EXHIBIT 10.03
[***] 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.
FIRST AMENDMENT TO
WHOLESALE SUPPLY AGREEMENT
This first amendment ("FIRST AMENDMENT") dated May 26, 2004 amends the Wholesale
Supply Agreement dated January 1, 2004 ("AGREEMENT") between CVS and Cardinal
Health. CVS and Cardinal Health ("PARTIES") desire to enter into this First
Amendment to amend Sections 1(a), 1(b), 3(c), 6(d), 7(b), 10(a), and 12
Disclosure Schedules all as more particularly set forth below.
The Parties agree as follows:
1. Effective Date of Amendment. This First Amendment shall be effective
as of the date of the closing of the transaction pursuant to which CVS
will purchase from X.X. Xxxxxx Company, Inc. ("JC PENNEY")
approximately 1,260 retail pharmacies and approximately 3 distribution
centers as publicly announced by CVS on April 5, 2004 ("TRANSACTION").
In the event that the Transaction does not close on or before
September 1, 2004, then this First Amendment shall become null and
void and shall be of no force or effect.
2. Scope. Notwithstanding anything else in the Agreement or this First
Amendment, in no event will CVS be required to designate any acquired
retail pharmacy as a Pharmacy or acquired distribution center as a CVS
Pharmacy DC under the Agreement, if such pharmacy is subject to an
existing wholesaler agreement which cannot be terminated by CVS for
any reason, or which, if terminated by CVS would or could, in CVS'
reasonable business judgment, result in termination penalties/fees of
any type, or result in CVS compromising CVS' business operations.
3. Disclosure Schedules. The Agreement is amended by deleting therefrom
the following disclosure schedules in their entirety:
"Section 1(a) Disclosure Schedule",
"Section 1(b) Disclosure Schedule",
"Section 3(c) Disclosure Schedule",
"Section 6(d) Disclosure Schedule",
"Section 7(b) Disclosure Schedule",
"Section 10(a) Disclosure Schedule", and
"Section 12 Disclosure Schedule"
and replacing them with the following new Disclosure Schedules:
"Section 1(a) Disclosure Schedule",
1
"Section 1(b) Disclosure Schedule",
"Section 3(c) Disclosure Schedule",
"Section 6(d) Disclosure Schedule",
"Section 7(b) Disclosure Schedule",
"Section 10(a) Disclosure Schedule", and
"Section 12 Disclosure Schedule"
attached to this First Amendment and incorporated into this First
Amendment and into the Agreement by this reference, which shall be
attached by the Parties to their respective copies of the Agreement.
4. Generally. It is the Parties' intent for the Agreement and this
Amendment (if the Transaction closes on or before September 1, 2004)
to be applied and construed as a single instrument. The Agreement, as
modified by this First Amendment, remains in full force and effect and
constitutes the entire agreement among the Parties regarding this
subject matter and supersedes all prior or contemporaneous writings
and understandings among the Parties with respect thereto. This First
Amendment will be binding on the Parties and their successor and
assigns. If any term or provision of this First Amendment is
determined to be illegal or unenforceable by a court of competent
jurisdiction, the remaining terms and provisions of this First
Amendment and the Agreement will remain in full force and effect. Only
a subsequent writing signed by both Parties may amend this First
Amendment or further amend the Agreement.
CVS Pharmacy, Inc Cardinal Health*
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------- ------------------------------------
Print Name: Xxxxxxx X. Xxxxxxx Print Name: Xxxxxxx X. Xxxxxx
Title: VP Pharmacy Merchandising Title: EVP, Retail Sales & Marketing
* The term "CARDINAL HEALTH" means the following pharmaceutical distribution
companies: 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.
2
SECTION 1(A) DISCLOSURE SCHEDULE
AMENDED MAY 26, 2004
DETERMINATION OF PHARMACIES THAT WILL DESIGNATE CARDINAL AS
PRIMARY WHOLESALE PHARMACEUTICAL SUPPLIER
As of the Commencement Date, and throughout the term of this Agreement, CVS will
designate Cardinal as primary wholesale pharmaceutical supplier to the
Pharmacies existing as of January 1, 2004 plus or minus the organic growth
related to these specific Pharmacies. Furthermore, CVS will designate Cardinal
as primary wholesale pharmaceutical supplier to the Pharmacies acquired from JC
Penney which are located in the States of [***] and [***] and which Cardinal was
designated as the primary wholesaler by [***] (approximately [***] Pharmacies,
[***] in [***] and [***] in [***]), and which remain open and continue to
operate ("JC PENNEY ACQUIRED PHARMACIES").
In the event CVS acquires by purchase, merger or other combination, a retail
pharmacy (or multiple retail pharmacies) representing: (a) less than [***]% of
CVS' Pharmacies as of January 1, 2004, then CVS will designate Cardinal as
primary wholesale pharmaceutical supplier to such pharmacies pursuant to the
terms and conditions of this Agreement in a timeframe so as not to compromise
CVS' business operations; or (b) greater than or equal to [***]% of CVS'
Pharmacies as of the January 1, 2004 (the date of this Agreement), then CVS may
decide to award Cardinal any portion of said retail pharmacies at CVS' sole
discretion (in which case Cardinal and CVS will meet to discuss the terms of
said new business).
In no event will CVS be required to terminate any wholesaler agreement which may
exist related to any retail pharmacies CVS acquires by purchase, merger or other
combination.
DESIGNATED PHARMACY LIST.
Upon Cardinal's request, as often as quarterly, CVS will provide Cardinal with
the Designated Pharmacy List. For each of the Pharmacies, CVS agrees that each
such Pharmacy will purchase its Primary Wholesale Requirements of Store Rx
Purchases from Cardinal, as further described in the Section 2(a) Disclosure
Schedule.
3
SECTION 1(B) DISCLOSURE SCHEDULE
AMENDED MAY 26, 2004
TOTAL DC LIST
CVS New York, Inc. CVS D.S., Inc.
