<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Physician Sales & Service, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PSS LOGO
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 8, 1996
---------------------
The Annual Meeting of Shareholders of Physician Sales & Service, Inc., a
Florida corporation (the "Company"), will be held at 9:00 a.m., local time, on
Monday, July 8, 1996, at the Jacksonville Marriott, 4670 Salisbury Road,
Jacksonville, Florida 32256 for the following purposes:
1. To elect three Class III directors for a three-year term;
2. To ratify the adoption of the Company's Amended and Restated 1994
Long Term Stock Plan, Amended and Restated 1994 Long Term Incentive Plan,
Annual Incentive Plan and Amended and Restated Directors' Stock Plan; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on May 22, 1996, are
entitled to notice of and to vote at the Annual Meeting and any and all
adjournments thereof.
All shareholders are invited to attend the Annual Meeting. Those
shareholders who are unable to attend are respectfully urged to sign and return
the enclosed Proxy Card as promptly as possible. Shareholders who sign and
return a Proxy Card may nevertheless attend the Annual Meeting, revoke their
Proxy, and vote their shares in person.
Whether or not you expect to be present, please sign, date and return the
enclosed Proxy Card in the enclosed pre-addressed envelope as soon as possible.
No postage is required if mailed from within the United States.
By Order of the Board of Directors
David A. Smith
Chief Financial Officer
Jacksonville, Florida
June 7, 1996
<PAGE> 3
PHYSICIAN SALES & SERVICE, INC.
7800 BELFORT PARKWAY, SUITE 250
JACKSONVILLE, FLORIDA 32256
PROXY STATEMENT
INTRODUCTION
The enclosed Proxy is solicited by the Board of Directors of Physician
Sales & Service, Inc., a Florida corporation ("PSS" or the "Company"), for use
at its Annual Meeting of Shareholders scheduled to be held on Monday, July 8,
1996 at 9:00 a.m., local time, or at any postponements or adjournments thereof
(the "Annual Meeting"). The purposes of the Annual Meeting are set forth herein
and in the accompanying Notice of Annual Meeting of Shareholders. The Annual
Meeting will be held at the Jacksonville Marriott, 4670 Salisbury Road,
Jacksonville, Florida 32256. The Company's headquarters are located at 7800
Belfort Parkway, Suite 250, Jacksonville, Florida 32256. The date of the mailing
of this Proxy Statement and accompanying Proxy is on or about June 7, 1996.
PROCEDURAL MATTERS
Shareholders of record at the close of business on May 22, 1996 are
entitled to notice of and to vote at the Annual Meeting. At the record date,
34,742,639 shares of Common Stock of the Company, $0.01 par value per share (the
"Common Stock"), were issued and outstanding and held by approximately 900
shareholders of record. Shareholders are entitled to one vote per share on all
matters voted upon at the Annual Meeting. Shareholders do not have the right to
cumulate their votes for directors. The presence at the Annual Meeting, in
person or by proxy, of a majority of the shares of Common Stock outstanding on
May 22, 1996 will constitute a quorum. If the accompanying Proxy Card is
properly signed and timely returned to the Company and not revoked, it will be
voted in accordance with the instructions contained therein.
Unless contrary instructions are given, the persons designated as proxy
holders on the accompanying Proxy Card will vote: FOR the Board's nominees; FOR
ratification of the adoption of the Company's Amended and Restated 1994 Long
Term Stock Plan, Amended and Restated 1994 Long Term Incentive Plan, Annual
Incentive Plan and Amended and Restated Directors' Stock Plan; and if any other
matters properly come before the Annual Meeting, in accordance with their best
judgment on such matters. Each such proxy granted may be revoked by the
shareholder(s) at any time before it is exercised by filing with the Secretary
of the Company a revoking instrument or a duly executed Proxy Card bearing a
later date or by voting in person at the Annual Meeting. The powers of the proxy
holder with respect to a particular proxy will be suspended if the person
executing that proxy attends the Annual Meeting in person and so requests.
Attendance at the Annual Meeting will not in itself constitute revocation of the
proxy. Shareholders have no dissenters' rights of appraisal in connection with
any matter being presented at the Annual Meeting.
Directors will be elected by a plurality of the votes cast by the shares of
Common Stock represented in person or by proxy at the Annual Meeting. The
affirmative votes of the holders of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting will be required for
approval of the proposal to ratify the adoption of the Amended and Restated 1994
Long Term Stock Plan, Amended and Restated 1994 Long Term Incentive Plan, Annual
Incentive Plan and Amended and Restated Directors' Stock Plan, and any other
matter that may be submitted to a vote of the shareholders. If less than a
majority of the outstanding shares entitled to vote are represented at the
Annual Meeting, a majority of the shares so represented may adjourn the Annual
Meeting to another date, time or place, and notice need not be given of the new
date, time or place if the new date, time or place is announced at the meeting
before an adjournment is taken.
Prior to the Annual Meeting, the Company will select one or more inspectors
of election for the meeting. Such inspector(s) shall determine the number of
shares of Common Stock represented at the meeting, the existence of a quorum and
the validity and effect of proxies, and shall receive, count and tabulate
ballots and votes and determine the results thereof. Abstentions will be
considered as shares present and entitled to vote at
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the Annual Meeting and will be counted as votes cast at the Annual Meeting, but
will not be counted as votes cast for or against any given matter.
A broker or nominee holding shares registered in its name, or in the name
of its nominee, which are beneficially owned by another person and for which it
has not received instructions as to voting from the beneficial owner, may have
discretion to vote the beneficial owner's shares with respect to the election of
directors and other matters addressed at the Annual Meeting. Any such shares
which are not represented at the Annual Meeting either in person or by proxy
will not be considered to have cast votes on any matters addressed at the Annual
Meeting.
PROPOSAL I
ELECTION OF DIRECTORS
BOARD OF DIRECTORS
The Board of Directors currently consists of nine directors who are elected
in three classes, with three Class I members, three Class II members and three
Class III members. Members of each class hold office for three-year terms; the
terms of the classes are staggered so that the term of one class terminates each
year. Each member of the Board of Directors holds office for the term for which
he or she was elected and until his or her successor shall have been duly
elected and qualified, or until the earlier of his or her resignation, removal
from office or death.
Class I Directors. The terms of the Class I directors, T. O'Neal Douglas,
Patrick C. Kelly and James L.L. Tullis, expire at the Annual Meeting of
Shareholders in 1997, or when their successors have been duly elected and
qualified.
Class II Directors. The terms of the Class II directors, Delores P.
Kesler, David A. Smith and William C. Mason, expire at the Annual Meeting of
Shareholders in 1998, or when their successors have been duly elected and
qualified.
Class III Directors. The terms of the Class III directors, Delmer W.
Dallas, Fred Elefant, and John F. Sasen, Sr., expire at the Annual Meeting of
Shareholders in 1996, or when their successors have been duly elected and
qualified.
ELECTION OF CLASS III DIRECTORS
Messrs. Dallas, Elefant and Sasen have been nominated for election at the
1996 Annual Meeting by the Board of Directors to continue as Class III directors
and have informed the Company that they will serve if elected. Proxies may not
be voted for a greater number of persons than the number of nominees named
herein.
Directors will be elected by a plurality of the votes cast by the shares of
Common Stock represented in person or by proxy at the Annual Meeting. The
accompanying proxy, unless otherwise specified, will be voted FOR the election
of Messrs. Dallas, Elefant and Sasen as directors. If any of Messrs. Dallas,
Elefant or Sasen should become unavailable, which is not now anticipated, the
proxy will be voted for the election of such other person as the Board of
Directors may select to replace such nominee, unless the Board of Directors
instead reduces the number of directors comprising the Board. Each such proxy
granted may be revoked by the shareholder at any time before it is exercised by
filing with the Secretary of the Company a revoking instrument or a duly
executed Proxy Card bearing a later date or by voting in person at the Annual
Meeting. Attendance at the Annual Meeting will not in itself constitute
revocation of the proxy.
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THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
NOMINEES FOR DIRECTOR.
EXPERIENCE OF DIRECTORS
NOMINEES FOR DIRECTORS
CLASS III
(WHOSE TERMS, IF ELECTED, WILL EXPIRE
AT THE ANNUAL MEETING OF SHAREHOLDERS IN 1999)
Delmer W. Dallas has served on the Board of Directors of the Company since
October 1989. Since 1984, Mr. Dallas has been the Chairman of the Board of
Acosta Sales Co., Inc. ("Acosta"), a food brokerage company operating in the
southeastern United Sates. He has also served on the Board of Directors of
Acosta since 1966.
Fred Elefant has served on the Board of Directors of the Company and as
Secretary of the Company since 1984. Mr. Elefant has been engaged in the private
practice of law in Jacksonville, Florida since 1973. Since January 1989, he has
practiced as Fred Elefant, P.A. He was a member of the law firm of Mahoney,
Adams, Milam, Surface & Grimsley, P.A., now Mahoney Adams & Criser, P.A., from
1983 to 1989.
John F. Sasen, Sr. has served on the Board of Directors of the Company
since July 1993, as President of the Company since August 1995 and as Chief
Operating Officer of the Company since December 1993. Mr. Sasen also served as
Executive Vice President of the Company from December 1993 to August 1995. From
August 1990 to December 1992, he served the Company as Vice President -- Sales
and Marketing; from January 1993 to July 1993, as Regional Vice President, and
from August 1993 to December 1993 as Executive Vice President. Prior to joining
the Company, Mr. Sasen was Vice President -- Sales, Marketing and Distributor
Relations for a division of Becton Dickinson & Company ("Becton Dickinson"), a
manufacturer of health care products. In that position, Mr. Sasen directed
product development and marketing efforts, technical services, product services
and customer service. Mr. Sasen was with Becton Dickinson for over 20 years.
DIRECTORS WHOSE TERMS OF OFFICE
WILL CONTINUE AFTER THE 1996 ANNUAL MEETING
CLASS I
(TERMS EXPIRE AT THE ANNUAL MEETING
OF SHAREHOLDERS IN 1997)
T. O'Neal Douglas has served on the Board of Directors of the Company since
July 1993. Mr. Douglas is the Chairman and Chief Executive Officer of American
Heritage Life Insurance Co. and American Heritage Life Investment Company
(collectively, "AHL"). He has been with AHL since 1983, serving as President
since 1986 and Chief Executive Officer since 1990. He is currently Chairman of
the Board of Directors of Baptist Health Systems, Inc. In addition, Mr. Douglas
serves as a director of Barnett Bank of Jacksonville, N.A. and Baptist Medical
Center.
Patrick C. Kelly, a co-founder of the Company, has served as Chairman of
the Board and Chief Executive Officer of the Company since its inception in May
1983 and as President of the Company from May 1983 to August 1995. Prior to
founding the Company, from August 1976 to February 1983, Mr. Kelly served as
Sales Manager, General Manager and Vice President of Intermedco, Inc., a
Houston-based medical supply company.
