EXHIBIT 10.02
[***] 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.
January 1, 2004
WHOLESALE SUPPLY AGREEMENT
This letter will confirm the agreement ("AGREEMENT") between Cardinal Health*
("CARDINAL") and CVS Pharmacy Inc. ("CVS") under which CVS will purchase certain
pharmaceutical and other products from Cardinal on the following terms and
conditions:
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.
(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.
SECTION 2. SALE OF MERCHANDISE AND BROKERAGE PURCHASES.
(a) Primary Requirements. Each of the Pharmacies and the CVS Pharmacy DCs
will purchase from Cardinal during the term of this Agreement its Primary
Wholesale Requirements (as defined in the Section 2(a) Disclosure Schedule)
of pharmaceutical products ("RX PRODUCTS"), which consist of purchases of
Rx Products for (a) delivery directly to the Pharmacies ("STORE RX
PURCHASES"); and (b) delivery directly to the CVS Pharmacy DCs ("BROKERAGE
PURCHASES"). CVS
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may purchase from Cardinal, at CVS' discretion, for delivery directly to
the Pharmacies, its health and beauty aids, home health care products and
other inventory carried by Cardinal ("STORE OTHER Purchases"). For purposes
of this Agreement, the term "QUALIFIED PURCHASES" with respect to a period
means all purchases of Merchandise made and paid for by CVS (and in some
circumstances, either the CVS Pharmacy DCs or the Pharmacies are
specifically designated) from Cardinal during that period, net of all
returns and credits validated by CVS (related to ordering, shipping or
accounting errors). For purposes of this Agreement, the term "MERCHANDISE"
will mean the Rx Products (and Store Other Purchases, with respect to the
Pharmacies only). Notwithstanding anything in this Agreement to the
contrary, CVS retains the right to purchase from any other source Rx
Products which are unavailable from Cardinal.
(b) Brokerage Purchases. The Section 2(b) Disclosure Schedule describes the
terms by which CVS will make its Brokerage Purchases through Cardinal.
(c) Discontinued Merchandise. Cardinal will stock certain Merchandise that
Cardinal would not otherwise stock but for CVS' request, except [***] and
Merchandise [***] ("SPECIALLY STOCKED MERCHANDISE"), subject to such credit
considerations concerning the applicable manufacturer as Cardinal may
reasonably consider appropriate (including but not limited to, potential
insolvency or outstanding balance owed to Cardinal without legitimate
reason for dispute). CVS guarantees that at least [***] ([***]) pieces of
each item of Specially Stocked Merchandise detailed in Section 2(c)
Disclosure Schedule will be purchased from each of Cardinal's distribution
centers servicing CVS Pharmacies per month. If Cardinal notifies CVS that
less than [***] ([***]) pieces of an item of Specially Stocked Merchandise
were purchased in a month from one of Cardinal's servicing distribution
centers, then Cardinal may elect to discontinue carrying such item in its
distribution centers. If Cardinal elects to discontinue carrying any such
item, CVS will accept and purchase the remaining Specially Stocked
Merchandise at the [***] for such Specially Stocked Merchandise until the
Specially Stocked Merchandise is depleted. Cardinal will use reasonable
efforts to ensure that Specially Stocked Merchandise is discontinued in the
most cost-effective manner, which may include, but not be limited to,
returning such item directly to the manufacturer. Alternatively, Cardinal
and CVS may mutually agree to a [***] arrangement in lieu of Cardinal
stocking the item.
(d) Generally. CVS will be liable for any payment owed to Cardinal from any
Pharmacy or CVS Pharmacy DC for purchases made hereunder. Cardinal reserves
the right [***] to determine what Merchandise it will carry based upon
product quality, manufacturer indemnity, insurance, and other policies, and
other standards determined by it, and may [***] from its available
inventory items of Merchandise with limited or no movement activity (in
which event CVS shall have the right to purchase such merchandise from
[***]). Notwithstanding the foregoing, Cardinal's decision not to carry
certain Merchandise for reasons other than product quality (relative to FDA
instructions), manufacturer indemnity, and insurability shall not excuse
Cardinal from complying with the service levels
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detailed in Section 2(b) Disclosure Schedule and Section 9 Disclosure
Schedule. Both parties agree that Cardinal's inability to provide CVS with
the service levels detailed in Section 2(b) Disclosure Schedule and Section
9 Disclosure Schedule represents a material breach of this Agreement.
(e) Representation of Status. 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 all product that is contaminated, mislabeled, not approved
for sale in the United States, counterfeit or otherwise unfit for use by
consumers (collectively "UNFIT RX PRODUCT").
SECTION 3. PURCHASE PRICE. As further described in Sections 3(a) and 3(b)
Disclosure Schedules, CVS will pay a purchase price ("COST OF GOODS") for
products purchased under this Agreement as follows:
(a) Store Rx Purchases and Store Other Purchases. CVS will pay a Cost of
Goods for Merchandise in an amount equal to Cardinal's Cost plus the
percentage set forth in the Section 3(a) Disclosure Schedule. The term
"CARDINAL'S COST" as used herein means the [***] for Merchandise as of the
date CVS orders said product, adjusted to reflect any then-applicable [***]
pricing, but without reduction for [***]. Manufacturer [***] quantity
discounts and [***] which are intended by the manufacturer to be passed
through to Cardinal's retail national chain accounts will be made available
to CVS.
By way of illustration only and not as a limitation, the [***] CVS receives
based on CVS' [***] warehouse and DSD purchases, is retained [***]% by CVS.
In the event that a vendor would begin to pass an "[***]" [***] to
Cardinal, Cardinal would pass [***]% of this allowance 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 volume (warehouse or DSD) without CVS' expressed
written consent. It will be Cardinal's sole responsibility to notify in
writing any pharmaceutical supplier (with copy to CVS subject to Section
13) offering a [***] to Cardinal related to CVS' purchase volume that CVS
utilizes [***] policy.
As set forth in Section 3(a) Disclosure Schedule, the purchase price for
selected Merchandise, including but not limited to, multisource
pharmaceuticals, CardinalSOURCE(SM) generics, private label products,
medical surgical supplies, home health care/durable medical equipment,
Merchandise acquired from vendors not offering customary cash discount or
other terms, and other non-pharmaceutical Merchandise will not be based
upon Cardinal's [***] pricing described above but will instead be [***] in
accordance with the terms and conditions established by Cardinal (including
applicable [***]) for such Merchandise. Merchandise described in this
paragraph is sometimes referred to as "SPECIALLY PRICED MERCHANDISE." CVS
may, but will have no obligation to, purchase any specified volume or
percentage of its requirements for Specially Priced Merchandise.
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(b) Brokerage Purchases. CVS will pay a purchase price for all Brokerage
Purchases in an amount equal to the cost set forth on the Section 3(b)
Disclosure Schedule.
(c) Cost of Goods Adjustment. CVS' Cost of Goods for Store Rx Purchases and
Store Other Purchases will be subject to adjustment as described in the
Section 3(c) Disclosure Schedule.
(d) Generally. Each party hereto acknowledges and agrees that its
obligation to pay the purchase price for all Brokerage Purchases, Store Rx
Purchases, Store Other Purchases and other amounts due or to become due
under this Agreement will not be subject to any [***], or [***] for any
reason, except as further described in this Agreement.
Each party acknowledges and agrees that its obligation to pay the other
amounts due under this Agreement or become due under this Agreement will
not be subject to any [***], or [***] for any reason, except as further
described in this Agreement. If a party to this Agreement that is obligated
to pay monies hereunder (the "Payor") fails to pay the other party (the
"Payee") amounts due under this Agreement (which Payee reasonably believes
it is due), then [***] amounts due Payor. Any [***] incorrectly or
improperly recognized (i.e., excluding legitimately disputed amounts) by
Payee will be paid to Payor as soon as possible and in any event no later
than [***] ([***]) days following notification from Payor of such incorrect
or improper [***]; provided Payee agrees that the [***] was incorrectly or
improperly taken. Payee agrees to pay when due any amounts not in dispute.
CVS and Cardinal commit to work with each other to mutually resolve any
disputed amounts.
Furthermore, it is both parties intention that all Agreement components and
incentives stand on their own; there will be no [***] incentives, rebates,
or performance measurements (Warehouse Logistics Program, Pharmacy Site
Incentive, [***] Wrap Around Rebate, etc.).
SECTION 4. PAYMENT TERMS.
(a) Store Rx Purchases and Store Other Purchases. CVS will cause Cardinal
to receive payment in full and remittance by automated clearinghouse
("ACH") for all Store Rx Purchases and Store Other Purchases according to
the schedule set forth in the Section 4 Disclosure Schedule subject to the
terms and conditions of this Agreement.
(b) Brokerage Purchases. CVS will cause Cardinal to receive payment in full
by ACH for all Brokerage Purchases according to the schedule set forth in
the Section 4 Disclosure Schedule subject to the terms and conditions of
this Agreement.
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(c) Automated Clearinghouse. All payments made by CVS to Cardinal under
this Agreement will be made via ACH, to a financial institution designated
by Cardinal, so as to provide Cardinal with good funds immediately
available to Cardinal on the date such payment is due according to the
schedule set forth in the Section 4 Disclosure Schedule. In the event that
ACH is temporarily interrupted or cannot be utilized, CVS and Cardinal will
seek alternative payment methods to ensure that Cardinal receives good
funds as soon as practical. To the extent that a specific payment is
unnecessarily delayed due to an issue with the ACH, CVS agrees to work with
Cardinal to make such payment as expeditiously as possible. As indicated in
Section 4 Disclosure Schedule, CVS and Cardinal may mutually agree to a
payment arrangement that is reflective of a change in normal terms to
accommodate for late payment due to the fact that the ACH was temporarily
interrupted or could not be utilized.
(d) Generally. If Cardinal reasonably believes that CVS has suffered a
material adverse effect with respect to its financial position, then
Cardinal has the right to request that CVS provide it with information
within [***] ([***]) business day from the date CVS receives the request
(i.e., if CVS receives Cardinal's request at 3:00 p.m. Monday, the
information will be provided no later than [***]) that further describes or
refutes (as applicable), in reasonable detail, such material adverse
effect, and that may resolve any such concerns raised by Cardinal. In
addition, CVS agrees to promptly notify Cardinal in the event CVS has
suffered a material adverse effect with respect to its financial position,
including, but not limited to an acceleration event under its credit
facilities. If Cardinal has requested such information or CVS has notified
Cardinal as set forth above and Cardinal and CVS cannot promptly resolve
any such issues pursuant to a reasonable solution, then Cardinal may (i)
limit CVS' daily purchases thereafter to the [***] of CVS' Qualified
Purchases during the immediately preceding [***] ([***]) day period; (ii)
modify payment terms, and (iii) in the event that CVS is in Payment Default
(as defined below), give CVS notice of the amount of required payment under
this Agreement by 10:00 a.m. Eastern Standard Time on a business day and
require CVS to wire electronic confirmation of payment of such amount by
non-refundable wire transfer by 2:00 p.m. Eastern Standard Time on the
[***] business [***]. As used within this paragraph, a "PAYMENT DEFAULT"
shall mean a circumstance where CVS has failed to cause Cardinal to receive
payment when due. If any of the foregoing actions are taken by Cardinal,
the parties will meet every approximate [***] ([***]) days following the
execution of such action to review CVS' financial condition, and to
reasonably consider reinstating the payment terms which were in effect
prior to execution of such action. If any of the foregoing actions are
taken by Cardinal, then CVS may choose to terminate this Agreement with
[***] ([***]) days written notice if it finds Cardinal's proposed terms
unacceptable. If the Agreement is terminated pursuant to this Section 4(d),
the Agreement shall remain in effect without modification (unless mutually
agreed upon in writing by the parties) until expiration of the [***]
([***]) day notice period.
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If CVS reasonably believes that Cardinal has suffered a material adverse
effect with respect to its financial position that has materially,
adversely affected (or will imminently materially, adversely affect)
Cardinal's ability to perform any term or condition of this Agreement or
Cardinal's ability to pay amounts due CVS, then CVS has the right to
request that Cardinal provide it with information within [***] ([***])
business day from the date Cardinal receives the request (i.e., if Cardinal
receives CVS' request at 3:00 p.m. Monday, the information will be provided
no later than [***]) that further describes or refutes (as applicable), in
reasonable detail, such material adverse effect, and that may resolve any
such concerns raised by CVS. In addition, Cardinal agrees to promptly
notify CVS in the event Cardinal believes it has suffered, or will
imminently suffer a material adverse effect with respect to its financial
position, including an acceleration event under its credit facilities, that
has materially, adversely effected (or will imminently materially,
adversely affect) Cardinal's ability to perform any term or condition of
this Agreement, or Cardinal's ability to pay amounts due CVS. If CVS has
requested such information or Cardinal has notified CVS as set forth above,
then CVS may (i) accelerate payment of any [***] or any amounts due CVS,
(ii) modify payment terms, and (iii) in the event that Cardinal is in
Payment Default (as defined below), give Cardinal notice of the amount of
required payment under this Agreement by 10:00 a.m. Eastern Standard Time
on a business day and require Cardinal to wire electronic confirmation of
payment of such amount by non-refundable wire transfer by 2:00 p.m. Eastern
Standard Time on the same business day. As used within this paragraph, a
"PAYMENT DEFAULT" shall mean a circumstance where Cardinal has failed to
cause CVS to receive payment when due. If any of the foregoing actions are
taken by CVS, the parties will meet every approximate [***] ([***]) days
following the execution of such action to review Cardinal's financial
condition, and to reasonably consider reinstating the payment terms which
were in effect prior to execution of such action. If any of the foregoing
actions are taken by CVS, then Cardinal may choose to terminate this
Agreement with [***] ([***]) days written notice if it finds CVS' proposed
terms unacceptable. If the Agreement is terminated pursuant to this Section
4(d), the Agreement shall remain in effect without modification (unless
mutually agreed upon in writing by the parties) until expiration of the
[***] ([***]) day notice period.
