AMENDMENT NUMBER 2 TO STRATEGIC AGREEMENT
AMENDMENT NUMBER 2
TO
This Amendment Number 2 to Strategic Agreement is made and entered into effective as of
February 20, 2006 (“Amendment”) by and among Connecticut General Life Insurance Company, a
Connecticut corporation (“CIGNA”), United States Pharmaceutical Group, LLC, a Delaware
limited liability company (“USPG”) and NationsHealth, Inc., a Delaware corporation and the
indirect owner of all of the membership interest of USPG (“NationsHealth”), collectively
referred to herein as the “Parties”.
WHEREAS, the Parties entered into that certain Strategic Agreement, dated as of May 4, 2005,
pursuant to which, among other things, (i) USPG provides certain services in connection with
CIGNA’s activities as a Medicare Part D Prescription Drug Plan sponsor and (ii) CIGNA became a
shareholder and warrantholder of NationsHealth (the “Strategic Agreement”); and
WHEREAS, the Parties entered into an Acknowledgment, Waiver and Amendment dated as of October
4, 2005, modifying certain terms and conditions of the Strategic Agreement;
WHEREAS, pursuant to Section 11.10 of the Strategic Agreement, the Parties desire to further
amend the Strategic Agreement as expressly described below effective as of the date hereof;
NOW, THEREFORE, the Parties, in exchange for valuable consideration and for the mutual
considerations set forth herein, and intending to be legally bound, hereby agree as follows:
1. Exhibit 3.01, Interim Compensation. Effective as of the date of this Amendment
Exhibit 3.01, Compensation, to the Strategic Agreement shall be superseded and replaced by
Exhibit 3.01, Interim Compensation, as attached hereto, for the period from the date hereof
through December 31, 2007, or through such earlier date as CIGNA may determine in its sole
discretion. CIGNA will provide five (5) days written notice of its decision to terminate
Exhibit 3.01, Interim Compensation, prior to December 31, 2007. Upon such termination
Exhibit 3.01, Compensation, shall govern the compensation arrangements of the Parties on a
going-forward basis, and the terms of Exhibit 3.01, Interim Compensation, shall no longer
be in effect.
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
1
2. Exhibit 3.01, Compensation. Exhibit 3.01, Compensation, shall be amended
by striking out the definition of “******” and inserting in lieu thereof the following:
***
3. Section 1.08, ***. The Parties hereby add Section 1.08 to the Strategic
Agreement as follows:
SECTION 1.08 ***
4. Section 4.13, Cash Balance Information Access. The Parties hereby add
Section 4.13 to the Strategic Agreement as follows:
SECTION 4.13 Cash Balance Information Access. NationsHealth shall use
commercially reasonable efforts to provide CIGNA with daily password protected, read-only
access to its aggregate cash balances, as well as weekly electronic reports with respect to
its weekly cash balances.
5. Section 6.04, Termination. The Parties hereby amend Section 6.04 of the Strategic
Agreement by restating the last sentence thereof as follows:
In the event a For Cause notice is given regarding any of the events set forth in
Section 6.05(e), (f), (g) or (i), the effective date of termination will be the date that
such notice is received by the other Party.
6. Section 6.05(b). The Parties hereby amend Section 6.05(b) of the Strategic
Agreement by replacing the text thereof with the following:
(b) As to any Party, *** (excluding CIGNA Employer Group Members) as of the last day
of the then most recent annual coordinated election period as defined in 42 CFR §423.38
(b)(2) and as such number of Enrollees shall be ascertained in the thirty (30) days
following such annual coordinated election period.
7. Section 6.05(i). The Parties hereby add Section 6.05(i) to the Strategic
Agreement as follows:
(i) ***
8. Section 6.07(c). The Parties hereby amend Section 6.07(c) of the Strategic
Agreement by deleting in full the text of Section 6.07(c) and replacing such subsection with the
following:
(c) Option to Acquire Servicing Assets. In the event of a termination of this
Agreement by CIGNA For Cause pursuant to subsections (a), (d), (e), (f) (g) and (i) of Section
6.05, above, or in the event that USPG and NationsHealth change their business operations such
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
2
that they no longer offer the Services, then CIGNA shall have the option to acquire, which
option must be exercised within thirty (30) days of the final date on which USPG renders Services
pursuant to this Agreement or within thirty (30) days of any termination as described above, the
assets required to deliver all or part of the Services described in Exhibits 1.02,
1.03, 1.04, 1.05, and 1.06. CIGNA shall have the option to acquire
such physical assets from USPG and/or NationsHealth at their fair market value. NationsHealth
may decline to sell such physical assets to CIGNA, in which instance CIGNA may acquire similar
assets from third party vendors. NationsHealth and/or USPG will provide know how, expertise, and
personnel resources to assist CIGNA, without cost to CIGNA, in replicating the functionality of
such assets. Prior to the effective date of such termination, CIGNA may notify USPG or
NationsHealth of CIGNA’s intent to exercise such option so that the transfer of such assets will
occur simultaneously with the termination. Further, in the event of such termination, CIGNA shall
have the option to acquire from USPG and/or NationsHealth, without cost to CIGNA, the intangible
assets required to deliver all or part of the Services, including system specifications and
configurations, software code, training and policy manuals, marketing plans and other information
used by USPG or NationsHealth in the performance of the Services described in the foregoing
exhibits through a grant by USPG and/or NationsHealth to CIGNA of a royalty-free perpetual license
for such intangible assets to the extent of the authority of USPG and/or NationsHealth to grant
such a license.