Three Xxxxx Drive 00000 Xxxxxxxx Xxxx
Xxxxxxxxx, XX 00000 Xxxxxxxxx, XX 00000
CVS Pharmacy, Inc. CVS IN Distribution, Inc.
000 Xxxxxxxxxx Xxxxx 0000 Xxxxxx Xxxxx
Xxxxx Xxxxxxxxxx, XX 00000 Xxxxxxxxxxxx, XX 00000
CVS Texas Distribution L.P. CVS Garland TX Distribution, L.P.
000 XXX Xxxxx 0000 Xxxxxx Xxxxxx
Xxxxx, XX 00000 Xxxxxxx XX 00000
(expected open date TBD)
CVS Conroe TX Distribution, L.P. CVS Orlando FL Distribution, L.L.C.
Name TBD Name XXX
000 Xxxxx Xxxxxx Xxxx. 0000 Xxxxxxxxxx Xxxxx
Xxxxxx XX 00000 Xxxxxxx XX 00000
As CVS [***] additional [***] to support Pharmacies existing as of January 1,
2004 or additional Pharmacies related to the organic growth of the Pharmacies
existing as of January 1, 2004, CVS will [***] such pharmacy [***] Cardinal as
its/their [***] pursuant to the terms and conditions of this Agreement.
For each of the CVS Pharmacy DCs set forth above, CVS agrees that each such CVS
Pharmacy DC will purchase its Primary Wholesale Requirements of Brokerage
Purchases from Cardinal, as further described in the Section 2(a) Disclosure
Schedule.
CVS will keep the Total DC List current and notify Cardinal of anticipated
additions to or deletions from the Total DC List at least thirty (30) days prior
to such addition or deletion. If such addition or deletion could not have been
reasonably foreseen [***] ([***]) days in advance, CVS will notify Cardinal as
soon as possible thereafter. In no event will Cardinal be required to service
any CVS Pharmacy DC pursuant to the terms of this Agreement until [***] ([***])
days after CVS first notified Cardinal that the CVS Pharmacy DC would be added
to the Total DC List. A CVS Pharmacy DC may only be deleted if it ceases
operations.
If CVS acquires or opens an additional distribution center or centers in support
of acquired retail pharmacies (acquired by purchase, merger or other
combination), CVS may designate Cardinal as the primary wholesale pharmaceutical
supplier to such distribution centers (in which case Cardinal and CVS will meet
to discuss the terms of said new business) in a timeframe so as not to
compromise CVS' business operations. In no event will CVS be required to
terminate any wholesaler agreement which may exist related to acquired retail
pharmacies.
4
SECTION 3(A) DISCLOSURE SCHEDULE
AMENDED MAY 26, 2004
PHARMACIES PURCHASE PRICE
PHARMACY MINIMUM VOLUME REQUIREMENTS.
During the term of this Agreement (January 1, 2004 through June 30, 2008), the
Pharmacies' aggregate purchases of generic Rx Products will meet or exceed $689
million (collectively referred to herein as the "PHARMACY MINIMUM VOLUME
REQUIREMENT").
During Cardinal's quarterly business review, Cardinal will provide CVS with
purchasing information to substantiate the Pharmacy Minimum Volume Requirement
performance.
Cost of Goods for Store Rx Purchases and Store Other Purchases
CVS will pay to Cardinal a Cost of Goods for Store Rx Purchases and Store Other
Purchases as follows:
Rx Products (FDB branded) [***]%
CVS Formulary Generics [***]
All other Generics [***] or "[***] Retail", [***]
Home Health Care/DME "[***] Retail", [***]
HBC/OTC "[***] Retail" [***]%
Repackaged Merchandise "[***] Retail" [***]%
For the purpose of this Agreement "[***] Retail" shall mean CVS will [***]
offered by Cardinal to a retail customer in the [***] CVS (i.e. a [***] retail
[***] or [***] with a minimum [***] approximately [***] to that of CVS and
approximately the [***] as CVS) for all Merchandise for which a purchase order
has been issued as of the date the Merchandise was offered to a third party for
such [***]. The prices of a purchase order shall be deemed automatically revised
(by Cardinal to CVS) to equal the [***] at which Cardinal shall have sold or
shall have offered such product to such a retailer.
CII orders must be shipped [***]% complete and courier must [***] when order is
received and checked in by CVS. CVS reserves the right to refuse any CII order
that contains any shipping errors.
All Merchandise being delivered from Cardinal to CVS Pharmacies must have at
least [***] ([***]) months [***]. Under no circumstances will Merchandise be
delivered to Pharmacies with [***] than [***] ([***]) months [***] remaining
without expressed written approval by CVS' Vice President of Pharmacy
Merchandising for each occurrence. Furthermore, Cardinal represents that it is,
and will continue to be during the term of this Agreement, an industry leader in
implementation of processes, practices and safeguards to prevent the
distribution of Merchandise will less than [***] ([***]) months [***] remaining
to Pharmacies.
The foregoing Cost of Goods does not apply to Merchandise which is subject to a
Manufacturer Contract, which will instead be priced at the CVS contract price
for the Pharmacies. Cardinal
5
reserves the right to adjust the Cost of Goods of any item of Merchandise in the
event that the manufacturer of such item implements a change in policy which
eliminates or decreases the [***] effective on the Commencement Date with
respect to such item. The adjustment to the Cost of Goods for such item will be
equal to the decrease (or elimination) of the [***].