(e) Unconditional Guaranty. As an inducement for Cardinal to supply
Merchandise and provide services to the subsidiaries and affiliates of CVS,
whether existing now or in the future, CVS Corporation guarantees to
Cardinal the punctual and full payment (and not merely the ultimate
collectablility) of all undisputed sums due from CVS to Cardinal under this
Agreement.
SECTION 5. DELIVERY/ORDER SUBMISSION PROCEDURES. Cardinal will deliver the
Merchandise F.O.B. to the Pharmacies and exercise its good faith efforts to
provide an efficient delivery schedule designed to meet the mutual needs of
Cardinal and the Pharmacies. All deliveries will be accompanied by an invoice
and all delivery costs (not including emergency deliveries) absorbed by
Cardinal. Cardinal will deliver Merchandise to each Pharmacy [***] ([***]) days
per week ([***] through [***], except Pharmacies
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located outside of the continental United States or other Pharmacies mutually
agreed upon by the parties from time to time) as mutually agreed upon by both
parties (exclusive of holidays, etc.). Any additional deliveries will constitute
emergency deliveries, which if required, will incur a separate delivery charge
at Cardinal's cost for such deliveries. Delivery schedules and purchase order
deadlines may be reviewed and changed from time to time as mutually agreed upon
by Cardinal and CVS. Delivery of Brokerage Purchases will be subject to the
terms and conditions set forth in the Section 2(b) Disclosure Schedule.
The Pharmacies will submit all orders, except for orders for Schedule II drugs,
for all Merchandise to Cardinal via Telxon units (to be provided by Cardinal) or
other mutually agreed upon method. Any such equipment supplied by Cardinal will
be returned to Cardinal by CVS upon the expiration or termination of this
Agreement for any reason, or upon Cardinal's request, if in Cardinal's
reasonable discretion, Cardinal's proprietary rights are threatened. In the
event that electronic order entry is temporarily interrupted for reasons beyond
the control of CVS or Cardinal, CVS may place orders manually and both parties
will use reasonable efforts to rectify the problem.
DEA Form 222 may be mailed, given to the delivery driver to be delivered to the
applicable Cardinal distribution center, or other mutually agreed upon method.
Schedule II orders will be delivered within [***] ([***]) business [***] of
Cardinal's receipt of the signed original DEA Form 222. CVS acknowledges that if
CVS gives the DEA Form 222s to the delivery driver, such forms will not be
received by Cardinal until such time that the delivery driver physically
delivers the DEA Form 222 to the applicable Cardinal distribution center.
Notwithstanding the foregoing, no Schedule II orders will be delivered other
than in compliance with DEA regulations.
Additionally, CII orders must be shipped [***]% complete and courier must be
[***] when order is received and checked in by CVS, CVS reserves the right to
refuse any CII order that contains any shipping errors.
SECTION 6. OTHER SERVICES.
(a) CardinalCHOICE-HQ(TM). Cardinal will license [***] ([***])
CardinalCHOICE-HQ(TM) software systems to CVS' headquarters on the terms
set forth in the Section 6(a) Disclosure Schedule. Such licensing will be
pursuant to the terms and conditions of Cardinal's standard software
license agreement for such software. In addition, Cardinal will provide CVS
with the related hardware as described in the Section 6(a) Disclosure
Schedule, pursuant to Cardinal's standard hardware purchase agreement.
Cardinal will make available to all CVS locations (Pharmacies, CVS Pharmacy
DCs, and support locations) access to Cardinal.com.
(b) Management Information Services. Cardinal will provide to CVS those
programs and services described in the Base Service Package set forth in
Section 6(b) Disclosure Schedule on the terms and conditions described in
that schedule.
7
(c) RAPIDistribution(SM). Cardinal will make available to the Pharmacies
participation in Cardinal's RAPIDistribution(SM) program, pursuant to the
standard terms of that program.
(d) Employees.
(i) CVS will engage a Pharmacy DSD employee with the necessary skill
set to act as a liaison between Cardinal and CVS. During the term of
this Agreement and for a [***] ([***]) year period thereafter,
Cardinal will not directly or indirectly employ, engage, or otherwise
solicit for employment or engagement such employee, or induce or
encourage such employee to terminate or otherwise modify such
employee's relationship with CVS. Furthermore, Cardinal will provide
CVS with [***] as detailed in Section 6(d) Disclosure Schedules. The
CVS Employee shall keep any and all information disclosed by Cardinal
confidential pursuant to Section 17.
(ii) Cardinal will also engage a Pharmacy employee with the necessary
skill set to act as a liaison between Cardinal and CVS and work on
matters related to this Agreement. This employee will travel to CVS on
a [***] basis and perform his/her duties at the CVS Support Center
[***] ([***]) business days per [***] on average. CVS and Cardinal
will mutually agree on the appropriate candidate to fill this position
as it becomes necessary from time to time. During the term of this
Agreement and for a [***] ([***]) year period thereafter, CVS will not
directly or indirectly employ, engage, or otherwise solicit for
employment or engagement such employee, or induce or encourage such
employee to terminate or otherwise modify such employee's relationship
with Cardinal. The Cardinal Employee shall keep any and all
information disclosed by CVS confidential pursuant to Section 17.
(e) ProfitPak(R). CVS will participate in the ProfitPak(R) program as it
relates to CVS' Authorized Repack Portfolio as amended from time to
time, with CVS customized substitution logic, as more fully described
in the Section 6(e) Disclosure Schedule.
SECTION 7 CVS GENERIC FORMULARY AND CARDINALSOURCE(SM) PROGRAM.
(a) Cardinal understands that CVS has established a preferred list of
generic Rx Products, which includes items CVS stocks in the CVS Pharmacy
DCs and certain other products as CVS designates (the "CVS GENERIC
FORMULARY"). Whenever a Pharmacy orders a generic product Cardinal will
automatically substitute the corresponding CVS Generic Formulary item if
applicable. Generic product shall be defined as a multi-source drug as
detailed by First Data Bank's (FDB) NDDF Plus(TM) data dictionary. A
generic drug will have the following values assigned to the NDC level by
FDB:
- Generic Indicator (GI) [***] (multiple source product)
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- Generic Price Indicator (GPI) [***] (product priced as a generic)
All drug products classified with a GI [***] and a GPI [***] will be
considered generic drugs. In the event CVS, for substitution purposes,
decides to elect certain items as brand or generic, contrary to what the
result from FDB is; CVS will furnish Cardinal with notification and the
drug shall be coded as instructed by CVS.
Cardinal will regularly update its files to ensure all generic
classification criteria set forth above is refreshed expeditiously to
ensure generic classification criteria reflects current marketplace
conditions.
As stated above, whenever a Pharmacy orders a generic product Cardinal will
automatically substitute to the corresponding CVS Generic Formulary item if
applicable. Substitution will be based on the five (5) digit GCN as defined
by FDB or as specifically directed by CVS. In addition, the program will
ensure the formulary package size is shipped to the store in a quantity
[***] or [***] the ordered quantity, unless otherwise specifically directed
by CVS.
For example; if a Pharmacy orders [***] ([***]) units of an off-formulary
item with a package size of [***] for which there is a corresponding CVS
Formulary item with a package size of [***], then the program will ensure
the total quantity shipped to the Pharmacy is [***] or [***] the ordered
quantity, in this case [***] ([***]) unit of the CVS Formulary item in the
[***]-package size. CVS' required substitution logic is further defined in
Section 7(a) Disclosure Schedule.
CVS will have the ability to designate certain items, at the GCN or NDC
level, to be excluded from package size substitution. For example, items
that are available and used in large package sizes (i.e. one pound topical
creams). Although the CVS Formulary may have corresponding items in smaller
package sizes (i.e. 15 grams), CVS would require the original package size
ordered to be shipped. CVS may put any item it deems appropriate on this
exclusion. In addition, all package sizes should be consistent for metric
sizes (i.e., one pint equal to 473 or 480 ml, 1 ounce equal to 28.4 or 30.0
grams). Due to regulatory issues surrounding Schedule II (CIIs) these items
will be excluded from package size substitution.
Cardinal will also allow CVS the ability to adjust (up or down) the
quantity shipped to the Pharmacies. This adjustment will be made at an NDC
level based on a predetermined Threshold Quantity (as defined below) and
adjustment percentage. Both the Threshold Quantity and adjustment
percentage can be set to [***]. The "THRESHOLD QUANTITY" (both CVS and
Cardinal agree that the Threshold Quantity functionality will be made
available to CVS no later than November 1, 2004) will be a minimum quantity
that must be surpassed in order for the adjustment percentage to be
applied. If the Threshold Quantity is not exceeded, the item should be
shipped as ordered. The adjustment percentage will only be applied to that
portion of the quantity ordered which exceeds the Threshold Quantity. Once
the adjustment percentage is applied and rounded up to
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the nearest whole unit, the result should be added to the Threshold
Quantity to determine final shipment quantity.
For example, if CVS chooses to adjust orders for NDC 55555-4444-22 by
[***]% subject to a Threshold Quantity of [***] ([***]) bottle and if it is
determined based on the substitution program that NDC 55555-4444-22 should
be shipped in a quantity of [***] ([***]) units, then the quantity in
excess of the Threshold Quantity ([***]), will be subject to a [***]%
adjustment percentage ([***]) and be rounded up to the nearest whole unit
([***]). The adjusted quantity [***] ([***]) will be added to the Threshold
Quantity [***] ([***]), to determine final quantity to be shipped [***]
([***]). The adjustment percentage will be allowed to exceed [***]% to any
level CVS deems appropriate.
If the item ordered does not have a corresponding item on the CVS Formulary
or if the item is unavailable, Cardinal will automatically substitute such
item with the corresponding generic product, if any, from the
CardinalSOURCE(SM) generic formulary (the "CARDINAL GENERIC FORMULARY") in
the original package size ordered.
In the event that the Cardinal Generic Formulary item is out-of-stock, then
Cardinal will automatically substitute the item with the [***]
corresponding item under the second tier CVS generic formulary (the
"SECONDARY CVS GENERIC FORMULARY") in the original package size ordered. If
a corresponding item is not available on the Secondary CVS Generic
Formulary, Cardinal will ship the item as it was ordered. Notwithstanding
anything in the foregoing to the contrary, CVS reserves the right to [***]
Cardinal from substituting certain items and/or order methods from the
Cardinal Generic Formulary and Secondary CVS Generic Formulary for
corresponding items on the CVS Generic Formulary.
CVS has provided Cardinal with a list of items on CVS' Generic Formulary as
of January 1, 2004 (the date of this Agreement). As items on the CVS
Generic Formulary change from time to time, CVS will provide Cardinal with
electronic notice of such changes including the proposed effective date of
such change. As it pertains to Cardinal non-previously stocked items only,
Cardinal will ensure best efforts are made to stock, and have available for
Pharmacies to order within fourteen (14) days of receipt of such notice. In
the event that Cardinal's inventory level of any product being deleted from
the CVS Generic Formulary [***] the amount anticipated to be purchased by
CVS prior to CVS' proposed effective date of such deletion and the Rx
Product is not on CardinalSOURCE(SM) or another of Cardinal's retail chain
generic programs, then Cardinal will notify CVS of such situation and
Cardinal and CVS will mutually agree upon the adjusted effective date of
such deletion. In addition, CVS will provide Cardinal on a monthly basis,
in an acceptable file format, with a list setting forth all items on CVS'
Generic Formulary as of the end of the previous month. Cardinal will use
the information on such files to verify its records of CVS' Generic
Formulary and notify CVS of any discrepancies so that such discrepancies
may be reconciled and corrected.
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Cardinal will have the ability to perform package size substitution for
branded items upon request by CVS. Branded items are defined as items for
which either the GI or GPI indicators in FDB are not [***]. This definition
specifically excludes items for which Cardinal has been notified by CVS to
designate in a manner regardless of the GI or GPI indicators. In cases
where an existing Rx Product's formulation is altered or changed and a new
formulation is introduced, Cardinal will seek approval from CVS prior to
any substitution to said new item.
