ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (as it may be amended from time to time, this “Agreement”) is made as of December 22, 2005, by and between VALLEY DRUG COMPANY d/b/a Valley Drug North, a Ohio corporation having its principal place of business in New Castle, Pennsylvania (“Seller”), and ROCHESTER DRUG COOPERATIVE, INC., a New York corporation having its principal place of business in Rochester, New York (“Buyer”).

WHEREAS, among other things, Seller is engaged in, from its facility at 209 Green Ridge Road, New Castle, Pennsylvania (the “Facility”), the wholesale pharmaceutical products distribution business (the “Business”);

WHEREAS, Buyer desires to purchase from Seller certain of the assets of the Business, and assume certain of Seller’s obligations and liabilities associated with the Business, and Seller desires to sell such assets to Buyer and have Buyer assume such obligations and liabilities, all in accordance with the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants, representations, warranties and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties hereby agree as follows:

1.   Certain Definitions .

For purposes of this Agreement, the following terms shall have the following meanings:

1.9   "Closing” shall have the meaning given to that term in Section 9.1.

1.10   “Closing Date” shall have the meaning given to that term in Section 9.1.

1.11   “Collection Period” shall have the meaning given to that term in Section 10.5(a).

1.12   “Customer Data” shall have the meaning given to that term in Section 2.1(c).

1.13   “Customers” means those customers of Seller identified in the Customer Data.

1.14   “Damages” shall mean any claim, loss, deficiency, Liability, fine, charge, assessment, penalty, reasonable cost or expense (including reasonable attorneys’ fees, costs and expenses) or other damage.

1.15   “Disclosure Schedule” shall mean the disclosure schedules delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement. Each matter set forth in the Disclosure Schedule (or any agreement, instrument or other documents specifically referenced in the Disclosure Schedule) shall be arranged in numbered paragraphs corresponding to the numbered sections of this Agreement and shall be deemed to qualify the specific numbered sections of this Agreement to which such sections of the Disclosure Schedule correspond (or to which they are cross-referenced).

1.16   “Equipment” shall have the meaning given to that term in Section 2.1(a).

1.17   “Excluded Assets” shall have the meaning given to that term in Section 2.2.

1.18   “Facility” shall have the meaning set forth in the First Whereas clause.

1.19   "Governmental Authority” shall mean any foreign, federal, state, local or other governmental, administrative or regulatory entity, authority, body, agency, court, instrumentality, tribunal or similar Person.

1.20   "Holdback" shall have the meaning set forth in Section 3.2.

1.21   “Knowledge” with respect to Seller shall mean the actual knowledge of an officer of Seller.

1.22   “Landlord” shall have the meaning set forth in Section 2.6.

1.23   “Laws” shall mean all ordinances, statutes, rules, regulations, codes, judgments, orders, injunctions, writs or decrees of any governmental or political subdivision, Governmental Authority or agency thereof, or any court or similar body established by any such governmental or political subdivision, Governmental Authority or agency thereof.

1.24   “Lease Amendment” shall have the meaning set forth in Section 2.6.

1.25   “Liability” shall mean any debt, liability, commitment or obligation of any kind, character or nature whatsoever, whether known or unknown, secured or unsecured, accrued, fixed, absolute or contingent, and whether due or to become due.

1.26   “Lien” shall mean any lien, statutory lien, pledge, mortgage, security interest, charge, encumbrance, easement, right of way, restrictive covenant, claim, option, conditional sale contract or other title or interest retention agreement of any kind or nature whatsoever, including any lease, escrow, security or other deposit, right of redemption, chattel mortgage or collateral security arrangement.

1.27   “Losses” shall have the meaning given to that term in Section 11.2.

1.28   “Motor Vehicles” shall have the meaning given to that term in Section 2.1(b).

1.29   “Ordinary Course” shall mean any transaction that constitutes a normal day-to-day business activity of Seller in connection with the Business, conducted in a commercially reasonable and businesslike manner and consistent with Seller’s past practices.

