)
      Department number 

    2)
      Invoice cost 

    3)
      Month
      and year ordered 

    4)
      Store
      name

    5)
      AWP or
      retail pricing 

     

     

    
      	 	
              (Note:
                

            	
              Each
                feature is available for both Rx and OTC.)


            


    

     

    
      	 	
              D.
                

            	
              Bar-coded
                shelf labels, at no charge. 

            


    

     

    
      	 	
              E.
                

            	
              Consolidated
                Quarterly Purchase Reports for all Customer Store purchases, at no
                charge,
                via SMO. 

            


    

     

    
      	 	
              F.
                

            	
              Monthly
                report of controlled substances purchased from McKesson for each
                Store, at
                no charge, via SMO. 

            


    

     

    
      	 	
              G.
                

            	
              A
                complete catalog of items stocked by McKesson's Distribution Centers,
                at
                no charge, via SMO. 

            


    

     

    
      	 	
              H.

            	
              Electronic
                price update information will be provided weekly, at no charge.
                

            


    

     

    
      	
              11.
                

            	
              VALUE-ADDED
                PROGRAMS 

            


    

     

    
      	 	
              A.
                

            	
              McKesson
                New Store Dating 

            


    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    Subject
      to the terms and conditions of this Section 11.A., the opening order will be
      defined as the initial order placed by a new Store. The amount of the initial
      order, which in no event shall exceed an estimated amount of XX days’ purchases
      from McKesson for such new Store, is to be paid in XX consecutive, equal
      monthly installments with payment beginning the first month after the account
      is
      opened. This dating will be extended to a maximum of XX new Stores each Contract
      Year and will be limited to $XX per new Store. Notwithstanding anything in
      the
      foregoing, Customer will not be considered for new Store dating if any amount
      due to McKesson has been past due in the previous 30 days. The above-specified
      dating is subject to the review and approval of McKesson’s Financial Services
      Department. For the purposes of this Section, the term “new Store” shall not
      include (i) any existing pharmacy of Customer that changes its address; or
      (ii)
      any pharmacy acquired through acquisition, merger, partnership or other
      combination that is already serviced by McKesson. 

     

    
      	
              B.
                

            	
              To
                assist Customer in managing the relatively small volume of items
                that may
                become unsaleable while at the Customer, McKesson shall offer the
                following programs to Customer for the management of Customer’s unsaleable
                Rx products. Customer may utilize either option as described in Section
                11.B or Section 11.C. herein. 

            


    

     

    
      	 	
              i.

            	
              Once
                each quarter, the Customer will process a return to Carolina Logistic
                Services for eligible, unsaleable Rx products.


            


    

     

    
      	 	
              ii.

            	
              OTC
                items are not eligible for this program.


            


    

     

    
      	 	
              iii.

            	
              Customer
                will not return any expired, unsaleable Rx products directly to its
                McKesson Distribution Center or McKesson’s Redistribution Center. Customer
                will deliver eligible Rx returns directly to Carolina Logistic Services
                and be responsible for shipping fees associated with returns.
                

            


    

     

      
       iv. McKesson
      pays processing fees and costs associated with unsaleable return supplies,
      for
      example, shipping labels, etc. 

     

       
      v. All
      product received by Carolina Logistic Services will be treated as unsaleable
      regardless of expiration dates or condition of the product. No items will be
      returned to Customer. 

    


    
      	 	
              vi.

            	
              McKesson
                shall pay all processing fees and costs to dispose product according
                to
                the manufacturer’s policy, including any fees from Carolina Logistic
                Services. 

            


    

     

    
      	 	
              vii.

            	
              Carolina
                Logistic Services will scan all products sent to it by Customer and
                will
                determine if the products are returnable per the manufacturer’s policy.
                Carolina Logistic Services will provide summary and detail reports
                for all
                products received by Carolina Logistic Services from Customer.
                

            


    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    
      	 	
              viii.

            	
              McKesson
                will process credits for returnable product per manufacturer's policy
                within thirty (30) days of the Carolina Logistic Services debit memo
                or
                invoice date. 