Cardinal will accommodate the [***] of inventory for CVS' [***] upon
request by CVS on an item-by-item basis.
CVS may in the future decide to institute an [***] program similar to the
[***]. Cardinal will support any [***] program as designed by CVS. [***]
will be based entirely on the FDB classification for Rx and OTC as well as
brand and generic.
Any and all data and pricing (GCN, brand/generic indicator, package size,
AWP, etc.) must be in accordance with the most recent First Data Bank data
that is available. Cardinal proprietary and specific data elements and
pricing will not be passed to CVS. CVS may instruct Cardinal to override
any FDB classification, specifically as it relates to generic indicator.
(b) CVS will be entitled to a [***] (in the form of a [***]) based on the
[***] of [***] Rx Products purchased by the Pharmacies as described in the
Section 7(b) Disclosure Schedule.
SECTION 8. CONTRACT ADMINISTRATION.
Cardinal will recognize and administer supplier contracts between CVS and any
manufacturer or supplier ("MANUFACTURER CONTRACTS") subject to their continued
validity in accordance with applicable laws and subject to such credit
considerations concerning the applicable manufacturer as Cardinal may reasonably
consider appropriate. Notwithstanding the foregoing, Cardinal's decision not to
recognize and administer a Manufacturer Contract, shall not excuse Cardinal from
complying with the service level detailed in Section 9 Disclosure Schedule or
extending the applicable manufacturer's pricing to CVS (i.e., CVS to be
financially kept whole). Cardinal will begin recognizing and administering each
new Manufacturer Contract, renewal, or replacement within the later of: (i)
[***] ([***]) business days after Cardinal has received a copy of the new
Manufacturer Contract, renewal or replacement from CVS, or (ii) the effective
date of the new Manufacturer Contract, renewal or replacement. Manufacturer
Contracts received by Cardinal directly from the manufacturer or supplier must
be forwarded to CVS within [***] ([***]) hours for CVS' written approval prior
to being administered.
SECTION 9. SERVICE LEVEL.
Cardinal will provide CVS with the service levels described in the Section 9
Disclosure Schedule and Section 2(b) Disclosure Schedules.
11
SECTION 10. RETURNED GOODS POLICY.
(a) Cardinal will accept returns from the Pharmacies in accordance with the
returns process as detailed in Section 10(a) Disclosure Schedule. Set forth
in the Section 2(b) Disclosure Schedule is the return process for Brokerage
Purchases.
(b) As it relates to non-merchantable pharmaceutical returns (expired,
damaged, recalls, etc) CVS and Cardinal will work in accordance with the
returns process set forth in the Section 10(b) Disclosure Schedule.
(c) As it relates to Unfit Rx Product, CVS shall use commercially
reasonable efforts to immediately return all Unfit Rx Product (whether
alleged or verified) to Cardinal for full credit. Cardinal will [***]
reimburse CVS at CVS' [***] for any and all Unfit Rx Product returned to
Cardinal by CVS and all other [***] incurred by CVS as it pertains to Unfit
Rx Product and Cardinal's instructions related to Unfit Rx Product.
SECTION 11. TERM.
(a) The term of this Agreement will begin on January 1, 2004 (the
"COMMENCEMENT DATE"), and will continue for fifty-four (54) months
thereafter (the "INITIAL Term"). This Agreement may be renewed for
successive renewal periods of one (1) year each upon mutual written
agreement of the parties. In the event either party desires not to renew
the Agreement at the expiration of the Initial Term or any renewal term,
that party shall provide the other party with at least ninety (90) days
written notice prior to the expiration of the then current term. In the
event such notification is not provided with at least the ninety (90) day
notice or if no notice is given, the then current term shall be extended
for a period of ninety (90) days after the expiration of such term to
provide for an adequate transition period. Any reference in this Agreement
to the "term of this Agreement" will include the Initial Term and any
renewal term.
(b) Either party may effect an early termination of this Agreement for
cause by giving written notice to the other party, provided such party has
first given written notice to the other party of the occurrence of a
material breach of this Agreement (which notice will specify the nature of
such breach) and the other party has failed to cure such breach within
sixty (60) days following its receipt of such notice or, in the event such
breach is not capable of being cured in such sixty (60) day period, the
breaching party's failure to diligently prosecute such cure thereafter.
Notwithstanding the foregoing, any failure to make any payment when due
under this Agreement or any failure by the other party to perform as
described within this Agreement which negatively impacts the other party's
ability to perform their respective business functions, such period in
which to cure will be reduced to ten (10) days.
(c) Either party will have the right to terminate this Agreement upon
notice to the other party following the commencement of any bankruptcy or
insolvency
12
proceeding (whether voluntary or involuntary) with respect to such other
party or its assets, the general assignment for the benefit of creditors by
such other party, or the appointment of a receiver, trustee, or liquidator
by or for such other party.
(d) CVS' and Cardinal's payment obligations to each other which have
accrued to date of termination or expiration will survive termination or
expiration of this Agreement as shall all other obligations which by their
nature extend beyond the term of the agreement, including but not limited
to the obligation in Sections 16, 17, and 18. CVS and Cardinal will
mutually agree on the transition of services provided by the other.
(e) Upon termination of this Agreement for any reason, CVS' rights as a
licensee of CardinalCHOICE-HQ(TM) software and other Cardinal software will
automatically expire, and CVS will (upon request) promptly return such
software and any related hardware not purchased by CVS to a return location
specified by Cardinal. Upon termination of this Agreement for any reason,
Cardinal will use its reasonable efforts to provide CVS with access to CVS'
historical purchase data.
(f) This Agreement will supersede and replace that certain Wholesale Supply
Agreement dated August 16, 2000 by and between Cardinal and CVS (the
"ORIGINAL Agreement"), and all extensions thereof. Upon commencement of
this Agreement, the Original Agreement will terminate and be of no further
force or effect whatsoever.
(g) For purposes of this Agreement the term "PROGRAM YEAR" means the twelve
(12) month period beginning on January 1st and ending on December 31st,
except for the final Program Year, which will be a six (6) month period
beginning January 1st and ending June 30th of 2008.
(h) In addition to all other termination rights set forth in this
Agreement, either party shall have the right to terminate this Agreement
for no cause with ninety (90) days advance written notice subject to a
termination fee as described in the Section 11(h) Disclosure Schedule.
SECTION 12. WAREHOUSE LOGISTICS PROGRAM.
CVS and Cardinal will implement a Warehouse Logistics Program ("WLP") as
described in the Section 12 Disclosure Schedule.
SECTION 13. NOTICES.
All notices required or permitted under this Agreement will be in writing to the
other party at the address set forth below (or such other address as that party
may give to the other party by written notice hereunder) and will be deemed
given (a) if delivered personally (including by overnight express or messenger),
upon delivery, (b) if delivered by first class, registered or certified mail
(return receipt requested), upon the earlier of
13
actual delivery or three (3) days after being mailed, or (c) if given by
telecopy, upon confirmation of receipt of automatic transmission report.
If to:
CVS Pharmacy, INC. CARDINAL HEALTH
One CVS Drive 7000 Cardinal Place
Woonsocket, RI 02895 Dublin, Ohio 43017
Attn: Vice President, Attn: Senior Vice President,
Pharmacy Merchandising Retail Sales and Marketing
Telecopy: (401) 769-9473 Telecopy: (614) 757-8787
with copy to: with copy to:
General Counsel Chief Legal Officer at the same address
at the same address Telecopy: (614) 757-8919
Telecopy: (401) 765-7887
SECTION 14. TAXES/COMPLIANCE WITH LAWS.
CVS will pay when due any sales, use, excise, gross receipts, or other federal,
state, or local taxes or other assessments (other than any tax based solely on
the net income of Cardinal) and related interest and penalties in connection
with or arising out of the transactions contemplated by this Agreement. If
Cardinal pays any such amounts which CVS is obligated to pay under this section,
then CVS will promptly reimburse Cardinal in an amount equal to the amount so
paid by Cardinal. If CVS pays any such amounts which Cardinal is obligated to
pay under this section, then Cardinal will promptly reimburse CVS in an amount
equal to the amount so paid by CVS.
If and to the extent any discounts, credits, rebates or other purchase
incentives are paid or applied by Cardinal with respect to the Merchandise
and/or Brokerage Purchases purchased under this Agreement, then applicable
provisions of the Medicare/Medicaid and state health care fraud and
abuse/anti-kickback laws (collectively, "fraud and abuse laws") may require
disclosure of the applicable price reduction on CVS' claim or cost reports for
reimbursement from governmental or other third parties. CVS agrees to comply
with all applicable provisions of the fraud and abuse laws and to indemnify and
hold Cardinal harmless for any failure on CVS' part to do so.
CVS will certify to Cardinal that all of the Pharmacies are properly and
completely licensed in compliance with all applicable state and federal laws,
regulations, rules and orders. Such certification will be provided in the form
of a schedule listing all of the Pharmacies, and their respective state and
federal license numbers and expiration dates. CVS will provide Cardinal with an
updated good faith schedule no later than the twenty-fifth (25th) day of each
month which will include information for the following month.
14
SECTION 15. FORCE MAJEURE.
One or more of Cardinal's or CVS' obligations under this Agreement will be
excused if, but only if, and to the extent that any delay or failure to perform
such obligations is due to fire or other casualty, validated (by Cardinal and
CVS) product or material shortages, strikes or labor disputes, transportation
delays, validated (by Cardinal and CVS) manufacturer out-of-stocks or delivery
disruptions, acts of God, validated (by Cardinal and CVS)seasonal supply
disruptions, or other causes beyond the reasonable control of Cardinal or CVS (a
"FORCE MAJEURE EVENT"). During the period of any such delay or failure, CVS may
purchase the Primary Wholesale Requirements for the affected Pharmacies or CVS
Pharmacy DCs from others, but will recommence purchasing from Cardinal within a
reasonable amount of time following cessation of such delay or failure. The
Pharmacy Minimum Volume Requirement as set forth in the Section 3(a) Disclosure
Schedule shall be reduced by the amounts that the affected Pharmacies are
required to purchase from others due to the event of force majeure.
SECTION 16. RECORDS AND AUDIT.
(a) Cardinal will maintain records pertaining to the Merchandise purchased
by CVS under this Agreement as required by applicable federal, state and
local laws, rules and regulations. Not more than [***] in any [***] ([***])
month period, and following [***] ([***]) days' advance written notice to
Cardinal, or as required by administrative ruling or court order, CVS will
have the right to appoint one or more of its agents or employees to review
those relevant records applicable to its pharmaceutical purchases for the
sole purpose of verifying compliance with the pricing terms of this
Agreement or compliance with any other material terms of this Agreement.
Any such review will be limited to [***] ([***]) months of historical
information as of the date such review begins, except if Cardinal is
required by applicable law to maintain records pertaining to the
Merchandise purchased by CVS under this Agreement for a period longer than
[***] ([***]) months, then Cardinal will also allow CVS to access such
information. The information will be subject to a confidentiality agreement
prepared by Cardinal and CVS and signed by CVS and its employee(s) and
agent(s) who will have access to the information prior to beginning the
review. Notwithstanding the foregoing, CVS may only appoint agents who are
employees of one of the top national accounting firms, as may be deemed
reasonably acceptable to Cardinal and CVS. Further, with respect to
contracts between Cardinal and certain manufacturers which must remain
confidential pursuant to a contractual provision, CVS may only review
records relating to such contracts through an employee of one of the top
national accounting firms deemed reasonably acceptable to Cardinal (i.e.,
not a CVS employee) to verify compliance with the pricing terms of such
contracts. Such accounting firm may confirm to CVS that Cardinal has (or
has not) complied with the pricing terms of such contracts, but may not
(and will not) otherwise disclose to CVS the confidential information.
15
(b) CVS will maintain records pertaining to the Merchandise purchased all
Pharmacies and CVS Pharmacy DCs, whether now or hereafter owned, managed or
operated by CVS, under this Agreement as required by applicable federal,
state and local laws, rules and regulations. Not more than [***] in any
[***] ([***]) month period, or as required by administrative ruling or
court order, and following thirty (30) days' advance written notice to CVS,
Cardinal will have the right to appoint one or more of its employees or
agents to review those relevant records applicable to such purchases of Rx
Products for the sole purposes of verifying that each CVS Pharmacy DC is
purchasing its Primary Wholesale Requirements of Brokerage Purchases from
Cardinal, as further described in the Section 2(a) Disclosure Schedule or
compliance with any other material terms of this Agreement. Any such review
will be limited to [***] ([***]) months of historical information as of the
date such review begins, except if CVS is required by applicable law to
maintain records pertaining to the Merchandise purchased by CVS under this
Agreement for a period longer than [***] ([***]) months, then CVS will
allow Cardinal to access such information also. The information will be
subject to a confidentiality agreement prepared by CVS and Cardinal and
signed by Cardinal and its employee(s) and agent(s) who will have access to
the information prior to beginning the review. Notwithstanding the
foregoing, Cardinal may only appoint agents who are employees of one of the
top national accounting firms, as may be deemed reasonably acceptable to
CVS and Cardinal. Further, with respect to contracts between CVS and
certain manufacturers which must remain confidential pursuant to a
contractual provision, Cardinal may only review records relating to such
contracts through an employee of one of the top national accounting firms
deemed reasonably acceptable to CVS (i.e., not a Cardinal employee) to
verify compliance with the terms of such contracts. Such accounting firm
may confirm to Cardinal that CVS terms of this Agreement, but may not (and
will not) otherwise disclose to Cardinal the confidential information.
