EMPLOYMENT AGREEMENT

(CHIEF EXECUTIVE OFFICER)

Agreement made as of this 8^th day of June, 1998, by and among Edgardo A. Mercadante of Farmington, Connecticut (Employee) and The Arrow Corporation, a Connecticut corporation (the Company).

PREAMBLE

The Board of Directors of the Company recognizes Employees past and potential contribution to the growth and success of the Company and desires to assure the Company of Employees employment in an executive capacity as Chief Executive Officer and to compensate him therefor. Employee wants to continue to be employed by the Company and to commit himself to serve the Company on the terms herein provided. Employees duties will expressly include growth and development, operations of Companys Prescription Centers, including the development of new managed care methods in pharmaceutical care and retail pharmacy services on behalf of and for the account of the Company.

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties, the parties agree as follows:

Benefits shall mean all the fringe benefits established by the Company and approved by the Board of Directors for the benefit of the employees generally and/or for key employees of the Company as a class, including, but not limited to, regular holidays, vacations, absences resulting from illness or accident, health insurance, disability and medical plans (including dental and prescription drug), group life insurance, and pension, profit-sharing or their equivalent.

Board shall mean the Board of Directors of the Company, together with an executive committee thereof (if any), as the same shall be constituted from time to time.

Cause for termination shall mean (i) Employees final conviction of a felony involving a crime of moral turpitude, (ii) acts of Employee which, in the judgment of the Board, constitute willful fraud on the part of Employee in connection with his duties under this Agreement, including but not limited to misappropriation or embezzlement in the performance of duties as an employee of the Company, or (iii) the continued failure or refusal by Employee to comply with a directive of the Board after having been given one (1) written notice of such failure or refusal by the Board.

Change of Control means (i) a merger or consolidation of the Company with or into another company which is not an affiliate of the Company or recapitalization or

reorganization of the Company and, immediately upon the consummation of such merger, consolidation, reorganization or recapitalization, the persons who were the shareholders of the Company immediately prior to such merger, consolidation, reorganization or recapitalization do not immediately thereafter own more than fifty percent (50%) of the total voting power of the merged, consolidated, reorganized or recapitalized Companys voting securities entitled to vote generally in the election of directors; (ii) the sale of all or substantially all of the assets of the Company to another person or entity which is not an affiliate of the Company; (iii) the acquisition by any person, entity or group (excluding, for this purpose, the Company and any affiliate of the Company which acquires beneficial ownership of voting securities of the Company) within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of either fifty percent (50%) or more of the then outstanding shares of Common Stock or fifty percent (50%) or more of the combined voting power of the Companys then outstanding voting securities entitled to vote generally in the election of directors, which, in the case of clause (i), (ii) and (iii) of this definition, such merger, consolidation, reorganization or recapitalization, sale or acquisition, as the case may be, is not approved by a vote of at least eighty percent (80%) of the directors that constitute the Board of Directors immediately prior to the effectiveness of such merger, consolidation, reorganization or recapitalization, sale or acquisition, as the case may be; or (iv) during any period of two consecutive years, if persons who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority of the Board of Directors unless the election, or the nomination for election by the Companys shareholders, of each new director was approved by a vote of at least eighty percent (80%) of the directors then still in office who were directors at the beginning of such period. For purposes of this definition, (A) an affiliate is any person or entity which, directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Company and control (including the terms controlling, controlled by and under common control with) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise and (B) Board of Directors means the board of directors of the Company as constituted at the time a determination thereof is required to be made pursuant to this definition. Notwithstanding anything herein to the contrary, no change in the ownership of the Company or the Board of Directors pursuant to that certain Amended and Restated Shareholders Agreement dated June 8, 1998, among the Company and the Shareholders, as defined therein, or pursuant to the Restated Certificate of Incorporation or pursuant to the Companys initial or subsequent public offering of its capital stock, shall be deemed to be a Change of Control hereunder.

Chief Executive Officer shall mean the individual having responsibility to the Board for direction and management of the executive and operational affairs of the Company and who reports and is accountable only to the Board.

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Company shall mean The Arrow Corporation, a Connecticut corporation.

Disability shall mean a written determination by a physician mutually agreeable to the Company and Employee (or, in the event of Employees total physical or mental disability; Employees legal representative) that Employee is physically or mentally unable to perform his duties of Chief Executive Officer under this Agreement and that such disability can reasonably be expected to continue for a period of six (6) consecutive months or for shorter periods aggregating one hundred and eighty (180) days in any twelve (12) month period.

Employee shall mean Edgardo A. Mercadante and, if the context requires, his heirs, personal representatives, and permitted successors and assigns.

Person shall mean any natural person, incorporated entity, limited or general partnership, business trust, association, agency (governmental or private), division, political sovereign, or subdivision or instrumentality, including those groups identified as persons in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934.

Stock Purchase Agreement shall mean, collectively, the Series A Convertible Preferred Stock and Common Stock Purchase Agreement dated December 18, 1996 among the Company, International Capital Partners, Inc., and the purchasers identified on Exhibit A thereto, and the Series B Convertible Preferred Stock Purchase Agreement dated as of June     , 1998 among the Company, Oxford Bioscience Partners II L.P., Oxford Bioscience Partners (Bermuda) II Limited Partnership, The Goldman Sachs Group, L.P., Pacific Venture Group, L.P., and PVG Associates, L.P.

