EXHIBIT 10.07
[***] indicates the omission of confidential portions for which confidential
treatment has been requested. Such confidential information has been filed
separately with the Securities and Exchange Commission.
THIRD AMENDMENT TO
PRIME VENDOR AGREEMENT
THIS THIRD AMENDMENT TO PRIME VENDOR AGREEMENT ("THIRD AMENDMENT") is
among Cardinal Health*, formerly known as Cardinal Distribution, ("CARDINAL"),
and Express Scripts, Inc. ("BUYER").
WHEREAS, Cardinal and Buyer executed a Prime Vendor Agreement, dated
July 1, 2001, executed a First Amendment to Prime Vendor Agreement, dated
January 15, 2003 ("FIRST AMENDMENT"), and a Second Amendment to Prime Vendor
Agreement, dated November 19, 2003 ("SECOND AMENDMENT"), (collectively, the
"AGREEMENT").
WHEREAS, the parties desire to further amend the Agreement as further
set forth herein.
NOW THEREFORE, in consideration of the foregoing recitals, the parties
hereby agree as follows:
1. SECTION 2, SALE OF MERCHANDISE. The following language shall be deleted
in its entirety from the definition of Primary Requirements as set forth in
Section 2, Sale of Merchandise, as amended by the First Amendment: "and
Monthly".
2. XXXXXXX 0, XXXXXXXX PRICE. The second paragraph of Section 3 shall be
amended to add "[***]" to the definition of [***].
3. SECTION 5, PAYMENT TERMS. Section 5(a)(i), as amended by the First
Amendment, shall be deleted in its entirety and replaced with the following:
"The payment terms applicable to Buyer for all DIRECT STORE DELIVERY
PURCHASES shall be [***] calculated pursuant to either of the options set
forth below. Buyer will notify Cardinal of its desire to switch from one
option to the other no less than thirty (30) days prior to the effective
date of such change, unless otherwise agreed to in writing by Buyer and
Cardinal. In the event a payment due date falls on a Saturday, that payment
due date will become the preceding Friday. In the event a payment due date
falls on a Sunday, that payment due date will become the following Monday.
In the event a due date falls on a Monday holiday, invoices due on Sunday
and Monday will be due on Tuesday. In the event a due date falls on a
Tuesday through Friday holiday, payment will be due the preceding day.
OPTION 1
The payment terms applicable to Buyer for all DIRECT STORE DELIVERY
PURCHASES shall be [***] as follows: Buyer will cause Cardinal to
receive payment in full: (1) by the [***] day of each calendar month
of the amount due for all invoiced Merchandise delivered and services
provided during the first (1st) [***] of such calendar month; (2)
by the [***] day of each calendar month, of the amount due for all
invoiced Merchandise delivered and services provided during the [***]
through the [***] day of such calendar month; and (3) by the [***] day
of each calendar month, of the amount due for all invoiced Merchandise
delivered and services provided during the period beginning on the
[***] day of the preceding calendar month and ending on the last day
of such preceding calendar month.
OPTION 2
The payment terms applicable to Buyer for all DIRECT STORE DELIVERY
PURCHASES shall be [***] as follows: Buyer will cause Cardinal to
receive payment in full: (1) by the [***] day of each calendar month
of the amount due for all invoiced Merchandise delivered and services
provided from and including the [***] calendar day of each calendar
month through and including the[***] calendar day of each calendar
month; (2) by the [***] day of each calendar month of the amount due
for all invoiced Merchandise delivered and services provided from and
including the [***] calendar day of each calendar month through and
including the [***] calendar day of each calendar month; (3) by the
last Business Day (as hereinafter defined) of each calendar month of
the amount due for all invoiced Merchandise delivered and services
provided from and including the [***] calendar day of each calendar
month through and including the [***] calendar day of each calendar
month; (4) by the [***] day of each calendar month of the amount due
for all invoiced Merchandise delivered and services provided from and
including the [***] calendar day of each preceding calendar month
through and including the [***] calendar day of each preceding
calendar month; (5) by the [***] day of each calendar month of the
amount due for all invoiced Merchandise delivered and services
provided from and including the [***] calendar day of each preceding
calendar month through and including the [***] calendar day of the
each calendar [***].
For purposes of this Agreement, the term "Business Day" shall be defined as
Monday through Friday, with the exception of the following holidays: New
Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day."
4. SECTION 5, PAYMENT TERMS. The first sentence of the third paragraph of
Section 5(b) shall be deleted in its entirety and replaced with the following:
"All payments for invoiced Merchandise delivered and services provided by
Cardinal will be made to the applicable servicing division specified in
Cardinal's invoice (or as otherwise specified by Cardinal) by electronic funds
transfer or other method acceptable to Cardinal so as to provide Cardinal with
good funds by the due date; provided, however, if Option 2 (as set forth in
Section 5(a)(i)) is chosen by Buyer, then Buyer will have the option to make the
payment due on the last Business Day of the month via check (instead of
ACH/electronic funds transfer) as long as the check is delivered to Cardinal on
the last Business Day of the month at the address designated by Cardinal for
these payments."
