AMENDMENT NUMBER 2
TO
STRATEGIC AGREEMENT
     This Amendment Number 2 to Strategic Agreement is made and entered into
effective as of February 20, 2006 (“Amendment”) by and among Connecticut General
Life Insurance Company, a Connecticut corporation (“CIGNA”), United States
Pharmaceutical Group, LLC, a Delaware limited liability company (“USPG”) and
NationsHealth, Inc., a Delaware corporation and the indirect owner of all of the
membership interest of USPG (“NationsHealth”), collectively referred to herein
as the “Parties”.
     WHEREAS, the Parties entered into that certain Strategic Agreement, dated
as of May 4, 2005, pursuant to which, among other things, (i) USPG provides
certain services in connection with CIGNA’s activities as a Medicare Part D
Prescription Drug Plan sponsor and (ii) CIGNA became a shareholder and
warrantholder of NationsHealth (the “Strategic Agreement”); and
     WHEREAS, the Parties entered into an Acknowledgment, Waiver and Amendment
dated as of October 4, 2005, modifying certain terms and conditions of the
Strategic Agreement;
     WHEREAS, pursuant to Section 11.10 of the Strategic Agreement, the Parties
desire to further amend the Strategic Agreement as expressly described below
effective as of the date hereof;
     NOW, THEREFORE, the Parties, in exchange for valuable consideration and for
the mutual considerations set forth herein, and intending to be legally bound,
hereby agree as follows:
     1. Exhibit 3.01, Interim Compensation. Effective as of the date of this
Amendment Exhibit 3.01, Compensation, to the Strategic Agreement shall be
superseded and replaced by Exhibit 3.01, Interim Compensation, as attached
hereto, for the period from the date hereof through December 31, 2007, or
through such earlier date as CIGNA may determine in its sole discretion. CIGNA
will provide five (5) days written notice of its decision to terminate
Exhibit 3.01, Interim Compensation, prior to December 31, 2007. Upon such
termination Exhibit 3.01, Compensation, shall govern the compensation
arrangements of the Parties on a going-forward basis, and the terms of
Exhibit 3.01, Interim Compensation, shall no longer be in effect.
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

1

--------------------------------------------------------------------------------

 

     2. Exhibit 3.01, Compensation. Exhibit 3.01, Compensation, shall be amended
by striking out the definition of “******” and inserting in lieu thereof the
following:
     ***
     3. Section 1.08, ***. The Parties hereby add Section 1.08 to the Strategic
Agreement as follows:
     SECTION 1.08 ***
     4. Section 4.13, Cash Balance Information Access. The Parties hereby add
Section 4.13 to the Strategic Agreement as follows:
     SECTION 4.13 Cash Balance Information Access. NationsHealth shall use
commercially reasonable efforts to provide CIGNA with daily password protected,
read-only access to its aggregate cash balances, as well as weekly electronic
reports with respect to its weekly cash balances.
     5. Section 6.04, Termination. The Parties hereby amend Section 6.04 of the
Strategic Agreement by restating the last sentence thereof as follows:
     In the event a For Cause notice is given regarding any of the events set
forth in Section 6.05(e), (f), (g) or (i), the effective date of termination
will be the date that such notice is received by the other Party.
     6. Section 6.05(b). The Parties hereby amend Section 6.05(b) of the
Strategic Agreement by replacing the text thereof with the following:
     (b) As to any Party, *** (excluding CIGNA Employer Group Members) as of the
last day of the then most recent annual coordinated election period as defined
in 42 CFR §423.38 (b)(2) and as such number of Enrollees shall be ascertained in
the thirty (30) days following such annual coordinated election period.
     7. Section 6.05(i). The Parties hereby add Section 6.05(i) to the Strategic
Agreement as follows:
     (i) ***
     8. Section 6.07(c). The Parties hereby amend Section 6.07(c) of the
Strategic Agreement by deleting in full the text of Section 6.07(c) and
replacing such subsection with the following:
     (c) Option to Acquire Servicing Assets. In the event of a termination of
this Agreement by CIGNA For Cause pursuant to subsections (a), (d), (e), (f)
(g) and (i) of Section 6.05, above, or in the event that USPG and NationsHealth
change their business operations such
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

