Securities Purchase Agreement



 






EXHIBIT 4.2




EXECUTION COPY




SECURITIES PURCHASE AGREEMENT




     THIS AGREEMENT (this “Agreement”) is made as of May 4, 2005, by and between
NationsHealth, Inc., a Delaware corporation (the “Company”), and Connecticut General Life
Insurance Company, a Connecticut corporation (“CIGNA”).



     WHEREAS, the Company and CIGNA are entering into that certain strategic agreement of even date
herewith relating to the strategic alliance between the Company and CIGNA (the “Strategic
Agreement”); and



     WHEREAS, pursuant to the Strategic Agreement and upon the satisfaction of certain conditions
precedent as more fully set forth in this Agreement, the Company has agreed to sell to CIGNA, and
CIGNA has agreed to purchase from the Company, upon the terms and conditions hereafter provided,
(i) 303,030 shares (the “Purchased Shares”) of common stock, $.0001 par value per share, of
the Company (the “Common Stock”) and (ii) a warrant to purchase 2,936,450 shares of the
Common Stock (the “Warrant Shares”) under terms set forth in the Warrant Agreement made on
the same date hereof and attached hereto as Exhibit “A” (the “Warrant”) (the Purchased
Shares, the Warrant and the Warrant Shares, each being a “Security,” and, collectively, the
“Securities”).



     NOW THEREFORE, in consideration of the mutual covenants and conditions set forth herein, the
sufficiency of which is hereby acknowledged, the parties hereby agree as follows:



1. Purchase and Issuance of Purchased Shares; Issuance of Warrant; Closing.




     (a) Subject to the terms and conditions set forth in this Agreement, at the Closing (hereafter
defined) the Company agrees to sell to CIGNA the Purchased Shares and CIGNA agrees to pay to the
Company a per share price of $6.60 and the aggregate purchase price of $1,999,998.00 (the
“Common Shares Purchase Price”).



     (b) Subject to the terms and conditions set forth in this Agreement, at the Closing (hereafter
defined) the Company agrees to issue to CIGNA the Warrant in partial consideration for CIGNA’s
willingness to enter into and perform its obligations under the Strategic Agreement.



     (c) The closing (the “Closing”) shall take place at the offices of McDermott Will &
Emery LLP, 28 State Street, Boston, MA 02109 on the date that is fourteen (14) days following the
NationsHealth Funding Date (as such term is defined in the Strategic Agreement.



     (d) At the Closing, in addition to the items described in Section 5 hereof, the Company will
deliver to CIGNA (i) a certificate or certificates representing such number of validly issued
shares of Common Stock equal to the Purchased Shares; and (ii) the Warrant duly executed:



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     (e) At the Closing, CIGNA will deliver to an account designated by the Company, by wire
transfer in immediately available funds, an amount equal to the aggregate Common Shares Purchase
Price.



     2. Representations and Warranties of the Company. The Company and each of its
Subsidiaries (as defined below) hereby jointly and severally represents and warrants to CIGNA as of
the date hereof, except as set forth in the schedules delivered herewith (collectively, the
“Disclosure Schedules”), as follows:



     (a) Organization, Good Standing and Qualification. The Company and its Subsidiaries each is a
corporation or a limited liability company duly organized, validly existing and in good standing
under the laws of the jurisdiction of its formation and has all requisite corporate power and other
authority to carry on its business as now conducted and to own its properties. Each of the Company
and its Subsidiaries is qualified to do business as a foreign corporation or limited liability
company, as applicable, and is in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property makes such qualification or leasing necessary
unless the failure to so qualify has not and could not reasonably be expected to have a Material
Adverse Effect (as defined below). For purposes of this agreement, “Subsidiary” shall mean, (i) as
to the Company, any person or entity in which more than 50% of all equity, membership, partnership
or other ownership interests is owned directly or indirectly by the Company and/or one or more of
its Subsidiaries (each a Subsidiary, and collectively the “Subsidiaries”). As of the date
hereof, the Company’s subsidiaries are reflected on Exhibit 21.1 filed with the Company’s 2004
10-KSB (defined below).



     (b) Authorization. Each of the Company and each Subsidiary has full corporate or other power
and authority and has taken all requisite action necessary under applicable law governing its
internal affairs and under its governing documents to authorize (i) the execution and delivery of
this Agreement, the Warrant Agreement, dated as the date hereof, and any other documents,
instruments or certificates contemplated by the foregoing (collectively with this Agreement and the
Warrant, the “Transaction Documents”), (ii) the performance of all obligations of the
Company and each Subsidiary, as applicable, under the Transaction Documents, and (iii) the delivery
of the Purchased Shares and the issuance and delivery of the Warrant, and the Warrant Shares,
including the same that may be issued in accordance with the antidilution provisions in the Warrant
Agreement or any similar provisions which may exist in the Warrant. The Transaction Documents
constitute the legal, valid and binding obligations of the Company and each Subsidiary party
thereto, enforceable against the Company and each Subsidiary in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws
of general applicability, relating to or affecting creditors’ rights generally.