SECTION 17. CONFIDENTIALITY.
Each party acknowledges that as a result of this Agreement, that party and its
employees and agents, will learn confidential information of the other party
(including, but not limited to, the information Cardinal provides to CVS
pursuant to the Warehouse Logistics Program set forth in the Section 12
Disclosure Schedule). Neither party will disclose any confidential information
of the other party to any person or entity, or use, or permit any person or
entity to use, any of such confidential information, excepting only: (a)
disclosures on a confidential basis to and use by the directors, officers,
employees, and agents of that party who have a reasonable need to know such
information in connection with that party's performance of this Agreement, (b)
disclosures which are required by law, as reasonably determined by that party or
its legal counsel, (c) disclosures which are made on a confidential basis to
that party's attorneys, accountants, and other professional advisors in
connection with matters relating to this Agreement, (d) information which is or
becomes available to the other party on a non-confidential basis from a source
entitled to disclose it on a non-confidential basis, (e) information that is or
becomes generally available to the public or within the industry to which such
information relates other than as a result of disclosure by the other party or
its representatives, and (f) routine
16
disclosures to IMS/DDD or similar organizations consistent with past practices,
so long as confidential information regarding CVS is provided only on an
aggregate or "blinded" basis and not identified specifically as CVS information
other than as otherwise contemplated or described in this Agreement. The
specific material terms of this Agreement will be deemed to be confidential
information of each party. Each party will be responsible for any breach of this
confidentiality provision by its representatives.
The obligations of confidentiality hereunder will survive the termination of
this Agreement for a period of two (2) years. Upon termination of this Agreement
(for any reason) each party will promptly: (i) return to the other party all
documentation and other materials (including copies of original documentation or
other materials) containing any confidential information of the other party; or
(ii) certify to the other party, pursuant to a certificate in form and substance
reasonably satisfactory to the other party, as to the destruction of all such
documentation and other materials. Notwithstanding the foregoing, each party may
keep one copy of any documentation containing confidential information of the
other party, provided that such copy will be retained and used solely by the
legal department of that party.
SECTION 18. INDEMNITY.
Cardinal will indemnify and hold harmless CVS and all future parent
corporations, subsidiaries and affiliates and each of their officers, directors,
employees and representatives (collectively referred to in this paragraph as
CVS) from and against those claims, damages or liabilities (including expenses
and attorneys fees)(exclusive of any incidental damages, which are defined as
claims, damages and liabilities associated with or related to actual damages but
are in excess of repayment for actual losses, and exclusive of any consequential
damages, which are defined as claims, damages and liabilities that do not flow
directly and immediately from an act that would require indemnification
hereunder but that result indirectly from such an act) directly attributable to
Cardinal's negligence or wrongdoing or the failure of Cardinal to properly
store, handle or distribute Merchandise in accordance with this Agreement or in
accordance with applicable law, it being understood, however, that Cardinal is
not the manufacturer of the Merchandise and that no indemnification of any type
is being provided other than as specifically stated in this paragraph. In
addition, Cardinal will transfer to CVS (on a non-exclusive basis) any
representations, warranties and indemnities made by the manufacturers of the
Merchandise to the extent that such representations, warranties and indemnities
are assignable by Cardinal, and will cooperate with all reasonable requests made
by CVS to enforce such representations, warranties and indemnities against such
manufacturers. Notwithstanding anything to the contrary herein, Cardinal
reserves its own rights under such representations, warranties and indemnities
made by such manufacturers and the remedies available to it for any breach of
such representations, warranties and indemnities by the manufacturers.
CVS will indemnify and hold harmless Cardinal and all future parent
corporations, subsidiaries and affiliates and each of their officers, directors,
employees and representatives (collectively referred to in this paragraph as
Cardinal) from and against those claims, damages or liabilities (exclusive of
any incidental damages, which are
17
defined as claims, damages and liabilities associated with or related to actual
damages but are in excess of repayment for actual losses, and exclusive of any
consequential damages, which are defined as claims, damages and liabilities that
do not flow directly and immediately from an act that would require
indemnification hereunder but that result indirectly from such an act) directly
attributable to CVS' negligence or wrongdoing, it being understood, however,
that no indemnification of any type is being provided other than as specifically
stated in this paragraph. The parties agree that neither CVS nor Cardinal will
be obligated under this section 18 with respect to any claim that results solely
from the negligence or intentional wrongdoing of the other party.
SECTION 19. INSURANCE.
Cardinal and CVS agree to maintain the insurance as set forth in the Section 19
Disclosure Schedule.
SECTION 20. ENTIRE AGREEMENT; SUCCESSORS.
This Agreement, together with the Disclosure Schedules referenced herein,
constitutes the entire Agreement and understanding of the parties with respect
to the subject matter hereof, and supersedes all prior and contemporaneous
agreements, proposals, and understandings between the parties relative to the
subject matter hereof. Cardinal may delegate its rights and obligations to any
corporation that is controlled by or under common control with Cardinal Health,
Inc. and CVS may delegate its rights and obligations to any corporation that is
controlled by or under common control with CVS Corporation, provided that in
each such assignment by Cardinal or CVS the assignor will remain the primary
obligor for all payment obligations. If all or substantially all of the stock or
assets of CVS Corporation are acquired by an unrelated third party (which
expressly excludes a merger where CVS Corporation is the surviving entity), then
Cardinal may elect (but will not be required) to terminate this Agreement during
the thirty (30) day period following such acquisition, by providing written
notice to CVS of its intent to terminate sixty (60) days prior to the intended
termination date. Further, if all or substantially all of the stock or assets of
Cardinal Health, Inc. are acquired by an unrelated third party (which expressly
excludes a merger where Cardinal Health, Inc. is the surviving entity), then CVS
may elect (but will not be required) to terminate this Agreement during the
thirty (30) day period following such acquisition, by providing written notice
to Cardinal of its intent to terminate sixty (60) days prior to the intended
termination date. This Agreement will be binding on, and inure to the benefit
of, and be enforceable by and against the respective successors and assigns of
each party to this Agreement.
SECTION 21. AMENDMENTS.
No changes to this Agreement will be made or be binding on any party unless made
in writing and signed by each party to this Agreement.
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SECTION 22. WAIVER.
Neither party's failure to enforce any provision of this Agreement will be
considered a waiver of any future right to enforce such provision.
SECTION 23. GOVERNING LAW.
This Agreement will be governed by the laws of the State of Ohio, without regard
to choice of law principles.
SECTION 24. RELATIONSHIP OF THE PARTIES.
The relationship of the parties is and will be that of independent contractors.
This Agreement does not establish or create a partnership or joint venture among
the parties.
SECTION 25. SEVERABILITY.
The intention of the parties is to fully comply with all applicable laws and
public policies, and this Agreement will be construed consistently with all such
laws and policies to the extent possible. If and to the extent that a court of
competent jurisdiction determines that it is impossible to so construe any
provision of this Agreement and consequently holds that provision to be invalid,
such holding will in no way affect the validity of the other provisions of this
Agreement, which will remain in full force and effect.
SECTION 26. ANNOUNCEMENTS.
CVS will not issue any press release or other public announcement, verbally or
in writing, referring to Cardinal or any entity which is controlled by or under
common control with Cardinal Health, Inc., without Cardinal's prior written
consent and advice of counsel. CVS will provide Cardinal's Executive Vice
President, Retail Sales and Marketing, 7000 Cardinal Place, Dublin, Ohio 43017,
with a written copy of any such press release or other public announcement no
less than seventy-two (72) hours prior to CVS' intent to issue such release or
announcement. CVS is responsible for confirming in writing that Cardinal's
Executive Vice President, Retail Sales and Marketing has received any such
proposed press release. Any such press release or other public announcement
proposed by CVS will be subject to Cardinal's revision and final approval.
Nothing contained herein will limit the right of CVS to issue a press release
if, in the opinion of CVS' counsel, such press release is required pursuant to
state or federal securities laws, rules or regulations.
Cardinal will not issue any press release or other public announcement, verbally
or in writing, referring to CVS or any entity which is controlled by or under
common control with CVS Pharmacy, Inc., without CVS' prior written consent and
advice of counsel. Cardinal will provide CVS' Vice President of Pharmacy
Merchandising and Director of Corporate Communications, One CVS Drive,
Woonsocket, Rhode Island 02895, with a written copy of any such press release or
other public announcement no less than seventy-two (72) hours prior to
Cardinal's intent to issue such release or announcement. Cardinal is responsible
for confirming in writing that CVS' Vice President of Pharmacy Merchandising and
Director of Corporate Communications has received any such
19
proposed press release. Any such press release or other public announcement
proposed by Cardinal will be subject to CVS' revision and final approval.
Nothing contained herein will limit the right of Cardinal to issue a press
release if, in the opinion of Cardinal's counsel, such press release is required
pursuant to state or federal securities laws, rules or regulations.
SECTION 27. AUTHORIZED SIGNATORIES.
All signatories to this Agreement represent that they are authorized by their
respective companies to execute and deliver this Agreement on behalf of their
respective companies, and to bind such companies to the terms herein.
Accepted and Agreed to by:
Cardinal Health*
By: /s/ Mark W. Parrish
------------------------------------
Its: Group President
Date: May 17, 2004
CVS Pharmacy, INC.
By: /s/ Matthew J. Leonard
------------------------------------
Its: VP Pharmacy Merchandising
Date: June 1, 2004
And with respect to Section 4(e) only:
CVS CORPORATION
By: /s/ Zeonon Lankowsky
------------------------------------
Its: Secretary
Date: 6/8/04
*The term "CARDINAL HEALTH" means the following pharmaceutical distribution
companies: Cardinal Health 106, Inc. (formerly known as James W. Daly, 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 Whitmire
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.
20
SECTION 1(A) DISCLOSURE SCHEDULE
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.
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.
21
SECTION 1(B) DISCLOSURE SCHEDULE
TOTAL DC LIST
CVS New York, Inc. CVS D.S., Inc.
Three Berry Drive 10017 Kingston Pike
Lumberton, NJ 08048 Knoxville, TN 37922
CVS Pharmacy, Inc. CVS IN Distribution, Inc.
150 Industrial Drive 7590 Empire Drive
North Smithfield, RI 02896 Indianapolis, IN 46219
CVS Texas Distribution L.P.
700 CVS Drive
Ennis, TX 75119
(expected open date TBD)
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.
22
SECTION 2(A) DISCLOSURE SCHEDULE
PRIMARY WHOLESALE REQUIREMENTS
The term "PRIMARY WHOLESALE REQUIREMENTS" means:
(a) with respect to the Pharmacies, Cardinal will be the [***] wholesale
supplier of [***] Rx Products to such Pharmacies. Furthermore, CVS will meet or
exceed the Pharmacy Minimum Volume Requirement (as described in the Section 3(a)
Disclosure Schedule).
(b) with respect to all of the CVS Pharmacy DCs, CVS will purchase from
Cardinal [***] of Rx Products from indirect manufacturers as detailed in and
subject to Section 12 Disclosure Schedule, excluding CVS' [***] and [***]
purchases.
Notwithstanding anything in this Agreement to the contrary, CVS retains the
right to purchase from any other source Rx Products which are unavailable from
Cardinal.
23
SECTION 2(B) DISCLOSURE SCHEDULE
WAREHOUSE AND BROKERAGE PURCHASES -- TERMS AND CONDITIONS
A. ORDERING/DELIVERY.
All CVS purchase orders for [***] Products (except for [***] items) will be
generated [***]. All orders referenced in this Section 2(b) Disclosure Schedule
are intended to refer to orders generated [***]. All orders will be handled
through [***] Department located at its corporate headquarters or such other
departments designated by [***] from time to time. All references to Cardinal in
this Section 2(b) Disclosure Schedule are to [***] or other such designated
department. All orders will be generated by specified manufacturer and will
include the NDC number, complete product description and to which CVS Pharmacy
DC the product is designated to be shipped. Quantities ordered will meet
manufacturer requirements for minimum and/or multiple case quantities and/or
minimum order size. All orders will be subject to shipping restrictions,
cut-backs, allocations, backorders, delays and other restrictions imposed by
manufacturers from time to time.
Cardinal may, at its option, [***] a [***] related to the Warehouse Logistics
Program described in Section 12 Disclosure Schedule with [***] from [***]. The
price for such product from [***] will be equal to the [***] as of CVS' PO date.