James L.L. Tullis has served on the Board of Directors of the Company since
November 1989. Mr. Tullis was nominated to serve on the Board of Directors of
the Company for a three year term beginning in 1994 pursuant to an agreement
with the Company. Since September 1987, Mr. Tullis has been a general partner of
Tullis-Dickerson Partners, the general partner of Tullis-Dickerson Capital
Focus, L.P., a venture capital fund that invests in the health care industry and
is a shareholder of the Company. Mr. Tullis has served as
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Chairman of the Board of Directors and Chief Executive Officer of
Tullis-Dickerson & Co., Inc., a venture capital company which acts as a
management company for Tullis-Dickerson Capital Focus, L.P., since July 1986.
Mr. Tullis also serves on the Board of Directors of American Consolidated
Laboratories, Inc., a manufacturer of contact lenses, and Acme United, Inc., a
manufacturer of scissors and other medical products.
CLASS II
(TERMS EXPIRE AT THE ANNUAL MEETING
OF SHAREHOLDERS IN 1998)
Delores P. Kesler has served on the Board of Directors of the Company since
July 1993. Ms. Kesler has been Chairman of Accustaff, Incorporated
("AccuStaff"), the successor to ATS Services, Inc. ("ATS"), a franchisor of
temporary employment operations, since 1992. She founded ATS in May 1978 and
served as its Chairman and Chief Executive Officer until its merger with three
other temporary employment agencies in May 1992. In addition to her
responsibilities with AccuStaff and ATS, Ms. Kesler holds an executive committee
position with the National Association of Temporary Services.
David A. Smith has served on the Board of Directors of the Company since
July 1993 and as Executive Vice President since April 1996 and Chief Financial
Officer of the Company since April 1992. Mr. Smith served as a Vice President of
the Company from April 1992 to April 1996. Prior to serving as Vice President
and Chief Financial Officer, Mr. Smith served the Company as a Regional Manager,
General Manager, Sales Manager and Operations Manager from July 1987 to June
1993. Prior to joining the Company, Mr. Smith was employed by Coopers & Lybrand
from October 1985 through June 1987, and by Smoak, Davis and Nixon, C.P.A., from
May 1983 through September 1985.
William C. Mason has served on the Board of Directors of the Company since
April 1996. Mr. Mason has served as Vice Chairman and Chief Executive Officer of
Baptist/St. Vincent's Health System, Inc. located in Jacksonville, Florida since
1995 and as President and Chief Executive Officer of Baptist Health System, Inc.
since 1984. Mr. Mason currently serves on the Board of Directors of Baptist
Medical Center, where he served as Chief Executive Officer from 1978 to 1984.
COMMITTEES OF THE BOARD AND BOARD MEETINGS
The Board of Directors has three standing committees, an Executive
Committee, an Audit Committee and a Compensation Committee. There is no
nominating committee for directors.
The Board's Executive Committee, which held five meetings in fiscal year
1996 and acted by written consent on six occasions, is authorized to act with
the full authority and in place of the Board at such times as members of the
Executive Committee deem necessary and appropriate. Members of the Executive
Committee are Mr. Kelly, Mr. Elefant and Mr. Douglas, with Mr. Kelly acting as
the chairman.
The Board's Audit Committee, which held three meetings in fiscal year 1996,
reviews the scope and results of the audit conducted by the Company's
independent auditors. In addition, it reviews systems of internal controls and
accounting policies and procedures. Members of the Audit Committee are Mr.
Douglas, Ms. Kesler and Mr. Tullis, with Mr. Douglas acting as the chairman.
The Board's Compensation Committee, which held one meeting in fiscal year
1996, reviews salary levels of management personnel and makes appropriate
recommendations to the Board with respect thereto. In addition, it makes
recommendations to the Board concerning certain employee benefit plan matters,
including the granting of stock options. Members of the Compensation Committee
are Mr. Dallas, Mr. Elefant and Mr. Tullis, with Mr. Dallas acting as the
chairman.
During 1996, the Board held eight meetings and acted by written consent on
three occasions. All members of the Board attended at least 75% of the meetings
of the Board and all committees on which they served in 1996.
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DIRECTOR COMPENSATION
In fiscal year 1996, directors of the Company received an annual retainer
of $10,000 and $1,000 for each of the meetings of the Board of Directors which
they attended. Members of the Compensation Committee and Audit Committee receive
additional fees of $500 per meeting attended ($1,000 in the case of committee
chairperson) for each committee, although members of each committee receive no
compensation for action taken by written consent without a meeting. In fiscal
year 1996, the Company granted options to purchase 4,500 shares of Common Stock
to each non-employee director. In addition, 1,500 restricted shares of Common
Stock per remaining term year were issued in the following amounts to the
following persons who served on the Board of Directors: Mr. Dallas, 1,500
shares; Mr. Douglas, 3,000 shares; Mr. Elefant, 1,500 shares; Ms. Kesler, 4,500
shares; and Mr. Tullis, 3,000 shares. All of the share numbers contained in this
Proxy Statement reflect the Company's three-for-one stock split in October 1995.
Pursuant to the Company's Directors Stock Plan, non-employee directors
receive an annual grant of an option to purchase 1,500 shares of Common Stock.
The exercise price for the option is the average of the high and low sales price
of the Common Stock on the date of grant and the options will become fully
exercisable one year after the date of grant. In addition, upon election to the
Board of Directors by the shareholders, directors will receive a grant of 1,500
shares of restricted stock. The initial Class III directors and initial Class I
directors received a grant of 500 and 1,000 shares, respectively. Restrictions
on the restricted stock will lapse upon the expiration of the director's term in
office.
In fiscal year 1996, the Company made payments totalling approximately
$136,000 to Fred Elefant, a director of the Company, for legal services.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Patrick C. Kelly(1)........................ 49 Chairman of the Board, Chief Executive
Officer and Director
John F. Sasen, Sr.......................... 54 President, Chief Operating Officer and
Director
David A. Smith............................. 36 Executive Vice President, Chief Financial
Officer, and Director
James Stallings............................ 40 Executive Vice President -- Sales and
Marketing
Charles E. Alvarez......................... 28 Vice President -- Eastern Region
Frederick E. Dell.......................... 35 Senior Vice President -- Southern Region
Edward D. Dienes........................... 35 Vice President -- Pacific Region
Donald M. DuMond........................... 35 Chief Accounting Officer
Douglas Harper............................. 44 Senior Vice President -- Northern Region
L. Darlene Kelly........................... 38 Senior Vice President and Chief Information
Officer
Todd M. LaVelle............................ 29 Vice President -- Sales
Kenley W. Morton........................... 30 Vice President -- Marketing
Robert D. Peoples.......................... 46 Senior Vice President -- Western Region
Roderick M. Schlosser...................... 59 Vice President -- Materials Management
Delmer W. Dallas(3)........................ 65 Director
T. O'Neal Douglas(1)(2).................... 60 Director
Fred Elefant(1)(3)......................... 49 General Counsel, Secretary and Director
Delores Kesler(2).......................... 55 Director
William C. Mason........................... 58 Director
James L.L. Tullis(2)(3).................... 49 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
For information pertaining to the experience and background of Patrick C.
Kelly, John F. Sasen, Sr., David A. Smith, Delmer W. Dallas, T. O'Neal Douglas,
Fred Elefant, Delores Kesler, William C. Mason and James L.L. Tullis, see
"ELECTION OF DIRECTORS -- Experience of Directors."
James Stallings has served as Executive Vice President -- Sales and
Marketing since April 1996. Prior to such time, from 1988 to 1996, Mr. Stallings
held several positions with IBM Corporation, including Director of Worldwide
Sales -- AS/400 Division, Director of Business Reengineering and General
Manager. From 1984 to 1987, Mr. Stallings served as a manager of Rohm
Corporation.
Charles E. Alvarez has served as Vice President -- Eastern Region of the
Company since April 1995. Prior to serving as Vice President -- Eastern Region,
Mr. Alvarez served as Regional Manager of the Eastern Region from April 1994 to
March 1995, and as a sales manager and sales representative from January 1990 to
March 1994.
Frederick E. Dell has served as Senior Vice President -- Southern Region of
the Company since April 1996 and served as Vice President -- Southern Region
from January 1994 to March 1996. Mr. Dell also
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served as director of the Company from July 1991 through July 1992. He served as
Regional Manager and Vice President of the Company's Western Region from
December 1989 to January 1994. From April 1984 through November 1989, Mr. Dell
served the Company in various sales and management positions.
Edward D. Dienes has served as Vice President -- Pacific Region since April
1995. Prior to such time, Mr. Dienes served the Company as Director of Marketing
from April 1993 to March 1995 and as General Manager, Sales Manager and
Operational Manager from August 1988 to March 1993.
Donald M. DuMond has served as Chief Accounting Officer of the Company
since December 1993. Mr. DuMond served as Controller of the Company from May
1993 to January 1996. From August 1985 to May 1993, he was employed by Deloitte
& Touche LLP, where he served as an audit manager from August 1990 to May 1993
and in various other accounting positions from August 1985 to August 1990.
Douglas Harper has served as Senior Vice President -- Northern Region of
the Company since April 1996 and served as Vice President -- Northern Region
from August 1995 to March 1996. He served as the Northeast Regional Manager for
Taylor Medical, Inc. ("Taylor"), which was acquired by the Company in August
1995, from 1990 to August 1995. Mr. Harper has over 20 years experience in
medical supply distribution. Mr. Harper founded Medco Systems/Quinoy Medical
Supply, which was acquired by Taylor in 1990. Prior to such time, Mr. Harper was
a General Manager for Foster Medical Supply.
L. Darlene Kelly has served as Senior Vice President of the Company since
April 1996 and as Chief Information Officer of the Company since April 1993. Ms.
Kelly has also served the Company as a Vice President from April 1993 to March
1996, as Chief Accounting Officer from April 1992 to April 1993, as Controller
from May 1991 to March 1992, and as staff accountant from October 1990 through
April 1991. From April 1989 through September 1990, Ms. Kelly served as Finance
and Operations Manager of Physicians Purchasing Association, a PSS company.
Prior to joining the Company, Ms. Kelly was an audit supervisor with Coopers &
Lybrand LLP from January 1985 to April 1989. Ms. Kelly is not related to Patrick
C. Kelly.
Todd M. LaVelle has served as Vice President -- Sales since April 1996.
Prior to such time, Mr. LaVelle served the Company as Vice President -- Sales &
Marketing from July 1995 to April 1996, as Regional Manager for the Pacific
Region from July 1994 to June 1995, as Diagnostic Market Leader from April 1994
to June 1994, and as Sales Manager and sales representative from August 1990 to
March 1994.