9. Section 7.04. The Parties hereby amend Section 7.04(a) of the Strategic Agreement
by adding a new subsection (vi), as follows:
(vi) If NationsHealth is unable or unwilling to fund *** for any CMS contact year, or such
lesser amount as may be mutually agreed by NationsHealth and CIGNA, then CIGNA may, directly or
through a third party, provide all of the Services described in this Agreement to prospective
Enrollees and to prospective Enrollees that become Enrollees after the commencement of such CMS
contract year, provided, however, that for purposes of this subparagraph “Enrollees” shall not
include any persons who are enrolled in the PDP as of the commencement of the annual coordinated
election period as defined in 42 CFR § 423.38(b)(2) corresponding to such CMS contract year. In no
event will NationsHealth be required to fund more than one-half of the combined NationsHealth
Service Expenses and CIGNA Service Expenses, NationsHealth’s provision *** must be provided to
CIGNA no later than ten (10) business days prior to the date on which CIGNA must submit its bid
pursuant to 42 CFR §423.265(b), as amended, to become a Medicare Part D sponsor for the then
upcoming CMS contract year and reasonable evidence of the availability of the remaining one-third
of such funding must be provided to CIGNA no later than thirty (30) days prior to the first day of
the then upcoming annual coordinated election period.
10. Servicing Procedures. A new ARTICLE XII, SERVICING PROCEDURES, shall be added to
the Strategic Agreement as follows:
ARTICLE XII
SERVICING PROCEDURES
SERVICING PROCEDURES
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
3
SECTION 12.01. Servicing Procedures. Notwithstanding any other provision of this
Agreement, the Parties have agreed, for the period commencing May 1, 2006, the servicing procedures
described in Exhibit 12.01 shall be implemented.
11. No Waiver. This Amendment is limited as specified, and the execution, delivery
and effectiveness of this Amendment shall not operate as a modification, acceptance or waiver of
any provision of the Strategic Agreement, except as specifically set forth herein.
12. Reaffirmation of Representations and Warranties; No Default. Except as
specifically set forth herein, the Strategic Agreement shall remain in full force and effect in
accordance with its terms. Each Party specifically (i) makes and reaffirms all of its respective
representations and warranties, (ii) represents that it is in material compliance with all of its
respective covenants and undertakings as contained in the Strategic Agreement, and (iii) represents
that no event described in Section 6.05 of the Strategic Agreement has occurred and is continuing
as of the date of execution of this Amendment.
13. Governing Law. This Amendment shall be governed by and construed in accordance
with the domestic substantive laws of the State of Connecticut, without giving effect to any choice
or conflict of law provision or rule that would cause the application of the laws of any other
jurisdiction. Any and all disputes arising in connection with this Amendment shall be resolved in
accordance with Article IX (Dispute Resolution) of the Strategic Agreement.
14. Counterpart Execution. This Amendment may be executed via facsimile in any
number of counterparts, and by the different Parties hereto in separate counterparts, each of which
counterparts when executed and delivered shall be an original and all of which shall together
constitute one and the same instrument.
15. Binding Effect. This Amendment shall be binding upon and shall inure to the
benefit of the Parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, each of the undersigned has executed, or has caused to be executed, this
Amendment as of the date set forth above.
| CONNECTICUT GENERAL LIFE INSURANCE COMPANY | ||
| By: /s/ Xxxxxxx X. Xxxxxx | ||
| Date: 3-31, 2006 Name: Xxxxxxx X. Xxxxxx Title: SVP — CGWC |
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
4
| NATIONSHEALTH, INC. | ||
| By: /s/ Xxxxx X. Xxxxx | ||
| Date: 3/31, 2006 Name: Xxxxx X. Xxxxx Title: President |
||
| UNITED STATES PHARMACEUTICAL GROUP, LLC |
||
| By: /s/ Xxxxx X. Xxxxx | ||
| Date: 3/31, 2006 Name: Xxxxx X. Xxxxx Title: President |
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
5
EXHIBIT 3.01
INTERIM COMPENSATION
General Principles
The Parties, meaning CIGNA on one hand and USPG and/or NationsHealth on the other hand, intend
to account for the activities described in this Agreement as if such activities constituted a
separate line of business for purposes of *** the financial effects of certain PDP-associated
expense variances.