     (c) Capitalization. Schedule 2(c) sets forth (a) the authorized capital stock of the Company
on the date hereof; (b) the number of shares of capital stock issued and outstanding on the date
hereof; (c) the number of shares of capital stock issuable pursuant to the Company’s stock plans;
(d) the number of shares of capital stock issuable and reserved for issuance pursuant to securities
exercisable for, or convertible into or



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exchangeable for any shares of capital stock of the Company and (e) the pro forma
capitalization of the Company on a fully diluted basis giving effect to (i) the issuance of the
Purchased Shares and the Warrant Shares, (ii) any adjustments in other securities resulting from
such issuances, and (iii) the exercise or conversion of all outstanding securities. All of the
issued and outstanding shares of the Company’s capital stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights and were issued in full
compliance with applicable law. All of the issued and outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued and are fully paid, nonassessable and free
of preemptive rights, were issued in full compliance with applicable law and are owned by the
Company, beneficially and of record, subject to no lien, encumbrance or other adverse claim. No
person is entitled to preemptive or similar statutory or contractual rights with respect to any
securities of the Company. Except as described herein and on Schedule 2(c), (i) there are no
outstanding warrants, options, convertible securities or other rights, agreements or arrangements
of any character under which the Company or any of its Subsidiaries is or may be obligated to issue
any equity securities of any kind and except as expressly contemplated by this Agreement, (ii)
there are no agreements or arrangements under which the Company or a Subsidiary is obligated to
register the sale of any of its or their securities under the Securities Act of 1933, as amended
(the “Securities Act”) and (iii) there are no voting agreements, buy sell agreements, or
right of first purchase agreements among the Company and any of the securityholders of the Company.



     The Company has furnished or made available to CIGNA via EDGAR true and correct copies of the
Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of
Incorporation”), the Company’s By-laws as in effect on the date hereof (the “By-laws”),
and all other instruments and agreements governing securities convertible into or exercisable or
exchangeable for capital stock of the Company and each of its Subsidiaries.



     (d) Valid Issuance. The Company has duly authorized and reserved a sufficient number of shares
of Common Stock for issuance of the Warrant Shares. The Purchased Shares are, and, when issued, the
Warrant Shares will be, validly issued, fully paid and non assessable free and clear of all taxes,
liens, encumbrances and restrictions, except for restrictions on transfer set forth in this
Agreement, the other Transaction Documents or imposed by applicable securities laws and the sale or
issuance thereof will not be subject to preemptive rights or other similar rights and will not
impose personal liability upon the holder thereof.



     (e) Delivery of SEC Filings; Business. The Company has provided or made available to CIGNA via
EDGAR copies of the Company’s most recent Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2004 (the “2004 10-KSB”), and all other reports furnished or filed by the
Company pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
since the filing of the 2004 10-KSB and prior to the date hereof (all of the foregoing and all
exhibits included therein and financial statements thereto and documents incorporated by reference
therein collectively, being referred to herein as the “SEC Filings”). The Company and its
Subsidiaries are engaged



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only in the business described in the SEC Filings and the SEC Filings contain an accurate
description in all material respects of the business of the Company and its Subsidiaries, taken as
a whole.



     (f) No Material Adverse Effect. Since December 31, 2004, except as described on Schedule 2(f)
or as identified and described in the SEC Filings, there has not been:




	 	(i)  	any change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that reflected in the
financial statements included in the 2004 10-KSB, except for changes in the
ordinary course of business, in each case which have not and could not
reasonably be expected to have a Material Adverse Effect (as defined herein),
individually or in the aggregate;
	 
	 	(ii)  	any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of
the Company, or any redemption or repurchase of any securities of the Company;
	 
	 	(iii)  	any material damage, destruction or loss, whether or not
covered by insurance to any assets or properties of the Company or its
Subsidiaries;
	 
	 	(iv)  	any waiver, not in the ordinary course of business, by the
Company or any Subsidiary of a material right or of a material debt owed to
it;
	 
	 	(v)  	any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or a Subsidiary,
except in the ordinary course of business and which is not material to the
assets, properties, financial condition, operating results or business of the
Company and its Subsidiaries taken as a whole (as such business is presently
conducted and as it is proposed to be conducted);
	 
	 	(vi)  	any change or amendment to the Company’s Certificate of
Incorporation or By-laws, or material change to any material contract or
arrangement by which the Company or any Subsidiary is bound or to which any of
their respective assets or properties is subject;
	 
	 	(vii)  	any material labor difficulties or labor union organizing
activities with respect to employees of the Company or any Subsidiary;
	 
	 	(viii)  	any transaction entered into by the Company or a Subsidiary other than in
the ordinary course of business;




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	 	(ix)  	the loss of the services of any key employee, or material
change in the composition or duties of the senior management of the Company or
any Subsidiary;
	 
	 	(x)  	the loss, or to the Company’s Knowledge, threatened loss in
writing, of any customer which has had or could reasonably be expected to have
a material adverse effect on (i) the assets, liabilities, results of
operations, condition (financial or otherwise) or business of the Company and
its subsidiaries taken as a whole or (ii) on the ability of the Company to
perform its obligations under the Transaction Documents (collectively, a
“Material Adverse Effect”); or
	 
	 	(xi)  	to the knowledge of the Company, any other event or condition
of any character that has had or could reasonably be expected to have a
Material Adverse Effect.





     (g) SEC Filings.




	 	(i)  	At the time of filing thereof, the SEC Filings complied as to
form in all material respects with the requirements of the Exchange Act and
did not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
	 
	 	(ii)  	During the preceding two years, each registration statement
and any amendment thereto filed by the Company (or its predecessors) pursuant
to the Securities Act and the rules and regulations thereunder, as of the date
such statement or amendment became effective, complied as to form in all
material respects with the Securities Act and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading; and
each prospectus filed pursuant to Rule 424(b) under the Securities Act, as of
its issue date and as of the closing of any sale of securities pursuant
thereto did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under
which they were made, not misleading.





