EXHIBIT 10.04
[***] 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.
SECOND AMENDMENT TO
WHOLESALE SUPPLY AGREEMENT
This second amendment ("SECOND AMENDMENT") dated June 2, 2004 amends the
Wholesale Supply Agreement dated January 1, 2004 ("AGREEMENT") and subsequently
amended on May 26, 2004 between CVS and Cardinal Health. CVS and Cardinal Health
("PARTIES") desire to enter into this Second Amendment to amend Section 1 and
Section 12 Disclosure Schedule to include two (2) mail-order facilities being
acquired by CVS' affiliate PharmaCare Management Services Inc. ("PharmaCare")
located in Pittsburgh, Pennsylvania and Largo, Florida (MAIL-ORDER FACILITIES").
The Parties agree as follows:
1. Effective Date of Amendment. This Second 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, approximately three (3)
distribution centers, and approximately two (2) mail-order facilities
located in Pittsburgh, Pennsylvania and Largo, Florida (to be acquired
by CVS' affiliate PharmaCare from Eckerd Health Services) 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 Second Amendment shall become null and void and shall be of no
force or effect. Furthermore, CVS reserves the right to provide
Cardinal with notification ("NOTICE") before the close of the
Transaction that CVS has determined in its sole discretion that it
will not undertake the wholesale supply arrangement as described in
the Second Amendment in which case this Second Amendment shall become
null and void and shall be of no force or effect.
2. Scope. Notwithstanding anything else in the Agreement, as amended, in
no event will CVS, at any time, be obligated to designate Cardinal as
a primary means of pharmaceutical products replenishment for the
Mail-order Facilities, if such Mail-order Facilities are subject to an
existing wholesaler agreement which cannot be terminated by CVS or its
affiliates for any reason, or which, if terminated by CVS or its
affiliates in its business judgment, may result in breach of
contractual obligations, termination penalties/fees of any type, or
result in CVS or its affiliates compromising its business operations.
3. Disclosure Schedules. The Agreement is amended by deleting therefrom
the following disclosure schedules in their entirety:
"Section 1", and
1
"Section 12 Disclosure Schedule"
and replacing them with the following new Disclosure Schedules:
"Section 1", and
"Section 12 Disclosure Schedule"
attached to this Second Amendment and incorporated into this Second
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
and CVS has not provided Cardinal with Notice before the close of the
Transaction) to be applied and construed as a single instrument. The
Agreement, as modified by this Second 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 Second Amendment will be binding on the Parties
and their successor and assigns. If any term or provision of this
Second Amendment is determined to be illegal or unenforceable by a
court of competent jurisdiction, the remaining terms and provisions of
this Second Amendment and the Agreement will remain in full force and
effect. Only a subsequent writing signed by both Parties may amend
this Second 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.
Cc: Xxxx Xxxx, Assistant General Counsel CVS
Xxxx Xxxxxxxx, General Counsel Cardinal Health
2
SECTION 1
AMENDED JUNE 2, 2004
SECTION 1. DESIGNATION AS PRIMARY WHOLESALER.
(a) Retail Pharmacies. During the term of this Agreement, CVS will designate
Cardinal as the primary wholesale pharmaceutical supplier to designated
pharmacies operated by CVS (collectively, the "PHARMACIES" and individually, a
"PHARMACY") subject to Section 1(a) Disclosure Schedule. A list of the
Pharmacies (the "DESIGNATED PHARMACY LIST") will be provided by CVS to Cardinal
from time to time during the term of this Agreement.
(b) Distribution Centers. During the term of this Agreement, CVS will designate
Cardinal as the primary wholesale pharmaceutical supplier to all distribution
centers operated by CVS ("CVS PHARMACY DCS") subject to Section 1(b) Disclosure
Schedule. A comprehensive list of all of the CVS Pharmacy DCs as of January 1,
2004 (the date of this agreement) (the "TOTAL DC LIST") is set forth in the
Section 1(b) Disclosure Schedule.
(c) CVS PharmaCare. This Agreement specifically excludes purchases which are
made by CVS on behalf of the CVS division known as PharmaCare with the following
one exception: In return for an [***]% ([***] % [***]%) [***] the [***] as
described in the Section 12 Disclosure Schedule, CVS will service the [***] and
[***] facilities that were acquired from JC Penney and operated by PharmaCare
("[***] FACILITIES") from a CVS Pharmacy DC being serviced by Cardinal for a
period of [***] ("FIRST TERM"). If at anytime after the First Term, CVS
discontinues servicing said [***] Facilities from a CVS Pharmacy DC being
serviced by Cardinal, then the [***] as described in the Section 12 Disclosure
Schedule will [***]% [***]%. If CVS continues servicing said [***] Facilities
from a CVS Pharmacy DC being serviced by Cardinal after the First Term, then the
[***] as described in the Section 12 Disclosure Schedule will [***] at [***]%
for as long as CVS continues servicing said [***] from a CVS Pharmacy DC being
serviced by Cardinal.
This Agreement specifically excludes any secondary, drop ships, direct, or
direct-store-delivery purchases made by PharmaCare on behalf of the Mail-order
Facilities.
As it concerns the Mail-order Facilities only, in the event either party desires
not to continue to service the Mail-order Facilities from a CVS Pharmacy DC
being serviced by Cardinal at the expiration of the First Term or any renewal
term, that party shall provide the other party with at least [***] ([***]) days
written notice prior to the expiration of the then current term. In the event
such notification is not provided with at least the [***] ([***]) day notice or
if no notice is given, the then current term shall be extended for a period of
[***] ([***]) days after the expiration of such term to provide for an adequate
transition period.
(d) CVS Commitment. This Agreement pertains only to CVS' Pharmacies and CVS
Pharmacy DCs as of January 1, 2004 plus or minus the organic growth related to
Pharmacies.
3
SECTION 12 DISCLOSURE SCHEDULE
AMENDED JUNE 2, 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.
4
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
5
[***] 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 [***]).
6
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 [***].
7
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.
8
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
------------ ----------------------------
[***] [***]
9