6
SECTION 3(C) DISCLOSURE SCHEDULE
AMENDED MAY 26, 2004
PHARMACY SITE INCENTIVE
Pharmacies will be eligible for the following Cost of Goods adjustment based
upon the [***] qualified monthly purchases per Pharmacy during a calendar [***]
(the "PHARMACY SITE INCENTIVE"):
[***] Qualified Monthly Invoice Cost Cost of Goods Net Cost of Goods
Purchases per Pharmacy of Goods Adjustment after Adjustment
----------------------- ------------ ------------- -----------------
$[***] - $[***] [***]% [***]% [***]%
$[***] - $[***] [***]% [***]% [***]%
$[***] - $[***] [***]% [***]% [***]%
$[***] - $[***] [***]% [***]% [***]%
$[***] - $[***] [***]% [***]% [***]%
$[***] - $[***] [***]% [***]% [***]%
$[***] - $[***] [***]% [***]% [***]%
$[***] - $[***] [***]% [***]% [***]%
$[***] - $[***] [***]% [***]% [***]%
$[***] + [***]% [***]% [***]%
If CVS' [***] qualified monthly purchases per Pharmacy during a calendar quarter
is less than $[***], a Cost of Goods adjustment will be mutually determined at a
percentage that is greater than the next category Cost of Goods adjustment. At
the end of each calendar quarter, Cardinal and CVS will evaluate CVS' [***]
qualified monthly purchases per Pharmacy during such quarter (i.e., Store Rx
Purchases and Store Other Purchases only) of all Pharmacies divided by the
[***], adjusted as appropriate to reflect any additional or deleted Pharmacies).
Payment will be paid to CVS in the form of a credit so that CVS receives such
credit within [***] ([***]) days from the close of said [***]. The credit will
be faxed and subsequently mailed in hard copy form to CVS' Manager of Wholesaler
Programs.
The Pharmacy Site Incentive Payment calculation will be made as follows:
Cardinal and CVS will evaluate CVS' [***] qualified monthly purchases per
Pharmacy during a calendar [***]. Utilizing this calculation Cardinal and CVS
will determine which tier to utilize for the payout calculation.
For example, during a calendar [***], CVS' [***] qualified monthly purchases per
Pharmacy was $[***], then CVS' Pharmacy Site Incentive (additional Cost of Goods
adjustment) will be Cardinal's [***] an additional [***]%. Conversely, if CVS'
[***] qualified monthly purchases per Pharmacy was $[***] during a calendar
[***], then CVS' additional Cost of Goods adjustment would be Cardinal's [***]
an additional [***]%.
In addition, if CVS [***] a material [***] of Pharmacies which would place CVS'
qualified monthly purchases per Pharmacy into a different Pharmacy Site
Incentive volume category, then CVS may elect to notify Cardinal prior to
Cardinal [***] Pharmacies, and ask Cardinal [***] these Pharmacies for the [***]
([***]) month period following the date of acquisition for purposes of
calculating the Pharmacy Site Incentive [***] only. If CVS does not notify
Cardinal
7
prior to Cardinal servicing such Pharmacies or CVS does not ask Cardinal to
[***] such Pharmacies from the calculation of the Pharmacy Site Incentive, then
such Pharmacy or Pharmacies will be subject to the terms and conditions of this
Agreement. Regardless of whether the acquired Pharmacies are included or
excluded in the determination of the Pharmacy Site Incentive volume category,
said Pharmacy purchases will be eligible for the Pharmacy Site Incentive. To
that end, it has been agreed that the JC Penney Acquired Pharmacies will not be
included in the determination of the Pharmacy Site Incentive volume category
only, until July 1 2005. However, the Store Rx Purchases and Store Other
Purchases of such Pharmacies will receive the same Site Volume Incentive cost of
goods adjustment earned by CVS' core Pharmacies (Pharmacies excluding JC Penney
Acquired Pharmacies).
The Pharmacy Site Incentive is a "discount or other reduction in price" as such
term is used under section 1128(B)(3)(A) of the Social Security Act, 42 U.S.C.
1320a-7b(b)(3)(a). CVS will disclose the Pharmacy Site Incentive and any other
"discounts or other reductions in price" received by CVS from Cardinal under any
state or federal program which provides cost or charge-based reimbursement to
CVS for the Merchandise purchased by CVS under this Agreement.
8
SECTION 6(D) DISCLOSURE SCHEDULE
AMENDED MAY 26, 2004
EMPLOYEE FUNDING
Cardinal will partially fund the cost of a CVS DSD Manager ("EMPLOYEE") who will
serve as an intermediary between Cardinal and CVS specifically related to the
management of the Store Rx Purchases. It is understood that the Employee shall
be employed solely by CVS and that the Employee's salary and other employment
benefits shall be the sole responsibility of CVS. CVS agrees to indemnify and
hold Cardinal harmless for all claims and liabilities, whether alleged or
actual, relating to the Employee.
Cardinal will provide for the funding of this Employee pursuant to the schedule
defined below:
[***] $[***]
9
SECTION 7(B) DISCLOSURE SCHEDULE
AMENDED MAY 26, 2004
[***] WRAP-AROUND REBATE FOR THE PHARMACIES
CVS will be eligible for the following discount on the Pharmacies' [***] Rx
Product purchases ("[***] WRAP-AROUND REBATE"):
[***]QUALIFIED ANNUAL PURCHASES
OF [***] RX PRODUCTS BY THE
PHARMACIES PER PROGRAM YEAR (000) REBATE
--------------------------------- ------
$[***] - $[***] [***]%
$[***] - $[***] [***]%
$[***] - $[***] [***]%
$[***] - $[***] [***]%
$[***] - $[***] [***]%
$[***] - $[***] [***]%
$[***]+ [***]%
Cardinal will provide CVS with a monthly report detailing the Pharmacies'
aggregate qualified monthly purchases of [***] Rx Products to date. At the end
of each Program Year, Cardinal and CVS will evaluate CVS' aggregate qualified
annual purchases of [***] Rx Products by the Pharmacies during such Program
Year. The [***] Wrap-Around Rebate will be equal to a percentage (as set forth
in the table above) of CVS' aggregate qualified annual purchases of [***] Rx
Products by the Pharmacies during the applicable Program Year. The [***]
Wrap-Around Rebate, if any, will be calculated and paid to CVS in the form of a
credit so that CVS receives such credit within [***] ([***]) days from the close
of said Program Year. The credit will be faxed and subsequently mailed in hard
copy form to CVS' Manager of Wholesaler Programs. In the event that the [***]
Wrap-Around Rebate will not be paid for any reason, Cardinal will use reasonable
efforts to give CVS notice no later than [***] ([***]) days prior to the end of
the then-current Program Year.