            


    

    
      	 	
              ix.

            	
              Credit
                is issued at the lower of XX McKesson’s current Wholesaler Acquisition
                Cost (“WAC”) or XX of contract price for Rx unsaleable returns that meet
                manufacturer return policy, unless that manufacturer is identified
                as a
                “No Credit Vendor”, found to be in a debit balance with McKesson, or fails
                to reimburse McKesson for such claims at which time McKesson will
                not
                pursue credit for those claims and will not issue credit to Customer.
                WAC
                will be updated at least monthly. 

            


    

    
      	 	
              x.

            	
              McKesson
                will issue a single credit for all returns to an established Customer’s
                corporate account, with back up documentation outlining how much
                credit is
                applied to the Customer’s account including non returnable items that are
                processed. 

            


    

    


    
      	 	
              xi.

            	
              For
                items that have a return value of zero, Carolina Logistic Services
                will
                destroy these items at no cost to Customer.


            


    

     

    
      	
              C.
                

            	
              To
                assist Customer in managing the relatively small volume of items
                that may
                become unsaleable while at the Customer, McKesson shall offer the
                following program to Customer for the management of Customer’s unsaleable
                Rx products. Customer may utilize either option as described in Section
                11.B or Section 11.C herein: 

            


    

     

    
      	 	
              i.
                

            	
              McKesson
                agrees to assist in facilitating the amount of credits obtained from
                “indirect” vendors for goods returned by Customer through Carolina
                Logistic Services, or whichever other entity is designated the selected
                returns processor for Customer (the Processor). Indirect vendors
                are those
                vendors with which Customer does not have a direct purchasing relationship
                and for which a majority of the purchase volume is from McKesson.
                

            


    

     

    
      	 	
              ii.
                

            	
              Customer
                will provide McKesson access to information provided by the Processor
                that
                includes vendor and store summary and detail; summary and detailed
                debit
                memos; product disposition/shipment tracking information; and other
                information required to collect from the vendors. If a change in
                Processors is made, or the processing operations are adjusted for
                the
                customer, McKesson should be notified at least sixty (60) days in
                advance
                of the change and of the specific effective date of the change.
                

            


    

     

    
      	 	
              iii.
                

            	
              McKesson
                will receive debit memos from the Processors via disk, electronic
                transmission, or a combination of the two. McKesson will provide
                the
                Processor with the file format for the transmission of the data.
                Customer
                will have the Processor provide to McKesson the shipping data for
                the
                return debit memos in order to facilitate collection of the credits
                related to the return. 

            


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


    


    
      	 	
              iv.
                

            	
              McKesson
                will process debit memos on behalf of Customer and contact the appropriate
                vendors for follow-up credit. If, and when, a vendor is identified
                as a
                “No Credit Vendor,” or a vendor is found to be in a debit balance with
                McKesson, McKesson will not pursue credit for those returns debit
                memos.
                McKesson will report the status to Customer and ask that future return
                debit memos exclude the reported vendors.


            


    

    


    
      	 	
              v.
                

            	
              The
                basis for vendor collections will be mutually agreed upon by McKesson
                and
                Customer with the understanding that both companies shall strive
                for
                maximum recovery on returns. The basis of this valuation includes,
                but is
                not limited to, returnable value based on the Processor’s valuation,
                vendors that do not allow returns from third parties, and other issues
                that impact the accuracy of the valuation of the return debit memos
                generated for Customer to reflect expected return value.
                

            


    

    


    
      	 	
              vi.
                

            	
              Customer
                will notify McKesson as to the pricing methodology that will be used
                to
                value the product processed at the Processor’s location. The file will be
                reviewed periodically by both companies for accuracy.
                

            


    

     

    
      	 	
              vii.
                