Kenley W. Morton has served as Vice President -- Marketing since April
1996. Prior to such time, Mr. Morton served as Vice President -- Central Region
from April 1994 to April 1996, as Regional Manager for the Eastern Region from
April 1993 to April 1994 and in various sales and management positions from
September 1988 to March 1993.
Robert D. Peoples has served a Senior Vice President -- Western Region of
the Company since April 1996 and served as Vice President -- Western Region from
August 1995 to March 1996. He served as Executive Vice President of Business
Development for Taylor from 1987 to August 1995.
Roderick M. Schlosser has served as Vice President -- Materials Management
since August 1995. From January 1990 to August 1995, Mr. Schlosser was retired.
Mr. Schlosser served as Vice President -- Materials Management of American
Medical International, Inc. from 1981 to January 1990. From 1969 to 1981, Mr.
Schlosser was employed in various sales and management roles with other
companies in the medical supplies distribution industry.
Executive officers of the Company are elected annually and serve at the
discretion of the Board. There are no family relationships between or among any
of the Company's directors or executive officers.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of three outside directors of the
Board who are not employees or former employees of PSS. The Committee is
responsible for the approval and oversight of the compensation program for the
Company's officers. In performing these responsibilities, the Committee has
utilized the services of an independent compensation consultant from KPMG Peat
Marwick. This report to
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shareholders addresses the Company's compensation policies for the executive
officers and its basis for determining the compensation of the Chief Executive
Officer for the past fiscal year.
In making this report, the Committee is pleased to inform our shareholders
that the compensation strategy and program adopted in 1994 as pertains to
management personnel has, in the opinion of the Committee, worked extremely
well. A primary objective of the program was and continues to be to link
executive interests to those of our shareholders. The Performance Graph that
follows this report clearly indicates that our shareholders have been receiving
an excellent return on their investment in PSS. So too should our employees
whose performance excellence has a material impact upon the creation of
shareholder value.
Compensation Committee Charter. In 1994, the Board of Directors adopted a
Charter for the Compensation Committee. The Charter set forth the duties and
responsibilities of the Compensation Committee. Specifically, the Compensation
Committee is responsible for the following:
1. Reviewing annually and approving the Company's stated compensation
strategy to ensure that the management team is rewarded appropriately for
their contributions to growth and profitability and that the executive
compensation strategy supports Company objectives and shareholder
interests.
2. Reviewing annually and determining the individual elements of total
compensation for the Chief Executive Officer and communicating in the
annual Compensation Committee Report to shareholders the factors and
criteria on which the Chief Executive Officer's compensation for the last
year was based. This will also include discussing the relationship between
the Chief Executive Officer's compensation and the Company's performance.
3. Reviewing and approving the individual elements of total
compensation for the executive officers and key management, other than the
Chief Executive Officer, and communicating in the annual Compensation
Committee Report to shareholders the relationship of corporate performance
to executive compensation.
4. Assuring that all compensation plans are administered in a manner
consistent with the Company's compensation strategy.
5. Approving for submission to shareholders all new equity-related
incentive plans for management and administering the Company's long-term
incentive program in a manner consistent with its terms.
6. Reviewing with the Chief Executive Officer compensation matters
relating to management succession.
7. Reviewing the Company's employee benefit programs and approving
changes, subject to shareholder or Board approval.
Compensation Strategy. The Compensation Committee reviewed the Company's
strategy adopted in 1994 and affirmed its continuing appropriateness. The
compensation strategy states that the goals of the executive compensation
program are to:
- enable the Company to attract and retain high quality executives by
providing total compensation opportunities and a compensation mix which
are at, or above, the relevant employment market levels, but with modest
fixed costs and leveraged incentive opportunities; and
- motivate executives to act in the best interests of shareholders by
providing substantial incentive opportunities to be earned through
performance on direct and indirect measures of long-term shareholder value
creation.
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Targeted compensation levels are stated below and are followed by a more
detailed discussion of each of the three compensation elements.
- the base salary policy reflects median levels for companies of comparable
revenue size;
- annual incentive plan award opportunities are targeted at median levels
and associated with aggressive earning growth goals. Actual awards are
determined based upon how performance compares to such goals; and
- long-term incentives earned reflect contributions to shareholder value
over a long-term period, both in terms of the absolute growth in value per
share of the Common Stock and relative growth compared to a broad sample
of companies or a composite index (e.g., Nasdaq National Market).
Base Salary. Consistent with this compensation strategy, the Committee
approved at its March 21, 1996 meeting salary ranges for its executive officer
positions consistent with competitive market data for companies with annual
sales of approximately $650 million. This information was provided to the
Committee and the Chief Executive Officer by our independent compensation
consultants. The midpoints of the salary ranges were established at essentially
the competitive average. Range minimums were then established at 75% of their
respective midpoints and range maximums were established at 125% of their
respective midpoints. All executive officers were then assigned to a specific
salary amount for fiscal year 1997 within their respective salary ranges. The
approved individual salary amounts were recommended by the Company's Chief
Executive Officer after due consideration of their individual qualifications,
experience and contributions over time. In every instance, the salary assigned
to each executive officer places him or her within their respective salary
range.
Annual Incentives. With respect to annual incentive compensation, the
Company has established target annual incentive amounts as a percentage of
salary (i.e., 40% for the Chief Executive Officer Position, 30% for the
executive officer positions, and 20% for officers) for each eligible position.
Actual incentive awards can then range from 0 to 1.5 times the target awards
based upon actual profit performance results.
The profit target was established at the beginning of the 1996 fiscal year
based on a business plan reviewed and approved by the Compensation Committee.
The Compensation Committee also reserved the right to increase or decrease such
incentives by as much as 25% based upon the achievement, or lack thereof, of key
strategic milestones, such as number and cost of new site openings, acquisition
and growth revenues.
While the Chief Executive Officer's annual incentive compensation is based
solely upon profit performance results, other corporate staff officers have up
to 20% of their incentive opportunity based upon their assessed individual
contribution to the Company's success. Incentive amounts listed in the Summary
Compensation Table for the five highest compensated officers were paid for
results achieved during fiscal year 1996.
Long Term Incentives. The Long-Term Stock and Long-Term Incentive Plans
were adopted in March 1994, and continue to be utilized. These compensation
plans have the following objectives:
- award opportunities are directly linked to shareholder returns;
- award opportunities have unlimited upside potential;
- equity is the cornerstone of the program;
- performance-based cash incentives are provided to help executives pay
taxes and exercise stock options; and
- the charge to earnings for financial reporting purposes associated with
these plans is controlled and to be kept to a reasonably low amount.
The Long-Term Stock Plan is primarily composed of non-qualified stock
options to be granted to a broad group of managers and restricted stock, which
can be granted to any employee.
9
<PAGE> 12
The Long-Term Incentive Plan provides contingent cash award opportunities
to eligible participants based upon the Company's relative total shareholder
return results as compared to all other companies on the Nasdaq National Market.
In order to receive any payment, the Company must have at least a 50th
percentile rank on a total shareholder return basis over a three-year time
period. A target award may be paid at the 60th percentile and a scale has been
created whereby a maximum award of three times the target may be earned if the
Company's total shareholder return results would place it among the top 10%
(90th percentile or above) of all Nasdaq National Market companies.
New grants are made at the beginning of each calendar year and each is
based upon a three-year performance period. New contingent grants for the
January 1996 through December 1998 performance period were approved by the
Committee for 14 executive position holders in accordance with the award
guideline adopted in conjunction with the PSS Compensation Strategy.
Company Performance and Compensation of Chief Executive Officer. The
Compensation Committee approved an increase in the Chief Executive Officer's
(CEO) base salary from $360,000 to $475,000, for fiscal year 1997. The Committee
recognizes that this is a substantial increase, and one we believe is most
deserved. The Company has almost tripled its revenues and increased its market
capitalization by more than elevenfold since its initial public offering in May
1994. While this success represents the collective contribution of many, the
Committee believes that the CEO's personal contribution to the Company since its
initial public offering has been outstanding. Also, our independent compensation
consultants confirmed that this salary level is approximately at the midpoint of
the salary range for this position.
The annual incentive award of $154,800 for fiscal year 1996 paid to the CEO
was determined based upon the annual incentive plan profit targets that the
Committee reviewed and approved for fiscal 1996 at its meeting in March 1995.
The non-qualified stock option grant of 50,000 shares to the Chief
Executive Officer during fiscal year 1996 was made in accordance with the
employment agreement entered into between Mr. Kelly and the Company effective
June 1, 1992. Finally, 180 contingent units were granted to Mr. Kelly under the
1994 Long-Term Incentive Plan. The value of this grant, if any, will be
determined as of December 31, 1998.
Other Considerations. In 1993, the Internal Revenue Code was amended
(Section 162(m)) to limit the deductibility of certain nonperformance based
compensation expenses in excess of $1.0 million. Section 162(m) generally
disallows a tax deduction for compensation over $1.0 million paid to an
executive officer named in the Summary Compensation Table, unless such
compensation qualifies as performance-based. The Committee is aware that the
compensation payable for the 1996 fiscal year will not result in any loss of tax
deduction for the Company, since no individual received compensation in excess
of $1.0 million.
As stated in last year's proxy, it is the Company's intent to fully comply
with these regulations prior to their applicability to the Company's
circumstance. Consequently, the Committee is recommending the Company's
performance-based variable compensation plans to our shareholders for approval
at this time.
The Committee also recommends the authorization of 2.6 million shares over
the next five years to be granted to our employees in the form of non-qualified
stock options or restricted stock to senior management employees, other
employees and outside directors, of which not more than ten percent would be
used for restricted stock grants. As stated in the Company's Compensation
Strategy, a primary objective of our program is to directly link employee
interests to the creation of shareholder value. The merit of this philosophy is
being demonstrated by the significant shareholder value that has been created
since our initial public offering.
10
<PAGE> 13
The Committee members' believe that the Company's financial and shareholder
value performance should be the predominate determinants of CEO pay, as well as
that of the other principal executives within the Company. The results achieved
during fiscal 1996 are again gratifying and worthy of substantial reward. We
believe that the Company's Compensation Strategy, Annual Incentive Plan, Long
Term Incentive Plan, and Long Term Stock Plan will continue to serve the best
interests of our shareholders and employees.
