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AAP Membership Agreement Changes

• Section 3 – added minimum amount clause to programs participation
• Section 13 – added 90-day termination notice requirement
• Section 16 – added specific language to confidentiality requirements

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THIS MEMBERSHIP AGREEMENT (“Agreement”), is entered into by and between American Associated Pharmacies, a Minnesota not-for-profit cooperative, and its subsidiaries (collectively “AAP”), and the undersigned Member (“Member”), and shall become effective upon approval of this Agreement by AAP and remain in force until terminated as provided herein or hereinafter provided by the Bylaws of AAP.

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Acceptance of this Agreement entitles the undersigned Member to all rights, privileges and obligations as set forth herein, as provided in AAP’s Articles of Incorporation, Bylaws and policies established from time to time by the Board of Directors of AAP.

2. Member agrees that membership in AAP requires each eligible pharmacy to participate in at least one of the wholesaler Prime Vendor Agreements provided by and through AAP or by and through one of its subsidiaries.

3. Member also agrees that each Member-owned pharmacy must participate in at least one (or such other minimum amount as may be established by the Board of Directors of AAP in its sole discretion from time to time) of the following programs offered through AAP or one of its subsidiaries:

Warehouse purchasing through Associated Pharmacies, Inc. and/ or

Arete Pharmacy Network managed care/third party contracting services

4. Member authorizes AAP and its subsidiaries to negotiate and accept on the Member–owned pharmacy’s behalf, group purchasing agreements and other vendor agreements under which the pharmacy will purchase pharmaceuticals, medical and other products, services, supplies and other wholesale and retail products (“Vendor Agreements”). Member agrees that Member-owned pharmacies will participate in and comply with the terms and provisions of Vendor Agreements and affiliate agreements entered into by AAP on the pharmacies’ behalf. Member further specifically authorizes AAP to accept payment of negotiated vendor rebates, incentives, administrative fees or other payments, the net amount of which is potentially subject to being distributed to all pharmacies owned by Members of AAP as set forth in the Articles and Bylaws. The applicable terms of Vendor Agreements are available for review at the office of AAP and/or its subsidiaries and such terms are hereby incorporated into this Membership Agreement by this reference, including, but not limited to the fixed amounts or fixed percentages (of purchases made under Vendor Agreements) that shall be paid to AAP under each Vendor Agreement. AAP will submit to certain Vendors (as required) a sales tracking report. As a result of Vendors’ quarterly review of the Sales Tracking Report, AAP reserves the right to immediately cease the sale of Product(s) or Services.

5. Pursuant to and in compliance with 42.C.F.R. § 1001.952(j), AAP hereby discloses to the Member that each of AAP’s vendors will pay a fee to AAP of three percent or less of the total cost of the goods or services purchased by the Member-owned pharmacies under the Vendor Agreement to which each such vendor is a party. Any exceptions to this policy will be posted annually and available for member review at www.rxaap.com/retailplanograms/referencepage/membercontracts.

6. Member-owned pharmacies shall comply with all laws, including, but not limited to those applicable to claims submitted to federal or state healthcare programs, which require pharmacies to retain invoices and related purchasing documentation and make disclosure of such information or to report such information as required under Federal and/or state law. Without limiting the foregoing, Member shall comply with any and all requirements imposed on sellers and buyers, respectively, under 42 U.S.C. 1320-a7b(b)(3)(A) and the “safe harbor” regulations regarding discounts or other reductions in price set forth in 42 C.F.R. § 1001.952(h) (the “Discount Safe Harbor”), including reporting all administrative fees distributed by AAP to the Member as rebates pursuant to the Discount Safe Harbor. Member further authorizes AAP to collect, store and utilize all Member-owned pharmacies’ purchasing data, including, but not limited to, cost of goods, volumes, product identifiers, discounts, rebates and payment terms from vendors and other sources.