            	
              McKesson
                agrees to pass through all credits collected from the vendor upon
                receipt
                of a final credit notification based on the documentation provided
                by the
                vendor within ten (10) days of posting the vendor credit memo in
                McKesson’s system. Any subsequent credits received from the vendor
                relating to such debit memo will be passed to Customer within ten
                

            


    

    (10)
      days
      of posting into McKesson’s system. Credits will be issued less a XX
      administrative support fee. If any direct reimbursements are made to Customer
      from a vendor that relate to a return debit memo under this program, Customer
      will send the funds to McKesson within ten (10) days of receipt of the funds
      from the vendor. 

     

    
      	 	
              viii.
                

            	
              Customer
                and McKesson will agree on those open deductions sixty (60) days
                subsequent to the date that the original file from the Processor
                was
                received. Customer may deduct at the returnable value as deemed by
                the
                Processor for those vendor debits that have no credits posted on
                Customer
                account. Any vendor credits received after this time will be credited
                to
                Customer’s RTV account at McKesson and the Customer’s amount previously
                deducted from McKesson will be repaid. Customer is required to repay
                any
                items applied to its account such as repayment of previous deductions
                within ten (10) business days of the credit being posted to the account.
                Documentation to audit a claim will be available upon request and
                supported by quarterly summary and detailed reporting.
                

            


    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    
      	 	
              ix.
                

            	
              Deductions
                can only be made if supported with a valid return debit memo from
                the
                authorized Customer Processor, a signed proof of delivery, or authorized
                destruction form, and any correspondence with the vendor supporting
                the
                return debit memo. 

            


    

    


    
      	 	
              x.
                

            	
              All
                credits passed to Customer will reference the debit memo assigned
                by the
                Processor, unless such a reference is not made, at which time McKesson
                will pass the credit through to Customer referencing the credit memo
                number. Summary & detailed reporting related to the vendor credits
                will be sent to Customer quarterly.


            


    

    


    
      	 	
              xi.
                

            	
              Upon
                one hundred eighty (180) days after the debit memo date by the Processor,
                if no valid response is received from a vendor, McKesson will credit
                Customer the entire value of the debit memo deducted from the vendor.
                If
                after that time, the vendor provides sufficient evidence to review
                this
                “closed” debit memo, McKesson will facilitate discussions regarding the
                matter between Customer and the vendor. Customer and McKesson agree
                to
                address such matters in a timely, good faith manner if facts pertaining
                to
                the debit memo reasonably warrant such follow-up action. In the event
                that
                any amount is to be repaid to the vendor for such transaction, Customer
                will pay McKesson within ten (10) days of agreement that such sum
                is due
                and owing by Customer to McKesson, whereupon McKesson will repay
                the
                vendor within ten (10) days of the receipt of Customer’s payment.
                Additionally, Customer agrees to respond within thirty (30) days
                of
                receipt of any production of relevant documentation by McKesson.
                

            


    

     

    
      	 	
              xii.
                

            	
              McKesson
                will expect a vendor to credit Customer under the vendor’s published
                return goods policies. McKesson expects the Processor to evaluate
                return
                product from Customer using the vendor published return goods policies.
                McKesson will be notified by Customer to any exceptions to this practice.
                Reviews will be performed quarterly, or at such intervals as otherwise
                determined by McKesson and Customer, to identify any exceptions to
                the
                published return goods policies being used to evaluate Customer’s product.
                Customer will provide the signed agreement with the authorized agent
                of
                the vendor noting the exception to the published policy.
                

            


    

     

    
      	 	
              xiii.
                

            	
              Vendor
                published returned goods policies and shipping data will be used
                to
                determine the estimated returnable value due for each debit memo.
                Signed
                and/or documented agreements between Customer and vendor will supersede
                vendor standard returned goods policies.


            


    

     

    
      	 	
              xiv.
                

            	
              McKesson
                hereby assumes no liability or responsibility of the actual collection
                or
                timely payment of any sums contemplated by Customer from the vendor
                based
                on this returned goods collection process. Customer will not make
                any
                unauthorized deductions from McKesson for such returns.
                

            


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    
      	
              12.
                