Respectfully submitted,
The Compensation Committee
Delmer W. Dallas, Chairman
Fred Elefant
James L. L. Tullis
EXECUTIVE OFFICER COMPENSATION
The following table presents certain summary information concerning
compensation paid or accrued by the Company, for services rendered in all
capacities for the three fiscal years ended March 29, 1996, for its Chief
Executive Officer and the four most highly compensated officers other than the
Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------- ----------------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) OPTIONS COMPENSATION(3)
- ------------------------------------------- ---- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Patrick C. Kelly........................... 1996 $ 360,000 $154,800 290,462 $30,434
Chairman of the Board and Chief 1995 324,996 128,100 150,000 12,017
Executive Officer 1994 300,000 30,039 150,000 4,907
John F. Sasen, Sr.......................... 1996 212,083 69,300 54,282 4,427
President and Chief Operating Officer 1995 175,008 48,027 30,000 4,424
1994 146,250 18,624 6,000 4,460
David A. Smith............................. 1996 145,799 47,850 31,251 2,628
Executive Vice President and Chief 1995 135,000 37,049 15,000 2,622
Financial Officer 1994 120,000 15,576 30,000 2,570
Frederick E. Dell.......................... 1996 138,000 15,660 21,084 2,630
Senior Vice President -- Southern Region 1995 132,000 50,108 15,000 2,596
1994 120,000 2,730 6,000 2,661
Charles E. Alvarez......................... 1996 120,000 46,539 9,000 2,203
Vice President -- Eastern Region 1995 99,491 3,500 -- 747
1994 62,347 500 -- 103
</TABLE>
- ---------------------
(1) Total base salary earned during the fiscal years presented. The Company has
established base salaries for its fiscal year ending March 28, 1997 as
follows: Mr. Kelly, $475,000; Mr. Sasen, $300,000; Mr. Smith, $235,000; Mr.
Dell, $160,000; and Mr. Alvarez, $126,000.
(2) Annual incentive award paid for results achieved during the fiscal years
presented. Any amounts deferred at the election of the executive are
included in the reported amounts.
(3) All other compensation which is not included in the aforementioned
categories. Amounts shown in this column include the following payments for
fiscal year 1996: (i) for Mr. Kelly, $704 for PSS contributions to the
Employee Stock Ownership Plan (the "ESOP"), $4,200 for total premiums under
a split dollar life insurance policy and $25,530 for total premiums under a
key-man life insurance policy; (ii) for Mr. Sasen, $827 for PSS
contributions to the ESOP and $3,600 for total premiums under a split
dollar life insurance policy; (iii) for Mr. Smith, $828 for PSS
contributions to the ESOP and $1,800 for total premiums under a split
dollar life insurance policy; (iv) for Mr. Dell, $830 for PSS contributions
to the ESOP and $1,800 for total premiums under a split dollar life
insurance policy; and (v) for Mr. Alvarez,
11
<PAGE> 14
$898 for PSS contributions to the ESOP and $1,305 for total premiums under
a split dollar life insurance policy.
OPTION GRANTS IN FISCAL YEAR 1996
The following table contains information concerning the grant of stock
options made during fiscal year 1996 pursuant to the Company's 1994 Long Term
Incentive Plan and 1994 Long Term Stock Plan:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ACTUARIAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR OPTION
OPTIONS EMPLOYEES TERM(3)
GRANTED IN FISCAL EXERCISE PRICE EXPIRATION -----------------------
NAME (1) YEAR 1996 ($/SH)(2) DATE 5% 10%
- ----------------------------------------- ---------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Patrick C. Kelly......................... 150,462 17.2% $ 14.875 8/20/05 $1,407,543 $3,556,990
140,000 16.0 24,000 1/10/06 2,113,086 5,354,975
John F. Sasen, Sr........................ 54,282 6.2 14.875 8/20/05 507,798 1,286,859
David A. Smith........................... 31,251 3.6 14.875 8/20/05 292,347 740,865
Frederick E. Dell........................ 21,084 2.4 14.875 8/20/05 197,237 499,837
Charles E. Alvarez....................... 9,000 1.0 14.875 8/20/05 84,193 213,362
</TABLE>
- ---------------
(1) The options issued in fiscal year 1996 to the named executive officers are
nonqualified stock options for federal income tax purposes and accordingly
are not entitled to special tax treatment under Section 422 of the Internal
Revenue Code of 1986, as amended. The options granted in fiscal year 1996
to the named executive officers are exercisable immediately and expire ten
years from the date of grant.
(2) In fiscal year 1996, the named executive officers were granted options to
acquire an aggregate of 406,079 shares of Common Stock at an exercise price
of fair market value as of the date of grant.
(3) The dollar amount under the columns assumes that the market price of the
Common Stock from the date of the option grant appreciates at cumulative
annual rates of 5% and 10%, respectively, over the term of each option
granted in fiscal year 1996. The assumed rates of 5% and 10% were
established by the Securities and Exchange Commission and therefore are not
intended to forecast possible future appreciation, if any, of the price or
value of the Common Stock.
OPTION EXERCISES AND HOLDING AS OF MARCH 29, 1996
The following table sets forth information regarding stock options
exercised in fiscal year 1996 by each of the named executive officers and the
value of the unexercised options held by these individuals as of March 29, 1996,
based on the market value of the Common Stock on that date:
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
AND OPTION VALUES AS OF MARCH 29, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT MARCH IN-THE- MONEY OPTIONS AT
SHARES 29, 1996 MARCH 29, 1996(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Patrick C. Kelly.................. 25,000 $650,000 676,597 38,865 $10,080,376 $ 762,978
John F. Sasen, Sr................. 84,501 921,820 90,282 -- 1,304,606 --
David A. Smith.................... 30,000 314,300 46,251 -- 624,960 --
Frederick E. Dell................. 15,000 177,200 42,084 -- 660,410 --
Charles E. Alvarez................ -- -- 9,000 -- 88,920 --
</TABLE>
- ---------------
(1) Based upon the closing price of $24.75 of the Common Stock on the Nasdaq
National Market on March 29, 1996.
12
<PAGE> 15
LONG TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF NON-STOCK PRICE-BASED PLAN
PERFORMANCE PERIOD UNTIL -------------------------------------
NAME UNITS(1) PAYOUT THRESHOLD(2) TARGET(3) MAXIMUM(4)
- ------------------------------- ----------- ----------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Patrick C. Kelly............... 180 1/1/96 - 12/31/98 $ 90,000 $ 180,000 $540,000
John F. Sasen, Sr.............. 70 1/1/96 - 12/31/98 35,000 70,000 210,000
David A. Smith................. 48 1/1/96 - 12/31/98 24,000 48,000 144,000
Frederick E. Dell.............. 35 1/1/96 - 12/31/98 17,500 35,000 105,000
Charles E. Alvarez............. 20 1/1/96 - 12/31/98 10,000 20,000 60,000
</TABLE>
- ---------------
(1) Under the Company's 1994 Long Term Incentive Plan, officers of the Company
may be awarded a certain number of Performance Units each year equal to a
percentage of the officer's salary. Each Performance Unit granted has a
target value of $1,000 assuming the Company's total shareholder return
result is in the 60th percentile of peer group companies. The actual value
of each Performance Unit depends on the Company's performance over a period
of three fiscal years, beginning on the effective date of the award. In
fiscal year 1995, the Company granted Performance Units to the named
executive officers as follows: Mr. Kelly, 162 Units; Mr. Sasen, 58 Units;
Mr. Smith, 45 Units; Mr. Dell, 33 Units; and Mr. Alvarez 17 Units. These
Performance Units have the same threshold, target and maximum values as
described below.
(2) The threshold amounts shown are based upon the Company achieving a total
shareholder return result in the 50th percentile of peer group companies,
at which point each Unit granted will have a value of $500.
(3) The target amounts shown are based upon the Company achieving a total
shareholder return result in the 60th percentile of peer group companies,
at which point each Unit granted will have a value of $1,000.
(4) The maximum amounts shown are based upon the Company achieving a total
shareholder return result in the 90th percentile or greater of peer group
companies, at which point each Unit granted will have a value of three
times the target value, or $3,000.
13
<PAGE> 16
PERFORMANCE GRAPH
The following performance graph compares the performance of the Common
Stock to the Nasdaq National Market Composite index and a line-of-business index
of selected peer companies assuming $100 was invested and all dividends, if any,
were reinvested. The graph covers the period from May 5, 1994, the date of the
Company's initial public offering, to the Company's fiscal year ended on March
29, 1996. The Company did not pay dividends during the period covered by this
graph. The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURNS
PHYSICIAN SALES & SERVICE, INC.
[GRAPH]
<TABLE>
<CAPTION>
PHYSICIAN
MEASUREMENT PERIOD SALES & NASDAQ STOCK
(FISCAL YEAR COVERED) SERVICE, INC. PEER GROUP MARKET - US
<S> <C> <C> <C>
5/5/94 100 100 100
3/30/95 231 135 112
3/29/96 535 185 152
</TABLE>
- ---------------
(1) Comprised of Baxter International, Inc., Bergen Brunswig
Corporation -- Class A, Cardinal Health, Inc., Gulf South Medical Supply,
Inc., MicroBioMedics, Inc., Moore Medical Corporation, Owens & Minor,
Incorporated, Patterson Dental Company and Sullivan Dental Products, Inc.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of its named
executive officers, which include the terms described below:
Term. Mr. Kelly's employment agreement is for an initial period of five
years expiring June 1, 1997, and is automatically renewable for additional five
year terms. The other executive officers' employment agreements are for terms of
two years and are automatically renewable for additional two year terms.
Covenants not to compete. Each executive officer has agreed not to compete
with the Company for a period of 18 months following the termination of his
employment within the territory in which the Company is then operating.
The covenants not to compete are not valid upon the occurrence of certain
events. In Mr. Kelly's employment agreement, such events include either Mr.
Kelly not being re-elected to or resigning his position as a director of the
Company or the acquisition of a voting majority of the issued and outstanding
capital stock of the Company by an outside entity. In the other executive
officers' employment agreements, such events
14
<PAGE> 17
include, in addition to those set forth in the previous sentence, Mr. Kelly no
longer being employed by or resigning his employment with the Company or,
following Mr. Kelly's death or disability, Fred Elefant being removed as a
director of the Company.
Termination. Each employment agreement includes several provisions
requiring the Company to make certain payments upon the occurrence of certain
events.
Following Mr. Kelly's termination by the Company for any reason except for
good cause or if Mr. Kelly resigns from the Company for good cause, the Company
is required to pay Mr. Kelly's full salary for 24 months following such
termination or resignation, and to provide Mr. Kelly with insurance coverage
during that period. In addition, the Company is required to repurchase up to 50%
of the Common Stock owned by Mr. Kelly at its market value within 30 days of
demand by Mr. Kelly at any time during the 24 month period. During that period,
Mr. Kelly is entitled to have his shares of Common Stock registered in the event
that securities held by any persons who are at such time members of Board of
Directors are registered. The other executive officers have similar rights as to
payment of salary, provision of insurance benefits, repurchase of up to 20% of
their Common Stock and registration of Common Stock for a period of six months.
Upon a change in control of the Company, if the Company then terminates Mr.
Kelly's employment or if Mr. Kelly resigns, the Company is required to pay Mr.