The [***] Wrap-Around Rebate is a "discount or other reduction in price" as such
term is used under section 1128(B)(3)(A) of the Social Security Act, 42 U.S.C.
1320a-7b(b)(3)(a). CVS will disclose the [***] Wrap-Around Rebate and any other
"discounts or other reductions in price" received by CVS from Cardinal under any
state or federal program which provides cost or charge-based reimbursement to
CVS for the Merchandise purchased by CVS under this Agreement.
10
SECTION 9 DISCLOSURE SCHEDULE
AMENDED MAY 26, 2004
PHARMACIES SERVICE LEVEL
Cardinal will exercise best efforts to provide the Pharmacies with the following
average aggregate monthly Adjusted Service Level and Overall DSD Service Level
(as defined within this disclosure schedule), calculated monthly as described
below: (a) [***]% adjusted with respect to [***] Rx Products; (b) [***]%
adjusted with respect to CardinalSOURCE(SM) [***] drugs; (c) [***]% adjusted
with respect to the CVS [***]; and (d) at a percentage to be mutually agreed
upon by the parties with respect to home health care products (the "SERVICE
LEVEL COMMITMENT").
CVS GENERIC FORMULARY SERVICE LEVEL.
For purposes of this Agreement, "ADJUSTED SERVICE LEVEL" for CVS [***] Formulary
items during any particular [***] will be calculated using the following
formula:
[[***] of CVS [***] formulary (which includes [***] Rx Products and certain
other products [***]) by NDC (eleven digit) shipped] [***] ([***] NDC's [***]
shipped within the same [***] as defined by FDB [***] Authorized Adjustments).
All orders submitted to Cardinal will be included in the Adjusted Service Level
calculation, including, but not limited to: store telxon orders, [***] orders,
[***] orders, verbal orders, and CII orders.
The following items of merchandise are excluded from the Adjusted Service Level
calculation and in aggregate constitute all "AUTHORIZED ADJUSTMENTS":
1. Validated long-term backorders - long-term backorders will only be
considered valid upon agreement between Cardinal and CVS that said
supplier is unable to provide Cardinal with merchandise necessary for
Cardinal to maintain an adequate inventory position. Cardinal will
verbally communicate any long term back order situations for which an
adjustment to the service level calculation is requested to CVS'
Assistant Category Manager - [***], in the event that person is
unavailable, Cardinal will notify the Director, Category Management -
[***]. Notification to CVS should only be made after Cardinal has
exhausted all avenues to resolve such product shortage on its own.
Upon notification from Cardinal, CVS will contact the respective
supplier to validate the long term backorder status of said product or
assist Cardinal with securing adequate inventory. Upon CVS receiving
validation from supplier of a long term backorder status or said
supplier's inability to ship the related product, the affected
products will be considered an Authorized Adjustment. Only CVS
validated long term backorders or CVS validated circumstances where a
supplier is unable to ship the products in question will be considered
in the Adjusted Service Level calculation. Each month Cardinal will
provide a list detailing the agreed upon items to be excluded from
CVS' Adjusted Service Level calculation and the number of units to be
adjusted.
11
2. CVS specific do-not-substitute requests - CVS may specifically request
that no substitution be performed for specific items; CVS' Assistant
Category Manager - [***] will notify Cardinal in writing of these
items. In addition, individual CVS stores may place verbal orders to
Cardinal; if the Pharmacy specifically requests (phone in orders
without a documented detailed specific request by CVS will not be
considered an Authorized Adjustment) Cardinal not to perform a
substitution for a specific item, then said item will be considered an
Authorized Adjustment. Cardinal will provide CVS on a monthly basis a
report by item of the number of store specific do not substitute
requests to include but not be limited to: CVS store number, NDC, item
description, date, and quantity. Reports should be provided no later
than five (5) days following the close of the respective month.
3. Excessive demand - an adjustment to the Adjusted Service Level will be
allowed in validated cases where an items total month's GCN usage has
increased at least [***]% above the average monthly GCN demand for the
previous [***] ([***]) months or CVS' [***] formulary forecast as
provided from time to time, which ever is greater. Adjustment amount
will only be for the number of units surpassing the applicable
baseline.
For example, if the average monthly demand for the prior [***] ([***])
month period is equal to [***] units per month, Authorized Adjustment
will only be given for orders surpassing [***] units (([***]%) +
[***]) during that month. Cardinal must provide CVS with reporting
detailing the applicable baseline usage figure and the current month
usage figure to be eligible for the adjustment. Increase in usage is
determined by global CVS usage.
4. Non-previously stocked items - CVS at its discretion can choose to
adjust the CVS [***] Formulary for additions, deletions, change in
supplier, change in package size, etc. CVS commits to the timely
notification of all such changes in an electronic format; in addition,
on a monthly basis CVS will provide an updated complete CVS [***]
Formulary. Cardinal will make available to CVS non-previously Cardinal
stocked items within [***] ([***]) days from notification. [***]
service level calculation will be adjusted for the [***] ([***]) day
period following CVS notification, during which Cardinal may service
CVS stores using the previous formulary item if applicable.
Cardinal's average monthly Adjusted Service Level commitment for CVS will become
effective as of January 1, 2004, however, CVS will not be eligible for [***]
until June 1, 2004. As it relates to the JC Penney Acquired Pharmacies only, CVS
will not be eligible for [***] until January 1, 2005. As an inducement for CVS
to make the preceding concession, Cardinal will use best efforts to provide CVS
with the Service Level Commitment.