7. Member authorizes AAP to collect, store and utilize Member prescription claim data, including protected health information (“PHI”), as defined in regulations promulgated under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) from Member, third party plans, Pharmacy Benefit Management companies (“PBM’s”), switches, software vendors, data aggregators, central payment data, or other means necessary from each Member-owned pharmacy in order to support or develop AAP programs and services.

(b) AAP agrees that it shall maintain appropriate safeguards to prevent the use or disclosure of PHI in violation of this Section 7 or in violation of applicable federal or state laws or regulations and to protect electronic PHI as required by this Section 7 and any applicable federal or state laws or regulations. Specifically, AAP agrees that it will comply with the following:

(i) AAP shall notify the Chief Privacy Officer of Member within fifteen (15) business days in writing of any use or disclosure of PHI not provided for by this Section 7 of which AAP becomes aware.

(ii) AAP shall ensure (as evidenced by written contract) that any subcontractor or agent to whom AAP provides PHI or electronic PHI is bound by the terms and conditions of this Section 7.

(iii) Upon Member’s or an individual’s request, AAP agrees to assist Member in providing access to PHI in a designated record set, as that term is defined at 45 C.F.R. § 164.501, provided AAP maintains a designated record set on behalf of Member, in order to meet the requirements of 45 C.F.R. § 164.524. In the event that AAP uses or maintains an electronic record of health-related information on an individual that is created, gathered, managed, and consulted by authorized health care clinicians and staff (an “Electronic Health Record”) with respect to PHI, AAP agrees that, upon Member’s or an individual’s request, it will provide a copy of such information in an electronic format to the individual and it will transmit such copy directly to an entity or person designated by the individual. Upon receiving any such request for access from an individual, AAP agrees to notify the Chief Privacy Officer of Member in writing within fifteen (15) business days.

(iv) Upon Member’s or an individual’s request, AAP agrees to provide to Member the information required to respond to a request by an individual for an accounting of disclosures of PHI in accordance with 45 C.F.R. § 164.528. In the event that AAP uses or maintains an Electronic Health Record, AAP agrees that such accounting shall include disclosures made to carry out treatment, payment, and health care operations through the use of such Electronic Health Record. AAP agrees that an individual shall have the right to receive an accounting of disclosures of PHI through the use of an Electronic Health Record for the three years prior to the date on which the accounting is requested by an individual. Upon receiving a request for an accounting of disclosures directly from an individual who has received an accounting of disclosures from Member, which provided a list of all business associates acting on behalf of Member, including AAP, AAP agrees to provide an accounting of its disclosures of PHI to such individual as required by the Privacy Rule. In response to such a request from an individual, AAP may elect to provide either (A) an accounting of disclosures that includes disclosures of subcontractors and/or agents acting on behalf of AAP or (B) an accounting of disclosures that are made by the AAP as well as a list of all subcontractors and/or agents acting on behalf of AAP, including contact information such as mailing address, phone, and email address. Upon receiving any request for an accounting from an individual, AAP agrees to notify the Chief Privacy Officer of Member in writing within fifteen (15) business days.

(v) AAP shall make available to Member or its designee and the U.S. Department of Health and Human Services, its internal practices, books, and records relating to the use and disclosure of PHI and safeguards implemented by it pursuant to this Section 7(b).

(vi) AAP shall implement and use administrative, physical and technical safeguards that reasonably and appropriately protect the confidentiality, integrity, and availability of electronic PHI that AAP creates, receives, maintains or transmits at the direction of Member. AAP shall also report to Member any security incident, as that term is defined at 45 C.F.R. § 164.304, of which AAP becomes aware.

(vii) AAP agrees to notify the Chief Privacy Officer of Member without unreasonable delay and not more than fifteen (15) business days in writing of the occurrence of a breach, as that term is defined at 45 C.F.R. § 164.402, of which AAP becomes aware. The notice of such breach shall include, to the extent possible, the identification of each individual whose unsecured PHI has been, or is reasonably believed by AAP to have been, accessed, acquired, used, or disclosed during the breach. AAP shall also promptly provide Member such other information required to be provided to individuals under 45 C.F.R. § 164.404(c) as it becomes available after such breach.