2

--------------------------------------------------------------------------------

 

that they no longer offer the Services, then CIGNA shall have the option to
acquire, which option must be exercised within thirty (30) days of the final
date on which USPG renders Services pursuant to this Agreement or within thirty
(30) days of any termination as described above, the assets required to deliver
all or part of the Services described in Exhibits 1.02, 1.03, 1.04, 1.05, and
1.06. CIGNA shall have the option to acquire such physical assets from USPG
and/or NationsHealth at their fair market value. NationsHealth may decline to
sell such physical assets to CIGNA, in which instance CIGNA may acquire similar
assets from third party vendors. NationsHealth and/or USPG will provide know
how, expertise, and personnel resources to assist CIGNA, without cost to CIGNA,
in replicating the functionality of such assets. Prior to the effective date of
such termination, CIGNA may notify USPG or NationsHealth of CIGNA’s intent to
exercise such option so that the transfer of such assets will occur
simultaneously with the termination. Further, in the event of such termination,
CIGNA shall have the option to acquire from USPG and/or NationsHealth, without
cost to CIGNA, the intangible assets required to deliver all or part of the
Services, including system specifications and configurations, software code,
training and policy manuals, marketing plans and other information used by USPG
or NationsHealth in the performance of the Services described in the foregoing
exhibits through a grant by USPG and/or NationsHealth to CIGNA of a royalty-free
perpetual license for such intangible assets to the extent of the authority of
USPG and/or NationsHealth to grant such a license.
     9. Section 7.04. The Parties hereby amend Section 7.04(a) of the Strategic
Agreement by adding a new subsection (vi), as follows:
     (vi) If NationsHealth is unable or unwilling to fund *** for any CMS
contact year, or such lesser amount as may be mutually agreed by NationsHealth
and CIGNA, then CIGNA may, directly or through a third party, provide all of the
Services described in this Agreement to prospective Enrollees and to prospective
Enrollees that become Enrollees after the commencement of such CMS contract
year, provided, however, that for purposes of this subparagraph “Enrollees”
shall not include any persons who are enrolled in the PDP as of the commencement
of the annual coordinated election period as defined in 42 CFR § 423.38(b)(2)
corresponding to such CMS contract year. In no event will NationsHealth be
required to fund more than one-half of the combined NationsHealth Service
Expenses and CIGNA Service Expenses, NationsHealth’s provision *** must be
provided to CIGNA no later than ten (10) business days prior to the date on
which CIGNA must submit its bid pursuant to 42 CFR §423.265(b), as amended, to
become a Medicare Part D sponsor for the then upcoming CMS contract year and
reasonable evidence of the availability of the remaining one-third of such
funding must be provided to CIGNA no later than thirty (30) days prior to the
first day of the then upcoming annual coordinated election period.
     10. Servicing Procedures. A new ARTICLE XII, SERVICING PROCEDURES, shall be
added to the Strategic Agreement as follows:
ARTICLE XII
SERVICING PROCEDURES
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

3

--------------------------------------------------------------------------------

 