Both Cardinal and CVS agree the achievement of the [***]% Adjusted Service Level
on a monthly basis represents a material aspect of this Agreement. Failure by
Cardinal to maintain a monthly Adjusted Service Level of [***]% with respect to
the CVS [***] Formulary (which includes Schedule II Rx Products and certain
other products as CVS designates) (a "[***] SERVICE LEVEL FAILURE") will entitle
CVS to be [***] for its [***] (as defined herein). For
12
purposes of this Schedule 9 Disclosure Schedule, the term "[***]" means an
amount equal to the difference between the [***] for the month and [***]%
multiplied by [***]for the month multiplied by [***] percent ([***]%). CVS will
calculate and present [***], if any, to Cardinal before processing any financial
transaction related to any funds being owed to CVS in connection with [***].
For example, if the [***] Service Level is calculated at [***]% for any given
month, and the monthly [***] for that month was $[***], then CVS may process
[***] for $[***] after notifying Cardinal of such transaction (([***]%-[***]%) x
$[***] x [***]%).
Cardinal and CVS agree to meet at CVS' Support Center as necessary to review the
Adjusted Service Level performance and to use best efforts in order to maximize
CVS' Adjusted Service Level defined within this Section 9 Disclosure Schedule.
BRANDED RX PRODUCTS AND STORE OTHER PURCHASES -DSD SERVICE LEVEL.
Cardinal recognizes the significant impact of branded Rx Products and Store
Other Purchases service level ("OVERALL DSD SERVICE LEVEL") can have on CVS'
ability to service their customers. Therefore, both Cardinal and CVS agree that
the Overall DSD Service Level is material to this Agreement. To that end,
Cardinal and CVS will mutually agree to terms that will reflect the significance
of Overall DSD Service Level. The terms will be specific towards each party's
responsibilities, the calculation of Overall DSD Service Level, and remedies up
to and including [***]. CVS and Cardinal agree that the arrived at structure of
the Overall DSD Service Level will provide CVS with industry leading performance
commitments.
13
SECTION 10(A) DISCLOSURE SCHEDULE
AMENDED MAY 26, 2004
PHARMACIES MERCHANTABLE PRODUCT ONLY RETURN GOODS POLICY
GENERAL POLICY.
The parties acknowledge that returns are costly to both parties. Product in
"merchantable condition" (as defined below) may generally be returned to
Cardinal from which the product was originally purchased if the return is made
within the timeframes and subject to the terms and conditions described below:
The return of [***] product is detailed in Section 10(b) Disclosure Schedule.
RETURN MADE WITHIN: NORMAL CREDIT AMOUNT:
------------------- ---------------------
1 - 90 Days from Invoice Date [***]% of original invoice amount paid by
customer. This policy covers all
ordering/filling errors.
More than 90 Days [***]% of original contract or other "cost" paid
by customer (i.e., not including any [***] and
not to [***]) [***] a [***]% restocking fee
invoiced seperately to net at [***]%.
Merchandise will be considered to be in "MERCHANTABLE CONDITION" except for the
following:
A. Any item which has been used or opened, is a partial dispensing unit or
unit of sale, is without all original packaging, labeling, inserts, or
operating manuals, or that is stickered, marked, damaged, defaced, or
otherwise cannot readily be resold by Cardinal for any reason.
B. [***]-dated (less than [***] ([***]) months expiration dating, unless
received by CVS with less than [***] ([***]) months dating), outdated, or
seasonal product and items purchased on a "special order" basis, including
non-stock and dropship items.
C. Any [***] merchandise, unless Cardinal agrees and is specially assured that
such merchandise was properly stored and protected at all times and such
merchandise is returned separately in a package marked as such and
accompanied by a separate credit request form.
D. In order for CVS to achieve compliance with Cardinal's excess returns
policy, CVS will return product (in Merchantable Condition) to Cardinal
only if such product is not stocked in the CVS Pharmacy DCs (excluding
[***] or [***] that is delivered to CVS [***] or [***]). Further, CVS
agrees that Cardinal may implement an [***] of the return of items which
are stocked in the CVS Pharmacy DCs, as indicated in the CVS monthly
on-hand inventory electronic report provided to Cardinal by CVS.
CONTROLLED SUBSTANCES.
Credit for the return of controlled substances requires a separate Merchandise
Return Authorization Form ("MRA FORM") and must comply with all federal and
state procedures and requirements in addition to the terms and conditions
described herein.
14
SECTION 10(A) DISCLOSURE SCHEDULE
AMENDED MAY 26, 2004
SHORTS AND DAMAGED MERCHANDISE.
Claims of order shortages (i.e., invoiced but not received), order errors and
damage must be reported within [***] ([***]) business days from the applicable
invoice date. Controlled substance shortage claims must be reported immediately
per DEA requirements.
EXCESS RETURNS.
CVS Pharmacy returns in dollars will not exceed [***] percent ([***]%) of
qualified monthly purchases of all of the Pharmacies (in dollars, each calendar
month) excluding filling errors or damaged product. Because CVS agrees only to
[***] product to Cardinal if such product is not stocked in the CVS Pharmacy DCs
(excluding [***] or [***] that is delivered to CVS [***] or [***] Rx Products
[***]), CVS and Cardinal mutually agree that Cardinal will implement an [***] of
the return of those items which are included in the CVS monthly on-hand
inventory electronic report provided to Cardinal by CVS. This [***] is designed
to limit returns in excess of [***]%. CVS and Cardinal may agree from time to
time to implement a Pharmacies [***] in cases where CVS Pharmacies are [***]
inventory. The parties will agree to the terms of such a [***] on an individual
basis. Returns made under the [***] will not be included in the excess returns
calculation.
Cardinal will fully participate in assisting CVS with a CII returns program
associated with the CIIs located in those distribution centers acquired from JC
Penney. CIIs returned under this initiative will be valued at current WAC and
will have at least [***] ([***]) months dating remaining.
ONGOING ASSURANCE AND CARDINAL CREDIT REQUEST FORM.
Prior to returning any product to Cardinal, each customer must execute and
deliver to Cardinal an Ongoing Assurance verifying that all returned merchandise
has been kept under proper conditions for storage, handling, and shipping. All
requests for credit must be submitted via EOE, on the CardinalCHOICE(R) system
or by approved EDI interface. A fully completed MRA must accompany all
merchandise to be returned. A fully completed form includes, but is not limited
to, the following information: the invoice number and invoice date for the
merchandise to be returned. All return credit memos will have corresponding
reference numbers that will provide CVS with a complete audit trail for
reconciliation.