Kelly's salary and provide Mr. Kelly with insurance coverage for a period of
three years and to repurchase all of Mr. Kelly's Common Stock at its market
value upon demand. A change in control of the Company is defined as the
resignation, removal or failure to re-elect Mr. Kelly as a director of the
Company, or following Mr. Kelly's death or disability, the resignation, removal
or failure to re-elect Fred Elefant as a director of the Company. Mr. Kelly is
also entitled to reimbursement of up to $100,000 per year for office,
secretarial, and related expenses. In this case, Mr. Kelly also has registration
rights as described above during such three year period. The other executive
officers have similar rights for a period of one year in the event of their
termination or resignation following a change in control of the Company.
If the Company terminates Mr. Kelly for cause, or if Mr. Kelly resigns from
the Company without good reason, Mr. Kelly is entitled to receive his salary and
full insurance coverage for a period of 12 months or, if earlier, until his
employment with another company. The other executive officers have similar
rights for a period of three months or, if earlier, until their employment with
another company.
Stock Options. Pursuant to an amendment to his Employment Agreement dated
as of January 9, 1993, Mr. Kelly will be granted five consecutive annual options
to purchase up to 50,000 shares of Common Stock each at fair market value with a
term of five years. Upon the acquisition by any person other than Tullis-
Dickerson Capital Focus, L.P., of six percent or more of Common Stock, Mr. Kelly
has the right to accelerate the vesting of such options and the Company is
obligated to loan Mr. Kelly such funds as he may require to exercise such option
and any other options with respect to the Common Stock as Mr. Kelly may then
have the right to exercise.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Fred Elefant, a member of the Board of Directors and Secretary of the
Company, provides legal services as general counsel to the Company. Fees for
such legal services were approximately $136,000 in fiscal year 1996.
T. O'Neal Douglas, a member of the Board of Directors, is Chairman and CEO
of the life insurance company that administers the Company's self-insurance
coverage. Administrative fees paid to such company were approximately $484,000
for fiscal year 1996.
15
<PAGE> 18
BENEFICIAL OWNERSHIP OF EQUITY SECURITIES
The following table reflects the number of shares of Common Stock
beneficially owned as of March 29, 1996, by (i) each person who is known by the
Company to beneficially own more than 5% of the outstanding Common Stock, (ii)
each of the executive officers named in the Summary Compensation Table, (iii)
each director, and (iv) all of the Company's executive officers and directors as
a group. Unless otherwise noted, all shares are owned directly with sole voting
and dispositive powers.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME SHARES TOTAL(1)
- ------------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Employee Stock Ownership and Savings Plan(2)............................. 2,051,873 5.9%
Pilgrim Baxter & Associates, Ltd.(2)..................................... 2,853,700 8.3
Patrick C. Kelly(2)(3)................................................... 2,355,088 6.8
John F. Sasen, Sr.(3).................................................... 169,344 *
Frederick E. Dell(3)..................................................... 208,203 *
David A. Smith(3)........................................................ 168,471 *
Charles E. Alvarez(3).................................................... 49,074 *
Delmer W. Dallas(3)...................................................... 77,498 *
T. O'Neal Douglas........................................................ 20,000 *
Fred Elefant(3).......................................................... 94,077 *
Delores P. Kesler(3)..................................................... 1,500 *
James L.L. Tullis(4)..................................................... 263,075 *
William C. Mason......................................................... -- *
All Executive Officers and Directors as a group (20 persons)(3).......... 3,827,989 11.1
</TABLE>
- ---------------
* Less than 1%
(1) Based upon 34,528,814 shares of Common Stock outstanding as of March 29,
1996.
(2) The address for the Employee Stock Ownership and Savings Plan ("ESOP") and
Mr. Kelly is 7800 Belfort Parkway, Suite 250, Jacksonville, Florida 32256
and the address for Pilgrim Baxter & Associates, Ltd. is 1255 Drummers
Lane, Suite 300, Wayne, Pennsylvania 19087-1590. The trustees of the ESOP
are Patrick C. Kelly and David A. Smith, both of whom are officers and
directors of the Company, who have voting control over the shares of Common
Stock held in the ESOP in certain situations.
(3) Included in such beneficial ownership are shares of Common Stock issuable
upon the exercise of certain options exercisable immediately or within 60
days of March 29, 1996, as follows: Mr. Kelly, 676,597 shares; Mr. Sasen,
90,282 shares; Mr. Dell, 42,084 shares; Mr. Smith, 46,251 shares; Mr.
Alvarez, 9,000 shares; Mr. Dallas, 1,500 shares; Mr. Douglas, 4,500 shares;
Mr. Elefant, 15,000 shares; Mr. Tullis, 18,500 shares; and all executive
officers and directors as a group, 1,062,597 shares. Also included in such
beneficial ownership are shares held for the account of certain individuals
by the ESOP as follows: Mr. Kelly, 152,606 shares; Mr. Sasen, 17,196
shares; Mr. Smith, 25,026 shares; Mr. Dell, 95,250 shares; Mr. Alvarez,
9,199 shares; and all executive officers as a group, 326,705 shares.
(4) Includes 187,881 shares owned by Tullis Dickerson Capital Focus, L.P. Mr.
Tullis is the general partner of Tullis-Dickerson Partners, the sole
general partner of Tullis-Dickerson Capital Focus, L.P.
16
<PAGE> 19
PROPOSALS 2 THROUGH 5
RATIFICATION OF ADOPTION OF
THE AMENDED AND RESTATED 1994 LONG TERM STOCK PLAN,
AMENDED AND RESTATED 1994 LONG TERM INCENTIVE PLAN,
ANNUAL INCENTIVE PLAN
AND AMENDED AND RESTATED DIRECTORS' STOCK PLAN
GENERAL
Performance Based Compensation. Shareholder approval of the Amended and
Restated 1994 Long Term Stock Plan, Amended and Restated Long Term Incentive
Plan and the Annual Incentive Plan (the "Plans") is being sought in order to
preserve the Company's federal income tax deduction for compensation that may be
earned under the Plans, in accordance with the requirements of the Omnibus
Budget Reconciliation Act of 1993 ("OBRA") and Section 162(m) of the Internal
Revenue Code ("Code").
Under the Code, a publicly held company is not entitled to a tax deduction
for compensation in excess of $1.0 million paid to the chief executive officer
and each of the next four most highly compensated executives employed by the
Company on the last day of the relevant fiscal year. Generally, these would be
the same officers named each year in the Summary Compensation Table in the Proxy
Statement. One exception to this general rule is for "qualified
performance-based compensation." In order for compensation to qualify as
performance-based the following conditions must be met: (i) the compensation
must be paid solely on account of the attainment of one or more pre-established,
objective performance goals, (ii) the performance goals must be established in a
timely manner by a compensation committee comprising solely of two or more
outside directors, (iii) the material terms of the performance goals must be
disclosed to and approved by the shareholders, and (iv) the Compensation
Committee must certify in writing prior to payment of the compensation (other
than stock option exercises) that the performance goals and any other material
terms were in fact satisfied.
While no Company executive's annual compensation has ever approached $1.0
million, the Board of Directors has decided to seek shareholder approval for
three specific compensation plans that provide performance based compensation to
senior executives. The three plans are:
1. The Amended and Restated 1994 Long Term Stock Plan ("Long Term
Stock Plan") which provides for grants of nonqualified stock options and
restricted stock;
2. The Amended and Restated 1994 Long Term Incentive Plan ("Long Term
Incentive Plan") which provides for grants of contingent units convertible
to cash based upon the Company's total shareholder return on a comparative
basis and for grants of non-qualified stock options and restricted stock;
and
3. The Annual Incentive Plan which provides for annual performance
based cash payments.
Set forth below is a description of these plans to the extent required in
order to qualify them as performance based and thus deductible as compensation
expense irrespective of whether they individually or in the aggregate result in
an executive receiving more than $1.0 million as remuneration in any given
taxable year.
Amendment of Plans. The Board of Directors has approved (i) the amendment
and restatement of the 1994 Long Term Incentive Plan to reserve for the issuance
thereunder of 2,190,000 shares of Common Stock to be acquired pursuant to the
exercise of nonqualified stock options and grants of restricted stock, provided
that no more than 200,000 shares of Common Stock may be granted to any
individual per year, (ii) the amendment and restatement of the 1994 Long Term
Stock Plan to increase the maximum number of shares that may be granted to any
individual per year from 180,000 to 200,000, and (iii) the amendment and
restatement of the Director's Stock Plan which would increase the number of
shares reserved for issuance thereunder from 135,000 to 200,000. The Board's
approval of the foregoing amendments is subject to
17
<PAGE> 20
shareholder approval and such plans, as amended, are being presented to the
holders of the Common Stock at the Annual Meeting for consideration and
approval.
The Company's Compensation Committee has recommended that a minimum of 2.6
million shares be reserved for grants to employees over the next five years in
the form of non-qualified stock options or restricted stock to senior management
employees, other employees and outside directors, of which not more than ten
percent would be used for restricted stock grants. In order to meet this
recommendation, the Board of Directors has approved the foregoing amendments to
the Long Term Incentive Plan, Long Term Stock Plan and Directors' Stock Plan.
In 1994, the Company adopted a Compensation Strategy which states in part
that a primary goal of the compensation program is to motivate employees to act
in the best interests of shareholders by providing incentive opportunities to be
earned through performance on direct and indirect measures of long-term
shareholder value creation. In the two years since, the Company's total
shareholder return has increased by more than 1100%. This historical performance
success places the Company at the 99th percentile among all Nasdaq listed
companies on a total shareholder return basis over the same time frame. The
Board of Directors believes that a substantial use of stock for compensation
purposes will result in continued superior returns to the Company's
shareholders.
The anticipated 2.6 million shares to be granted over the next five years
represents 7.5% of the Company's currently outstanding shares and 1.5% of the
outstanding shares on a per year basis over the next five years. The Board of
Directors is aware of various institutional investor guidelines as to what is
deemed to be reasonable share authorization requests for stock compensation
purposes. The Board of Directors believes the requested shares are well within
the bounds of reasonableness.
LONG TERM STOCK PLAN
The Long Term Stock Plan provides for grants of stock options to employees
of the Company. The plan is administered by the Compensation Committee composed
of two or more outside directors and is limited to the granting of stock options
at no less than the fair market value of a share at its time of grant. The plan
provides for a ten year exercise period from date of grant with Shares granted
exercisable after at least one year or as otherwise determined by the
Compensation Committee at their time of grant.
A total of 2,190,000 shares of Common Stock have been reserved for issuance
under the Long Term Stock Plan, as adjusted for stock splits, consolidations or
other changes in capitalization. The Long Term Stock Plan is primarily composed
of non-qualified stock options to be granted to a broad group of managers, and
restricted stock which can be granted to any employee. As of March 29, 1996,
non-qualified options to purchase 615,000 shares of Common Stock were
outstanding under the Long Term Stock Plan and 1,537,500 shares of Common Stock
were available for issuance under the plan. As of March 29, 1996, no restricted
stock had been granted under the Long Term Stock Plan.