     SECTION 12.01. Servicing Procedures. Notwithstanding any other provision of
this Agreement, the Parties have agreed, for the period commencing May 1, 2006,
the servicing procedures described in Exhibit 12.01 shall be implemented.
     11. No Waiver. This Amendment is limited as specified, and the execution,
delivery and effectiveness of this Amendment shall not operate as a
modification, acceptance or waiver of any provision of the Strategic Agreement,
except as specifically set forth herein.
     12. Reaffirmation of Representations and Warranties; No Default. Except as
specifically set forth herein, the Strategic Agreement shall remain in full
force and effect in accordance with its terms. Each Party specifically (i) makes
and reaffirms all of its respective representations and warranties,
(ii) represents that it is in material compliance with all of its respective
covenants and undertakings as contained in the Strategic Agreement, and
(iii) represents that no event described in Section 6.05 of the Strategic
Agreement has occurred and is continuing as of the date of execution of this
Amendment.
     13. Governing Law. This Amendment shall be governed by and construed in
accordance with the domestic substantive laws of the State of Connecticut,
without giving effect to any choice or conflict of law provision or rule that
would cause the application of the laws of any other jurisdiction. Any and all
disputes arising in connection with this Amendment shall be resolved in
accordance with Article IX (Dispute Resolution) of the Strategic Agreement.
     14. Counterpart Execution. This Amendment may be executed via facsimile in
any number of counterparts, and by the different Parties hereto in separate
counterparts, each of which counterparts when executed and delivered shall be an
original and all of which shall together constitute one and the same instrument.
     15. Binding Effect. This Amendment shall be binding upon and shall inure to
the benefit of the Parties hereto and their respective successors and assigns.
     IN WITNESS WHEREOF, each of the undersigned has executed, or has caused to
be executed, this Amendment as of the date set forth above.

     
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
 
   
 
  By: /s/ Michael F. Ferris
 
   
 
  Date: 3-31, 2006
Name: Michael F. Ferris
Title: SVP — CGWC

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

4

--------------------------------------------------------------------------------

 

     
 
  NATIONSHEALTH, INC.
 
   
 
  By: /s/ Lewis P. Stone
 
   
 
  Date: 3/31, 2006
Name: Lewis P. Stone
Title: President
 
   
 
  UNITED STATES PHARMACEUTICAL
GROUP, LLC
 
   
 
  By: /s/ Lewis P. Stone
 
   
 
  Date: 3/31, 2006
Name: Lewis P. Stone
Title: President

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

5

--------------------------------------------------------------------------------

 

EXHIBIT 3.01
INTERIM COMPENSATION
General Principles
     The Parties, meaning CIGNA on one hand and USPG and/or NationsHealth on the
other hand, intend to account for the activities described in this Agreement as
if such activities constituted a separate line of business for purposes of ***
the financial effects of certain PDP-associated expense variances.
No Intent to Create Reinsurance
     In agreeing to this arrangement, both parties have independently formed a
belief that, in the event of a loss under any of CIGNA’s Part D contracts
covered by this Agreement, this provision does not give rise to a contract for
reinsurance against an underwriting loss by CIGNA. *** The parties acknowledge
that the unprecedented nature of the Medicare Part D product makes it impossible
to predict the profitability of the Part D contracts with any certainty. If CMS,
or any other Governmental Authority, *** constituted a form of reinsurance, the
parties agree to negotiate, in good faith, an alternative *** that approximates
the *** of the Parties that will arise under this arrangement.
Interim Compensation
     This Exhibit 3.01 provides that certain “Scheduled Marketing and Enrollment
Expenses” (set forth in Attachment A) incurred by CIGNA and/or NationsHealth
during the period February 20, 2006 through May 15, 2006 (or such later date to
which CMS may extend the initial annual enrollment period for the 2006 plan
year) are amortized over the period from the date incurred through December 2007
***.
A. Definitions
     Each of the following shall be as finally determined by CIGNA for
applicable periods:
***
     “Aggregate Actual Premium” means the total premiums received from Enrollees
and from CMS.
     “Aggregate Claims Cost Variance” means the Aggregate Expected Claims Cost
less Actual Aggregate Claims Cost.
     “Aggregate CIGNA *** Recovery” means the product of actual Enrollee months
multiplied by the CIGNA *** Recovery Rate.
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

6

--------------------------------------------------------------------------------

 