1.30   “Person” shall mean a corporation, association, general or limited partnership, limited liability company, limited liability partnership, organization, business, joint venture, individual, sole proprietorship, government or political subdivision thereof or a governmental agency.

1.31   “Personal Property Leases” shall have the meaning given to that term in Section 2.1(e).

1.32   “Preliminary Customer Data” shall have the meaning given to that term in Section 7.2(f).

1.33   Real Property Lease” means that certain commercial lease of the Facility dated January 1, 2004, between Becan Development LLC, as landlord, and Seller, as tenant.

1.34   Representative” with respect to any Person shall mean any employee, officer, director, stockholder, partner, accountant, attorney, investment banker, broker, finder, investor, contractor, subcontractor, consultant or other authorized agent or representative of such Person.

1.35   “Sublease” shall have the meaning set forth in Section 2.6.

1.36   "Tax” shall mean any foreign, federal, state or local income, gross receipts, license, severance, occupational, premium, environmental (including taxes under Code Section 59A), customs, duties, profits, disability, registration, alternative or add-on minimum, estimated, withholding, payroll, employment, unemployment insurance, social security (or similar), excise, sales, use, value-added, occupancy, franchise, real property, personal property, business, mercantile, windfall profits, capital stock, stamp, transfer, workmen’s compensation or other tax, fee or imposition of any kind whatsoever imposed by a Governmental Authority, including any interest, penalties, additions, assessments or deferred liability with respect thereto, whether disputed or not, and any Tax obligations arising as a result of a Person’s failure to qualify or become authorized to do business as a foreign corporation in any jurisdiction.

1.37   "Transfer” shall mean transfer, sell, convey, assign or deliver.

1.38   "Transfer Taxes” shall have the meaning given to that term in Section 2.3(c).

2.   Purchase and Sale .

2.1.   Purchase and Sale of Assets .

On the terms of and subject to the conditions set forth in this Agreement and on the basis of the representations, warranties, covenants and agreements herein contained, at the Closing (as hereinafter defined), Seller agrees to Transfer to Buyer, and Buyer agrees to purchase from Seller and accept delivery of, all of Seller’s right, title and interest in and to the following assets, which are used in connection with the Business, other than the Excluded Assets (as hereinafter defined), all as the same shall exist as of the date hereof (collectively, the “Assets”):

(a)   all items of warehouse machinery, equipment and computer hardware owned by Seller in connection with the Business and located at the Facility (collectively, the “Equipment”), that are set forth on Schedule 2.1(a) ; and

(b)   those motor vehicles owned by Seller and used in connection with the Business (collectively, the “Motor Vehicles”) that are set forth on Schedule 2.1(b) ; and

(c)   those certain customer lists and related customer data now owned by Seller and used in connection with the Business, that (subject to Section 7.1(e) below) are specifically set forth on Schedule 2.1(c) (collectively, the “Customer Data”); and

(d)   all rights of Seller under the leases of personal property that are set forth on Schedule 2.1(d) (the “Personal Property Leases”); and

(e)   all of Seller’s right, title and interest in and to the non-pharmaceutical supply contracts and customer purchase orders of the Business for which goods have yet to be shipped on the Closing Date relating to the Business, all of which is set forth on Schedule 2.1(e) (the “Assigned Contracts”) ; and

(f)   all office equipment, office supplies and office furniture used in connection with the Business and located at the Facility; and

(g)   all rights of Seller relating to the Business with respect to leasehold improvements and fixtures located at the Facility.