(viii) AAP acknowledges its obligation to comply with the Security Rule in using and disclosing Protected Health Information pursuant to this Agreement, including but not limited to 45 C.F.R. §§ 164.308 (Administrative safeguards), 164.310 (Physical safeguards), 164.312 (Technical safeguards), and 164.316 (Policies and procedures and documentation requirements) of the Security Rule.

(ix) AAP agrees that the requirements of the Privacy Rule shall be applicable to AAP in the performance of its obligations pursuant to this Agreement.

(x) AAP agrees that each use, disclosure, or request of PHI shall be limited to the minimum necessary to accomplish the intended purpose of such use, disclosure, or request of PHI. To the extent practicable, AAP agrees that each use, disclose, or request of PHI shall be limited to PHI in a limited data set, as that term is defined at 45 C.F.R. § 164.514(e)(2).

(xi) AAP agrees that it shall not directly or indirectly receive remuneration in exchange for any PHI, unless a valid authorization, as that term is defined at 45 C.F.R. § 164.508, is obtained or the purpose of the exchange meets one of the exceptions set forth in set forth in the 45 C.F.R. 164.502(a)(5)(ii).

(c) Each party shall be entitled to immediately terminate this Agreement upon learning that the other party has breached any material provision(s) of this Section 7, provided that such party is provided the opportunity to cure the breach and does not within thirty (30) days of receiving written notice of the breach from the non-breaching party.

(d) Upon expiration or termination of this Agreement, AAP shall promptly return or destroy all PHI received under this Agreement. If such return or destruction is not mutually determined to be feasible, the protections of this Section 7 shall continue to apply to such PHI after termination (including AAP’s obligations in Section 7(b)) and further uses and disclosures of such PHI shall be restricted to only those purposes that make the return or destruction of the information infeasible.

(e) Any terms used but not otherwise defined in this Section 7 shall have the same meaning as those terms in the Privacy Rule and Security Rule.

(f) Member and AAP agree to take such action as is necessary to amend this Section 7 from time to time as is necessary for either party to comply with the requirements of HIPAA, the Privacy Rule, or the Security Rule.

(g) Nothing express or implied in this Section 7 is intended to confer, nor shall anything herein confer, upon any person other than the parties and their respective successors or assigns, any rights, remedies, obligations or liabilities whatsoever.

(h) If any portion of this Section 7 is inconsistent with the terms of this Agreement, the terms of this Section 7 shall prevail. Except as set forth above, the remaining provisions of this Agreement are herein ratified in their entirety.

(i) The provisions of this Section 7 will survive the termination or expiration of this Agreement.

8. Member agrees to maintain all certificates, and unrestricted licenses required to purchase and dispense pharmaceuticals in accordance with State and Federal law for each Member-owned pharmacy. Member agrees to provide to AAP all requested licensure and credentialing documents for each Member-owned pharmacy and shall provide AAP with certified copies of such information. Member agrees to provide AAP with written notice of any change in its licensure, credentialing data and/or contracting affiliations within five days of any change in such information. Member agrees to purchase and maintain general and professional liability insurance for each Member-owned pharmacy in the amounts specified from time to time.

9. Member acknowledges that it has the burden of providing AAP with adequate information for proper evaluation or reevaluation of its professional, ethical and other qualifications and acknowledges that any misstatements in, or omissions from that information may result in the rejection and/or immediate termination of Membership in AAP. Member authorizes AAP to consult with, and obtain from any and all sources that can provide information concerning each Member-owned pharmacy’s professional liability coverage and claims, credit worthiness, information bearing on each Member and Member-owned pharmacy’s professional competence, character, health status, ethical qualifications and release from liability those individuals and organizations who provided this information and AAP in using this information.