SHIPPING OF RETURN GOODS.
Return merchandise must be placed in a proper shipping container and, for
merchandise valued at more than $250, signed for by the driver when the product
is picked up. All MRAs will be reviewed by Cardinal for compliance with the
returned goods policy within this Section 10(a) Disclosure Schedule. Cardinal
will process credits within [***] ([***]) days of receipt of merchantable
product from CVS. In instance were credit has not been received for product
returned to Cardinal for which Cardinal has no record of said return, CVS and
Cardinal will use reasonable efforts to research and reach a mutually acceptable
resolution.
15
SECTION 12 DISCLOSURE SCHEDULE
AMENDED MAY 26, 2004
MONTHLY REPORTING.
Cardinal will provide an electronic report on a monthly basis, which will detail
(1) CVS' excess return percentage, (2) claims of order shortages, order errors
and damaged products that are reported in excess of three (3) business days from
invoice date, (3) information relating to returns in excess of [***] ([***])
days, and (4) any restocking fees.
OTHER RESTRICTIONS.
This policy is further subject to modification as may be deemed necessary to
comply with applicable federal and/or state regulations, FDA guidelines, and
state law.
16
SECTION 12 DISCLOSURE SCHEDULE
AMENDED MAY 26, 2004
WAREHOUSE LOGISTICS PROGRAM
The goal of the "WAREHOUSE LOGISTICS PROGRAM" (WLP") is to develop the most
efficient purchasing and distribution processes for CVS with pharmaceutical
manufacturers under which Cardinal will [***] ([***]%) of CVS' purchase
requirements for [***] Rx Products (excluding repack items) ("[***]") [***] of
all CVS [***] which are or become part of this Agreement. The parties agree and
acknowledge that this WLP is part of this Agreement, and is not a separate or
distinct agreement.
Notwithstanding anything in this Agreement to the contrary, the WLP is intended
and structured to provide [***]% incremental financial and operational value to
CVS and at no time shall Cardinal take any action in connection with the WLP
which may negatively impact CVS' ability to service its Pharmacies, CVS Pharmacy
DCs, or CVS' abilities to secure regular [***] merchandise, including [***]
stock, [***] a manufacturer.
The WLP is designed to provide incremental financial value to CVS; CVS is to be
[***] on [***], etc. CVS will [***] all other [***] that CVS would otherwise be
entitled to if CVS [***] the [***] on a [***] (i.e., [***], etc.).
As part of the WLP, Cardinal will pass to CVS funding ("INCENTIVE") in the form
of a credit within [***] ([***]) days of the end of each CVS [***] equal to
[***]% times CVS Pharmacy [***] (in addition to passing the [***]) for the
respective CVS fiscal quarter during the term of this Agreement. The credit will
be faxed and subsequently mailed in hard copy form to CVS' Manager of Wholesaler
Programs. Additionally, Cardinal will provide CVS with the Warehoused Service
Level detailed in Section 2(b) Disclosure Schedule through leveraging Cardinal's
procurement and logistical expertise. In return for both the Incentive and the
Warehouse Service Level, Cardinal will [***] the [***] created through certain
"[***] CREATION ACTIVITIES" as defined below.
Current [***] will remain in place as of the execution of this Agreement with
the exception of [***], which will [***] from a CVS [***] to an [***] (as
detailed in and subject to Section 12 Disclosure Schedule) . Cardinal will [***]
as it does for any other indirect vendor. In return for [***] on an [***] from
February 1, 2004 until December 31, 2004, by May 1, 2004, Cardinal will
authorize CVS to [***] in the amount of $[***] ("[***] PAYMENT"). The timing of
said payment will be made so that CVS receives these funds by [***].
CVS will not be required to [***] or [***] any other pharmaceutical [***] as a
[***]. Any further [***] of pharmaceutical [***] from [***], will be at CVS'
sole determination. The [***] Warehouse [***] Exhibit below details which [***]
CVS will purchase from Cardinal on an indirect basis (subject to Xxxxxxx 00
Xxxxxxxxxx Xxxxxxxx) and the corresponding [***] terms to be amended in writing
pursuant to Section 13 upon mutual agreement of CVS and Cardinal. While CVS and
Cardinal may both agree that it is in the best interest of both parties to [***]
a [***] from [***] to [***] or visa versa, said decisions will always be made to
reflect incremental value to CVS and will occur at CVS' sole discretion.
17
CVS is under no obligation to purchase any specific [***] and may eliminate
(POX) or discontinue any item at its sole discretion. With that said, CVS and
Cardinal may investigate the best methods of [***] any [***] inventory [***] at
CVS' sole discretion. So that Cardinal and CVS can effectively and efficiently
manage Cardinal's [***] that is [***] to CVS through the [***], Cardinal will
provide to CVS in an electronic format a detailed weekly report detailing said
[***] ("[***] REPORT"). The [***] Report will include but not be limited to the
following elements as it pertains to Cardinal [***] to CVS: [***], description,
NDC, [***] on hand, extended [***], and [***] date. As it pertains to populating
the [***] date [***] of the [***] Report only, Cardinal will fully populate and
update [***] on a monthly basis and will supply to CVS a fully updated [***]
Report by the first Friday following Cardinal's commencement of recording said
[***]. All other data elements will be updated weekly and immediately sent to
CVS each Friday accurately representing Cardinal's [***] available to CVS as of
the creation of the [***] Report.
[***] CALCULATION.
For all of CVS Pharmacy DCs [***] ([***], or Brokerage Purchases, etc), CVS will
receive an [***] within [***] ([***]) days of the end of each CVS fiscal quarter
in the form of a [***] equal to [***]% times CVS Pharmacy DCs [***] (in addition
to [***] the [***]) for the respective CVS fiscal quarter during the term of
this Agreement. The [***] will be calculated based on CVS' receipt date of such
[***] for each fiscal month. CVS and Cardinal will agree with the method used to
calculate each month's [***] totals.