Within [***] ([***]) business days of receipt of the order for product, Cardinal
will ship the product on a [***] ([***]) day per week basis to the CVS Pharmacy
DC for which such order was made. Payment for such product [***] in its
inventory will be due at the greater of; [***] ([***]) days or a mutually agreed
upon number of days from invoice date (invoice date will equal ship date) (by
specific [***] as may be agreed upon from time to time and detailed in Section
12 Disclosure Schedule). Cardinal will pass through to CVS any applicable
manufacturer [***] with respect to warehouse and Brokerage Purchases subject to
Section 12 Disclosure Schedule.
B. RECEIVING AND SHIPPING DISCREPANCIES.
1. GENERALLY.
In the event a discrepancy in quantity arises with respect to any shipment,
the applicable CVS Pharmacy DC will notify Cardinal of the discrepancy
within [***] ([***]) business days of the receipt date of the shipment, and
will pay the undisputed amount of any such shipment, in accordance with the
process for taking deductions set forth within this disclosure schedule. In
turn, Cardinal may notify the supplier (if other than Cardinal) relative to
the disputed quantity or pricing.
If CVS [***] has a [***] with a manufacturer or supplier and CVS reasonably
believes such manufacture or supplier [***] to CVS, then CVS will [***] to
Cardinal in the amount of such [***]. Cardinal may, at its sole discretion,
correspondingly [***] from [***] to such manufacturer or supplier. [***]
and [***] will be responsible to maintain detailed support documentation
for any [***] or [***] request and will make such documentation, upon
request, available to the requesting party.
24
[***] and [***] will not allow [***] if such [***] are not supported by
detailed documentation.
2. CROSSDOCK, DROPSHIP, REPLENISHMENT WAREHOUSE DISCREPANCIES.
A crossdock or dropship discrepancy is defined as one of the following
scenarios:
Shortage (Quantity) Item quantity on Cardinal invoice is greater than the
quantity physically received by CVS Pharmacy DC
Overage (Quantity) Item quantity on Cardinal invoice is less than the
quantity physically received by CVS Pharmacy DC
Wrong Item (Quantity) Cardinal invoices CVS for one item but CVS Pharmacy DC
physically receives a different item
Short Dated Cardinal invoices CVS for an item and CVS Pharmacy DC
(Quantity) physically receives the item but cannot receive the item
into its stock due to dating requirements [product
expected to have minimum of [***] months dating unless
pre-approved by ECR subject to Section 12 Disclosure
Schedule]
Damaged (Quantity) Cardinal invoices CVS for an item and CVS Pharmacy DC
physically receives the item but cannot receive the item
into its stock due to damage to the item
Each CVS Pharmacy DC will provide the applicable Cardinal division with
notice (i.e., via Warehouse Discrepancy Notification ("WDN"), which will be
transmitted electronically or via facsimile) of all inbound receiving
discrepancies between physical product and the accompanying packing list
within [***] ([***]) business days of CVS' physical receipt of the product.
The WDN must be transmitted directly to the designated Cardinal DC
associate with a copy to Cardinal's Corporate Purchasing Department.
Cardinal will use all reasonable efforts to respond to a WDN within [***]
([***]) business days of receipt of each such WDN. Cardinal and the CVS
Pharmacy DCs will communicate the crossdock or dropship discrepancies and
corresponding resolution to their respective accounting departments. CVS
will process a [***] Cardinal (subject to Section 2(b) Disclosure Schedule)
for the value of the discrepancy. Cardinal may request and CVS will provide
additional written documentation in support of [***]. If Cardinal, through
its own review, has documentation which refutes CVS' claim, then CVS and
Cardinal shall review such documentation and any necessary adjustment will
be made. Discrepancies that remain unresolved [***] ([***]) business days
following the date of the WDN will be presented to senior management at
both Cardinal and CVS, for resolution.
3. CROSSDOCK, DROPSHIP, REPLENISHMENT ACCOUNTING DISCREPANCIES
An accounting discrepancy is defined as one or more of the following
scenarios:
Shortage (quantity) Item quantity on Cardinal invoice is greater than the
quantity physically received by CVS Pharmacy DC
25
Overage (quantity) Item quantity on Cardinal invoice is less than the
quantity physically received by CVS Pharmacy DC
Wrong item (quantity) Cardinal invoices CVS for one item but CVS Pharmacy DC
physically receives a different item
Short dated Cardinal invoices CVS for an item and CVS Pharmacy DC
(quantity) physically received the item but cannot receive the item
into its stock due to dating requirements [product
expected to have minimum of [***] months dating unless
pre-approved by ECR subject to Section 12 Disclosure
Schedule]
Damaged (quantity) Cardinal invoices CVS for an item and CVS Pharmacy DC
physically receives the item but cannot receive the item
into its inventory due to damage to the item
Pricing Cardinal's invoice price for an item is different than
the price CVS reasonably understands it should pay for
such item
Due Dating Cardinal's invoice reflects a due date that is different
from the date that CVS reasonably understands payment on
the invoice to be due
Other Any discrepancy where CVS reasonably understands the
payment amount to be different from the amount reflected
on the Cardinal invoice
CVS' corporate accounting department will provide Cardinal with notice of
all accounting discrepancies on or before the payment due date for the
applicable invoice. Prior to submitting such notice to Cardinal, CVS agrees
to re-verify the CVS Pharmacy DC's claim of the accounting discrepancy. The
written notice for accounting discrepancies will take the form of an
accounting discrepancy notification which will be generated and provided to
Cardinal by CVS' accounting department (the "ADN"). This ADN will include
the purchase order number, items involved, quantities, amounts and nature
of the exception. CVS will [***] due Cardinal (subject to Section 2(b)
Disclosure Schedule) for the [***] of the discrepancy. Cardinal may request
and CVS will provide additional written documentation in support of [***].
If Cardinal, through its own review, has documentation which refutes CVS'
claim, then CVS and Cardinal shall review such documentation and any
necessary adjustment will be made. Cardinal and CVS will use all reasonable
efforts to resolve the accounting discrepancies within [***] ([***])
calendar days of receipt from CVS of the fully completed ADN. Discrepancies
that remain unresolved [***] ([***]) business days following the date of
the ADN will be presented to senior management at both Cardinal and CVS for
resolution.
4. WAREHOUSE RETURNS.
A. CROSSDOCK VENDORS.
CVS will return all product by reason of overage, wrong item,
unapproved, short-dated or damage relating to replenishment crossdock and
[***] (subject to Section 12 Disclosure Schedule) to the applicable
Cardinal servicing division within [***]
26
([***]) business days of physical receipt of the product. CVS will label
the product as a return, attach a completed WDN, and clearly reference the
original shipment. CVS will [***] against future payment due Cardinal in
the amount of the return subject to Section 2(b) Disclosure Schedule.
B. DROPSHIP VENDORS.
CVS will return all product by reason of overage, wrong item, unapproved,
short-dated or damage relating to replenishment dropship and [***] dropship
(subject to Section 12 Disclosure Schedule) directly to the manufacturer,
within [***] ([***]) business days of physical receipt of the product. In
addition, if CVS discovers a concealed short or damaged Merchandise
relating to [***] of such [***] (that arises while such Merchandise is out
of [***] physical [***]), then CVS will return such Merchandise directly to
the manufacturer. CVS will provide the applicable Cardinal servicing
division with a completed WDN. CVS will [***] future payment due Cardinal
in the amount of the return subject to Section 2(b) Disclosure Schedule
C. DIRECT VENDORS.
CVS will return all product resulting from replenishment direct and [***]
direct (subject to Section 12 Disclosure Schedule) shipment directly to the
manufacturer. CVS [***] from amounts CVS owes Cardinal with respect to such
replenishment direct or [***] direct returned product subject to Section 12
Disclosure Schedule.
CVS will return all [***] (but not related to [***]) or damaged product to
CVS' designated third party returned goods processor, or directly to the
manufacturer or manufacturer's processor, as CVS elects.
All other return scenarios will be handled on an exception basis with a
process to be mutually agreed upon by both CVS and Cardinal.
C. CVS [***] (I.E., [***]) DISCREPANCIES.
The following provisions apply to [***].
1. [***] WAREHOUSE DISCREPANCIES.
A warehouse discrepancy is defined as one of the following scenarios:
Shortage (Quantity) Item is on [***] list but not physically received by
[***] [complete line or part of line item]
Overage (Quantity) Item is physically received by [***] not on [***] list
[additional quantities to existing line item or new
item]
Wrong Item (Quantity) [***] physically receives item different than item on
[***]
(Quantity) [***] physically receives item from [***] that has less
than [***] product [***] subject to Section 12
Disclosure Schedule.
27
Damaged (Quantity) [***] physically receives item damaged.
[***] provide the applicable [***] with a WDN (transmitted by electronic
method mutually agreed to by both locations) of all [***] receiving
discrepancies between physical product and the accompanying [***] packing
list. Cardinal will use its reasonable efforts to notify CVS within [***]
([***]) business days of physical receipt of product; however, in order to
protect the service level to CVS, replenishment transactions will be first
priority which could defer receipt of [***] shipments up to an additional
[***] ([***]) business days (except for controlled substances, which
Cardinal will prioritize and use its reasonable efforts to notify CVS [***]
within [***] ([***]) business days). The WDN must be transmitted directly
to the designated CVS Pharmacy DC associate with a copy to CVS' corporate
purchasing department. CVS will use all reasonable efforts to respond to a
WDN within [***] ([***]) business days of receipt of each such WDN;
however, in order to prioritize business critical transactions such
notification may be delayed, but not to exceed [***] ([***]) business days.
Cardinal and the CVS Pharmacy DC's will communicate the warehouse
discrepancies and corresponding resolution to their respective accounting
departments. CVS will [***] against [***] due Cardinal (subject to Section
2(b) Disclosure Schedule) for the [***] of the discrepancy. Cardinal may
request and CVS will provide additional written documentation in support of
[***]. If Cardinal, through its own review, has documentation which refutes
CVS' claim, then CVS and Cardinal shall review such documentation and any
necessary adjustment will be made. Discrepancies that remain unresolved
[***] ([***]) business days following the date of the WDN will be presented
to senior management at CVS and Cardinal distribution centers, for
resolution.
2. [***] ACCOUNTING DISCREPANCIES.
An accounting discrepancy is defined as one or more of the following
scenarios:
Shortage (Quantity) Item [***] list but not physically received by [***]
[complete line or part of line item]
Overage (Quantity) Item is physically received [***] but not on [***] list
[additional quantities to existing line item or new
item]
Wrong Item (Quantity) [***] physically receives item different than item on
[***] list
(Quantity) [***] physically receives item from [***] that has less
than [***] months product dating subject to Section 12
Disclosure Schedule.
Damaged (Quantity) [***] physically receives item damaged.
As a result of the electronic notifications of a deductions (in an [***]
format) created by CVS, Cardinal will produce a report detailing the
accounting discrepancies that exist between the [***] taken by CVS and the
merchandise [***] by Cardinal. Prior to submitting such accounting
discrepancy report to CVS, Cardinal agrees to re-
28
verify the Cardinal DC's claim of the accounting discrepancy. The
electronic notice for accounting discrepancies will take the form of a
standard exception report (in a form mutually agreed to by both Cardinal
and CVS) which will be generated and transmitted to CVS electronically by
Cardinal's Brokerage accounting department. The ADN must include the [***]
packing list, items involved, quantities received by CVS, quantities
shipped to Cardinal, pricing and nature of the exception. CVS will [***]
against [***] due Cardinal (subject to Section 2(b) Disclosure Schedule)
for the [***] of the discrepancy. Cardinal may request and CVS will provide
additional written documentation in support of [***]. If Cardinal, through
its own review, has documentation which refutes CVS' claim, then CVS and
Cardinal shall review such documentation and any necessary adjustment will
be made. Cardinal and CVS will use all reasonable efforts to resolve the
accounting discrepancies within [***] ([***]) calendar days of receipt from
CVS of the fully completed ADN. Discrepancies that remain unresolved [***]
([***]) business days following the date of the ADN will be presented to
senior management at both Cardinal and CVS for resolution.