10. Member agrees that the names “American Associated Pharmacies”, “AAP”, “Associated Pharmacies Inc.”, “API”, “American Associated Druggists, Inc.”, “United Drugs,” and any other names, dba’s, trademarks or service marks of AAP and its subsidiaries are the property of AAP. Merchandise, signs, advertising materials or materials of any other description that are furnished to the Member-owned pharmacy by AAP are to be used in connection with the operation of the store at the locations specifically set forth below, and the Member promises and warrants that any of the materials or merchandise furnished by AAP pursuant to this agreement shall not be used by the Member in connection with any other store nor will the Member suffer or permit any other store to use said merchandise or materials. Such signs and materials will be returned to AAP within 30 days upon termination of membership.

11. This Agreement may only be amended by AAP upon 30 days prior written notice by AAP to Member and in accordance with AAP’s Articles of Incorporation and Bylaws.

12. Member shall defend, indemnify, protect and hold harmless AAP and each of its affiliates, subsidiaries, officers, directors, employees, representatives and agents (the “Indemnified Parties”) for, from and against any and all claims, demands, actions, causes of action, suits, proceedings, hearings or investigations, and losses, liabilities, injuries, damages, costs and expenses incurred by any Indemnified Party to the extent caused by, arising out of, resulting from, attributable to or in any way incidental to the occurrence of any one or more of the following: (i) Member or Member-owned pharmacy’s breach of this Agreement, (ii) any inaccuracy in any of Pharmacy’s representations and warranties contained herein; and (iii) Member or Member-owned pharmacy’s failure to fully comply with all applicable Federal and State Laws or licensure requirements.

13. This Agreement may be terminated by either AAP or Member upon written notice in accordance with AAP’s Articles of Incorporation and Bylaws, provided, however, that nothing herein shall prevent AAP or Member-owned pharmacy from collecting any amounts due to the other as provided in any signed application or as otherwise provided under Minnesota law. Notwithstanding the foregoing, Member must provide AAP with ninety (90) days’ prior written notice of any termination of this Agreement (the “Member Notice”), such Member Notice to be delivered to: American Associated Pharmacies, Attention: Corporate Secretary, 201 Lonnie E. Crawford Blvd., Scottsboro, AL 35769. If Member terminates this Agreement without providing the Member Notice in accordance with the foregoing sentence, then Member shall forfeit all rights and claims to $3,000.00 worth of any pending rebates.

14. In the event of any dispute between the parties regarding this Agreement or the transactions contemplated herein, the parties agree to submit the resolution of such dispute to binding arbitration in accordance with Chapter 1, Title 9, of the United States Code (Federal Arbitration Act). The arbitration shall be administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules. Judgment upon an award rendered pursuant to the arbitration may be entered in any court having jurisdiction, or application may be made to such court for judicial acceptance of the award, and an order of enforcement, as the case may be. The costs and expenses of the arbitration proceeding, including the fees of the arbitrator, legal fees, witness fees, and all other costs and expenses, shall be assessed in the discretion of the arbitrator. The situs of the arbitration shall be Scottsboro, Alabama.

15. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE HAD TO A JURY TRIAL BY A COURT WITH REGARD TO A DISPUTE.