For example; CVS' total [***] volume for a specific CVS fiscal quarter equals
$[***], then Cardinal will [***] to CVS within [***] ([***]) days of the end of
the respective fiscal quarter $[***] ($[***] x [***]).
Further terms and conditions of the [***] calculation are as follows:
1) CVS and Cardinal will publish the agreed to monthly [***] volume
eligible for the [***] on a monthly basis; within [***] ([***]) days
of the respective CVS fiscal month's end or as soon as practical.
2) The [***] will not be applied on [***] or [***] volume that is [***].
The [***] will be automatically applied on this inventory when [***]
as a [***].
3) CVS contract pricing on select [***] items established by CVS after
January 1, 2004 will not be eligible for the [***] since Cardinal does
not have the ability to [***] from this applicable [***].
4) The [***] is based on the assumption that Cardinal will not [***] CVS
any [***] related to [***] on code [***] and code [***] purchase
orders.
5) Cardinal will not apply the [***] on CVS [***] or [***] that was
specifically [***] through CVS that Cardinal [***] CVS with the
explicit purpose of this product being
18
[***] the manufacturer. However, Cardinal will [***] on any [***] CVS
[***] said product to the respective manufacturer.
a. This inventory will be [***] to CVS on the earliest date
that the applicable manufacturer would accept said product
[***] at [***] percent ([***]%).
b. If CVS believes the [***] to be [***] and that it will be
[***] in any way by [***] said product [***] a manufacturer,
then CVS can at its sole discretion opt not to [***] in such
a [***].
c. CVS and Cardinal agree that [***] are costly to both parties
and lead to operational inefficiencies and will therefore
work together to develop a process which limits the amount
of [***] .
6) At the start of this Agreement, Cardinal will [***] related to the
previous agreement. To that end, CVS and Cardinal have agreed that
Cardinal will adjust CVS' 4Q 2003 [***] by $[***] in order for this
[***] to qualify for the [***]. With this adjustment made, [***] of
CVS' [***] will be eligible for the [***] under this Agreement.
7) The calculation of the [***] will be based off the [***] ( at the
[***] of [***] or the [***]) [***] to the application of the cash
discount. For example, if the [***] is $[***], then the [***] would be
calculated based on the $[***], not the $[***] ([***]% cash discount
is applied).
8) For all CVS warehouse purchases made through Cardinal, cash discount
[***] to CVS is defined as the [***].
9) If CVS [***] a [***] from [***] to [***] after the establishment of
the [***] and [***], then Cardinal will [***] the [***] calculation on
that affected volume.
10) If CVS enters into an [***] (as defined below) with a [***] that
prohibits Cardinal from any [***] with this [***], then Cardinal will
not apply the [***] calculation on that affected volume.
[***] CREATION ACTIVITIES.
As a function of the WLP, Cardinal will [***] the margin created through certain
[***] Creation Activities as defined below. Through the WLP, Cardinal will
[***]% of the margin associated with all [***] related to [***] detailed below,
and [***] related to [***] (this [***] was [***] to CVS via [***]) as further
defined below. Notwithstanding anything else in this Agreement to the contrary,
Cardinal will not place [***] purchases or conduct [***] activities related to
CVS [***] for which Cardinal has entered into an [***] such activities.
The "[***] CREATION OPPORTUNITIES" for the WLP are limited to:
a) [***] - all purchases of [***] Rx Products (excluding repack) designed
to generate an [***] which result from the [***] (by way of
illustration only and not as a limitation, one example of an [***] is
[***] of a [***]).
19
b) [***] or [***] - [***] or [***] that are made available to Cardinal
from [***] under which Cardinal [***] related to CVS' [***].
c) [***] - all purchases of [***] Rx Products (excluding repack) for a
specified [***] of [***] offered by manufacturers [***], or [***], a
[***], thereby [***]. (by way of illustration only and not as a
limitation, one example of an [***] is where a vendor [***] at a [***]
for a certain [***] Rx Product (excluding repack) [***]). This [***]
was [***] to CVS via [***].
Further terms and conditions of the [***]Creation Activities are as follows:
1) CVS will [***] other historically [***] ([***] and [***] manufacturers);
CVS will not be required to [***] to Cardinal.
2) CVS to [***] all [***] it has historically [***] to include but not limited
to:
a) [***]
b) [***]
c) [***]
d) [***]
3) The [***] CVS receives based on CVS' [***] purchases, is [***]% by CVS. In
the event that a [***] would begin to [***] "[***]" [***] to Cardinal,
Cardinal would [***]% of this [***] to CVS, based on CVS purchases
(Pharmacies and CVS Pharmacy DCs, if applicable). Notwithstanding the
foregoing, Cardinal will not accept any other [***] on CVS' behalf relating
to CVS' purchase [***] (warehouse or DSD) without CVS' expressed written
consent. It will be Cardinal's sole responsibility to notify any
pharmaceutical supplier in writing (with copy to CVS subject to Section 13)
[***] a [***] to Cardinal related to CVS' [***] of CVS' Return Goods
Policy.
4) CVS will only accept product shipped from Cardinal Brokerage Inventory to
CVS Pharmacy DCs that has at least [***] ([***]) [***] remaining. All
products shipped with less than [***] ([***]) [***] remaining will be
considered "[***] PRODUCT". On an exception basis, CVS will allow Cardinal
to ship [***] Product Brokerage Inventory with at least [***] ([***])
months [***] remaining. However, both parties agree that no more than
$[***] worth of [***] Product will be shipped to CVS Pharmacy DCs during
any Program Year. In addition, upon CVS request (as often as monthly),
Cardinal will provide CVS a detailed report that summarizes all [***]
Product shipped from Cardinal's Brokerage Inventory to CVS Pharmacy DCs
("[***] REPORT"). The [***] Report will contain all [***] Product shipped
to CVS Pharmacy DCs within the current Program Year and will include but
not be limited to the following data elements: date shipped, vendor,
description, NDC, quantity shipped, extended cost, and [***] totaled by
month and year-to-date(both CVS and Cardinal agree that the [***] Report
will be made available to CVS no later than September 1, 2004).