5. SECTION 6, ORDERING AND DELIVERY. The third sentence of Section 6,
Ordering and Delivery, as amended by the First Amendment shall be deleted in its
entirety and replaced with the following:
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"Pharmacies having Qualified Monthly Purchases in excess of $[***] (except
Pharmacies located outside of the contiguous United States or other
Pharmacies mutually agreed upon by the parties from time to time) will have
two delivery options:
OPTION 1
[***]. In addition, Pharmacies may receive [***] deliveries; provided,
however, such deliveries will be at a charge equal to Cardinal's cost for
such delivery.
OPTION 2
[***].
All [***] deliveries will be subject to the order cut-off times at the
applicable servicing distribution center."
5. SECTION 12, SERVICE LEVEL. Section 12, Service Level, as amended by the
First Amendment, shall be further amended as follows: all references to the
average monthly service level on Rx Products (excluding Buyer's Top [***] Items
(as defined in the First Amendment)) shall be changed from [***] percent
([***]%) to [***] percent ([***]%), and all references to the average monthly
service level on Buyer's Top [***] Items shall be changed from [***] percent
([***]%) to [***] percent ([***]%).
6. SECTION 13, RETURNED GOODS POLICY. The second paragraph and items 1-6 of
Section 13 related to the annual inventory clean-ups shall be deleted in their
entirety. The following paragraph shall be added to Section 13 of the Agreement,
as if fully rewritten therein:
"Subject to the requirements of the Cardinal Returns Policy, Buyer may
return Merchandise for up to twelve (12) months from the date of purchase
for 100% of original invoice amount paid by Buyer (i.e., Buyer's contract
or other "cost" plus the applicable xxxx-up or less the applicable xxxx
down), provided: (i) the Merchandise was originally purchased from Cardinal
and is in full (no partials), unopened packages in a unit of sale routinely
sold by Cardinal; (ii) the Merchandise carries a minimum of nine (9)
months' dating; (iii) no repackaged Merchandise may be returned; (iv)
Merchandise must be returned to the respective Cardinal distribution center
from which it was purchased; (v) andthe total returns in any [***] do not
to exceed [***] percent ([***]%) of Buyer's Qualified Purchases during such
[***]. After twelve (12) months from the date of purchase, Merchandise may
not be returned; provided, however, this twelve (12) month limitation shall
not apply for returns made during the period from April 1, 2004, through
September 30, 2004."
In addition, the following paragraph shall be added to Section 13, as if
fully rewritten therein:
"Unless otherwise notified by the servicing distribution center, returned
goods will be processed within five (5) Business Days of receipt of the
returned goods at the Cardinal
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distribution center, and credit for those returned goods will be issued
within three (3) Business Days following processing."
7. XXXXXXX 00, XXXX. The initial term of the Agreement shall be extended
through June 30, 2007.
8. NEW SECTION 30, GENERIC PURCHASE REQUIREMENT. The following paragraph
shall be added to the Agreement as a new Section 30, titled "Generic Purchase
Requirement":
"During calendar years 2004 and 2005, calculated on a quarterly basis,
Buyer will use commercially reasonable efforts to cause not less than
[***]% of Buyer's total Qualified Purchases from Cardinal to be generic Rx
Products. During calendar year 2006 and the initial six (6) months of
calendar year 2007, calculated on a quarterly basis, Buyer will use
commercially reasonable efforts to cause not less than [***]% of Buyer's
total Qualified Purchases from Cardinal to be generic Rx Products. The
foregoing requirements shall be referred to as the "Generic Purchase
Requirements." To support Buyer's achievement of the Generic Purchase
Requirements, Cardinal will use commercially reasonable efforts to make
generic Rx Products available to Buyer at prices that are equal to or
better than those prices that Buyer can obtain directly from the generic Rx
Product manufacturers. Pricing for Buyer's purchases of generic Rx Products
shall be pursuant to Cardinal's Mail Order Preferred Source program.
If Buyer does not achieve the Generic Purchase Requirements, Cardinal and
Buyer will meet to review Buyer's purchases of generic Rx Products and
develop a strategy to support Buyer's achievement of the Generic Purchase
Requirements during the quarter following the quarter in which the Generic
Purchase Requirements were not met. If, during such following quarter,
Buyer does not achieve the Generic Purchase Requirements, Buyer shall be
considered in breach of the then current agreement between Buyer and
Cardinal, pursuant to Section 14 of this Agreement, and Buyer shall have
ninety (90) days to cure such breach to the reasonable satisfaction of
Cardinal. In the event that Buyer does not cure such breach within such
ninety (90) day period, Cardinal may terminate this Agreement immediately
in accordance with Section 14 hereof."