16. Member acknowledges and agrees that, during the term of this Agreement, Member will be in possession of AAP’s Confidential Information (as defined below). During the term of this Agreement and thereafter, Member shall, and shall instruct and cause its respective representatives to maintain in confidence and not disclose AAP’s financial, technical, sales, marketing, development, personnel, and other information, records, or data, including, without limitation, the terms of this Agreement, customer lists, supplier lists, trade secrets, designs, product formulations, product specifications, wholesaler and retailer cost of goods, purchasing volumes, third party contracts, pricing terms and information, any information marked as confidential or proprietary, website usernames, passwords, all documents and information concerning AAP furnished to Member or Member-owned pharmacy, and/or any other proprietary or confidential information, however recorded or preserved, whether written or oral (any such information, “Confidential Information”). Member shall use the same degree of care, but no less than reasonable care, that it uses to protect AAP’s Confidential Information as it uses to protect its own Confidential Information of like nature. Unless otherwise authorized in any other agreement between the parties, Member may use Confidential Information received from AAP only for the purposes of fulfilling its obligations under this Agreement (the “Permitted Purpose”). Member may disclose such Confidential Information only to its representatives who have a need to know such information for the Permitted Purpose and who have been advised of the terms of this paragraph, and the Member shall be liable for any breach of these confidentiality provisions by Member or such representatives; provided however, that Member may disclose such Confidential Information to the extent such Confidential Information is required to be disclosed by order of a court or government authority of competent jurisdiction (“Governmental Order”), in which case Member shall promptly notify AAP, in writing, and take reasonable steps to assist in contesting such Governmental Order or in protecting AAP’s rights prior to disclosure, and in which case Member shall only disclose such Confidential Information that it is advised by its counsel in writing that it is legally bound to disclose under such Governmental Order. Notwithstanding the foregoing, “Confidential Information” shall not include any information that Member can demonstrate by written evidence: (i) was previously known by Member or Member owned pharmacy prior to its disclosure, (ii) was in the public domain through no fault of Member or Member-owned pharmacy, or (iii) was later lawfully acquired by Member or Member-owned pharmacy from third party which does not also have a confidential relationship with AAP. Member shall notify AAP or one of its subsidiaries in writing of any disclosure of confidential or proprietary information described above. Member acknowledges that violation of its obligations of nondisclosure set forth in this paragraph would cause irreparable harm and significant injury to AAP, for which monetary damages may not be a sufficient remedy. Accordingly, AAP shall be entitled, without waiving any other rights or remedies, to immediate injunctive or equitable relief, without bond, for any breach of this paragraph, or to prevent any such breach. In the event of litigation relating to this paragraph, if a court of competent jurisdiction determines that Member has breached this paragraph, Member shall be liable and shall pay to AAP all reasonable costs and fees, including, but not limited to, attorneys' fees and court costs, incurred by AAP in connection with such litigation, including any appeal therefrom.

17. The burden of taxes or fees assessed by state or local governments on transactions between AAP or its subsidiaries and Members will be borne by Members in those areas.

18. This Agreement shall be governed by the laws of the State of Minnesota without regard to choice of law principles.

19. If there is a conflict between the Articles of Incorporation and Bylaws of AAP and this Agreement, then the provisions of such Articles of Incorporation and the Bylaws shall control.

20. Member hereby permits AAP to offset any charges, recoupments, future recoupments or other negative balance or previous negative balance amounts attributable to Member or any Member-owned pharmacy (including charges to AAP or reductions in receipts or payments made or owed to AAP for the benefit of AAP’s member pharmacies) (“Member Deficits”), against any balance owed by AAP or any of its subsidiaries to, or held by AAP for the benefit of: (a) the Pharmacy; (b) any other Member-owned pharmacy; and/or (c) any Affiliate (as defined below) of Member or any Member-owned pharmacy. As used in the preceding sentence, the term "Affiliate" means, with respect to any individual, entity, trust, joint venture, association, general partnership, unincorporated organization, or other entity (each a “Person”), any other Person that, directly or indirectly through one or more intermediaries, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means: (x) serving as an officer, director, manager or general partner of such Person; or (y) having the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (ii) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. To the extent such offsets are insufficient to fully restore all Member Deficits, the undersigned owner agrees to reimburse AAP for the remainder of all such Member Deficits.

21. AAP will not be responsible for, and has no obligation to research, investigate or pay any overpayment, underpayment, rebate amount, price adjustment, bill-back, chargeback, discount, fee or any other amount claimed to be due, unless written notice from Pharmacy is received by AAP within one year of the applicable date such claim accrued.

22. AAP may assign this Agreement to one of its affiliated entities. Member may not assign any of its rights under this Agreement, or delegate any of its obligations under this Agreement, without the prior written consent of AAP. No permitted assignment shall relieve the Member of any of its obligations under this Agreement. Assignments and delegations by Member prohibited by this Section 22 include, without limitation, the transfer of rights by operation of law, the transfer of rights by merger or consolidation. Any purported assignment or delegation by Member in violation of this Section 22 is void.

23. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.