No Intent to Create Reinsurance
In agreeing to this arrangement, both parties have independently formed a belief that, in the
event of a loss under any of CIGNA’s Part D contracts covered by this Agreement, this provision
does not give rise to a contract for reinsurance against an underwriting loss by CIGNA. *** The
parties acknowledge that the unprecedented nature of the Medicare Part D product makes it
impossible to predict the profitability of the Part D contracts with any certainty. If CMS, or any
other Governmental Authority, *** constituted a form of reinsurance, the parties agree to
negotiate, in good faith, an alternative *** that approximates the *** of the Parties that will
arise under this arrangement.
Interim Compensation
This Exhibit 3.01 provides that certain “Scheduled Marketing and Enrollment Expenses” (set
forth in Attachment A) incurred by CIGNA and/or NationsHealth during the period February 20, 2006
through May 15, 2006 (or such later date to which CMS may extend the initial annual enrollment
period for the 2006 plan year) are amortized over the period from the date incurred through
December 2007 ***.
A. Definitions
Each of the following shall be as finally determined by CIGNA for applicable periods:
***
“Aggregate Actual Premium” means the total premiums received from Enrollees and from CMS.
“Aggregate Claims Cost Variance” means the Aggregate Expected Claims Cost less Actual
Aggregate Claims Cost.
“Aggregate CIGNA *** Recovery” means the product of actual Enrollee months multiplied by the
CIGNA *** Recovery Rate.
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
6
“Aggregate CIGNA Target Margin” means the CIGNA Target Margin multiplied by the actual number
of Enrollee months.
***
*** Recovery Rate” means a PEPM amount, calculated as the sum of *** actually incurred by CIGNA ***
divided by ***, plus, if additional *** are incurred in any month ***, an additional PEPM amount
calculated as the additional *** divided by *** (i.e., the *** Recovery Rate represents the rate
at which *** would be fully recovered over *** at the ***; provided however, the
Parties understand and agree that the time frame within which CIGNA will recoup the *** based on
the *** Recovery Rate will be shorter or longer than *** depending ***. Once CIGNA has recouped
the ***, the *** Recovery Rate will be zero.
***
“CMS Contract Year Month” means a month within a CMS contract year.
***
“PEPM” means per Enrollee per month.
***
“Start-Up Month” means each of the months from September 2005 through February 19, 2006.
***
B. Establishment of Target Margin and ***; Year-End ***.
1.) Annual Identification of CIGNA Target Margin and NationsHealth ***
By *** for the 2006 CMS contract year and not less than *** prior to required bid submission
date (which the Parties anticipate will be the ***) for *** for every subsequent CMS contract year
CIGNA shall specify its required CIGNA Target Margin. *** shall be determined by CIGNA.
2.) Year-End ***
No later than *** following the end of each CMS contract year, CIGNA shall perform a *** of
*** under this Agreement. As part of such *** CIGNA *** to NationsHealth the ***, if any, due to
NationsHealth for the expiring CMS contract year including the *** of all ***.
3.) Termination
A final settlement will be made within *** upon termination or expiration of the Agreement to
capture any late reporting of the components used in the Monthly Settlement Process. No additional
adjustment will be made for ***.
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
7
C. NationsHealth *** Process
1.) Start-Up Months. Not later than *** prior to each Start-Up Month, CIGNA and NationsHealth
will mutually agree to the expected level of *** for the upcoming Start-Up Month. CIGNA will make
*** to NationsHealth in *** equal payments *** of this amount by *** of the corresponding ***
2.) Contract Year. Not later than *** prior to the start of a CMS contract year CIGNA and
NationsHealth will mutually agree to the ***. Not later than *** following CIGNA’s receipt of the
monthly premium amount from CMS, CIGNA will make *** to NationsHealth of the amount of the ***
multiplied by the *** actually received.
D. Monthly Settlement Process
1.) Information Deliveries. Not later than *** after the last day of the preceding
month NationsHealth shall furnish to CIGNA, the ***, and the *** for the preceding month. In no
event shall NationsHealth submit the same expense under more than one of the foregoing categories.
Not later than *** after the last day of the preceding month CIGNA shall furnish to NationsHealth
the ***, the CIGNA *** and ***. NationsHealth shall furnish to CIGNA the actual PDP enrollment.
After a review period of not more than *** after the date of CIGNA’s delivery of the information
described above, CIGNA shall calculate *** to NationsHealth in accordance with this Exhibit
3.01.