            	
              TERMINATION
                

            


    

     

    
      	 	
              A.
                

            	
              Failure
                by Customer to make any payment when due in accordance with the terms
                of
                this Agreement shall constitute a default. Any other material breach
                of
                this Agreement by either party shall constitute a default if not
                cured
                within thirty (30) days after written notice of such breach is given
                by
                the non-breaching party. Upon default by either party, the other
                party may
                terminate this Agreement on five (5) days' written notice.
                

            


    

     

    
      	 	
              B.
                

            	
              Either
                party may terminate this Agreement without cause upon ninety (90)
                days'
                written notice to the other party. 

            


    

     

    
      	 	
              C.
                

            	
              Either
                party may, on ten (10) days written notice, terminate this Agreement:
                

            


    

     

    
      	 	
              1)
                

            	
              If
                the other party shall file any petition under any bankruptcy,
                reorganization, insolvency or moratorium laws, or any other law or
                laws
                for the relief of or in relation to the relief of debtors; or
                

            


    

     

    
      	 	
              2)
                

            	
              If
                there shall be filed against the other party any involuntary petition
                under any bankruptcy statute or a receiver or trustee shall be appointed
                to take possession of all or substantial part of the assets of the
                party
                which has not been dismissed or terminated within sixty (60) days
                of the
                date of such filing or appointment; or


            


    

     

    
      	 	
              3)
                

            	
              If
                the other party shall make a general assignment for the benefit of
                creditors or shall become unable or admit in writing its inability
                to meet
                its obligations as they mature; or 

            


    

     

    
      	 	
              4)
                

            	
              If
                the other party shall institute any proceedings for liquidation or
                the
                winding up of its business other than for purposes of reorganization,
                consolidation or merger; or 

            


    

     

    
      	 	
              5)
                

            	
              If
                the other party's financial condition shall become such as to endanger
                completion of its performance in accordance with the terms and conditions
                of this Agreement. 

            


    

     

    
      	 	
              D.

            	
              McKesson
                may, at its own discretion, terminate this Agreement on ten (10)
                days
                written notice to Customer upon or at any time following the sale
                or
                transfer of the stock or assets of Customer or a controlling interest
                therein, the occurrence of a merger involving Customer or a change
                in the
                effective control of the management of Customer.
                

            


    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    
      	 	
              E.

            	
              Upon
                termination of this Agreement, expiration of this Agreement or
                discontinuation by Customer of purchase of any such Additional Products
                hereunder, which discontinuation shall be deemed to have occurred
                if
                Customer fails to purchase such Additional Products for a period
                of at
                least thirty (30) days, Customer shall be obligated to purchase from
                McKesson all Additional Products purchased by McKesson exclusively
                for
                Customer as of the date of such termination, expiration or discontinuation
                of purchase pursuant to a request from Customer in accordance with
                Section
                1.B above; provided that McKesson cannot return such Additional Products
                for a full refund. Customer shall pay the original invoice price
                charged
                McKesson by the manufacturer of such Additional Products. Any such
                Additional Products will be salable, undamaged, have at least six
                months
                dating (with the exception of private labeled items), and will be
                delivered in a single shipment, unless otherwise agreed between the
                parties, to a destination mutually agreed upon by Customer and McKesson.
                

            


    

     

    
      	 	
              F.

            	
              In
                the event of a termination hereunder the following continuing obligations,
                liabilities and rights shall survive termination and remain in full
                force
                and effect: 

            


    

     

    
      	 	
              1)
                

            	
              Liability
                for accounts receivable balances or any other payment due
                

            


    

    hereunder
      to the other party at the date of or upon the occurrence of such 

    termination;
      

     

    
      	 	
              2)
                

            	
              Obligations
                imposed on each party under the Proprietary and Confidentiality
                Information section set forth below; and


            


    

     

    
      	 	
              3)
                

            	
              Such
                rights as either party may enjoy in law or in equity.
                

            


    

     

    
      	
              13.
                