2.2.   Excluded Assets .

Seller is not selling, and Buyer is not purchasing and shall not acquire any right, title or interest of Seller in or to, any assets of Seller other than the Assets. The assets of Seller relating to the Business which will not be transferred to Buyer shall include, without limitation, the following assets of Seller (the “Excluded Assets”):

(a)   all cash and cash equivalents in hand, in banks or in transit for the account of Seller and all marketable securities of Seller;

(b)   Accounts Receivable;

(c)   all inventory;

(d)   all insurance policies maintained by Seller in respect of the Business;

(e)   any prepaid items relating to insurance (casualty, employees and workers compensation), bid and performance bonds and letters of credit other than those related to Personal Property Leases, Assigned Contracts, and Transferred Approvals;

(f)   Authorized Distribution Agreements;

(g)   any stock or other equity interests in a subsidiary or other Person owned by Seller;

(h)   vendor credits and chargebacks in favor of Seller;

(i)   trademarks and tradenames and other intellectual property owned by Seller; and

(j)   certain leasehold improvements and other fixtures and improvements to the Facility which are owned by the landlord under the Real Property Lease.

2.3.   Method of Conveyance .

(a)   Against payment of the Purchase Price described in Section 3.2, the Transfer by Seller of the Assets to Buyer in accordance with Section 2.1 shall be effected on the Closing Date by Seller’s execution and delivery of one or more bills of sale, assignments, and other instruments of conveyance and transfer, all of which are identified in Section 8.

(b)   At the Closing, Seller shall Transfer to Buyer good and valid title to, and possession of, all Assets, free and clear of any and all Liens, and subject only to the Assumed Obligations.

(c)   Buyer shall be responsible for and shall pay all transfer taxes, sales and use taxes, and documentary stamps (collectively, “Transfer Taxes”), payable by reason of the purchase and sale of the Assets hereunder or Buyer’s assumption of the Assumed Obligations hereunder.

2.4   Assumed Obligations .

At the Closing, Buyer shall, and Seller shall cause Buyer to, assume only all of the Liabilities and obligations of Seller relating to periods from and after the Closing Date (the “Assumed Obligations”) under:

(a)   the Personal Property Leases and Assigned Contracts, which are specifically identified in Schedules 2.1(d) and (e) , and are assigned to Buyer at Closing.

2.5.   Excluded Obligations .

Other than the Assumed Obligations, Buyer shall not assume or be responsible for any Liabilities, including any obligations, debts or commitments, of Seller.

2.6.   Lease Amendment; Sublease .

Seller and Becan Development, LLC (the “Landlord”) have, in anticipation of the Closing, entered into a written amendment to the Real Property Lease in the form attached hereto as Exhibit A providing, among other matters, for an initial term of five (5) years with two (2) successive five-year renewal options at Buyer’s option and a purchase option in favor of Buyer, exercisable not before the expiration of the third year of the initial five year term, at the property’s fair market value at the time of exercise of the option (the “Lease Amendment”). As of the Closing Date, Seller and Buyer shall enter into a written sublease of the Facility pursuant to which Seller shall sublease the Facility to Buyer under the terms of the Real Property Lease, so amended by the Lease Amendment (the “Sublease”), which Sublease shall be substantially in the form set forth on Exhibit B .

3.   Purchase Price .

3.1   Purchase Price .

The aggregate consideration to be paid by Buyer to Seller for the Assets to be Transferred by Seller to Buyer pursuant to this Agreement, shall be the sum of (i) SIX HUNDRED FIFTY-FIVE THOUSAND AND NO/100 U.S. DOLLARS ($655,000), plus (ii) assumption of the Assumed Obligations, subject to the Holdback (the “Purchase Price”). As of the date hereof, Buyer is depositing with Seller the sum of Two Hundred Fifty Thousand US Dollars to be held pending, and which shall be credited against payment of the Purchase Price at, the Closing (the "Deposit"). To the extent that the Closing shall not occur within the period set forth in Section 9.1 or this Agreement is terminated pursuant to Section 12.15, Seller shall return the Deposit to Buyer within three (3) business days following Buyer's demand.

3.2.   Payment of Purchase Price .

The Purchase Price shall be calculated and paid in the following manner:

At the Closing, Buyer shall pay to Seller, by wire transfer of immediately available funds to an account identified in writing by Seller to Buyer, a sum equal to $405,000, against which the Deposit shall be credited as having been paid to Seller. At the Closing, Buyer shall be entitled to withhold from the Purchase Price a sum equal to $250,000 (the "Holdback") until the satisfaction of the requirements and consummation of the transactions contemplated by Section 10.6.