Territory shall mean any state of the United States and any equivalent section or area of any country in which the Company has operating pharmacies.

2.01 Position. Employee shall serve as Chief Executive Officer and in such additional management position(s) as the Board shall designate. In this capacity Employee shall be subject to the bylaws of the Company, and to the directors of the Board, serve the Company by performing such duties and carrying out such responsibilities as are normally related to the position of Chief Executive Officer in accordance with the directives of the Board. Without limiting the foregoing, all other employees of the Company shall report to the Chief Executive Officer, who will report to the Board. In addition, the Chief Executive Officer shall be responsible for making recommendations to the compensation committee of the Board with respect to the compensation of the Companys employees.

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2.02 Best Efforts Covenant. Employee will, to the best of his ability, devote his full professional and business time and best efforts to the performance of his duties for the Company and its subsidiaries and affiliates.

2.03 Exclusivity Covenant. During the Agreements term, Employee will not undertake or engage in any other employment, occupation or business enterprise other than a business enterprise in which Employee does not actively participate. Further, Employee agrees not to acquire, assume, or participate in, directly or indirectly, any position, investment, or interest in the Territory adverse or antagonistic to the Company, its business prospects, financial or otherwise, or take any action towards any of the foregoing. The provisions of this Section 2.03 shall not prevent Employee from owning shares of any competitor of the Company as long as such shares (i) do not constitute more than 5% of the outstanding equity of such competitor, and (ii) are regularly traded on a recognized exchange, or listed for trading by NASDAQ in the over-the-counter market.

2.04 Post-Employment Noncompetition Covenant.

(a) Except with the prior written consent of the Board, Employee shall not engage in activities in the Territory either on Employees own behalf or that of any other business organization, which are in direct or indirect competition with the Company as specified in Section 2.04(b), for the term of this Agreement unless terminated and if terminated then for that applicable period as specified in Section 2.04(c) hereof, Employee and Company expressly declare that the territorial and time limitations contained in this Section 2.04 and the definition of Territory are entirely reasonable at this time and are properly and necessarily required for the adequate protection of the business and intellectual property of the Company. If such territorial or time limitations, or any portions thereof, are deemed to be unreasonable by a court of competent jurisdiction, whether due to passage of time, change of circumstances or otherwise, Employee and the Company agree to a reduction of said territorial and/or time limitations to such areas and/or periods of time as said court shall deem reasonable.

(b) For the applicable period specified in Section 2.04(c) hereof, Employee will not, without the express prior written approval of the Board, (i) directly or indirectly, in one or a series of transactions, recruit, solicit or otherwise induce or influence any proprietor, partner, stockholder, lender, director, officer, employee, sales agent, joint venturer, investor, lessor, supplier, customer, agent, representative or any other person which has a business relationship with the Company or had a business relationship with the Company within the twelve (12) month period preceding the date of the incident in question, to discontinue, reduce, or modify such employment, agency or business relationship with the Company, or (ii) employ or seek to employ or cause any business organization in direct or indirect competition with the Company to employ or seek to employ any person or agent who is then (or was at any time within six months prior to the date the Employee or the competitive business employs or seeks to employ such person) employed or retained by the Company. Notwithstanding the

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foregoing, nothing herein shall prevent the Employee from providing a letter of recommendation to any employee with respect to a future employment opportunity.

(c) The periods applicable to Sections 2.04(a) and 2.04(b) above shall be as follows:

(i) If the Employee shall be terminated for any reason other than for Cause, then for the period of time the Employee shall receive the Severance Payment, as defined in Section 5.02 hereof.

(ii) If the Employee shall be terminated for Cause, or if the Employee shall voluntarily terminate his employment, then for a period of one (1) year from the date of termination.

2.05 Confidential Information. Employee recognizes and acknowledges that the Companys trade secrets and proprietary information and know-how, as they may exist from time to time (Confidential Information), are valuable, special and unique assets of the Companys business, access to and knowledge of which are essential to the performance of Employees duties hereunder. Employee will not, during or after the term of his employment by the Company, in whole or in part, disclose such secrets, information or know-how to any Person for any reason or purpose whatsoever, nor shall Employee make use of any such property for his own purposes or for the benefit of any Person (except the Company) under any circumstances during or after the term of his employment, provided that after the term of his employment these restrictions shall not apply to such secrets, information and know-how which are then in the public domain (provided that Employee was not responsible, directly or indirectly, for such secrets, information or processes entering the public domain without the Companys consent). Employee shall have no obligation hereunder to keep confidential any Confidential Information if and to the extent disclosure of any thereof is specifically required by law; provided, however, that in the event disclosure is required by applicable law, the Employee shall provide the Company with prompt notice of such requirement, prior to making any disclosure, so that the Company may seek an appropriate protective order. Employee agrees to hold as the Companys property all memoranda, books, papers, letters, customer lists, processes, computer software, records, financial information, policy and procedure manuals, training and recruiting procedures and other data, and all copies thereof and therefrom, in any way relating to the Companys business and affairs, whether made by him or otherwise coming into possession, and on termination of his employment, or on demand of the Company at any time, to deliver the same to the Company.

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