     (h) No Conflict, Breach, Violation or Default. To the knowledge of the Company, the execution,
delivery and performance of the Transaction Documents by the Company, the issuance and sale of the
Securities and the exercise of the rights granted to CIGNA herein or therein do not and will not
conflict with or result in a breach or



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violation of any of the terms and provisions of, constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration of obligations, impairment of rights or cancellation under (i)
the Certificate of Incorporation or the By-laws, or any governing documents of any Subsidiary, each
as in effect on the date hereof or as hereafter amended, or (ii)(a) any statute, rule, regulation
or order of any governmental agency or body (including without limitation, the Sarbanes-Oxley Act
of 2002) or any court, or other governmental, administrative, regulatory or self-regulatory
authority domestic or foreign, having jurisdiction over the Company, any Subsidiary or any of their
respective assets or properties (each such authority, a “Governmental Authority”), or (b)
any agreement, or instrument to which the Company or any Subsidiary is a party or by which the
Company or a Subsidiary is bound or to which any of their respective assets or properties is
subject, except in the case of (i) and (ii) above for such conflicts, violations defaults or rights
which could not reasonably be expected to have a Material Adverse Effect. Neither the Company nor
any Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other governing
documents and, except as provided in Schedule 2(h), neither the Company nor any Subsidiary is in
default (and no event has occurred which, with notice or lapse of time or both, would put the
Company or any Subsidiary in default) under, nor has there occurred any event giving others (with
notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company or Subsidiary is a party, except
for actual or possible violations, defaults or rights that would not, individually or in the
aggregate, have a Material Adverse Effect. Each of the Company and its Subsidiaries is (i) in
compliance with all laws, statutes, rules, regulations, ordinances and tariffs of any Governmental
Authority applicable to the Company or its Subsidiaries’ business, assets or operations, including,
without limitation, applicable requirements of the Standards for Privacy of Individually
Identifiable Health Information which were promulgated pursuant to the Health Insurance Portability
and Accountability Act of 1996, as amended (“HIPAA”), Employee Retirement Income Security
Act of 1974, as amended and the rules and regulations thereunder (“ERISA”), and all
applicable statutes, laws, ordinances, rules and regulations of any Governmental Authority with
respect to regulatory matters primarily relating to patient healthcare, healthcare providers and
healthcare services (including without limitation Section 1128B(b) of the Social Security Act, as
amended, 42 U.S.C. Section 1320a-7(b) (Criminal Penalties Involving Medicare or State Health Care
Programs), commonly referred to as the “Federal Anti-Kickback Statute,” and the Social
Security Act, as amended, Section 1877, 42 U.S.C. Section 1395nn (Prohibition Against Certain
Referrals), commonly referred to as “Stark Statute”) (collectively, “Healthcare
Laws”) and (ii) not in violation of any law, ordinance or regulation of any Governmental
Authority or other board or tribunal, except in the case of (i) and (ii) above as set forth on
Schedule 2(h) or where noncompliance or violation could not reasonably be expected to have a
Material Adverse Effect. To the Company’s knowledge, there is no event, fact, condition or
circumstance which, with notice or passage of time, or both, would constitute or result in any
noncompliance with, or any violation of any of the foregoing laws, i
n each case except where such
noncompliance or such violation could not reasonably be expected to have a Material Adverse Effect.
To the knowledge of the



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Company, the Company has not received any written notice that they or any of their
Subsidiaries are not in compliance in any respect with any of the requirements of any of the
foregoing or that there is any ongoing investigation by a Governmental Authority with respect to
the foregoing, except as set forth on Schedule 2(i) or where such noncompliance or investigation
could not reasonably be expected to have a Material Adverse Effect. The Company has (a) not engaged
in any non-exempt prohibited transaction as defined in Section 406 of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder,
(b) not failed to meet any applicable minimum funding requirements under Section 302 of ERISA in
respect of its plans and no funding requirements have been postponed or delayed, (c) no knowledge
of any amounts due but unpaid to the Pension Benefit Guaranty Corporation, or of any event or
occurrence which would cause the Pension Benefit Guaranty Corporation to institute proceedings
under Title IV of ERISA to terminate any of the employee benefit plans, (d) no fiduciary
responsibility under ERISA for investments with respect to any plan existing for the benefit of
persons other than its employees or former employees, or (e) not withdrawn, completely or
partially, from any multi-employer pension plans so as to incur liability under the MultiEmployer
Pension Plan Amendments of 1980. With respect to the Company, there exists no event described in
Section 4043 of ERISA, excluding Subsections 4043(b)(2) and 4043(b)(3) thereof, for which the
thirty (30) day notice period contained in 12 C.F.R. 2615.3 has not been waived. The Company has
maintained all records required to be maintained by the Food and Drug Administration, Drug
Enforcement Agency and State Boards of Pharmacy and the federal and state Medicare and Medicaid
programs as required by the Healthcare Laws, HIPAA or ERISA and, to the Company’s knowledge, there
are no presently existing circumstances which would reasonably be expected to result in violations
of the Healthcare Laws, HIPAA or ERISA, except as set forth on Schedule 2(i) or where such failure,
circumstance or violation could not reasonably be expected to have a Material Adverse Effect.