In order to determine the number of option shares to be granted to an
individual, the Black Scholes method of assigning a present value to a PSS stock
option is utilized. This then is applied to a targeted grant value as a percent
of salary wherein the position's impact on longer term results is a primary
consideration. Subject to shareholder approval, the maximum number of shares
granted to an individual will not exceed 200,000 per year which is more than
that has ever been granted to any individual in the past.
The exercise price of options granted under the plan may be no less than
the fair market value (generally the average of the high and low sales price) of
the Common Stock on the date of grant. Upon a change in control (as defined in
the plan), all options will become immediately exercisable and all restrictions
on restricted stock shall lapse. The plan may be amended from time to time
without shareholder approval; provided, however, that shareholder approval is
required to increase the number of shares reserved for issuance under the plan,
to change the class of eligible employees or to take any action that would cause
the plan to no longer comply with the federal securities laws or certain other
state or federal statutory or regulatory requirements. In addition, the
employee's consent is required to adversely alter the terms of any outstanding
grant.
18
<PAGE> 21
The following table presents information regarding options granted under
the Long Term Stock Plan to certain individuals and groups during fiscal year
1996.
<TABLE>
<CAPTION>
EXERCISE PRICE
NUMBER OF PER SHARE AT
NAME POSITION OPTIONS TIME OF GRANT
- ----------------------- ----------------------------------------------------- --------- --------------
<S> <C> <C> <C>
Patrick C. Kelly....... Chairman of the Board and Chief Executive Officer 140,000 $ 22.125
John F. Sasen, Sr...... President and Chief Operating Officer -- --
David A. Smith......... Executive Vice President and Chief Financial
Officer.............................................. -- --
Frederick E. Dell...... Senior Vice President -- Southern Region -- --
Charles E. Alvarez..... Vice President -- Eastern Region 9,000 14.875
All current executive officers as a group..................................... 149,000
All other employees........................................................... 343,300
All current non-executive directors as a group................................ N/A
Total............................................................... 492,300
</TABLE>
Attached as Exhibit 1 hereto is the full text of the Long Term Stock Plan.
The foregoing description of the Long Term Stock Plan does not purport to be
complete and is subject to and qualified in its entirety by reference to the
text of the Plan itself.
LONG TERM INCENTIVE PLAN
The Long Term Incentive Plan is administered by the Compensation Committee
which is composed of two or more outside directors. Eligible employees include
the CEO and all other officers of the Company (approximately 20 persons). Award
opportunities are expressed as contingent units and the number granted to each
eligible employee is based upon his or her respective level of responsibility
within the Company.
The value of granted contingent units is based upon the attainment of three
year Total Shareholder Return (TSR) performance goals relative to companies
comprising the Nasdaq Composite Index. Within the first quarter of each three
year performance period the Compensation Committee will establish threshold,
target, and maximum levels of performance expressed as percentile rankings
relative to the Nasdaq companies. These levels are currently set as follows:
<TABLE>
<CAPTION>
TOTAL SHAREHOLDER RETURN RANK CONTINGENT
AMONG NASDAQ COMPANIES UNIT VALUE
------------------------------------------------------------------------- -----------
<S> <C>
50th..................................................................... $ 500
55....................................................................... 750
60....................................................................... 1,000
65....................................................................... 1,300
70....................................................................... 1,600
75....................................................................... 1,950
80....................................................................... 2,300
85....................................................................... 2,650
90+...................................................................... 3,000
</TABLE>
No award will be payable if the Company's TSR is below the 50th percentile.
The maximum amount payable under the plan to a participant may not exceed
$1.0 million per each three year performance period. Because a new performance
period commences each year, the annual maximum payment is therefore limited to
$1.0 million, which is a significant multiple of any past or anticipated
individual award. No discretionary adjustments can be made to either: (1) the
value of contingent units, or (2) the number of units granted to any individual
during or at the conclusion of any given three year performance period. The
Compensation Committee shall certify in writing, prior to payment that the
performance goals and any other material terms were in fact satisfied.
19
<PAGE> 22
The following table presents information regarding Units granted under the
Long Term Incentive Plan to certain individuals and groups during fiscal year
1996.
<TABLE>
<CAPTION>
ESTIMATED
DOLLAR
VALUE
NUMBER OF AT MAXIMUM
NAME POSITION UNITS LEVEL(1)
- ---------------------------- ------------------------------------------- --------- ----------
<S> <C> <C> <C>
Patrick C. Kelly............ Chairman of the Board and Chief Executive 180 $540,000
Officer
John F. Sasen, Sr........... President and Chief Operating Officer 70 210,000
David A. Smith.............. Executive Vice President and Chief 48 144,000
Financial Officer
Frederick E. Dell........... Senior Vice President -- Southern Region 35 105,000
Charles E. Alvarez.......... Vice President -- Eastern Region 20 60,000
All current executive officers as a group................................ 353
All other employees...................................................... 229
All current non-executive directors as a group........................... N/A
Total.......................................................... 582
</TABLE>
- ---------------
(1) See Executive Officer Compensation for a description of the estimated dollar
values of the Performance Units at the Threshold and Target levels.
Subject to shareholder approval, the plan also provides for nonqualified
stock options or restricted stock to be granted at the full discretion of the
Compensation Committee of the Board of Directors. The exercise price of options
granted under this plan may be no less than the fair market value of the
Company's common stock on the date of grant. The aggregate number of shares of
common stock, including shares reserved for issuance pursuant to the exercise of
options, which may be granted or issued, may not exceed 2,190,000 shares. As of
March 29, 1996, non-qualified options to purchase 318,237 shares of Common Stock
were outstanding under the Long Term Incentive Plan.
The following table presents information regarding options granted under
the Long Term Incentive Plan to certain individuals and groups during fiscal
year 1996.
<TABLE>
<CAPTION>
EXERCISE PRICE
NUMBER OF PER SHARE AT
NAME POSITION OPTIONS TIME OF GRANT
- ---------------------------- ------------------------------------------ --------- --------------
<S> <C> <C> <C>
Patrick C. Kelly............ Chairman of the Board and Chief Executive 150,462 $ 14.875
Officer
John F. Sasen, Sr........... President and Chief Operating Officer 54,282 14.875
David A. Smith.............. Executive Vice President and Chief 31,251 14.875
Financial Officer
Frederick E. Dell........... Senior Vice President -- Southern Region 21,084 14.875
Charles E. Alvarez.......... Vice President -- Eastern Region -- --
All current executive officers as a group............................... 257,079
All other employees..................................................... 93,564
All current non-executive directors as a group.......................... N/A
Total......................................................... 350,643
</TABLE>
Attached as Exhibit 2 hereto is the full text of the Long Term Incentive
Plan. The foregoing description of the Long Term Incentive Plan does not purport
to be complete and is subject to and qualified in its entirety by reference to
the text of the Plan itself.
20
<PAGE> 23
ANNUAL INCENTIVE PLAN
The Annual Incentive Plan is administered by the Compensation Committee
composed of two or more outside directors. Eligible employees include the Chief
Executive Officer and all other officers of the Company (approximately 20
persons). Award opportunities are expressed as a percent of salary, the highest
of which pertains to the Chief Executive Officer position. At a target
performance result the Chief Executive Officer can receive a bonus payment of
40% of his or her present salary and at a maximum performance result the Chief
Executive Officer can receive a bonus payment of 60% of his or her present
salary. Because Section 162(m) of the Code requires a stated maximum award
(either as a dollar amount or as a percent of the total amount funded) the
maximum annual payment to any individual under this plan is limited to $1.0
million, which is a significant multiple of any past or anticipated individual
award.
The profit target is established at the beginning of each fiscal year based
on a business plan reviewed and approved by the Compensation Committee. The
Compensation Committee may increase or decrease funded incentives by as much as
25% based upon the achievement of key strategic milestones established at the
beginning of the year. While corporate staff (other than the Chief Executive
Officer) have up to 20% of their incentive opportunity based upon an assessment
of their individual contribution to PSS's profit results, the application of any
such discretion will not result in an aggregate incentive expenditure in excess
of the amount generated by the pre-established funding formula. The Compensation
Committee shall certify in writing prior to payment of the compensation that the
performance goals and any other material terms were in fact satisfied.
The following table presents information regarding awards granted under the
Annual Incentive Plan to certain individuals and groups during fiscal year 1996.
<TABLE>
<CAPTION>
DOLLAR VALUE
NAME POSITION OF AWARD
- ---------------------------------------- ---------------------------------------- ------------
<S> <C> <C>
Patrick C. Kelly........................ Chairman of the Board and Chief $154,800
Executive Officer
John F. Sasen, Sr....................... President and Chief Operating Officer 69,300
David A. Smith.......................... Executive Vice President and Chief 47,850
Financial Officer
Frederick E. Dell....................... Senior Vice President -- Southern Region 15,660
Charles E. Alvarez...................... Vice President -- Eastern Region 46,539
All current executive officers as a group......................................... 334,149
All other officers................................................................ 27,213
All current non-executive directors as a group.................................... N/A
--------
Total................................................................... $361,362
========
</TABLE>
AMENDED AND RESTATED DIRECTORS' STOCK PLAN
In March 1994, the Company adopted the Directors' Stock Plan which provides
for grants of non-qualified stock options and restricted stock to non-employee
directors (currently six persons). Under the plan, non-employee directors
receive an annual grant of non-qualified stock options to purchase 1,500 shares
of common stock. The exercise price of options granted under this plan may be no
less than fair market value of the Company's common stock on the date of grant.
During fiscal year 1996, an aggregate of 22,500 shares of Company common stock
was issued to all non-executive directors as a group, all with an exercise price
of $14.75 per share. Each non-employee director receives a grant of 1,500
restricted shares per remaining term year on the Board. To date 7,500 restricted
shares have been issued under this plan. Upon a change in control (as defined in
the plan), all options will become immediately exercisable and all restrictions
on restricted stock shall lapse. The plan may be amended from time to time by
the Board of Directors unless shareholder or regulatory approval is required by
law or regulation.
21
<PAGE> 24
A total of 135,000 shares of the Company's common stock was reserved under
the Directors' Stock Plan, which the Board of Directors has authorized and
recommended be increased to a total of 200,000 shares of common stock, subject
to shareholder approval.
Attached as Exhibit 3 hereto is the full text of the Amended and Restated
Directors' Stock Plan. The foregoing description of the Amended and Restated
Directors' Stock Plan does not purport to be complete and is subject to and
qualified in its entirety by reference to the text of the Plan itself.
TAX CONSEQUENCES
The following description of the tax consequences of awards under the Plans
is based on present federal tax laws, and does not purport to be a complete
description of the tax consequences of the Plans.