29
D. VERIFICATION PROCESS.
CARDINAL SHIPMENTS TO CVS
REPLENISHMENT CROSSDOCK
Shortage - CVS to verify shortage by recounting inbound
shipment
- CVS to review discrepancy against receiving
worksheet/manifest from Cardinal to confirm
shortage not due to UOM issue
- CVS to check for merchandise on site but not
received into system
- CVS to check for open receiving (overage receiving
against different purchase order)
- CVS to cycle count on hand inventory
- CVS to review inventory adjustment records
- CVS to determine if shortage due to overage on
other item
- Cardinal to review receiving worksheet/manifest
for error
- Cardinal to review vendor packing list/BOL
- Cardinal to cycle count on hand inventory
- Cardinal to review inventory adjustment records
Overage - CVS to verify overage by recounting inbound
shipment
- CVS to review discrepancy against receiving
worksheet/manifest from Cardinal to confirm
overage not due to UOM issue
- CVS to determine if overage due to shortage on
other item
- CVS to contact ECR to determine if product should
be received or returned to Cardinal (notify
Cardinal of ECR decision)
- CVS to cycle count on hand inventory
- CVS to review inventory adjustment records
- Cardinal to review receiving worksheet/manifest
for error
- Cardinal to review vendor packing list/BOL
- Cardinal to cycle count on hand inventory
- Cardinal to review inventory adjustment records
Wrong Product - CVS to determine if item is correct, just wrong
NDC number
- CVS to determine if wrong product is overage to
product on purchase order or if product not on
original purchase order
- CVS to determine if wrong product is due to
shortage on other item
- CVS to contact ECR to determine if product should
be received or returned to Cardinal (notify
Cardinal of ECR decision)
- CVS to cycle count on hand inventory
- CVS to review inventory adjustment records
- Cardinal to review receiving worksheet/manifest
for error
- Cardinal to review vendor packing list/BOL
- Cardinal to cycle count on hand inventory
- Cardinal to review inventory adjustment records
[***] Product - CVS to review receiving worksheet from Cardinal to
determine if dating pre-approved
- CVS to contact ECR to determine if product should
be received or returned to Cardinal (notify
Cardinal of ECR decision)
30
- Cardinal to review receiving worksheet/manifest
for error
Damaged Product - CVS to return product to Cardinal as per approved
SOP
Invalid Purchase Order - CVS to contact Cardinal customer operations
coordinator
31
[***] (REPLENISHMENT FROM CARDINAL INVENTORY)
Shortage - CVS to verify shortage by recounting inbound
shipment
- CVS to review discrepancy against receiving
worksheet/manifest from Cardinal to confirm
shortage not due to UOM issue
- CVS to check for merchandise on site but not
received into system
- CVS to check for open receiving (overage receiving
against different purchase order)
- CVS to determine if shortage due to overage on
other item
- CVS to cycle count on hand inventory
- CVS to review inventory adjustment records
- Cardinal to review receiving worksheet/manifest
for error
- Cardinal to Cycle Count on-hand inventory
- Cardinal to review inventory adjustment records
Overage - CVS to verify overage by recounting inbound
shipment
- CVS to Review discrepancy against receiving
worksheet/manifest from Cardinal to confirm
overage not due to UOM issue
- CVS to determine if overage due to shortage on
other item
- CVS to contact ECR to determine if product should
be received or returned to Cardinal (notify
Cardinal of ECR decision)
- CVS to cycle count on hand inventory
- CVS to review inventory adjustment records
- Cardinal to review receiving worksheet/manifest
for error
- Cardinal to Cycle Count on-hand inventory
- Cardinal to review inventory adjustment records
Wrong Product - CVS to determine if item is correct, just wrong
NDC number
- CVS to determine if wrong product is overage to
product on purchase order or if product not on
original purchase order
- CVS to determine if wrong product is due to
shortage on other item
- CVS to contact ECR to determine if product should
be received or returned to Cardinal (notify
Cardinal of ECR decision)
- Cardinal to review receiving worksheet/manifest
for error
- Cardinal to Cycle Count on-hand inventory
- Cardinal to review inventory adjustment records
[***] Product - CVS to review receiving worksheet from Cardinal to
determine if dating pre-approved
- CVS to contact ECR to determine if product should
be received or returned to Cardinal (notify
Cardinal of ECR decision)
- Cardinal to review receiving worksheet/manifest
for error
Damaged Product - CVS to return product to Cardinal as per approved
SOP
Invalid Purchase Order - CVS to contact Cardinal customer operations
coordinator
32
REPLENISHMENT OR [***] DROPSHIP
Shortage - CVS to verify shortage by recounting inbound
shipment
- CVS to review discrepancy against packing list/BOL
from manufacturer to confirm shortage not due to
UOM issue
- CVS to check for merchandise on site but not
received into system
- CVS to check for open receiving (overage receiving
against different purchase order)
- CVS to cycle count on hand inventory
- CVS to review inventory adjustment records
- CVS to determine if shortage due to overage on
other item
- Cardinal to contact vendor to coordinate
resolution
Overage - CVS to verify overage by recounting inbound
shipment
- CVS to review discrepancy against packing list/BOL
from vendor to confirm overage not due to UOM
issue
- CVS to determine if overage due to shortage on
other item
- CVS to contact ECR to determine if product should
be received or returned to Manufacturer (notify
Cardinal of ECR decision)
- CVS to cycle count on hand inventory
- CVS to review inventory adjustment records
- Cardinal to contact vendor to coordinate
resolution
Wrong Product - CVS to determine if item is correct, just wrong
NDC number
- CVS to determine if wrong product is overage to
product on purchase order or if product not on
original purchase order
- CVS to determine if wrong product is due to
shortage on other item
- CVS to contact ECR to determine if product should
be received or returned to manufacturer (notify
Cardinal of ECR decision)
- Cardinal to contact vendor to coordinate
resolution
[***] Product - CVS to contact ECR to determine if product should
be received or returned to Cardinal (notify
Cardinal of ECR decision)
- Cardinal to contact vendor to coordinate
resolution
Damaged Product - CVS to return product to manufacturer as per
manufacturer guidelines and notify Cardinal
33
CVS [***]
[***] DROPSHIP / [***] DIRECT
Shortage - [***] to verify shortage by recounting inbound shipment
- [***] to review discrepancy against packing list [***] to
confirm shortage not due to UOM issue
- [***] to check for merchandise on site but not received into
system
- [***] to check for open receiving {overage receiving against
different purchase order}
- [***] to determine if shortage due to overage on other item
- [***] to cycle count on hand inventory
- [***] to review inventory adjustment records
- [***] to review receiving paperwork and packing list to
[***] for error
- [***] to review vendor packing list/BOL
- [***] to cycle count on hand inventory
- [***] to review inventory adjustment records
Overage - [***] to verify overage by recounting inbound shipment
- [***] to review discrepancy against packing list [***] to
confirm overage not due to UOM issue
- [***] to determine if overage due to shortage on other item
- [***] to contact Corporate Brokerage to determine if product
should be received or returned to [***] (notify CVS of
decision)
- [***] to cycle count on hand inventory
- [***] to review inventory adjustment records
- [***] to review receiving paperwork and packing list to
[***] for errors
- [***] to review vendor packing list/BOL
- [***] to cycle count on hand inventory
- [***] to review inventory adjustment records
Wrong Product - [***] to determine if item is correct, just wrong NDC number
- [***] to determine if wrong product is overage to product on
purchase order or if product not on original purchase order
- [***] to determine if wrong product is due to shortage on
other item
- [***] to contact Corporate Brokerage to determine if product
should be received or returned to[***] (notify CVS of
decision)
- [***] to review receiving paperwork and packing list to
[***] for error
- [***] to review vendor packing list/BOL
- [***] to cycle count on hand inventory
- [***] to review inventory adjustment records
Product - [***] to note product dating on problem solver document to
Corporate Brokerage
- [***] to receive product into inventory
Damaged Product - [***] to note product damage on problem solver document to
Corporate Brokerage
- [***] to receive product into inventory and initiate vendor
return process
34
E. INDIRECT [***] PROCESS.
The process relating to [***] pharmaceutical [***] is described in the Section
10(b) Disclosure Schedule. The following process applies to all other [***]
manufacturer or supplier [***]. If CVS [***] has a [***] with a manufacturer or
supplier and CVS reasonably believes such manufacture or supplier [***] to
[***], then CVS will [***] from [***] to [***] in the amount of such funds.
Cardinal may, at its sole discretion, correspondingly [***] from [***] Cardinal
[***] to such [***]. CVS and Cardinal will be responsible to maintain detailed
support documentation for any [***] request and will make such documentation,
upon request, available to the requesting party. Cardinal and CVS will not allow
[***] if such [***] are not supported by detailed documentation. The following
terms and conditions apply to the indirect [***] process:
a. CVS will [***] which CVS reasonably believes are to CVS by certain
vendors with which [***] has a [***]. Cardinal may, at its sole discretion,
correspondingly [***] from [***] Cardinal [***] to such manufacturer or
supplier.
b. CVS and Cardinal will notify each indirect manufacturer or indirect
supplier of their relationship as customer/wholesaler. CVS will instruct each
indirect manufacturer or indirect supplier to issue any and all credits to
Cardinal for any and all amounts owed to CVS. From time to time, CVS may
identify a need to process a [***] a specific [***] for which Cardinal [***], in
these cases, CVS will [***] a [***] against [***] to Cardinal for all [***]
reasonably [***]. Upon request, CVS will provide Cardinal with documentation
(either in paper or electronic format) to substantiate [***]. This documentation
may exclude pricing information if such information is deemed to be confidential
information, as reasonably determined by CVS.
c. Cardinal, at its sole discretion, will [***] such [***] from the
applicable manufacturer's account.
d. CVS and Cardinal will work together to mutually resolve any [***].
F. WAREHOUSE SERVICE LEVEL.
Cardinal and CVS recognize the importance of maintaining adequate inventory of
all CVS warehoused items, without compromising the inventory management
objective embedded in this Agreement. To that end, Cardinal will provide CVS
with a [***]% service level ("WAREHOUSE SERVICE LEVEL") ("WSL"). The WSL [***]%
service level shall be defined as the aggregate [***] service level from the CVS
Pharmacy DCs to the CVS Pharmacies, excluding [***] items, to be calculated on a
[***] basis. The service level will be calculated using the following formula:
[Total of CVS [***] items shipped [***] (excluding [***])][Total of CVS [***]
(excluding [***]]
This service level commitment is inclusive of any [***] or [***].
35
The Warehouse Service Level shall be maintained with the aggregate number of
inventory [***] in each of the CVS Pharmacy DCs to not exceed CVS' [***] as
provided to Cardinal by CVS. Execution of the Warehouse Logistics Program
detailed in Section 12 Disclosure Schedule will not negatively impact CVS' WSL,
safety stock levels, or CVS'Rx Products.
With respect to the WLP (as defined in Section 12 Disclosure Schedule) if CVS
notifies Cardinal that the aggregate WSL to the CVS Pharmacy DCs through the WLP
during any month is less than [***]%, then Cardinal will promptly use reasonable
efforts to work with CVS to remedy its ordering practices to meet its service
level commitments.
Additionally, Cardinal commits to developing an out of stock solution "STOCKING
INITIATIVE" by June 30, 2004 that will lead to a significant reduction in [***]
at CVS Pharmacy DCs and Pharmacies.
36
SECTION 2(C) DISCLOSURE SCHEDULE
SPECIALLY STOCKED MERCHANDISE
As of January 1, 2004, Cardinal is not carrying any Specially Stocked
Merchandise on CVS' behalf.
37
SECTION 3(A) DISCLOSURE SCHEDULE
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 $620
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
38
Pharmacies. Cardinal 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 [***].
39
SECTION 3(B) DISCLOSURE SCHEDULE
COST OF GOODS FOR BROKERAGE PURCHASES
CVS will pay to Cardinal its Brokerage Cost with respect to all Brokerage
Purchases. "BROKERAGE COST" means the [***] for such Rx Product as of CVS' PO
date. CVS will also receive applicable [***] and the benefit of applicable [***]
offered by manufacturers to CVS (except as set forth in the Section 12
Disclosure Schedule) on its Brokerage Purchases at the time the manufacturer
accepts Cardinal's order.
40
SECTION 3(C) DISCLOSURE SCHEDULE
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
41
following the date of acquisition for purposes of calculating the Pharmacy Site
Incentive [***] only. If CVS does not notify Cardinal 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.
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.
42
SECTION 4 DISCLOSURE SCHEDULE
PAYMENT TERMS
STORE RX PURCHASES AND STORE OTHER PURCHASES.
(i) Payment Term. Not later than the [***] of each [***], CVS will cause
Cardinal to receive payment in full by ACH for all Merchandise delivered
and services performed during the immediately preceding [***] (i.e.,
[***]).
(ii) Form of Remittance. Each payment by CVS to Cardinal will be
accompanied by a remittance in a form deemed acceptable to Cardinal and CVS
(EDI 820 format).
(iii) Late Payment; Finance Charges. At the end of each calendar quarter,
Cardinal will evaluate CVS' payment history based on weighted average
payment days in accordance with the table set forth below, adjusted to
reflect legitimately disputed amounts (such as duplicative invoices and
incorrect billing information). CVS and Cardinal acknowledge that CVS' Cost
of Goods is based upon CVS achieving weighted average payment days of [***]
days sales outstanding. CVS will pay Cardinal for late payment an amount
equal to [***]% (an effective annual percentage rate of [***]%) per
weighted average payment day that CVS' payments are late (i.e., where CVS'
weighted average payment days are greater than [***]), up to [***] ([***])
days, calculated in accordance with the formula set forth below. CVS will
pay Cardinal a penalty for late payment an amount equal to [***]% (an
effective annual percentage rate of [***]%) per weighted average payment
day, from the first day, that CVS' payments are late in excess of [***]
([***]) days (i.e., where CVS' weighted average payment days are greater
than ). Cardinal will pay CVS for early payment an amount equal to [***]%
(an effective annual percentage rate of [***]%) per weighted average day
CVS' payments are early (i.e., where CVS' weighted average payment days are
less than [***]). Notwithstanding the foregoing, no payment will be made
either by CVS or Cardinal in the event that CVS' weighted average payment
days are greater than but equal to or less than [***] (i.e., [***]).