     (i) Medicare or Medicaid Program Liability. Except as disclosed in the SEC Filings, there has
been no event, fact, condition or circumstance or series thereof (i) in or for which the Company
has or could reasonably be expected to become liable or otherwise responsible for any amount owed
or owing to any Medicaid or Medicare program by a provider under common ownership with the Company
or any provider owned by the Company pursuant to any applicable law, ordinance, rule, decree, order
or regulation of any Governmental Authority after the failure of any such provider to pay any such
amount when owed or owing, (ii) in which Medicaid or Medicare payments to the Company are lawfully
set-off against payments by the Company to satisfy any liability of or for any amounts owed or
owing to any Medicaid or Medicare program by a provider under common ownership with the Company or
any provider owned by the Company pursuant to any applicable law, ordinance, rule, decree, order or
regulation of any Governmental Authority, or (iii) any of the foregoing under clauses (i) or (ii),
in each case pursuant to statutory or regulatory provisions that are similar to any applicable law,
ordinance, rule, decree, order or regulation of any Governmental Authority referenced in clauses
(i) and (ii) above or successor provisions thereto, except in the case of (i), (ii) and (iii) above
where such extent, fact, condition or circumstance could not reasonably be



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expected to result in such a liability or set-off which would have a Material Adverse Effect.



     (j) Tax Matters. The Company and each Subsidiary has timely prepared and filed all Tax Returns
with all appropriate governmental agencies and timely paid all taxes owed by it in each case in
accordance with all applicable laws. The charges, accruals and reserves on the books of the Company
in respect of Taxes for all fiscal periods are adequate in all material respects, and there are no
material unpaid assessments against the Company or any Subsidiary nor, to the Company’s knowledge,
any basis for the assessment of any additional Taxes for any fiscal period or audits by any
federal, state or local Tax authority except for any assessment that is not material to the Company
and its Subsidiaries, taken as a whole. All Taxes and other assessments and levies that the Company
or any Subsidiary is required to withhold or to collect for payment have been duly withheld and
collected and paid to the proper Governmental Authority or third party when due. There are no Tax
liens or claims pending or, to the Company’s knowledge, threatened against the Company or any
Subsidiary or any of their respective assets or property. There are no outstanding Tax sharing
agreements or other such arrangements between the Company and any Subsidiary or other corporation
or entity. Neither the Company nor any of the Subsidiaries has executed a waiver with respect to
the statute of limitations relating to Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency. There is no action, suit, proceeding, audit or claim, to the
Company’s Knowledge, now proposed or pending against or with respect to the Company or any of its
Subsidiaries in respect of any Taxes.



     As used in this Agreement, (i) the term “Tax” (including, with correlative meaning,
the terms “Taxes” and “Taxable”) includes all federal, state, local and foreign
income, profits, franchise, gross receipts, environmental, customs duty, capital stock, severances,
stamp, payroll, sales, employment, unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, charges, fees, levies, duties or assessments of
any nature whatsoever, together with all interest, penalties and additions imposed with respect to
such amounts and any interest in respect of such penalties and additions, and (ii) the term
“Tax Return” includes any return, report, form or similar statement (including elections,
declarations, disclosures, schedules, estimates and information returns) required to be supplied to
a Tax authority relating to any Taxes.



     (k) Certificates, Authorities and Permits. Except as set forth on Schedule 2(h), and to the
knowledge of the Company, the Company and each Subsidiary possess adequate certificates,
authorities, licenses, approvals or permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by it, and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or such Subsidiary,
could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate.



     (l) No Labor Disputes. No material labor dispute with the employees of the Company or any
Subsidiary exists or, to the Company’s knowledge, is imminent.



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     (m) Intellectual Property.




	 	(i)  	“Intellectual Property” means all of the following:
(i) patents, patent applications, patent disclosures and inventions (whether
or not patentable and whether or not reduced to practice); (ii) trademarks,
service marks, trade dress, trade names, corporate names, logos, slogans and
Internet domain names, together with all goodwill associated with each of the
foregoing; (iii) copyrights and copyrightable works; (iv) registrations,
applications and renewals for any of the foregoing; (v) trade secrets,
confidential information and know-how (including but not limited to ideas,
formulae, compositions, manufacturing and production processes and techniques,
research and development information, drawings, specifications, scientific,
technical, and engineering data object and source codes, designs, business and
marketing plans, and customer and supplier lists and related information); and
(vi) proprietary computer software (including but not limited to data, data
bases and documentation).
	 
	 	(ii)  	All of the licenses and sublicenses and consent, royalty or
other agreements concerning Intellectual Property which are necessary for the
conduct of Company’s and each of its Subsidiaries’ respective businesses as
currently conducted to which the Company or any Subsidiary is a party or by
which any of their assets are bound (other than generally commercially
available, non-custom, off-the-shelf software application programs having a
retail acquisition price of less than $10,000 per license) (collectively,
“License Agreements”) are valid and binding obligations of the Company
or its Subsidiaries that are parties thereto and, to the Company’s knowledge,
the other parties thereto, enforceable in accordance with their terms, except
to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws affecting the enforcement of creditors’ rights generally, and neither the
Company nor any of its Subsidiaries nor, to the Company’s knowledge, any other
party thereto, is in material violation or breach of any such License
Agreement, and no action or failure to act by the Company or any of its
Subsidiaries constitutes (with or without due notice or lapse of time or both)
a material default by the Company or any of its Subsidiaries thereunder.
	 