     “Aggregate CIGNA Target Margin” means the CIGNA Target Margin multiplied by
the actual number of Enrollee months.
***
*** Recovery Rate” means a PEPM amount, calculated as the sum of *** actually
incurred by CIGNA *** divided by ***, plus, if additional *** are incurred in
any month ***, an additional PEPM amount calculated as the additional ***
divided by *** (i.e., the *** Recovery Rate represents the rate at which ***
would be fully recovered over *** at the ***; provided however, the Parties
understand and agree that the time frame within which CIGNA will recoup the ***
based on the *** Recovery Rate will be shorter or longer than *** depending ***.
Once CIGNA has recouped the ***, the *** Recovery Rate will be zero.
***
     “CMS Contract Year Month” means a month within a CMS contract year.
***
     “PEPM” means per Enrollee per month.
***
     “Start-Up Month” means each of the months from September 2005 through
February 19, 2006.
***
B. Establishment of Target Margin and ***; Year-End ***.
     1.) Annual Identification of CIGNA Target Margin and NationsHealth ***
     By *** for the 2006 CMS contract year and not less than *** prior to
required bid submission date (which the Parties anticipate will be the ***) for
*** for every subsequent CMS contract year CIGNA shall specify its required
CIGNA Target Margin. *** shall be determined by CIGNA.
     2.) Year-End ***
     No later than *** following the end of each CMS contract year, CIGNA shall
perform a *** of *** under this Agreement. As part of such *** CIGNA *** to
NationsHealth the ***, if any, due to NationsHealth for the expiring CMS
contract year including the *** of all ***.
     3.) Termination
     A final settlement will be made within *** upon termination or expiration
of the Agreement to capture any late reporting of the components used in the
Monthly Settlement Process. No additional adjustment will be made for ***.
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

7

--------------------------------------------------------------------------------

 

C. NationsHealth *** Process
     1.) Start-Up Months. Not later than *** prior to each Start-Up Month, CIGNA
and NationsHealth will mutually agree to the expected level of *** for the
upcoming Start-Up Month. CIGNA will make *** to NationsHealth in *** equal
payments *** of this amount by *** of the corresponding ***
     2.) Contract Year. Not later than *** prior to the start of a CMS contract
year CIGNA and NationsHealth will mutually agree to the ***. Not later than ***
following CIGNA’s receipt of the monthly premium amount from CMS, CIGNA will
make *** to NationsHealth of the amount of the *** multiplied by the ***
actually received.
D. Monthly Settlement Process
     1.) Information Deliveries. Not later than *** after the last day of the
preceding month NationsHealth shall furnish to CIGNA, the ***, and the *** for
the preceding month. In no event shall NationsHealth submit the same expense
under more than one of the foregoing categories. Not later than *** after the
last day of the preceding month CIGNA shall furnish to NationsHealth the ***,
the CIGNA *** and ***. NationsHealth shall furnish to CIGNA the actual PDP
enrollment. After a review period of not more than *** after the date of CIGNA’s
delivery of the information described above, CIGNA shall calculate *** to
NationsHealth in accordance with this Exhibit 3.01.
     2.) Calculation of Monthly Amount due to NationsHealth
          CIGNA shall calculate the amount due to NationsHealth as the sum of
the following for the prior month:
               a.) ***
               b.) plus ***
               c.) plus ***
               d.) plus ***
               e.) minus the *** made by *** for *** and ***;
               f.) minus any *** pursuant to Section ***;
               g.) minus the ***
     3.) Determination of ***. CIGNA shall determine the *** for each month as
follows:
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

8

--------------------------------------------------------------------------------

 

          *** shall be determined by subtracting from *** for the prior month
all of the following as calculated for the ***:
               a.) ***
               b.) ***
               c.) ***
               d.) ***
               e.) ***
               f.) ***
               g.) ***
               h.) ***
Attachment A: ***
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

9

--------------------------------------------------------------------------------

 