2.) Calculation of Monthly Amount due to NationsHealth
CIGNA shall calculate the amount due to NationsHealth as the sum of the following for the
prior month:
a.) ***
b.) plus ***
c.) plus ***
d.) plus ***
e.) minus the *** made by *** for *** and ***;
f.) minus any *** pursuant to Section ***;
g.) minus the ***
3.) Determination of ***. CIGNA shall determine the *** for each month as follows:
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
8
*** shall be determined by subtracting from *** for the prior month all of the following as
calculated for the ***:
a.) ***
b.) ***
c.) ***
d.) ***
e.) ***
f.) ***
g.) ***
h.) ***
Attachment A: ***
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
9
EXHIBIT 12.01
SERVICING PROCEDURES
To allow CIGNA to effect a smooth transition in the provision of Services under the Strategic
Agreement the following servicing procedures shall be implemented.
Source Code Escrow: NationsHealth and CIGNA will arrange for a third party escrow agent at CIGNA’s
expense. NationsHealth shall place in escrow the source code of the NationsHealth- developed
software programs the (“Source Code”) used by NationsHealth in connection with the performance of
the Services under the Agreement (the “Software.”) Upon the occurrence of the Triggering Event
(defined below), the escrow agent will release the Source Code to CIGNA upon CIGNA’s written
request, at no additional cost to CIGNA. NationsHealth shall update the escrowed Source Code daily
unless CIGNA specifies less frequent updates.
Back-Up Site Setup and Operation: NationsHealth agrees to replicate the PDP member servicing
capabilities and member servicing database to a back-up site under CIGNA’s ownership or control.
CIGNA shall procure the back-up site, and pay for all direct and indirect expenses and costs
associated with the procurement, management and maintenance of the back-up site. NationsHealth
and/or USPG will provide know-how, expertise, and personnel resources to assist CIGNA, without cost
to CIGNA, in replicating the functionality of the member servicing capabilities and member
servicing database.
Back-Up Site Testing: CIGNA shall have the right to periodically test the PDP member servicing
functions operating at the back-up site to verify the site’s readiness.
Triggering Event: The Triggering Event shall be deemed to have taken place upon the occurrence of
a “For Cause” termination event as described in Section 6.05(i) of the Strategic Agreement, or in
the event that USPG and NationsHealth no longer offer the Services.
Servicing Transition: Upon the occurrence of the Triggering Event, CIGNA may commence production
use of the backup site and perform the Part D member servicing functions without further notice to,
or consultation with, NationsHealth and without electing to terminate this Strategic Agreement.
Grant of License: NationsHealth hereby grants to CIGNA, at no additional cost to CIGNA, a
non-exclusive, non-transferable, non-sublicensable, royalty-free license to use one complete copy
of the Software, including the Source Code once released from escrow upon the occurrence of the
Triggering Event, used by NationsHealth in connection with the performance of the Services under
the Strategic Agreement to enable CIGNA to perform the Services for its own benefit as described in
this Exhibit 12.01. As between NationsHealth and CIGNA, CIGNA acknowledges that the Software and
Source Code are the sole and exclusive property of NationsHealth and that CIGNA has no rights in
the Software and Source Code except those expressly granted by the Strategic Agreement. For the
avoidance of doubt, the license described herein shall survive the termination of the Strategic
Agreement.
Telephone Number Transitioning: Upon the occurrence of the Triggering Event CIGNA shall have the
right to instruct NationsHealth to port the Part D member servicing 800 numbers to CIGNA. CIGNA
shall then control the routing of these 800 numbers.
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
10
Servicing Staff Continuity: CIGNA and NationsHealth agree to allow CIGNA to employ up to 10
NationsHealth Part D member services agents to facilitate the continuous provision of the Services.
These member services agents shall continue to perform Part D member services on the NationsHealth
database under the direction of NationsHealth. Upon the occurrence of a Triggering Event,
CIGNA may employ up to 10 other personnel of NationsHealth to facilitate the continuous provision
of the Services. In such event, NationsHealth agrees to waive any applicable non-competes with
respect to such personnel.
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
11
EXHIBIT 1.08
FORM OF JOINT PURCHASE ORDER
| Purchase Order Number: |
| Date: |
| Vendor: |
| Description of Goods or Service: |
| Service Commencement/Delivery Date: |
| Projected Total Cost: |
Payment Responsibility: (Check one) NationsHealth _______ CIGNA__________
Authorized by: |
||
| CONNECTICUT GENERAL LIFE INSURANCE | ||
| COMPANY | ||
By:
|
By: | |
Date:
|
Date: | |
Authorized Signatories:
|
Authorized Signatories: | |
Xxxxx Xxxxxx
|
Xxxxxxx Xxxxxx | |
Xxx Xxxxx
|
Xxxx Xxxxxxxx | |
Xxx Xxxxxxxxx
|
Xxxxx Xxxxxxx | |
Xxxxxx Xxxxxxx |
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.
12