Under present law, the optionee of a nonqualified stock option realizes no
taxable income upon the grant of such option, but upon the exercise of such
option the optionee will realize taxable income equal to the difference between
the market value of the stock received at the time of exercise and the amount
paid for the stock. Under present law, the Company is permitted to consider the
income realized by the optionee at the time of exercise of a nonqualified stock
option as a tax deductible expense.
The grant of a performance unit award will not result in income for the
grantee or in a tax deduction for the Company. Upon the settlement of such
award, the grantee will recognize ordinary income equal to the fair market value
of any shares of Common Stock and/or any cash received, and the Company will be
entitled to a tax deduction in the same amount.
An award of restricted shares of Common Stock will not result in income for
the grantee or in a tax deduction for the Company until such times as the shares
are no longer subject to forfeiture unless the grantee elects otherwise. At that
time, the grantee generally will recognize ordinary income equal to the fair
market value of the shares less any amount paid for them, and the Company will
be entitled to a tax deduction in the same amount.
VOTE REQUIRED
The affirmative vote of a majority of the Common Stock of the Company
entitled to notice of and to vote at the Annual Meeting is required to ratify
the adoption of each of the Long Term Stock Plan, Long Term Incentive Plan,
Annual Incentive Plan and Amended and Restated Directors' Stock Plan. The vote
shall be counted as described in the Introduction to this Proxy Statement. The
Company's compensation strategy calls for an alignment of shareholder and
employee interests. The Board of Directors believes this is best accomplished
through the use of stock related forms of compensation and recommends approval
of the plans and the amendments thereto.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
RATIFICATION OF THE ADOPTION OF EACH OF THE AMENDED AND RESTATED 1994 LONG TERM
STOCK PLAN, AMENDED AND RESTATED 1994 LONG TERM INCENTIVE PLAN, THE ANNUAL
INCENTIVE PLAN AND AMENDED AND RESTATED DIRECTORS' STOCK PLAN.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP, independent
certified public accountants, as the Company's auditors for the fiscal year
ending March 28, 1997. Representatives of Arthur Andersen LLP will be present at
the Annual Meeting to respond to appropriate questions and to make such
statements as they may desire.
SHAREHOLDER PROPOSALS
Shareholders who wish a proposal to be included in the Company's proxy
statement and form of proxy relating to the 1997 Annual Meeting should deliver a
written copy of their proposal to the Company no later than February 6, 1997.
Proposals should be directed to the Chief Financial Officer, Physician Sales &
Service, Inc., 7800 Belfort Parkway, Suite 250, Jacksonville, Florida 32256.
22
<PAGE> 25
OTHER MATTERS
EXPENSES OF SOLICITATION
The cost of soliciting proxies in the accompanying form will be borne by
the Company. In addition to the use of the mail, proxies may be solicited by
directors, officers or other employees of the Company, personally, or by
telephone. The Company does not expect to pay any compensation for the
solicitation of proxies, but may reimburse brokers, custodians or other persons
holding stock in their names or in the names of the nominees for their expenses
in sending proxy materials to principals and obtaining their instructions.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
certain officers of the Company and its directors, and persons who beneficially
own more than ten percent of any registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the Company.
Based solely on a review of the reports provided to the Company by the
above referenced persons, the Company believes that as of the date of this Proxy
Statement all filing requirements applicable to its reporting officers,
directors and greater than ten percent beneficial owners were properly and
timely complied with, except for Messrs. Elefant and Dallas.
MISCELLANEOUS
Management does not know of any matters to be brought before the Annual
Meeting other than as described in this Proxy Statement. Should any other
matters properly come before the Annual Meeting, the persons designated as
proxies will vote in their sole discretion on such matters.
23
<PAGE> 26
EXHIBIT 1
PHYSICIAN SALES & SERVICE, INC.
AMENDED AND RESTATED
1994 LONG TERM STOCK PLAN
I. GENERAL
1.1 PURPOSE OF THE PLAN
The purpose of the Amended and Restated 1994 Long-Term Stock Plan (the
"Plan") of Physician Sales & Service, Inc. (the "Company") is to provide an
incentive, in the form of a proprietary shareholder interest in the Company, to
employees of the Company and/or its subsidiaries, to increase their interest in
the Company's welfare, and to assist the Company and its subsidiaries in
attracting and retaining employees.
1.2 ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee or its
successor (the "Committee") of the Board of Directors of the Company (the
"Board") which shall consist solely of two or more directors meeting the
definition of disinterested person under Rule 16b-3 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
The Committee shall have full and final authority in its discretion,
subject to the provisions of the Plan: (a) to determine individuals to whom and
the time or times at which options or restricted stock shall be granted and
exercised and the number of shares and exercise price, if any, of the common
stock of the Company ("Common Stock") covered by each option or grant of
restricted stock; (b) to determine the terms of the option or restricted stock
agreements, which need not be identical, including, without limitation, terms
covering vesting, exercise dates, if any, and exercise prices, if any; (c) to
decide all questions of fact arising in the application of the Plan; and (d) to
administer and interpret the Plan in all respects. All determinations made by
the Committee shall be final and conclusive.
The Committee shall meet once each fiscal year, and at such additional
times as it may determine or as is requested by the chief executive officer of
the Company, to designate the eligible employees, if any, to be granted awards
under the Plan and the type and amount of such awards and the time when awards
will be granted. No such designation by the Committee shall be effective as a
grant of an award under the Plan until approved by the Board; provided, however,
that the Board may empower the Committee to grant such awards without approval
by the Board. All awards granted under the Plan shall be on the terms and
subject to the conditions hereinafter provided.
1.3 ELIGIBLE PARTICIPANTS
Employees of the Company and the Company's subsidiaries shall be eligible
to participate in the Plan (any employee receiving an award under this Plan
hereinafter referred to as a "Participant"). The terms "subsidiary" or
"subsidiaries" shall mean any corporation now existing or hereafter organized or
acquired (other than the Company) in an unbroken chain of corporations beginning
with the Company, if, at the time of option grant, each of the corporations
(including the Company) other than the last corporation in the unbroken chain
owns stock possessing 80% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
1.4 GRANTS
Grants under the Plan may be stock options (as described in Section II) or
restricted stock (as described in Section III).
I-1
<PAGE> 27
1.5 OTHER COMPENSATION PROGRAMS
The adoption of the Plan contemplates the continuation of any existing
incentive compensation plan(s) of the Company and in no way limits or is limited
by the operation, administration or amendment of any such plan(s). The existence
and terms of the Plan shall not limit the authority of the Board in compensating
employees of the Company in such other forms and amounts as it may determine
from time to time.
1.6 LIMITATIONS ON GRANTS
The aggregate number of shares of Common Stock, including shares reserved
for issuance pursuant to the exercise of options, which may be granted or issued
under the terms of the Plan, may not exceed 2,190,000 shares, and such shares
hereby are reserved for such purpose. The maximum number of shares of Common
Stock that may be subject to grants under the Plan to a Participant may not
exceed 200,000 shares of Common Stock per fiscal year of the Company. Whenever
any outstanding grant or portion thereof expires, is canceled or forfeited or is
otherwise terminated for any reason without having been exercised, the Common
Stock allocable to the expired, forfeited, canceled or otherwise terminated
portion of the grant may again be the subject of further grants hereunder.
Notwithstanding the foregoing, the number of shares of Common Stock
available for grants at any time under the Plan shall be reduced to such lesser
amount as may be required pursuant to the methods of calculation necessary so
that the exemptions provided pursuant to Rule 16b-3 under the Exchange Act will
continue to be available for transactions involving all current and future
grants. In addition, during the period that any grants remain outstanding under
the Plan, the Committee may make good faith adjustments with respect to the
number of shares of Common Stock attributable to such grants for purposes of
calculating the maximum number of shares of Common Stock available for the
granting of future grants under the Plan, provided that following such
adjustments the exemptions provided pursuant to Rule 16b-3 under the Exchange
Act will continue to be available for transactions involving all current and
future grants.
1.7 DEFINITIONS
The following definitions shall apply to the Plan:
(a) "Disability" shall have the meaning provided in the Company's
applicable disability plan or, in the absence of such a definition, when a
Participant becomes totally disabled (as determined by a physician mutually
acceptable to the Participant and the Company) before attaining his or her
65th birthday and if such total disability continues for more than three
months. Disability does not include any condition which is intentionally
self-inflicted or caused by illegal acts of the Participant.
(b) "Fair Market Value" means the average of the high and low sales
prices of the shares of Common Stock on such date on the principal national
securities exchange or automated quotation system of a registered
securities association on which such shares of Common Stock are listed or
admitted to trading. If the shares of Common Stock on such date are not
listed or admitted to trading, the Fair Market Value shall be the value
established by the Board in good faith.
(c) "Retirement" shall have the meaning provided in the Company's
applicable retirement plan or, in the absence of such a definition, the
first day of the month following the month in which the Participant attains
his or her 65th birthday.
II. STOCK OPTIONS
2.1 TYPES OF OPTIONS
Options granted under the Plan shall, at the time of grant, provide that
they will not be treated as an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
I-2
<PAGE> 28
2.2 TERMS AND CONDITIONS OF OPTIONS
Subject to the following provisions, all options granted under the Plan
shall be in such form and upon such terms and conditions as the Committee, in
its discretion, may from time to time determine, provided such terms and
conditions are clearly designated at the time of grant.
2.3 EXERCISE PRICE
The exercise price per share shall be at least the Fair Market Value of the
Common Stock on the date such option is granted.
2.4 TERM OF OPTIONS
Any option granted under the Plan may be exercised no later than ten (10)
years from the date of grant or such shorter period of time as designated by the
Committee at the time of grant. Subject to Sections 2.8, 2.9 and 2.11 hereof and
the stock option agreement governing the grant of the options under the Plan,
which may contemplate vesting of exercise rights, options may be exercised in
whole or in one or more parts throughout such term. All rights to exercise an
option shall expire at the end of the designated term.
2.5 PAYMENT
Payment for shares for which an option is exercised shall be made in full
to the Corporation in such manner and at such time or times as shall be provided
by the Committee at the time of grant in either (i) cash or its equivalent or
(ii) by tendering shares of previously acquired Common Stock having a Fair
Market Value equal to the exercise price or (iii) by a combination of (i) and
(ii). The proceeds from such payment shall be added to the general funds of the
Corporation and shall be used for general corporate purposes.
2.6 VESTING OF OPTIONS
Options shall be exercisable in whole or in part after completion of such
periods of service or achievement of such conditions as the Committee shall
specify when granting the options; provided however, that in the absence of a
Committee specification to the contrary and subject to Sections 2.8, 2.9 and
2.11, such option shall become fully exercisable five (5) years from the date of
grant.