	 	(iii)  	The Company and its Subsidiaries own or have the valid right
to use all of the Intellectual Property necessary for the conduct of the
Company’s and each of its Subsidiaries’ businesses substantially as currently
conducted and for the ownership, maintenance and
operation of the Company’s and its Subsidiaries’ properties and assets.




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	 	(iv)  	To the knowledge of the Company, all Intellectual Property
owned by the Company and its Subsidiaries that is necessary for the conduct of
the Company’s and each of its Subsidiaries’ respective businesses as currently
conducted is valid and enforceable and owned by them free and clear of all
liens, encumbrances, adverse claims or obligations to license all such owned
Intellectual Property, other than licenses entered into in the ordinary course
of the Company’s and its Subsidiaries’ businesses. The Company and its
Subsidiaries have a valid and enforceable right to use all other Intellectual
Property that is necessary for the conduct of the Company’s and each of its
Subsidiaries’ respective businesses as currently conducted. The Company and
its Subsidiaries have the right to use all of the owned and licensed
Intellectual Property which is necessary for the conduct of Company’s and each
of its Subsidiaries’ respective businesses as currently conducted in all
jurisdictions in which they conduct their businesses.
	 
	 	(v)  	To the knowledge of the Company, the conduct of the Company’s
and its Subsidiaries’ businesses as currently conducted does not infringe or
otherwise impair or conflict with (collectively, “Infringe” or
“Infringement”) any Intellectual Property rights of any third party,
and, to the Company’s knowledge, the Intellectual Property rights of the
Company and its Subsidiaries that are necessary for the conduct of Company’s
and each of its Subsidiaries’ respective businesses as currently conducted are
not being infringed by any third party, except to the extent such
Infringements do not have a Material Adverse Effect.
	 
	 	(vi)  	The consummation of the transactions contemplated hereby will
not result in the alteration, loss, impairment of or restriction on the
Company’s or any of its Subsidiaries’ ownership or right to use any of the
Intellectual Property (including, without limitation, property used pursuant
to License Agreements) which is necessary for the conduct of Company’s and
each of its Subsidiaries’ respective businesses as currently conducted.





     (n) Environmental Matters. Except as disclosed in the SEC Filings, neither the Company nor any
Subsidiary is in violation of any statute, rule, regulation, decision, law (including, without
limitation, common law) code, injunction, permit, governmental agreement or governmental
restriction, or order of any governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or toxic substances
(collectively, “Environmental Laws”), owns or operates any real property contaminated with
any substance that is subject to any



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Environmental Laws, is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation,
contamination, liability or claim has had or could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate; and there is no pending or, to the Company’s
knowledge, threatened investigation that might lead to such a claim.



     (o) Brokers and Finders. No person will have, as a result of the transactions contemplated by
this Agreement, any valid right, interest or claim against or upon the Company, any Subsidiary or
CIGNA for any commission, fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company.



     (p) Acknowledgment Regarding CIGNA’s Purchase of the Securities. The Company acknowledges and
agrees that CIGNA is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement or the transactions contemplated hereby, the
relationship between the Company and CIGNA is “arms-length” and any statement made by CIGNA or any
of its representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to CIGNA’s purchase of the Securities and has not been
relied upon by the Company, its officers or directors in any way. The Company further acknowledges
that the Company’s decision to enter into this Agreement has been based solely on an independent
evaluation by the Company and its representatives.



     3. CIGNA’s Representations. In connection with CIGNA’s acquisition of the Securities,
CIGNA represents to the Company the following:



     (a) Organization and Existence. CIGNA is a validly existing corporation and has all requisite
corporate, partnership or limited liability company power and authority to enter into and perform
its obligations under this Agreement and the other Transaction Documents, and invest in the
Securities.



     (b) Authorization. The execution, delivery and performance by CIGNA of the Transaction
Documents have been duly authorized and the Transaction Documents each constitute the valid and
legally binding obligation of CIGNA, enforceable against CIGNA in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws
of general applicability, relating to or affecting creditors’ rights generally.



     (c) No Conflict. The execution, delivery and performance of the Transaction Documents by CIGNA
do not and will not conflict with or result in a breach or violation of any of the terms and
provisions of, constitute a default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination, amendment, acceleration of
obligations, impairment of rights or cancellation under (i)(a) any statute, rule, regulation or
order of any Governmental Authority, or (b) any material agreement, or instrument to which CIGNA is
a party or by which CIGNA is bound or to which any of its assets or properties is subject.



11









 





     (d) Purchase Entirely for Own Account. The Securities to be received by CIGNA hereunder will
be acquired for CIGNA’s own account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of the Securities Act, and CIGNA has no present
intention of selling, granting any participation in, or otherwise distributing the same in
violation of the Securities Act. CIGNA is not a registered broker dealer or entity engaged in the
business of being a broker dealer. Notwithstanding anything in this Section 3(d) to the contrary,
and subject to its obligations contained in the Registration Rights Agreement, by making the
representations herein, CIGNA does not agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption from the registration requirements under the
Securities Act.