            	
              PROPRIETARY
                AND CONFIDENTIAL INFORMATION


            


    

     

    
      	 	
              A.
                

            	
              Any
                and all accounts, records, books, files, and lists regarding any
                transaction provided for or contemplated hereunder, shall be confidential
                and proprietary to the party creating or generating such information.
                This
                Agreement, and the terms and conditions hereof, are confidential.
                The
                parties expressly agree to maintain such terms and conditions in
                confidence, and shall take every precaution to disclose the contents
                of
                this Agreement only to those employees of each of the parties who
                have a
                reasonable need to know such information.


            


    

     

    
      	 	
              B.
                

            	
              Customer
                and McKesson each acknowledge that, in connection with their respective
                businesses, they have developed certain operating manuals, symbols,
                trademarks, trade names, service marks, trade secrets, customer lists,
                procedures, formulas, and other patented, copyrighted, or legally
                protected materials which are confidential and/or proprietary to
                each of
                them. 

            


    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    
      	 	
              C.
                

            	
              Neither
                party may disclose the terms of this Agreement during the term hereof
                and
                for an additional period of thirty-six (36) months following the
                effective
                date of expiration or other termination of this Agreement. Furthermore,
                except upon the prior written consent of the other party, neither
                party
                may divulge, disclose, communicate, or use any of the other party's
                confidential or proprietary information generally described in Subsection
                A and B above, in any manner or for any purpose, including, without
                limitation, use in advertising or for promotional materials. A party
                hereto may refuse consent to the use of its confidential or proprietary
                information for any or no reason. In the event that any such confidential
                or proprietary information is used during the course of this Agreement
                it
                shall retain its confidential and proprietary nature and shall be
                returned
                immediately to its owner or destroyed upon termination of this Agreement.
                Notwithstanding anything herein to the contrary, nothing in this
                subsection shall require either party to maintain in confidence any
                information, materials, or data which is in the public domain, enters
                the
                public domain through no fault of such party, was in possession of
                the
                party prior to being furnished to it by the other, was supplied to
                the
                party by a third party or parties lawfully in possession thereof,
                or which
                the party is required to divulge pursuant to process of any judicial
                or
                governmental body of competent jurisdiction, provided that notice
                of
                receipt of such process is given to the other.


            


    

     

    14.
      ALTERNATE SERVICE 

     

    If
      service from any McKesson distribution center to any Customer Store(s) is
      interrupted or delayed because of strike, lockout, labor dispute, fire or other
      casualty, or any other reasons beyond the reasonable control of McKesson,
      McKesson will take such action as may be reasonably necessary, without
      additional cost or expense to Customer, to maintain service as mutually agreed
      upon to affected Stores from an alternate McKesson Distribution Center.


     

    15.
      EXTERNAL EVENT 

     

    For
      purposes of this Section, “External Event” shall mean an event or series of
      events external to and beyond the control of McKesson that has or is likely
      to
      have a significant adverse impact on McKesson’s business or operations. By way
      of illustration and not of limitation, an External Event may include a material
      market fluctuation, governmental law, the actual or proposed enactment or
      promulgation of a regulation or administrative action, or a fundamental change
      in manufacturers’ pricing or distribution policies. In response to an External
      Event, McKesson may, at its option, request in writing (a “Request”) that the
      pricing and/or other terms of this Agreement be renegotiated so as to equitably
      reflect the effect of the External Event. The Request shall identify the
      External Event and set forth the general nature and scope of the adjustment
      requested. As soon as practicable after receipt of such request by Customer,
      the
      parties shall meet and begin good faith negotiations. If, at the end of sixty
      (60) days following receipt of a Request by Customer, the parties have been
      unable to agree on satisfactory pricing or other terms, McKesson shall have
      the
      right to terminate this Agreement, upon five (5) days’ prior written notice to
      Customer. 