For example:
ACTUAL
WAPD (CREDIT)
CALENDAR AMOUNT REQUIRED DURING WAPD ADJUSTMENT /DEBIT TO
QUARTER PAID WAPD QUARTER VARIANCE FACTOR CVS
- -------- ------ -------- ------- -------- ---------- ---------
1st [***] [***] [***] [***] [***] [***]
2nd [***] [***] [***] [***] [***] [***]
3rd [***] [***] [***] [***] [***] [***]
4th [***] [***] [***] [***] [***] [***]
Cardinal will deliver to CVS an analysis of CVS' payment history in
aggregate format, or other mutually acceptable format, on a weekly basis
for informational purposes (i.e., to assist CVS in managing its payment
compliance). If the above calculation indicates that CVS owes Cardinal,
then CVS will pay Cardinal such
43
amounts within [***] ([***]) days from the date of Cardinal's invoice for
such amounts. If the above calculation indicates that Cardinal owes CVS,
then Cardinal will pay CVS such amounts in the form of a credit memo to be
used toward future purchases of Merchandise from Cardinal within [***]
([***]) days following the end of the applicable quarter.
The parties may, but will not be obligated to, agree to a payment arrangement
whereby CVS may make [***] on some [***] and [***] on other [***] (among other
terms). In such event, no penalty (other than that to which the parties mutually
agree) will be assessed on the agreed upon late payments, and no payment will be
made to CVS relating to the agreed upon early payments (other than that to which
the parties mutually agree), as long as payments are made when due in accordance
with the agreed upon schedule.
BROKERAGE PURCHASES.
CVS will cause Cardinal to receive payment in full for all Brokerage Purchases
that are not filled by product from Cardinal's [***] not later than [***]
([***]) days prior to the date upon which Cardinal would be required to pay the
manufacturer's invoice to achieve a cash discount pursuant to the manufacturer's
then-standard stated payment terms. If payment is due on Saturday, CVS will
cause Cardinal to receive payment in full on the immediately preceding [***],
and if payment is due on Sunday, CVS will cause Cardinal to receive payment in
full on the immediately following [***]. CVS will cause Cardinal to receive
payment in full for all Brokerage Purchases that are filled by product from
Cardinal's [***] not later than [***] ([***]) days after the date of the invoice
(invoice date will equal ship date) for such product.
Notwithstanding the above paragraph, Cardinal and CVS agree to adjust payment
terms for Brokerage Purchases in order to accommodate operational efficiencies
of CVS purchasing [***] as a result of the Warehouse Logistics Program as
detailed in Section 12 Disclosure Schedule.
Cardinal and CVS agree and acknowledge that timely payment is a material and
critical part of this Agreement and Cardinal's pricing to CVS along with CVS'
willingness to enter into such an Agreement. Accordingly, in the event Cardinal
or CVS identifies that payments, rebates, funding or incentives are not received
when due under this Agreement, Cardinal or CVS will notify the other of such
payment problems, and the offending party will ensure that timely payment is
made thereafter. If the problem is not cured to Cardinal's or CVS' satisfaction,
then such party will bill back to the offending party for such amounts and any
corresponding late payment finance charge, as further described below, that
applies to such late payment. Notwithstanding the foregoing, CVS or Cardinal
will remain responsible to make payments, rebates, funding or incentives when
due under this Agreement. Any delay or failure by Cardinal or CVS to notify the
other party as provided above will not relieve CVS or Cardinal of such
obligations. Cardinal and CVS will work together in obtaining full value for
such concealed shortages or damaged Merchandise as further set forth in the
indirect [***] process described in Section 2(b) Disclosure Schedule. Further,
CVS and Cardinal will be responsible to maintain detailed support documentation
for any [***] or [***] request and will make such documentation,
44
upon request, available to the requesting party. Cardinal and CVS will not [***]
if such [***] are not supported by detailed documentation.
With respect to Brokerage Purchases only, CVS will pay a late payment finance
charge calculated at the rate of [***]% per month (or the maximum rate allowed
by law, if such rate is less than [***]% per month) on any amount not paid by
CVS to Cardinal when due (other than legitimately disputed amounts) under the
terms of this Agreement from the first (1st) day of delinquency until such
amount is paid in full. Failure or delay by Cardinal to bill CVS for any such
late payment finance charge will not waive Cardinal's right to receive the same.
With respect to all payments, rebates, funding, or incentives due CVS, Cardinal
will pay a late payment finance charge calculated at the rate of [***]% per
month (or the maximum rate allowed by law, if such rate is less than [***]% per
month) on any amount not paid by Cardinal to CVS when due (other than
legitimately disputed amounts) under the terms of this Agreement from the first
(1st) day of delinquency until such amount is paid in full. Failure or delay by
CVS to bill Cardinal for any such late payment finance charge will not waive
CVS' right to receive the same.
The parties may, but will not be obligated to, agree to a payment arrangement
whereby CVS may make [***] on some [***] and on other [***] (among other terms).
In such event, no penalty (other than that to which the parties mutually agree)
will be assessed on the agreed upon late payments, and no payment will be made
to CVS relating to the agreed upon early payments (other than that to which the
parties mutually agree), as long as payments are made when due in accordance
with the agreed upon schedule.
45
SECTION 6(A) DISCLOSURE SCHEDULE
CARDINAL COMPUTER SERVICES
PRICE SCHEDULE
CARDINALCHOICE(R)-HQ
CVS' Cost
-------------------
Hardware Estimate [***] Cost of Goods
Upgrades [***] Cost of Goods
Software Initialization
Version 2.1 [***] Cost of Goods
Version 3.0 [***] Cost of Goods
Upgrades and new releases
and enhancements [***] Cost of Goods
Support
Help Desk & Maintenance [***] Cost of Goods
Cardinal will make available to all CVS' locations (Pharmacies, CVS Pharmacy
DCs, and support locations) Cardinal.com. CVS may access Cardinal.com, a
healthcare internet web portal, [***], during the term of this Agreement.
Cardinal will assist in the transitioning of CVS locations to Cardinal.com by
making reasonable changes to their web portal, limiting access to CVS
proprietary information, and providing additional support as needed, [***].
In-stock visibility to CVS Pharmacies to be implemented by January of 2004 or as
soon as [***]' systems can support [***].
46
SECTION 6(B) DISCLOSURE SCHEDULE
BASE SERVICE PACKAGE
PROGRAMS & SERVICES FREQUENCY
- ------------------- -----------------------------------
EOE Machines One per store
Custom Invoices With each order
Custom Price Stickers With each order
Auto [***] and Package [***] Program Ongoing
Auto Repack [***] Program Ongoing
Microfiche Service Once per quarter, upon CVS' request
Catalog Once per quarter, upon CVS' request
REPORTS FREQUENCY
- ------- -----------------------
Category Purchase Summary Monthly, upon request
Item Purchases Report Monthly, upon request
Rx Velocity Report - Top 200 Items Quarterly, upon request
Generic Purchase Report Quarterly, upon request
Price Change Notification Weekly, upon request
Controlled Substance Variance Report Monthly, upon request
Ad Hoc Reports Daily, upon request
BASE PACKAGE FEE: NO ADDITIONAL CHARGE
(included in Cost of Goods)
47
SECTION 6(D) DISCLOSURE SCHEDULE
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:
[***] $[***]
48
SECTION 6(E) DISCLOSURE SCHEDULE
PROFITPAK(R) PROGRAM
The ProfitPak(R) program allows CVS Pharmacies to purchase selected Rx Products
at a savings compared to the manufacturer equivalent package size on a DSD
basis. These Rx Products have been acquired from a division of Cardinal Health
registered with the Food and Drug Administration ("FDA"), that repackages Rx
Products from a larger quantity or bulk containers into smaller quantities. Rx
Products are repackaged into FDA approved bottles with original lot numbers,
manufacturer NDCs, and expiration dates. Cost savings are driven by the
difference in pricing between the bulk size and the equivalent in a smaller
package size. Depending on difference in pricing by item, Cardinal establishes a
discount percentage that is applied to the smaller equivalent package size. CVS'
Cost of Goods is also factored into the price of the repackaged Rx Product to
further maximize savings. For example:
The brand price for Product A, 30's is $[***]. In reducing this price to reflect
CVS' Cost of Goods adjustment ([***]%) the final brand [***] price would be
$[***]. Assuming the ProfitPak price for this item is $[***], there in reducing
this price to reflect CVS' Cost of Goods adjustment ([***]%), the final
ProfitPak invoice price would be [***]. The difference between the net
manufacturer product ($[***]) and the net ProfitPak price ($[***]) is $[***]
("REPACK SAVINGS").
In order to maximize overall efficiency and profitability Cardinal will not ship
any ProfitPak item which does not appear in the CVS Authorized [***] as amended
from time to time by CVS. CVS' Authorized [***] as of execution of this
Agreement is detailed below. Cardinal will also maintain the [***] CVS [***] as
it relates to ProfitPak items and detailed within Section 6(e) Disclosure
Schedule.
As part of this program, Cardinal will invoice CVS' Pharmacies at the [***] for
such Rx Product as of CVS' PO date for all ProfitPak items purchased by
Pharmacies. Then on a [***] basis 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 mailed in hard copy form to CVS' Manager of
Wholesaler Programs Cardinal will provide CVS with funding equal to the
cumulative Repack Savings related to all ProfitPak items. Such credit will be
accompanied by a report detailing CVS' Repack Savings for said [***]. The
accompanying report will include but not be limited to: label name,
manufacturer, CVS item number, NDC, quantity, branded WAC, Branded net cost,
Repack net cost, incremental unit savings, and incremental total savings.
49
CVS AUTHORIZED REPACK PORTFOLIO.
CVS' REPACK PORTFOLIO
AS OF 12/1/03
LABEL NAME MANUFACTURER ITEM NUMBER NDC
---------- ------------ ----------- ---
AUTHORIZED WAREHOUSE ITEMS
[***] [***] [***] [***] [***]
AUTHORIZED DSD ONLY ITEMS
[***] [***] [***] [***] [***]
REPACK SUBSTITUTION.
- --------------------
[***]
[***]
50
SECTION 7(A) DISCLOSURE SCHEDULE
CVS GENERIC ITEM AND PACKAGE SIZE [***] LOGIC
[***]
UNIT [***] PACKAGE SIZE [***].
[***]
PACKAGE SIZE [***] QUANTITY ADJUSTMENT.
CVS requires the ability to adjust (up or down) the quantity of
product our stores receive. This adjustment will be made on an NDC by
NDC basis and will include a Threshold Quantity and an Adjustment
Percentage. Both the Threshold Quantity and Adjustment Percentage can
be set to any value CVS deems appropriate
[***] If [***] Ship [***]
If [***] then:
[***]
[***] must then be rounded up to the nearest whole unit.
EXAMPLE: CVS has instructed Cardinal to apply the following Quantity Adjustment
to NDC 55555-4444-22: [***]
After going through the Substitution Logic and the Package [***] Formula,
it has been determined that [***] units of NDC 55555-4444-22 should be sent
to a store. The following Quantity Adjustment must then take place:
[***][***][***][***]
[***]
[***]
[***]
[***], CARDINAL WILL SHIP [***] UNITS INSTEAD OF THE ORIGINAL [***] UNITS.
51
SECTION 7(B) DISCLOSURE SCHEDULE
[***] 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.
52
SECTION 9 DISCLOSURE SCHEDULE
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.
53
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.
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 purposes of this Schedule
9 Disclosure Schedule, the term "[***]" means an amount equal to the difference
between the [***] for the month and
54
[***]% 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.
55
SECTION 10(A) DISCLOSURE SCHEDULE
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.
56
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.
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.
57
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.
58
SECTION 10(B) DISCLOSURE SCHEDULE
THIRD PARTY [***] POLICY
The process relating to all other indirect manufacturer or supplier [***] is
described in the Section 2(b) Disclosure Schedule. The following process applies
to [***] pharmaceutical [***]:
GENERAL POLICY.
The following process applies to [***] pharmaceutical [***] ([***] etc.) that
are often [***] through a [***]. If CVS no longer [***] with a manufacturer or
supplier and CVS reasonably believes such manufacturer or supplier [***] (as
determined by [***]), then CVS and Cardinal will follow the process detailed
below to ensure CVS [***] the appropriate [***] CVS. CVS and Cardinal will be
responsible to maintain detailed support documentation for any [***] or [***]
and will make such documentation, upon request, available to the requesting
party.
Instead of [***] all indirect manufacturer or supplier (warehoused or
non-warehoused) [***] to Cardinal for [***], CVS will first attempt to [***] to
which CVS [***] it is [***] to [***] for the [***] through the process outlined
within this disclosure schedule. CVS' [***] as in effect from time to time will
be the basis of [***] all of CVS' [***] pharmaceutical [***].