The Purchase Price shall be allocated among the Assets being purchased hereunder in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder. Such allocation shall be set forth on Exhibit C hereto.

5.   Representations and Warranties of Seller .

Seller hereby represents and warrants to Buyer as follows:

5.1.   Corporate Organization .

Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of Ohio. Seller has requisite corporate power and authority to own the Assets and carry on the Business as the same is now being conducted.

5.2.   Authorization .

Seller has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to carry out the transactions contemplated hereby. Seller has taken all necessary corporate action required by Law, Seller’s Certificate of Incorporation, as amended, By-Laws, as amended, or otherwise to be taken by Seller to authorize Seller’s execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been, and the instruments of transfer, assignment and conveyance, and other agreements, referred to in Section 8 will be, duly and validly executed and delivered by Seller, and this Agreement constitutes, and such instruments and other agreements will constitute, legal, valid and binding obligations of Seller enforceable against Seller in accordance with their terms, except that such enforcement may be subject to: (a) bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditor’s rights, and (b) general principles of equity.

5.3.   No Violation .

Except as set forth in Section 5.3 of the Disclosure Schedule , neither the execution and delivery of this Agreement by Seller nor the consummation by Seller of the transactions contemplated hereby will violate any provision of the Certificate of Incorporation, as amended, or the By-Laws, as amended, of Seller, or be in conflict with, or constitute a material default under, or result in the termination or invalidity of, or accelerate the performance required by, or cause the acceleration of the maturity of any of the Assumed Obligations, or result in the creation or imposition of any Lien upon any of the Assets, whether under any agreement or commitment to be assumed by Buyer pursuant to this Agreement to which Seller is a party or by which Seller is bound or to which any of the Assets is subject or otherwise, or violate any Law of any Governmental Authority applicable to any of the Assets, or to the best of Seller’s knowledge, Seller.

5.4.   Brokers and Finders .

Except as set forth in Section 5.4 of the Disclosure Schedule , no Person has been authorized by Seller, or by anyone acting on behalf of Seller, or any of its officers, directors, employees or trustees, to act as a broker, finder or in any other similar capacity in connection with the transactions contemplated by this Agreement in such a manner as to give rise to any valid claim against Buyer or Seller for any broker’s or finder’s fee or commission or similar type of compensation and Seller shall be solely responsible for paying any broker’s, or finder’s fee or commission or similar type of compensation arising out of the matters described in Section 5.4 of the Disclosure Schedule .

5.5.   Condition of Tangible Assets .

Except as set forth in Section 5.5 of the Disclosure Schedule , the Assets consisting of tangible personal property are in good working condition and good repair, ordinary wear and tear excepted, are suitable for immediate use in the Ordinary Course of Business and are free from latent and patent defects. No such item of tangible personal property is in need of repair or replacement other than as part of a routine maintenance in the Ordinary Course of Business. All Assets consisting of tangible personal property used in Seller’s Business are in the possession of Seller.

5.6.   [Intentionally Omitted] .

5.7.   Absence of Specified Changes .

Except as set forth in Section 5.7 of the Disclosure Schedule , since December 2, 2005, there has not been (i) any material adverse change in the Business; (ii) any damage or destruction or property loss whether or not covered by insurance, materially and adversely affecting the Business or any of the Assets; (iii) any sale or other disposition of any of the Assets other than sales or dispositions made in the Ordinary Course; (iv) any entry by Seller into any material commitment or transaction with respect to the Business other than those commitments and transactions entered into in the Ordinary Course, or those contemplated by this Agreement; (v) any release or waiver of any material right or claim of Seller with respect to any of the Assets or the Business, (vi) any mortgage, pledge or imposition of a Lien or other encumbrance on any of the Assets.