     (e) Disclosure of Information. CIGNA has had an opportunity to receive all information related
to the Company that it has requested and to ask questions of and receive answers from the Company
regarding the Company, its business and the terms and conditions of the sale of the Securities to
be received by CIGNA hereunder. CIGNA acknowledges review of copies of the SEC Filings. Neither
such inquiries nor any other due diligence investigation conducted by CIGNA shall modify, amend or
affect CIGNA’s right to rely on the Company’s representations and warranties contained in this
Agreement, except as expressly set forth herein.



     (f) Restricted Securities. CIGNA acknowledges and understands that the Securities, including
the Purchased Shares and the Warrant constitute, and that the Warrant Shares, if issued, will
constitute, “restricted securities” under the Securities Act and must be held indefinitely unless a
registration statement under the Securities Act is effective with respect to the transfer of such
securities or an exemption from such registration is available.



     (g) Legends. It is understood that until (i) the Securities have been transferred pursuant to
Rule 144 under the Securities Act (“Rule 144”), (ii) the Securities may be transferred
pursuant to Rule 144(k) under the Securities Act, or (iii) a registration statement under the
Securities Act is effective relating to the transfer of such Securities, certificates evidencing
the Purchased Shares and the Warrant Shares, may bear the following or a substantially similar
legend:



     “THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNLESS (I)
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW WITH RESPECT THERETO, (II) PURSUANT TO RULE 144 OF THE SECURITIES ACT OR (III) UPON
THE ADVICE OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER THE SECURITIES ACT
OR ANY APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER”



     The Company agrees that the legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Securities



12









 





upon which it is stamped if (a) such Security may be transferred pursuant to an effective
registration statement under the Securities Act; (b) such holder provides the Company with
reasonable assurances that such Security can be transferred pursuant to Rule 144; or (c) such
holder provides the Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a sale or transfer of such
Security may be made without registration under the Securities Act. In the event the above legend
is removed from any Security and thereafter the effectiveness of a registration statement covering
such Security is suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance written notice to CIGNA, the
Company may require that the above legend be placed on any such Security that cannot then be sold
pursuant to an effective registration statement or pursuant to Rule 144 and CIGNA shall cooperate
in the replacement of such legend. Such legend shall thereafter be removed when such Security may
again be transferred pursuant to an effective registration statement or pursuant to Rule 144.



     (h) Accredited Investor. CIGNA is, and was at the time the Securities were offered to it, an
accredited investor as defined in Rule 501(a) of the Securities Act.



     (i) Brokers and Finders. No person will have, as a result of the transactions contemplated by
this Agreement, any valid right, interest or claim against or upon the Company, any Subsidiary or
CIGNA for any commission, fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of CIGNA.



     (j) Taxes. CIGNA understands that CIGNA’s investment in the Company may result in tax
consequences. CIGNA shall rely solely on the determinations of its tax advisors or its own
determinations, and not on any statements or representations by the Company or any of its agents,
with regard to all such tax matters.



4. Covenants.




     (a) Taxes. Any sales, transfer and other similar Taxes and any recording and filing fees that
may be imposed by reason of the issuance, sale, transfer and/or delivery of the Purchased Shares
and the Warrant by the Company to CIGNA shall be borne and paid by the Company.



     (b) Reporting Status. So long as CIGNA beneficially owns any of the Securities, the Company
shall (i) timely file all reports required to be filed with the Securities and Exchange Commission
(the “SEC”) pursuant to the Exchange Act, (ii) take such further action as any CIGNA may
reasonably request to make available adequate current public information with respect to the
Company meeting the current public information requirements of Rule 144(c) under the Securities
Act, to the extent required to enable CIGNA to sell Securities held by CIGNA without registration
under the Securities Act within the limitation of the exemptions provided by (A) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (B) any similar rule or
regulation hereafter adopted by the SEC. The Company shall not terminate its



13









 





status as a company required to file reports under the Exchange Act even if the Exchange Act
or the rules and regulations thereunder would permit such termination. In addition, the Company
shall take all commercially reasonable actions necessary to meet the “registrant eligibility”
requirements set forth in the general instructions of Form S-3 of the Securities Act or any
successor form thereto, to be eligible to register the resale of its Common stock on a registration
statement on Form S-3 of the Securities Act.



     (c) Financial Information. The Company shall make available via EDGAR or the Company’s website
within one (1) day after filing or release, as the case may be, the following reports to CIGNA
until CIGNA transfers, assigns or sells all of its Securities: (i) a copy of its Annual Report on
Form 10-K, its Quarterly Reports on Form 10-Q, its proxy statements and any Current Reports on Form
8-K; and (ii) copies of all press releases issued by the Company or any of its subsidiaries.



     (d) Reservation of Shares. The Company currently has authorized and reserved for the purpose
of issuance sufficient shares of capital stock to provide for the issuance of, and full conversion
or exercise of, the Securities as contemplated hereby (collectively, the “Issuance
Obligations”). In the event such number of shares becomes insufficient to satisfy the Issuance
Obligations, the Company shall take all necessary action to authorize and reserve such additional
shares of capital stock necessary to satisfy the Issuance Obligations.