Notwithstanding anything in this Agreement to the contrary, at no time will
Cardinal ship Brokerage Inventory with less than [***] ([***]) months [***]
remaining to CVS Pharmacy DCs. With that said, CVS will work with Cardinal
to assist in the management of the [***].
20
Additional terms and conditions of the WLP are as follows:
1. Term - The WLP will commence as of January 1, 2004, and terminate upon the
termination of the Agreement.
2. [***] Generation - Cardinal will [***] ([***]%) of CVS' [***] for [***] Rx
Products (excluding repack) [***] all CVS Pharmacy DCs for routine [***]
and [***] (the "PURCHASING ACTIVITIES").
3. [***] - If Cardinal's [***] on CVS' [***] are [***] or [***] by a [***],
and if CVS is eligible to [***] from such [***], then CVS will, upon
request by Cardinal, effect a direct [***] of the applicable Rx Product
[***] by Cardinal. With respect to the foregoing purchases, [***] will
[***] the applicable [***] according to the [***], including [***] for any
available [***]. CVS will [***] the [***] to the [***] from [***] Cardinal,
which will also be [***] the [***]. This [***] process is designed to be
"[***]" for both parties.
(a) [***]. On the same day as CVS [***] a shipment of Rx Product
ordered as part of a [***] related to this WLP, CVS will [***]
Cardinal. Cardinal will [***] such Rx Product [***] the applicable CVS
[***], and [***] the applicable Cardinal [***]. CVS will [***] from
the applicable [***], and CVS will pay the [***], [***] for all [***],
based on the applicable payment terms. CVS will [***] to the [***]
from [***], and Cardinal will [***] the CVS [***] to the applicable
[***]. The process outlined in the Section 2(b) Disclosure Schedule
will apply to any discrepancies.
(b) [***] and [***]. As it pertains to [***] purchases only, on
the same day as CVS [***] the shipment of Rx Product, CVS will [***]
Cardinal. Cardinal will [***] to [***] such Rx Product [***] the
applicable CVS [***], and [***] the applicable Cardinal [***]. [***]
purchases will be [***] by Cardinal at the servicing Cardinal DC [***]
the need for CVS to [***] such product.
As it pertains to the payment of [***] and [***] purchases, Cardinal will
receive an [***] from the applicable [***] for the ordered Rx Product, and
Cardinal will [***] the [***] directly, [***] for all [***], based on the
applicable payment terms. As the Rx Product is ordered from Cardinal by CVS
for [***], Cardinal will [***] CVS, and CVS will [***] Cardinal for such Rx
Product in accordance with the terms of this Agreement. The process
outlined in the Section 2(b) Disclosure Schedule will apply to any
discrepancies.
4. Purchase Information - CVS will provide Cardinal with [***] electronic
feeds updating information regarding CVS' [***] of [***] Rx Products [***]
from [***] and from [***] on behalf of the CVS Pharmacy DCs pursuant to the
WLP. Such information will include details regarding all purchase orders,
[***] or [***] for items [***] and [***] and other information reasonably
required by Cardinal to administer the WLP. To assist Cardinal with [***],
CVS will provide Cardinal with information reasonably requested by Cardinal
including but not limited to new product [***], [***] fluctuations, [***]
promotions, and new store openings , and a change in CVS Pharmacy DC that
services a particular Pharmacy.
21
5. Limitations - All [***] for [***] Products must be executed exactly as
[***]. [***] will be generated and submitted to any vendor, other than
those [***], without [***]. All [***] will be on behalf of the CVS Pharmacy
DCs. CVS will not make any [***] (outside of this [***]) on behalf of the
Pharmacies [***]. It is understood and agreed that Cardinal will not be
required to reduce or otherwise [***] its own [***] associated with a
manufacturer imposed [***]. Furthermore, the parties acknowledge and agree
that all information associated with the WLP is confidential information
subject to the provisions of Section 17 of this Agreement.
6. Records, Audit and Confidentiality - The WLP is subject to the record
keeping and audit provisions set forth in Section 16 of this Agreement.
Cardinal may disclose CVS' [***] information (such as inventory [***],
on-order or [***]) to [***] as reasonably required by Cardinal to [***]
related to the WLP. Cardinal will notify CVS in writing (subject to Section
13) prior to the disclosure of any such information and will provide the
nature of the information that Cardinal intends to disclose. Further,
Cardinal will use reasonable efforts to obtain applicable [***] consent to
disclose such information to CVS if needed.
7. ACH - All payments for invoicing under the WLP will be made via ACH.
8. Waiver - Neither party's failure to enforce any provision of this WLP will
be considered a waiver of any future right to enforce such provision.
9. Dispute Resolution Relating to the WLP - CVS and Cardinal acknowledge that
either party may from time to time may, in good faith, dispute any portion
of the WLP. In the event that either party disputes any portion on the WLP,
each party agrees to use all reasonable efforts to resolve all such
disputes as expeditiously as possible on a fair and equitable basis. To
that end, Cardinal and CVS will assemble a panel consisting of at least one
(1) executive from CVS and one (1) executive from Cardinal (but in any
event, an even number in the aggregate) (the "EXECUTIVE COMMITTEE") to
resolve disputes relating to the WLP and address other issues as they may
determine. With respect to reporting disputes, a copy of the terms of this
Agreement, as amended from time to time, agreed upon facts and areas of
disagreement, and a concise summary of the basis for each side's
contentions will be provided to the executives who will review the same,
confer, and attempt to reach a mutual resolution of the issue within thirty
(30) days following either party's receipt of notice of dispute.
[***] VENDOR EXHIBIT.
[***] VENDOR [***] PURCHASE PAYMENT TERMS
------------ ----------------------------
[***] [***]
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