5.8.   Title to Assets; Encumbrances . 

Except for the Personal Property Leases and as set forth on Section 5.8 of the Disclosure Schedule , Seller has good and marketable title to all of the Assets, free and clear of any mortgage, pledge, Lien, security interest, or other encumbrance. Seller has a valid leasehold interest in the Real Property Lease, except for defects in title, easements, restrictive covenants and similar encumbrances that individually or in the aggregate have not and would not reasonably be expected to interfere in any material respect with the use or occupancy thereof or any portion thereof in the operation of the Seller’s Business as currently conducted thereon.

5.9.   Personal Property Leases .

(a)   Except as set forth in Section 5.9 of the Disclosure Schedule , (i) each of the Personal Property Leases is valid, binding and enforceable in accordance with its terms, and is in full force and effect; and (ii) there are no existing material defaults on the part of Seller or, to the best of Seller’s knowledge, any other party under any Personal Property Lease .

(b)   Seller’s interest in each of the Personal Property Leases is free and clear of all Liens or other encumbrances.

5.10.   Contracts and Commitments .

Except as described on or referred to in Section 5.10 of the Disclosure Schedule ,

(a)   Seller is and has been in compliance with all applicable terms and requirements of each Assigned Contract,

(b)   to the knowledge of Seller, each other Person that has or had any obligation or liability under any Assigned Contract is, and at all times during the term(s) of such Assigned Contracts, has been, in full compliance with all applicable terms and requirements of such contract,

(c)   no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with or result in a breach of, or give Seller or another Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or payment under, or to cancel, terminate or modify, any Assigned Contract,

(d)   no event has occurred or circumstance exists under or by virtue of any Assigned Contract that (with or without notice or lapse of time) would cause the creation of any Lien affecting any of the Assets.

5.11.   Litigation, Judgments and Decrees .

(a)   Except as set forth in Section 5.11 of the Disclosure Schedule and except for workers compensation claims in the Ordinary Course, there are no Actions (including Actions with respect to products liability), at law or in equity or both, by or before any Governmental Authority or government or arbitration tribunal, board, bureau, authority or commission pending or, to the best of Seller’s knowledge, threatened against Seller involving the Customers, any of the Assets or any of the Assumed Obligations, or that question or challenge the validity of this Agreement or any action taken or to be taken by Seller pursuant to this Agreement or in connection with the transactions contemplated hereby.

5.12.   Consents and Approvals of Governmental Authorities and Others .

Except as set forth in Section 5.12 of the Disclosure Schedule , no Approval of, or notice to, any Governmental Authority or any other Person is required of Seller in connection with the execution, delivery and performance by Seller of this Agreement or the consummation by Seller of the transactions contemplated hereby.

5.13   Compliance With Law; Necessary Authorizations .

(a)   In connection with the Business, Seller has, except as set forth in Section 5.13(a) of the Disclosure Schedule , in all material respects duly complied and is presently in all material respects duly complying with all applicable Laws, Approvals, judgments and decrees of all federal, state, local Governmental Authorities .

(b)   Seller has duly obtained all material Approvals necessary for the conduct of the Business as conducted on or before the date hereof; each of the foregoing is in full force and effect.

5.14   Relationships with Customers .

The relationships of the Seller with each of its Customers are good commercial working relationships, and except as set forth on Section 5.14 of the Disclosure Schedule , none of the Customers has notified Seller that it has cancelled or otherwise terminated, or threatened in writing to cancel or otherwise terminate, its relationship with the Seller within the last six (6) months. Section 5.14 of the Disclosure Schedule sets forth the names of the twenty (20) largest Customers of Seller based on the net dollar value of purchases by such customers during the preceding twelve (12) months. Seller has not received any written notice that any such customer may cancel or otherwise materially and adversely modify its relationship with Seller or limit its purchases from Seller, either as a result of the transactions contemplated hereby or otherwise.

6.   Representations and Warranties of Buyer .

Buyer represents and warrants to Seller as follows:

6.1.   Organization .

Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the State of New York. Buyer has full power and authority to carry on its business as it is now being conducted and to own, lease and operate its properties and assets as and in the places where such business is now conducted and where such properties and assets are now owned