9. NEW SECTION 31, EDI INITIATIVES. The following sentence shall be added
to the Agreement as a new Section 31, titled "EDI Initiatives":
"Cardinal will support mutually agreed upon Buyer standards, policies and
service level agreements for all existing business-to-business processes
and new initiatives. These processes and initiatives include, but are not
limited to, EDI, VAN, Direct Connect, Collaborative Commerce, and adding
new transactions (e.g., 832). Buyer will work closely with Cardinal to
ensure seamless connectivity and smooth processing of data between the two
parties is achieved."
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10. EXHIBIT A, PHARMACIES. The following Pharmacies shall be deleted from
Exhibit A, as amended by the First Amendment:
Express Access Pharmacy, Inc.
dba Express Scripts, Inc.
000 Xxxxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxxxxxx 00000
Central Fill, Inc.
000 Xxxxxxxxx Xxxxxx
Xxxx Xxxxxxx, Xxx Xxxxxx 00000
11. EXHIBIT B, PRICING MATRIX. Section 1 of Exhibit B, Pricing Matrix, as
amended by the First Amendment, shall be deleted in its entirety and replaced
with Section 1 of Exhibit A attached to this Amendment.
12. EXHIBIT D, DEDICATED RESOURCES. The Dedicated Resource section of
Exhibit D shall be amended to provide [***] Cardinal employees who will be
dedicated to servicing Buyer's account and will act as a liaison between Buyer
and Cardinal in order to enhance Buyer-Cardinal relations. The Cardinal
employees will be based in the St. Louis, Bensalem and Tempe Pharmacies.
13. MISCELLANEOUS. Capitalized terms not defined herein will have the same
meaning ascribed to them in the Agreement, it being the intent of the parties
that the Agreement and this Third Amendment will be applied and construed as a
single instrument. The Agreement, as modified by this Third Amendment,
constitutes the entire agreement between Cardinal and Buyer regarding the
subject matter of the Agreement and this Third Amendment and supersedes all
prior or contemporaneous writings and understandings between the parties
regarding the same. This Third Amendment will be binding upon the parties, their
heirs, legal representatives, successors and assigns. The terms and provisions
of this Third Amendment are severable. If any term or provision of this Third
Amendment is determined to be illegal or unenforceable by a court of competent
jurisdiction, the remaining terms and provisions of this Third Amendment and the
Agreement will remain in full force and effect. This Third Amendment may only be
amended in a writing signed by Cardinal and Buyer.
14. EFFECTIVE DATE. This Third Amendment shall be effective as of January
1, 2004 ("EFFECTIVE DATE"). Except as otherwise amended herein, the terms and
conditions of the Agreement shall remain in full force and effect.
CARDINAL HEALTH* EXPRESS SCRIPTS, INC.
By: /s/ Xxxx X. Xxxxxxx By: /s/ Xxxxxxx Xxxx
--------------------------------- ------------------------------------
Name: Xxxx X. Xxxxxxx Name: Xxxxxxx Xxxx
Title: Group President Title: CEO
Date: 4/9/04 Date: 3-30-04
* The term "CARDINAL HEALTH" means the following pharmaceutical distribution
companies including: Cardinal Health 106, Inc. (formerly known as Xxxxx X.
Xxxx, Inc.), a Massachusetts corporation (Peabody, Massachusetts); Cardinal
Health 103, Inc. (formerly known as Cardinal Southeast, Inc.), a
Mississippi corporation (Madison, Mississippi); Cardinal Health 110, Inc.
(formerly known as Xxxxxxxx Distribution Corporation), a Delaware
corporation (Folsom, California) and any other subsidiary of Cardinal
Health, Inc., an Ohio corporation ("CHI"), as may be designated by CHI.
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EXHIBIT A
1. DIRECT STORE DELIVERY PURCHASES. The Direct Store Delivery Purchases Pricing
Matrix has been established based upon Buyer's representations that, following
completion of the conversion period (as hereinafter described):
(a) Buyer will purchase each Pharmacy's Primary Requirements (as defined in
Section 2 of this Agreement) and Generic Purchase Requirements (as defined in
Section 8 of the Third Amendment) from Cardinal;
(b) Buyer's Qualified Annual Purchases for Direct Store Delivery in the
aggregate during each Contract Year (as hereinafter defined) will meet or exceed
Three Billion Five Hundred Million Dollars ($3,500,000,000).
(collectively referred to herein as the "MINIMUM REQUIREMENTS"). If, for any
reason, some or all of the Minimum Requirements are not met by Buyer, then
Cardinal may modify this Direct Store Delivery Purchases Pricing Matrix as
follows: for each [***] Dollars ($[***]) below the minimum Qualified Annual
Purchases set forth above, Buyer's applicable price will be increased by [***]%.