     (e) Listing. The Company will use its best efforts to continue the listing and trading of its
Common Stock on the OTC Electronic Bulletin Board (the “Bulletin Board”) or on the NASDAQ
National Market (“NNM”), the Nasdaq SmallCap Market (the “SmallCap Market”) the New
York Stock Exchange (“NYSE”) or the American Stock Exchange (“AMEX”) and will
comply in all respects with the reporting, filing and other obligations under the bylaws or rules
of the National Association of Securities Dealers, Inc. (the “NASD”), such exchanges, or
such electronic system, as applicable. The Company shall promptly provide to CIGNA copies of any
notices it receives regarding the continued eligibility of the Common Stock (or any securities
exercisable for or convertible into the Common Stock) for trading in a market over the counter or,
if applicable, any securities exchange or automated quotation system on which securities of the
same class or series issued by the Company are then listed or quoted, if any.



     (f) No Integrated Offerings. The Company shall not make any offers or sales of any security
(other than the Securities) under circumstances that would require registration under the
Securities Act of the Securities being offered or sold hereunder or cause this offering of the
Securities to be integrated with any other offering of securities by the Company for purposes of
any stockholder approval provision applicable to the Company or its securities.



     (g) Legal Compliance. The Company shall conduct its business and the business of the
Subsidiaries in compliance with all laws, ordinances or regulations of governmental entities
applicable to such businesses, except where the failure to do so would not have a Material Adverse
Effect.



14









 





5. Conditions Precedent to Closing; Closing Deliverables.




     (a) The following conditions precedent shall have been satisfied at or prior to the Closing:




	 	(i)  	The Company shall have received notification from CMS (as
such term is defined in the Strategic Agreement) that CMS has accepted the
applications submitted by CIGNA and has awarded to CIGNA the Part D (as such
term is defined in the Strategic Agreement) contracts, as more fully set forth
in Article VI of the Strategic Agreement.
	 
	 	(ii)  	The Company shall have satisfied the NationsHealth Financing
Commitment (as such term is defined in the Strategic Agreement).
	 
	 	(iii)  	The Strategic Agreement shall be in full force and effect.
	 
	 	(iv)  	None of the events described in Section 2(h) shall have
occurred between the date of this Agreement and the Closing.





     (b) At the Closing, the Company will deliver to CIGNA the following:




	 	(i)  	Duly executed original counterparts to the Registration
Rights Agreement;
	 
	 	(ii)  	A certificate addressed to CIGNA, executed by the Chief
Executive Officer of the Company certifying that the conditions in this
Section 5 have been satisfied on or prior to the Closing;
	 
	 	(iii)  	Copies of each consent or approval of each person or entity
whose consent or approval is required under any contract or agreement listed
as an exhibit in the Company’s filings with the United States SEC, to which
the Company or any of its Subsidiaries is a party in connection with this
Agreement and the Transaction Documents and which consent or approval is not
otherwise expressly referenced in this Section 1(c), except those for which
the failure to obtain such consent or approval, individually or in the
aggregate, is not reasonably likely to have a Material Adverse Effect (as
defined herein) or is not reasonably likely to prevent or to materially impair
the ability of the parties to consummate this Agreement or any of the
Transaction Documents;
	 
	 	(iv)  	An opinion of the Company’s counsel, dated as of the date of
Closing, in form, scope and substance reasonably satisfactory to CIGNA as to:
(1) organization; (2) power and authority to execute transactions; (3) due
authorization of transaction and Transaction Documents; (4) due execution of
Transaction Documents, issuance and delivery; (5) no violation of charter and
bylaws; (6) valid and




15









 












	 	   	binding and enforceable obligation; (7) no violation of applicable laws;
(8) no registration under federal securities laws required; (9) no
consent, order, approval or authorization of governmental authority
necessary; (10) Purchased Shares validly issued and fully paid; and (11)
Warrant Shares duly reserved for issuance and upon exercise of the Warrant
will be validly issued, fully paid and nonassessable if and when issued in
conformance with this Agreement and the terms of the Warrant;
	 
	 	(v)  	A copy of the certificate of incorporation, by-laws or other
applicable organizational documents of the Company and a copy of resolutions,
duly adopted by the Board of Directors or other governing body of the Company,
which shall be in full force and effect at the time of the Closing,
authorizing the execution, delivery and performance by the Company of this
Agreement and the Transaction Documents, and the consummation by the Company
of the transactions contemplated hereby and thereby, certified as such by the
Secretary or Assistant Secretary of the Company; and
	 
	 	(vi)  	Good standing certificates as of a recent date for the
Company from the Secretary of State of the Company’s jurisdiction of
organization.





6. Transfer Agent Instructions.




     (a) The Company warrants that no instruction other than such instructions referred to in this
Section 5, and stop transfer instructions to give effect to 3(g) hereof in the case of the transfer
of the Purchased Shares or the Warrant Shares prior to registration of the Purchased Shares or the
Warrant Shares under the Securities Act or without an exemption therefrom, will be given by the
Company to its transfer agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement and the
Transaction Documents.



     (b) Upon the written opinion of counsel reasonably acceptable to the Company to the effect
that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption
from registration, or if CIGNA provides the Company with reasonable assurances that such Securities
may be sold under Rule 144, the Company shall permit the transfer and, in the case of the Purchased
Shares and the Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by CIGNA.



7. General Provisions.




     (a) Governing Law; Jurisdiction. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of New York, without giving effect to
any choice or conflict of law provision or rule that would cause



16









 





the application of the laws of any other jurisdiction. The parties hereto irrevocably consent
to the jurisdiction of the United States federal courts and the state courts located in the County
of New York, State of New York located in the Southern District of the State of New York solely in
respect of any suit or proceeding based on or arising under this Agreement and irrevocably agree
that all claims in respect of such suit or proceeding may be determined in such courts. The parties
hereto irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The parties hereto further agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in the Section on notices below or in
such other manner as may be permitted by law shall be valid and sufficient service thereof. The
parties hereto agree that a final non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.