EXHIBIT 12.01
SERVICING PROCEDURES
To allow CIGNA to effect a smooth transition in the provision of Services under
the Strategic Agreement the following servicing procedures shall be implemented.
Source Code Escrow: NationsHealth and CIGNA will arrange for a third party
escrow agent at CIGNA’s expense. NationsHealth shall place in escrow the source
code of the NationsHealth- developed software programs the (“Source Code”) used
by NationsHealth in connection with the performance of the Services under the
Agreement (the “Software.”) Upon the occurrence of the Triggering Event (defined
below), the escrow agent will release the Source Code to CIGNA upon CIGNA’s
written request, at no additional cost to CIGNA. NationsHealth shall update the
escrowed Source Code daily unless CIGNA specifies less frequent updates.
Back-Up Site Setup and Operation: NationsHealth agrees to replicate the PDP
member servicing capabilities and member servicing database to a back-up site
under CIGNA’s ownership or control. CIGNA shall procure the back-up site, and
pay for all direct and indirect expenses and costs associated with the
procurement, management and maintenance of the back-up site. NationsHealth
and/or USPG will provide know-how, expertise, and personnel resources to assist
CIGNA, without cost to CIGNA, in replicating the functionality of the member
servicing capabilities and member servicing database.
Back-Up Site Testing: CIGNA shall have the right to periodically test the PDP
member servicing functions operating at the back-up site to verify the site’s
readiness.
Triggering Event: The Triggering Event shall be deemed to have taken place upon
the occurrence of a “For Cause” termination event as described in
Section 6.05(i) of the Strategic Agreement, or in the event that USPG and
NationsHealth no longer offer the Services.
Servicing Transition: Upon the occurrence of the Triggering Event, CIGNA may
commence production use of the backup site and perform the Part D member
servicing functions without further notice to, or consultation with,
NationsHealth and without electing to terminate this Strategic Agreement.
Grant of License: NationsHealth hereby grants to CIGNA, at no additional cost to
CIGNA, a non-exclusive, non-transferable, non-sublicensable, royalty-free
license to use one complete copy of the Software, including the Source Code once
released from escrow upon the occurrence of the Triggering Event, used by
NationsHealth in connection with the performance of the Services under the
Strategic Agreement to enable CIGNA to perform the Services for its own benefit
as described in this Exhibit 12.01. As between NationsHealth and CIGNA, CIGNA
acknowledges that the Software and Source Code are the sole and exclusive
property of NationsHealth and that CIGNA has no rights in the Software and
Source Code except those expressly granted by the Strategic Agreement. For the
avoidance of doubt, the license described herein shall survive the termination
of the Strategic Agreement.
Telephone Number Transitioning: Upon the occurrence of the Triggering Event
CIGNA shall have the right to instruct NationsHealth to port the Part D member
servicing 800 numbers to CIGNA. CIGNA shall then control the routing of these
800 numbers.
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

10

--------------------------------------------------------------------------------

 

Servicing Staff Continuity: CIGNA and NationsHealth agree to allow CIGNA to
employ up to 10 NationsHealth Part D member services agents to facilitate the
continuous provision of the Services. These member services agents shall
continue to perform Part D member services on the NationsHealth database under
the direction of NationsHealth. Upon the occurrence of a Triggering Event, CIGNA
may employ up to 10 other personnel of NationsHealth to facilitate the
continuous provision of the Services. In such event, NationsHealth agrees to
waive any applicable non-competes with respect to such personnel.
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

11

--------------------------------------------------------------------------------

 

EXHIBIT 1.08
FORM OF JOINT PURCHASE ORDER

Purchase Order Number:  

 

Date:  

 

Vendor:  

 

Description of Goods or Service:  

 

 
 
 
 
 
 
 
 

Service Commencement/Delivery Date:  

 

Projected Total Cost:  

 

Payment Responsibility: (Check one) NationsHealth _______ CIGNA__________

     
Authorized by:
   
NATIONSHEALTH, INC.
  CONNECTICUT GENERAL LIFE INSURANCE
 
  COMPANY
 
   
By:
  By:
 
   
 
   
Date:
  Date:
 
   
Authorized Signatories:
  Authorized Signatories:
Glenn Parker
  Michael Ferris
Lew Stone
  John Rottkamp
Tim Fairbanks
  Terri Swanson
Robert Tremain
   

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSION.

12