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    In
      the
      event that Customer considers the reason(s) for termination to be inadequate
      under this provision or refuses to renegotiate the Agreement, each party agrees
      that prior to filing any lawsuit or other legal action against the other party
      regarding such issue or dispute arising out of or otherwise relating to this
      External Event provision, the parties shall participate in an expedited,
      non-binding mediation conducted in accordance with the Commercial Mediation
      Rules of the American Arbitration Association (“AAA”). A party shall initiate
      such mediation by submitting a Request For Mediation ("Mediation Request")
      to
      the AAA and the other party by hand delivery and/or facsimile. Within 10 days
      thereafter, the parties shall agree upon a single mediator to conduct the
      mediation or, if they are unable to agree, request the AAA to make the
      appointment. The mediation shall be conducted in San Francisco, California
      and,
      absent a written waiver executed by both parties, shall be completed within
      thirty-five (35) days after either party first submits a Mediation Request.
      All
      mediation fees payable to the AAA shall be shared equally between the parties.
      

     

    16.
      NOTICES 

     

    All
      notices pertaining to this Agreement shall be delivered in person, sent by
      certified mail, delivered by air courier, or transmitted by facsimile and
      confirmed in writing (sent by air courier or certified mail) to a party at
      the
      address or facsimile number shown in this Section, or such other address or
      facsimile number as a party may notify the other party from time to time.
      Notices delivered in person, and notices dispatched by facsimile prior to 4:00
      p.m. and confirmed, shall be deemed to be received on the day sent. All other
      facsimiles and notices shall be deemed to have been received on the business
      day
      following receipt; provided, however, if such day falls on a weekend or legal
      holiday, receipt shall be deemed to occur on the next business day. Notices
      may
      also be transmitted electronically between the parties, provided that proper
      arrangements are made in advance to facilitate such communications and provide
      for their security and verification. 

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    If
      to
      McKesson: 

     

    MCKESSON
      CORPORATION 

    One
      Post
      Street 

    San
      Francisco, CA 94104 

     

     

    Attention:
      Jack Fragie 

    Executive
      Vice President, Retail National Accounts 

    Fax:
      415-983-7570 

     

     

    If
      to
      Customer: 

     

    FAMILYMEDS
      GROUP, INC. 

    312
      Farmington Avenue 

    Farmington,
      CT 06032 

    


    Attention: 
      Ed Mercadante 

    President
      and CEO 

    Fax:
      860-679-9337 

     

    


    
      	
              17.
                

            	
              MISCELLANEOUS
                

            


    

     

    
      	 	
              A.
                

            	
              This
                Agreement embodies the entire agreement between the parties with
                regard to
                the subject matter hereof and supersedes all prior agreements,
                understandings and representations with the exception of any promissory
                note, security agreement or other credit or financial related document(s)
                executed by Customer or between Customer and McKesson. This Agreement
                may
                not be modified, supplemented or extended except by a writing signed
                by
                both parties. 

            


    

     

    
      	 	
              B.
                

            	
              This
                Agreement supersedes any and all prior McKesson agreements and discount
                plans in which any Customer Pharmacy may currently be participating.
                

            


    

     

    
      	 	
              C.
                

            	
              Except
                as provided above in the Alternate Service section, neither party
                shall
                have any obligation hereunder for failure or delay of performance
                due to
                fire, shortage of materials or transportation, government acts, acts
                of
                terrorism or any other cause beyond its control.
                

            


    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    
      	 	
              D.
                

            	
              Neither
                party shall have the right to assign this Agreement or any interest
                therein without the prior written consent of the other party, and
                any such
                attempted assignment shall be without effect. This Agreement shall
                inure
                to and be binding upon the successors and permitted assignees of
                both
                parties. In the case of a successor or permitted assignee of Customer,
                this Supply Agreement shall apply to all of the Pharmacies of the
                successor or permitted assignee. 

            


    

     

    
      	 	
              E.
                

            	
              This
                Agreement shall be construed in accordance with the laws of the State
                of
                California without regard to the provisions of Section 1654 of the
                California Civil Code or the rules regarding conflict of laws.
                

            


    

     

    
      	 	
              F.
                