     (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES,AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II)
EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES
THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.



     (c) Entire Agreement. This Agreement, including Exhibits and the Disclosure Schedules, and the
other Transaction Documents, as well as the other documents contemplated thereby constitute the
entire agreement between the parties with respect to the subject matter hereof. This Agreement may
only be modified or amended in writing signed by the Company and CIGNA.



     (d) Severability. In case any provision of the Agreement is declared invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.



17









 





     (e) Notices. All notices, demands or other communications given hereunder shall be in writing
and shall be delivered, or mailed first class postage prepaid, registered or certified mail,
addressed as follows:



     (i) If to the Issuers, to:




		
	           	NationsHealth, Inc.

13650 N.W. 8th Street

Suite 109

Sunrise, FL 33325

Fax number: (954) 903-5008

Attention: President





     with a copy to:




		
	           	McDermott Will & Emery LLP

201 South Biscayne Blvd.

Miami, Florida 33131

Fax number: (305) 347-6500

Attention: Ira J. Coleman, Esq.





     (ii) If to CIGNA, to:




		
	           	Connecticut General Life Insurance Company

900 Cottage Grove Road, S-201

Hartford, CT 06152-2202

Fax number: (860) 226-5683

Attention: David Russell





     With a copy to:




		
	           	David R. DeVoe, Esq.

Associate Chief Counsel

CIGNA Corporation

1601 Chestnut Street

Philadelphia, PA 19192

Fax number: (215) 761-5715





     (f) Counterparts. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one instrument.



     (g) Further Assurances. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.



     (h) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of
the parties and their successors and permitted assigns. The Company shall not assign this Agreement
or any rights or obligations hereunder. Notwithstanding the foregoing, CIGNA may assign its rights
hereunder to any of its Affiliates, without the consent of the Company or to any other person or
entity with the consent of the Company, which consent shall not be unreasonably withheld;
provided that any such assignment of rights must be in connection with a transfer of a
Security permitted hereunder or pursuant to the terms of such Security. This provision shall not
limit CIGNA’s right to transfer the Securities pursuant to the terms of the Transaction



18









 





Documents or to assign CIGNA’s rights under the Transaction Documents to any such transferee.
In addition, and notwithstanding anything to the contrary contained in the Transaction Documents,
the Securities may be pledged and all rights of CIGNA under this Agreement or any other agreement
or document related to the transactions contemplated hereby may be assigned, without further
consent of the Company, to a bona fide pledgee in connection with CIGNA’s margin or brokerage
account.



     (i) Survival. The representations and warranties of the Company in Section 2 and elsewhere in
this Agreement and the agreements and covenants set forth in Section 4 hereof shall survive until
ten (10) years following the Closing notwithstanding any due diligence investigation conducted by
or on behalf of CIGNA. Moreover, none of the representations and warranties made by the Company
herein shall act as a waiver of any rights or remedies CIGNA may have under applicable U.S. federal
or state securities laws.



     (j) Third Party Beneficiaries. This Agreement is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.



     (k) Publicity. The Company and CIGNA each shall consult with each other prior to issuing any
press releases or making any public statement with respect to this Agreement or the other
Transaction Documents and the transactions contemplated hereby and thereby and, shall not issue any
such press release or make any such public statement with respect thereto unless the text of the
statement shall first have been agreed to by the parties hereto, except to the extent that any such
public statement is included in a filing required to be made with or by any governmental authority.



     (l) Rules of Construction. The table of contents and headings herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be deemed to limit or
otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a
Section or Annex or Exhibit, such reference shall be to a Section or Annex of or Exhibit to this
Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are
used in this Agreement, they shall be deemed to be followed by the words “without limitation.” This
Agreement shall be construed as if it is drafted by all the parties hereto and no presumption or
burden of proof will arise favoring or disfavoring any party by virtue of authorship of any of the
provisions of this Agreement if an ambiguity or question of intent or interpretation arises. For
purposes of this agreement “knowledge” shall mean, when applied to a natural person, that such
individual has or at any time had (i) actual knowledge of the item or matter or (ii) received
written notice of the fact or matter. The Company shall be deemed to have “knowledge” if Arthur
Spector — Chairman of the Board, Glenn M. Parker — Director and Chief Executive Officer, Lewis
Stone — Director, President and Chief Information Officer, Robert Gregg —Chief Operating Officer,
Timothy Fairbanks — Director and Chief Financial Officer, or Gregory Couto —Executive Vice
President of Operations, or any persons who have served in such capacities, has or at any time had
“knowledge.”



19









 





     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year
first set forth above.


	 	 	 	 	 
	Company:                   	NationsHealth, Inc.

 	 
	 	By:  	 	 
	 	 	 	 
	 	 	 	 
	 



	 	 	 	 	 
	CIGNA:                     	Connecticut General Life Insurance Company

 	 
	 	By:  	 	 
	 	 	 	 
	 	 	 	 




20









 






	 	 	 	 	 



EXHIBIT A




Warrant Agreement




21









 








EXHIBIT B 




Form of Registration Rights Agreement





22