The term "CONTRACT YEAR" means each consecutive twelve (12) month period,
beginning on the Commencement Date of this Agreement.
Subject to the Minimum Requirements and Section 5 of this Agreement
regarding timely payment, Buyer will be entitled to purchase Merchandise from
Cardinal (that is [***] or subject to a Manufacturer Contract) for Direct Store
Deliveries pursuant to the pricing matrix set forth below:
DISCOUNT FROM CARDINAL'S COST
TOTAL QUALIFIED ANNUAL PURCHASES @ [***]
-------------------------------- -----------------------------
3,500,000,000 - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - [***] [***]%
[***] - greater [***]%
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Buyer's pricing will be reviewed on a calendar quarter basis and any
adjustments required based on Buyer's average Qualified Monthly Purchases and
actual weighted average payment days during such calendar quarter will be loaded
into Cardinal's system on the [***] of the [***] following the end of the
applicable calendar quarter; provided, however, that such adjustment shall be
retroactive to the [***] of the [***] immediately following the end of the
applicable calendar quarter. Any amounts due to Buyer as a result of a
retroactive price decrease pursuant to the terms hereof shall be paid to Buyer
in the form of a check by the [***] day of the [***] immediately following the
end of the applicable calendar quarter. Any amounts due to Cardinal as a result
of a price increase pursuant to the terms hereof shall be paid to Cardinal in
the form of a check within [***] days of receipt of a statement from Cardinal
for any such amounts owed, such statement to be provided to Buyer within not
less than [***], but no more than [***] days of the end of the applicable
calendar quarter. In all instances, Buyer shall accurately report, as may be
required, under any state or federal program which provides cost or charge based
reimbursement for the products or services covered by this Agreement, the net
cost actually paid by Buyer. For example, any adjustments required based on
Buyer's average Qualified Monthly Purchases during [***] and [***], shall be
loaded into Cardinal's system on [***], and the adjusted pricing will be
retroactive to [***]. If pricing were decreased, Cardinal would provide a check
to Buyer by May 30 for the amount resulting from the price decrease during
[***]. If pricing was increased, Cardinal would provide a statement to Buyer for
the amount resulting from the price increase during [***], and such amount shall
be due to Cardinal within [***] days of the receipt of the statement from
Cardinal.
The pricing set forth above is conditioned upon Cardinal's ability to make
[***] (as hereinafter defined) of Merchandise. "[***]" means [***] that include,
but are not limited to, [***] and [***]. In the event that any government
regulation, policy or other action becomes effective during the term of this
Agreement which materially adversely affects [***], or in the event the [***]
from any vendor are materially affected due to [***] or otherwise, then Cardinal
will provide notice to Buyer of such event, including a report and reasonable
supporting documentation illustrating such impact in reasonable detail. In such
event, the parties agree to meet in good faith and negotiate, for a period not
to exceed [***] from the date Buyer receives notice of the adverse event from
Cardinal, a mutually acceptable adjustment to the pricing under this Agreement,
such pricing adjustment to be retroactive to the date that Cardinal provided
notice to Buyer of such adverse event. Representatives of each party shall
include at least one senior-level executive. If the parties are unable to agree
upon a mutually acceptable adjustment to the pricing within such [***] period,
at Cardinal's election, Buyer shall continue to purchase Merchandise from
Cardinal pursuant to the terms and conditions of this Agreement or Cardinal may
terminate this Agreement upon providing [***] prior written notice thereof to
Buyer; provided, however, the pricing applicable to Buyer's purchases during
such [***]period shall be the pricing in effect as of the date of the notice to
Buyer hereunder.
ANNUAL DISCOUNT. Within seven (7) calendar days of January 1, 2004, 2005 and
2006, provided Buyer is in compliance with the terms and conditions of this
Agreement, Buyer will be eligible to receive a discount in an amount equal to
[***]Dollars ($[***]) to be applied to Buyer's purchases of Merchandise under
this Agreement during such month. The discount will be provided in the form of a
credit memo. This discount constitutes a "discount or other reduction in price,"
as such terms are defined under the Medicare/Medicaid Anti-Kickback Statute, on
the
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Merchandise purchased by Buyer under the terms of this Agreement. Cardinal and
Buyer agree to use their best efforts to comply with any and all requirements
imposed on sellers and buyers, respectively, under 42 U.S.C. Section
1320a-7b(b)(3)(A) and the "safe harbor" regulations regarding discounts or other
reductions in price set forth in 42 C.F.R. Section 1001.952(h). In this regard,
Buyer may have an obligation to accurately report, as may be required, under any
state or federal program which provides cost or charge based reimbursement for
the products or services covered by this Agreement, or as otherwise requested or
required by any governmental agency, the net cost actually paid by Buyer.
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