            	
              If
                any provision of this Agreement shall be held invalid under any applicable
                law, such invalidity shall not affect any other provision of this
                Agreement. The parties agree to replace any such invalid provision
                with a
                new provision which has the most nearly similar permissible economic
                effect. 

            


    

     

    
      	 	
              G.
                

            	
              The
                failure of either party to enforce at any time or for any period
                of time
                any one or more of the provisions thereof shall not be construed
                to be a
                waiver of such provisions or of the right of such party thereafter
                to
                enforce each such provision. 

            


    

     

    
      	 	
              H.
                

            	
              If
                any federal, state, or local tax currently or in the future is levied
                upon
                McKesson in a jurisdiction where either McKesson or Customer does
                business
                and such tax relates or applies to the Merchandise or any transactions
                covered by this Agreement (excluding taxes imposed on McKesson's
                net
                income), the Cost of Goods to those Customer Pharmacies involved
                will be
                increased a corresponding percentage amount.


            


    

     

    
      	
              I.
                

            	
              Customer
                represents and warrants that the above conditions, including prices,
                rebates, terms and delivery, have been made available to its Pharmacies
                by
                wholesale drug competitors of McKesson in the areas covered by this
                Agreement. 

            


    

     

    
      	
              J.
                

            	
              Participation
                hereunder by any of Customer's Pharmacies may be terminated by McKesson
                if
                such Pharmacy fails to comply with the terms and conditions of this
                Agreement. 

            


    

     

    
      	
              K.
                

            	
              In
                the event that either (a) the “U.S. Regular Gasoline Retail Prices (Cents
                per Gallon)”, as reported by the Department of Energy in “This Week in
                Petroleum” (the “Index Price”), is greater than or equal to One Dollar
                Fifty Cents ($1.50) or (b) McKesson is assessed a fuel surcharge
                or other
                increase related to increased cost of fuel by its couriers, McKesson
                shall
                have the right to charge a delivery surcharge of One Dollar ($1.00)
                (the
                “Fuel Surcharge”) for all deliveries made to Customer. Subject to the
                notice provision below, the Fuel Surcharge will be assessed on all
                deliveries following the date on which the Index Price is greater
                than or
                equal to $1.50, until such time as the Index Price falls beneath
                $1.50.
                The Fuel Surcharge shall be assessed for each delivery stop made
                by a
                vehicle, even if such stops are within the same Pharmacy or occur
                in the
                same Pharmacy but at multiple times on the same day or otherwise.
                In the
                event that McKesson imposes a Fuel Surcharge or removes the same
                pursuant
                to this Section 17.K, such action will be effective upon five (5)
                days’
                written notice to Customer. 

            


    

     

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    
      	
              L.
                

            	
              If
                and to the extent any product discounts, rebates or other purchasing
                incentives are earned by or granted to Customer and paid by McKesson
                under
                this Agreement, then applicable provisions of the Medicare/Medicaid
                and
                state health care fraud and abuse/antikickback laws and regulations
                (collectively, "fraud and abuse laws") may require disclosure of
                the
                applicable price reduction on Customer's claims or cost reports for
                reimbursement from governmental or other third party health care
                programs
                or provider plans. Customer agrees to comply with all applicable
                provisions of the fraud and abuse laws and to defend, indemnify and
                hold
                McKesson harmless for any failure on its part to do so.
                

            


    

     

    
      	
              M.

            	
              Any
                rebate, volume incentive or other similar payment based on Customer's
                purchase volume (collectively, "Rebates") are offered to Customer
                as an
                incentive for both volume purchases and prompt payment. Accordingly,
                notwithstanding anything to the contrary in this Agreement, in the
                event
                that Customer on the payment date for any such Rebate ("Rebate Payment
                Date") is not current with respect to Customer's payments due and
                owing to
                McKesson pursuant to this Agreement as of the Rebate Payment Date
                McKesson
                shall have no obligation hereunder to pay any such Rebate either
                on the
                Rebate Payment Date or at any time thereafter. Any Rebate that falls
                within the scope of the preceding sentence shall be deemed forfeited;
                provided however, such forfeiture shall in no way be considered a
                penalty.
                