Product may be [***] to those [***]: (a) with which Cardinal has a current
relationship, (b) are not either insolvent or subject to a petition in
bankruptcy, or (c) which do not have an [***] Cardinal at the date on which such
[***] is submitted for [***]. If CVS elects to utilize a [***], product may only
be [***] through a [***] that agrees to communicate with Cardinal via EDI or
other mutually acceptable electronic format ("THIRD PARTY") in accordance with
the terms and conditions described in this policy. CVS may decide at its own
discretion the most efficient process to [***] to indirect manufacturers or
suppliers or Cardinal, if applicable. Any Third Party selected by CVS must enter
into a confidentiality agreement, in a form mutually acceptable to Cardinal and
CVS, prior to accepting any returns from CVS.
PROCEDURES FOR [***].
CVS and Cardinal will notify each pharmaceutical manufacturer or supplier of
their relationship as CVS/wholesaler. CVS will send all [***] under this policy
to its selected [***], if applicable. The [***] will identify the amount to
which CVS believes it is [***] in exchange for [***]. CVS will instruct the
[***] to provide Cardinal with documentation (in electronic format) to
substantiate each [***] submitted to pharmaceutical [***] on [***] of CVS.
CVS will instruct each pharmaceutical [***] to [***] any and all [***] or [***]
for merchandise that was purchased by CVS and is [***] through a [***], and to
reference the [***] corresponding to the [***] prepared by the [***]. CVS and
Cardinal acknowledge that CVS will handle, [***], all matters relating to [***]
to pharmaceutical manufacturer or supplier with which [***].
59
CVS will pay the [***] for all of such [***] fees relating to [***] hereunder,
including, but not limited to, [***] fees, [***], delivery and [***] fees,
reporting, EDI transactions, which will be CVS' sole responsibility.
CVS' account will be adjusted in accordance with the following procedure:
1) Once per week, Cardinal will [***] CVS' [***] with the [***] CVS [***] Third
Party [***] during the previous week, [***] the [***] Fee (defined below) (if
applicable). Cardinal will [***] all [***] information for a minimum of [***]
([***]) years and will provide said information to CVS upon request in a
mutually acceptable electronic format.
2) Cardinal will [***] CVS' [***] upon the earlier of Cardinal's [***] of an
from a pharmaceutical manufacturer or supplier, or within [***] ([***]) days
following the date of a [***] ([***] to be [***] within [***] ([***]) days of
CVS' [***], unless otherwise directed by CVS in writing) received by Cardinal
which has been submitted to a pharmaceutical manufacturer or supplier. CVS will
[***] from any [***] to Cardinal, any [***] relating to the [***] of product
through a [***] unless Cardinal does not [***] CVS' [***] within such [***]
([***]) day period. If Cardinal fails to [***] CVS' [***] after the [***]
([***]) day period, CVS may [***] such [***] from [***] Cardinal. Cardinal may,
at its sole discretion, correspondingly [***] from [***] Cardinal [***] such
manufacturer or supplier.
3) In addition, Cardinal is not [***] for [***] related to product [***] to the
indirect manufacturer or supplier through such [***]. For manufacturer or
supplier [***] made through a [***] to an indirect manufacturer or supplier,
Cardinal should [***] these [***] to CVS for [***]. CVS' [***] process will
include, but not be limited to, the following: initial [***] to review said
[***], an internal financial [***] to review said [***] and the [***], a [***]
with the manufacturer, and a [***] when applicable. CVS and Cardinal recognize
that this general process will vary [***] with respect to the methods as well as
the associated timelines. That being said, CVS takes these matters [***] and
understands that they [***] and Cardinal. CVS will use all reasonable means to
expeditiously resolve identified issues to the satisfaction of all associated
parties. For return [***] related to product directly [***] to Cardinal,
Cardinal will address directly.
4) At the end of each calendar [***], Cardinal will [***] a single [***] to CVS'
[***] and CVS will [***] a [***] in the [***] of such entry. This [***] will
consist of the [***] from the following detailed transactions completed in the
current calendar[***]: (a) [***] or [***], plus, (b) CVS [***] by Cardinal,
[***], (c) [***] of previously [***] CVS [***], for which the [***] has now
[***], plus, (d) CVS [***][***] Cardinal. Cardinal will execute the appropriate
[***] so that CVS [***] and [***] of CVS' [***]. Accordingly, Cardinal will
process [***] and [***] in an [***] so that [***] the pharmaceutical
manufacturer or supplier plus [***] and held are equal to [***]% of CVS' [***].
Cardinal may not [***] a [***] if the [***] from the manufacturer are (a) [***]
or [***] of CVS' [***] or (b) if a CVS [***] has a [***] of [***] after
processing [***] from a manufacturer. CVS, at its discretion, may notify
Cardinal in writing in order to change either of the two [***] detailed in the
preceding sentence. Cardinal will not [***]
60
any CVS [***] ([***], etc.) to any manufacturer or supplier outside of, or make
any changes to, the process detailed within this disclosure schedule without
first receiving written permission from CVS. Furthermore, CVS stipulates that
CVS has the [***] to satisfy any necessary [***] of a CVS [***] to the extent it
is deemed [***] by CVS. Therefore, Cardinal may [***] any [***] without
CVS'[***]. In addition, upon Cardinal's request (as often as monthly), CVS will
provide Cardinal on a confidential basis (subject to Section 17 of this
Agreement) a [***] that summarizes all [***] goods [***] CVS has [***] with
[***] manufacturers ("[***]"). Cardinal will not contact any [***] related to
the information contained in the [***]. In return for Cardinal's strict
confidentiality as it pertains to CVS' [***], CVS will [***] Cardinal [***] any
[***] related to a [***] listed in the [***]. Any [***] of a [***] identified in
the [***] shall be directed to CVS for [***]. CVS will not be financially
responsible if Cardinal takes actions that are not consistent with this Section
10 (b) Disclosure Schedule.
The [***] will not be subject to Section 16 of this Agreement; instead the
following audit process will apply. Not more than once in any [***] ([***])
month period, and following [***] ([***]) days' advance written notice to CVS,
Cardinal will have the right to appoint an agent(s) (as further described below)
to review those relevant records applicable to such [***]. Said audit will be
strictly limited to verifying the following: 1) that each [***] contained in the
[***] is included in a [***], and 2) that such [***] has been executed by both
[***] and the applicable [***]. No other terms or conditions contained within
the [***] or any other information gained through such audit process shall be
disclosed to Cardinal. Cardinal may only review records relating to the [***]
through an employee of one of the top national accounting firms deemed
reasonably acceptable to CVS (i.e., not a Cardinal employee). Any such review
will be limited to [***] ([***]) months of historical information as of the date
such review begins. The information will be subject to a confidentiality
agreement prepared by CVS and signed by Cardinal and its agent(s) who will have
access to the information prior to beginning the review. Notwithstanding the
foregoing, Cardinal may only appoint agents who are employees of one of the top
national accounting firms, as may be deemed reasonably acceptable to CVS.
In addition, the parties hereby acknowledge and agree that upon reasonable
written request from Cardinal, CVS shall deliver to Cardinal a good [***] of the
[***] that CVS [***] may exist at the date of the [***] with respect to the
[***] and [***] that Cardinal has [***] its suppliers for product that CVS
purchased directly from Cardinal and subsequently [***] directly to the [***]
rather than [***]. The good [***] will include the population of [***] and [***]
by Cardinal that fall within the [***] ([***]) month period ending approximately
[***] ([***]) days prior to the date of Cardinal's written request. The [***]
provided will indicate that: (i) CVS has established [***] its potential [***]
at the date of the [***], (ii) CVS will continue to establish [***] its [***]
and (iii) Cardinal has, and will have, [***] on [***] contained in the [***] so
long as Cardinal does not take actions that are inconsistent with the provisions
of this Disclosure Schedule.
If Cardinal believes it will be harmed due to manufacturer or supplier [***]
related to [***], then Cardinal may at its option [***] CVS [***] of the
manufacturer [***] and [***] an [***] to such manufacturer or supplier. This
resolution process will be executed
61
so that the related transactions are [***] to CVS; CVS is [***] as stipulated in
CVS' [***]. With that being said, CVS will work with Cardinal to [***] all [***]
to the mutual satisfaction of [***] parties.
5) As long as CVS causes the [***] (if applicable) to transmit to Cardinal
information required by Cardinal in an electronic format acceptable to Cardinal,
then Cardinal will [***] the [***] fee of [***]% of the [***] by Cardinal from
all pharmaceutical manufacturers or suppliers (the "[***] FEE"). However, due to
the excessive labor expenses Cardinal will incur if the information is not
transmitted in an electronic format acceptable to Cardinal, including but not
limited to [***] the Cardinal [***] to CVS' [***], CVS will [***] Cardinal the
[***] Fee each month until the format is corrected to Cardinal's satisfaction.
In addition, Cardinal will use its reasonable efforts to notify CVS promptly if
the Third Party is unable to deliver the required information in Cardinal's
desired format.
With the weekly credit information, Cardinal will provide CVS with a report of
all manufacturer and supplier [***] and [***] during such week. As well, as
often as monthly, Cardinal will provide CVS with a historical detailed [***]
transaction report by [***] by [***]. Cardinal will not perform a [***] of the
[***] by pharmaceutical manufacturers or suppliers as compared to the original
[***].
If Cardinal [***] from a supplier who is in [***] with Cardinal, Cardinal will
arrange for an [***] of such [***] CVS.
[***] VENDORS.
If Cardinal is unable to execute the process detailed within this disclosure
schedule with any [***] or [***] for any reason, then CVS may [***] said [***]
or [***] to Cardinal in accordance with [***] financial process established
within this disclosure schedule. Cardinal may, at its sole discretion,
correspondingly [***] Cardinal [***] to such manufacturer or supplier for said
[***] or [***] said product according to its own [***] to the applicable
manufacturer or supplier. With that being said, CVS will work with Cardinal to
resolve all [***] to the mutual satisfaction of both parties.
[***] VENDORS.
CVS currently receives, based on CVS' [***] and DSD purchases, a [***] which is
[***] by CVS. In the event that a vendor would begin to pass an "[***]" [***] 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 [***] without CVS' expressed written consent. It will be Cardinal's
sole responsibility to notify in writing any pharmaceutical supplier (with copy
to CVS subject to Section 13) [***] a [***] to Cardinal related to CVS' purchase
[***] that CVS utilizes its own [***].
62
Cardinal and CVS may mutually agree to modify this [***] policy in writing from
time to time, except where required by law (in which case, Cardinal or CVS may
modify this [***] without mutual agreement).
63
SECTION 11(H) DISCLOSURE SCHEDULE
TERMINATION FEE
In the event that CVS terminates this Agreement without cause pursuant to
Section 11(h) prior to the expiration of the Initial Term, then CVS will pay to
Cardinal, within ninety (90) days after the date of such termination, an amount
equal to [***] Dollars ($[***]) multiplied by a fraction, the numerator of which
shall be the number of months between the month of such termination and the end
of the Initial Term and the denominator of which shall be fifty four (54) (the
"CVS Termination Fee").
In the event that Cardinal terminates this Agreement without cause pursuant to
Section 11(h) prior to the expiration of the Initial Term, then Cardinal will
pay to CVS an amount equal to [***] Dollars ($[***]) within ninety (90) days
after the date of such termination (the "Cardinal Termination Fee").
The parties hereby acknowledge and agree that the amount of the CVS Termination
Fee represents, among other factors, a [***] of [***] that Cardinal would have
generated during the Initial Term of this Agreement. The parties hereby
acknowledge and agree that the amount of the Cardinal Termination Fee
represents, among other factors, a [***] of [***] that CVS would have realized
during the Initial Term of this Agreement. Furthermore, the parties acknowledge
and agree that the Termination Fees have been negotiated in good faith and is
not intended to be a penalty. Finally, upon termination or expiration of this
Agreement for any reason, CVS will work with Cardinal in accordance with a
reasonable schedule agreed to by the parties so that all outstanding amounts due
and owing to Cardinal are paid on or before the termination or expiration date
and all outstanding issues are resolved.
64
SECTION 12 DISCLOSURE SCHEDULE
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 Section 12
Disclosure Schedule) 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.
65
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
66
product being [***] 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 [***]).
67
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 [***].
68
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
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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.
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.
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[***] VENDOR EXHIBIT.
[***] VENDOR [***] PURCHASE PAYMENT TERMS
- ------------ ----------------------------
[***] [***]
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SECTION 19 DISCLOSURE SCHEDULE
INSURANCE
During the term of the Agreement, CVS and Cardinal will each maintain commercial
general liability insurance having a limit of not less than $[***] million,
pursuant to one or more insurance policies with reputable insurance carriers.
Upon request, each party will deliver to the other certificates evidencing such
insurance. Cardinal's certificate of insurance to CVS will reflect that CVS is
named as an additional insured under such policy and will provide evidence of
broad form vendor's coverage. Neither party will cause nor permit such insurance
to be canceled or modified (exclusive of appropriate replacement policies) to
materially reduce its scope or limits of coverage during the term of the
Agreement.
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