            


    

     

    
      	
              N.

            	
              Participation
                hereunder by any of Customer's Pharmacies in McKesson's Preferred
                Provider
                Network may be terminated by McKesson if such Pharmacy fails to comply
                with the terms and conditions of this Agreement or the M.P.P.N. Agreement.
                

            


    

     

    
      	
              O.

            	
              McKesson
                shall be entitled at all times to set off any amount owing at any
                time
                from Customer to McKesson against any amount payable at any time
                by
                McKesson to Customer whether arising under this Agreement or otherwise.
                For purposes of this Section, Customer and McKesson in each case
                shall
                include its subsidiaries and affiliates.


            


    

     

    
      	
              P.

            	
              If
                McKesson determines that, as the result of the introduction of or
                any
                change in or in the interpretation of any law, rule, regulation or
                industry standard or guideline, or McKesson’s compliance therewith, there
                shall be any increase in the cost to McKesson, or any capital expenditures
                made by McKesson, with respect to its pharmaceutical distribution
                business, Customer shall pay to McKesson, upon request, one or more
                fees
                in order to compensate McKesson for such increased cost or capital
                expenditures. 

            


    

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    
      	
              Q.

            	
              Customer
                agrees to fully comply with all federal, state and local laws and
                regulations relating to its obligations under this Agreement or otherwise
                applicable to the purchase, handling, sale or distribution of the
                Merchandise and further agrees to defend, indemnify and hold McKesson
                harmless from any and all liability arising out of or due to Customer's
                nonadherence with such legal or regulatory requirements.
                

            


    

     

    
      	
              R.

            	
              In
                no event shall McKesson be liable to Customer or any other entity
                for any
                special, consequential, incidental or indirect damages, however caused,
                on
                any theory of liability and whether or not McKesson has been advised
                of
                the possibility of such damages. 

            


    

     

    
      	
              S.

            	
              For
                all purposes, Customer and McKesson shall remain independent contractors.
                Accordingly, this Agreement does not constitute a partnership or
                other
                joint venture between the parties and neither party shall be deemed
                to be
                an agent or representative of the other.


            


    

     

    
      	
              T.

            	
              Whenever
                possible, each provision of this Agreement shall be interpreted so
                as to
                be effective and valid under applicable law, but if any provision
                of this
                Agreement should be prohibited or invalid under applicable law, such
                provision shall be ineffective to the extent of such prohibition
                or
                invalidity without invalidating the other of such provision or the
                remaining provisions of this Agreement.


            


    

    


     

    
      	
              U.

            	
              All
                rights and remedies of the parties in connection with this Agreement
                are
                cumulative and not exclusive. 

            


    

     

    
      	
              V.

            	
              The
                section headings contained in this Agreement are for reference purposes
                only and shall not affect in any way the meaning or interpretation
                of this
                Agreement. 

            


    

     

    
      	
              W.

            	
              This
                Agreement may be executed in any number of counterparts, and each
                such
                counterpart hereof shall be deemed an original instrument, but all
                such
                counterparts together shall constitute one agreement.
                

            


    

     

    IN
      WITNESS WHEREOF the parties have caused this Agreement to be duly executed
      as of
      the date and year written below and the persons signing warrant that they are
      duly authorized to sign for and on behalf of the respective parties. This
      Agreement shall be deemed accepted by McKesson only upon execution by a duly
      authorized representative of McKesson. 

     

    



    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


     

    MCKESSON
      CORPORATION 

     

    By:_________________________________
      

     

    Name:
      Paul C. Julian________________ 

     

    Title:Executive
      Vice President, Group President 

     

    Date:
      _______________________________ 

     

    


    FAMILYMEDS
      GROUP, INC. 

     

    By:________________________________
      

     

    Name:__Ed
      Mercadante_______________ 

     

    Title:_President
      and CEO______________ 

     

    Date:_______________________________