2.7 NOTICE OF EXERCISE
When exercisable pursuant to the terms of the governing stock option
agreement, options granted under the Plan shall be exercised by the Participant
(or by other authorized persons in accordance with Section 4.8) as to all or
part of the shares subject to the option by delivering written notice of
exercise to the Company at its principal business office or such other office as
the Company may from time to time direct, (a) specifying the number of shares to
be purchased, (b) indicating the method of payment of the exercise price or
including a check payable to the Company in an amount equal to the full exercise
price of the number of shares being purchased, (c) including a Tax Election, if
applicable, in accordance with Section 4.7, and (d) containing such further
provisions consistent with the provisions of the Plan, as the Company may from
time to time prescribe.
2.8 TERMINATION OF EMPLOYMENT
Except as otherwise provided in this Section 2.8, if a Participant ceases
being an employee of the Company or any subsidiary for any reason, including,
without limitation, Retirement, discharge, layoff or any other voluntary or
involuntary termination of a Participant's employment (a "Termination"), the
unexercisable portion of the option granted hereunder shall immediately
terminate and be null and void, and the unexercised portion of any outstanding
and exercisable options granted hereunder to such Participant shall terminate
and be null and void for all purposes, after three (3) months have elapsed from
the date of the Termination unless extended by the Committee, in its sole
discretion, within thirty (30) days from the date of Termination. Upon a
Termination as a result of death or Disability, any outstanding options may be
exercised
I-3
<PAGE> 29
by the Participant or the Participant's legal representative within twelve (12)
months after such termination; provided, however, that in no event shall the
period extend beyond the expiration of the option term. Transfer of employment
among the Company and any subsidiaries of the Company shall not be deemed to be
a Termination.
2.9 LIMITATION OF EXERCISE PERIODS
The Committee may limit the time periods within which an option may be
exercised if a limitation on exercise is deemed necessary in order to effect
compliance with applicable law.
2.10 STOCK OPTION AGREEMENT
Each option granted under the Plan shall be evidenced by an individual
stock option agreement which shall be executed by the Company and each
Participant. The agreement shall contain such terms and provisions, not
inconsistent with the terms of the Plan, as shall be determined by the
Committee, including: (a) the number of shares a Participant may acquire
pursuant to the option granted and the exercise price per share; (b) any
conditions affecting the exercise of the option; (c) the procedure for
exercising the option granted; (d) a clear designation of whether the exercise
of the option granted thereby is subject to vesting; (e) representations and
warranties of Participant regarding the acquisition of shares for investment
purposes; and (f) such provisions as the Committee, upon advice of counsel to
the Company, shall deem necessary or appropriate to comply with the requirements
of applicable laws. In the event there shall be any discrepancy or inconsistency
between the terms of the Plan and any term or provision contained in a stock
option agreement, the terms of the Plan, as interpreted by the Committee, shall
govern.
2.11 CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, if a Change in Control has
occurred, then any outstanding option shall immediately become exercisable with
respect to all shares subject to such option on the date such Change in Control
occurred.
III. RESTRICTED STOCK
3.1 TERMS AND CONDITIONS OF AWARDS
The Committee may grant shares of stock subject to the restrictions
described in Section 3.2 ("Restricted Stock") under a restricted stock
agreement, without payment by the Participant for such Restricted Stock. Such
agreement shall specify the number of shares granted and the conditions and
terms of the grant. Restricted Stock, with restrictions noted on the face of the
certificates, shall be issued in the name of the Participant granted the
Restricted Stock and deposited with a trust administered by the Committee (and
subject to the claims of the Company's creditors) during the restriction period.
3.2 RESTRICTIONS
Until the restrictions have lapsed in accordance with Section 3.3, the
shares of Restricted Stock granted hereunder may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated. The Committee may
impose such other restrictions on any shares of restricted stock as required by
law including, without limitation, restrictions under applicable federal or
state securities laws, and may place legends on the certificates representing
such Restricted Stock to provide appropriate notice of such restrictions.
3.3 PERIOD OF RESTRICTION
Subject to Section 3.6, the restrictions set forth in Section 3.2 shall
lapse and such shares shall be freely transferable upon completion of such
periods of service or achievement of such conditions as the Committee shall
specify in an individual Restricted Stock Agreement between the Company and the
Participant when granting the shares of Restricted Stock.
I-4
<PAGE> 30
3.4 TERMINATION OF EMPLOYMENT
If a Participant's employment is terminated prior to the lapsing of the
restrictions in accordance with Section 3.3 as a result of death, Retirement or
Disability, restrictions on the shares of Restricted Stock granted to the
Participant shall immediately lapse on the date of such death, Disability or
Retirement. If any Participant's employment is terminated prior to the lapsing
of restrictions in accordance with Section 3.3 for any reason other than death,
Disability or Retirement, the shares of Restricted Stock granted to such
Participant shall be forfeited and shall revert to the Company.
3.5 RIGHTS AS SHAREHOLDER
Prior to the lapsing of restrictions in accordance with Section 3.3,
Participants holding shares of Restricted Stock shall be entitled to receive all
dividends and other distributions paid with respect to such shares while they
are held by the Participant. If any such dividend or distribution is paid in
shares of Common Stock, such shares shall be subject to the same restrictions on
transferability as the shares of Restricted Stock with respect to which they
were paid.
3.6 CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, if a Change in Control has
occurred, then all restrictions on shares of Restricted Stock shall immediately
lapse on the date such Change in Control occurred.
3.7 SECTION 83(B) ELECTION
Participants shall not be permitted to make an election under Section 83(b)
or any successor provision of the Code with respect to shares of Restricted
Stock granted under the Plan.
IV. GENERAL PROVISIONS
4.1 GENERAL RESTRICTIONS
Each grant under the Plan shall be subject to the requirement that if the
Committee shall determine, at any time, that (a) the listing, registration or
qualification of the shares of Common Stock subject or related thereto upon any
securities exchange or under any state or federal law, (b) the consent or
approval of any government regulatory body, or (c) an agreement by the
Participant with respect to the disposition of shares of Common Stock, is
necessary or desirable as a condition of, or in connection with, the granting or
the issuance or purchase of shares of Common Stock thereunder, such grant may
not be consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
4.2 ADJUSTMENTS FOR CERTAIN CORPORATE EVENTS
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, liquidation, dissolution, merger,
consolidation, spin-off or sale of assets, or any other change in or affecting
the corporate structure or capitalization of the Company, the Board shall make
such adjustments as the Committee may recommend, and as the Board in its
discretion may deem appropriate, in the number and kind of shares authorized by
the Plan, in the number, exercise price or kind of shares covered by the grants
and in any outstanding grants under the Plan in order to prevent substantial
dilution or enlargement thereof.
4.3 AMENDMENTS
The Board may discontinue the Plan at any time and may amend it from time
to time, but no amendment, without approval by shareholders, may (a) increase
the total number of shares which may be issued under the Plan, except as
provided in Section 4.2 hereof, (b) change the class of employees of the Company
to whom grants may be granted, or (c) cause the Plan to no longer comply with
Rule 16b-3 of the Exchange Act or any other federal or state statutory or
regulatory requirements.
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4.4 MODIFICATION, SUBSTITUTION OR CANCELLATION OF GRANTS
Subject to the terms of the Plan, the Committee may modify outstanding
grants under the Plan or accept the surrender of outstanding grants and make new
grants in substitution for them. Notwithstanding the foregoing, no modification
of any grant shall adversely alter or impair any rights or obligations of the
Participant without the Participant's consent.
4.5 SHARES SUBJECT TO THE PLAN
Shares distributed pursuant to the Plan shall be made available from
authorized but unissued shares or from shares purchased or otherwise acquired,
in open market, in private transactions or otherwise, by the Company for use in
the Plan, as shall be determined from time to time by the Committee.
4.6 RIGHTS OF A SHAREHOLDER
Participants under the Plan, unless otherwise provided by the Plan, shall
have no rights as shareholders by reason thereof unless and until certificates
for shares of Common Stock are issued to them.
4.7 WITHHOLDING
The Company shall have the right to deduct from any distribution of Common
Stock to any Participant an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to any grant under the Plan. If a Participant
is to experience a taxable event in connection with the receipt of cash or
shares of Common Stock pursuant to an option exercise (a "Taxable Event"), the
Participant shall pay the Withholding Taxes to the Company prior to the issuance
of such shares of Common Stock. In satisfaction of the obligation to pay
Withholding Taxes to the Company, the Participant may make a written election
(the "Tax Election"), which may be accepted or rejected in the discretion of the
Committee, to have withheld a portion of the shares of Common Stock then
issuable to the Participant having an aggregate Fair Market Value on the day
immediately preceding the date of such issuance equal to the Withholding Taxes,
provided that in respect of a Participant who may be subject to liability under
Section 16(b) of the Exchange Act either: (i) in the case of a Taxable Event
involving a stock option or the grant of restricted stock, (A) the Tax Election
is made at least six (6) months prior to the date of the Taxable Event and (B)
the Tax Election is irrevocable with respect to all Taxable Events of a similar
nature occurring prior to the expiration of six (6) months following a
revocation of the Tax Election; (ii) in the case of the exercise of an option
(A) the Participant makes the Tax Election at least six (6) months after the
date the option was granted, (B) the option is exercised during the ten (10) day
period beginning on the third business day and ending on the twelfth business
day following the release for publication of the Company's quarterly or annual
statement of sales and earnings (the "Window Period") and (C) the Tax Election
is made during the Window Period in which the option is exercised or prior to
such Window Period and subsequent to the immediately preceding Window Period; or
(iii) in the case of a Taxable Event relating to the payment of an award, (A)
the Participant makes the Tax Election at least six (6) months after the date of
grant and (B) the Tax Election is made (1) in the case of a Taxable Event
occurring within a Window Period, during the Window Period in which the Taxable
Event occurs or (2) in the case of a Taxable Event not occurring within a Window
Period, during the Window Period immediately preceding the Taxable Event.
Notwithstanding the foregoing, the Committee may, by the adoption of rules or
otherwise, (i) modify the provisions of this Section 4.7 as may be necessary to
ensure that the Tax Elections will be exempt transactions under Section 16(b) of
the Exchange Act, and (ii) permit Tax Elections to be made at such other times
and subject to such other conditions as the Committee determines will constitute
exempt transactions under Section 16(b) of the Exchange Act.
4.8 NONASSIGNABILITY
Except as expressly provided in the Plan, no grant shall be transferable
except by will, the laws of descent and distribution or a qualified domestic
relations order ("QDRO") as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
During the lifetime
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of the Participant, except as expressly provided in the Plan, grants under the
Plan shall be exercisable only by such Participant, by the guardian or legal
representative of such Participant or pursuant to a QDRO.
4.9 NONUNIFORM DETERMINATIONS
Determinations by the Committee under the Plan (including, without
limitation, determinations of the persons to receive grants, the form, amount
and timing of such grants, and the terms and provisions of such grants and the
agreements evidencing the same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, grants under
the Plan, whether or not such persons are similarly situated.
4.10 NO GUARANTEE OF EMPLOYMENT
Neither grants under the Plan nor any action taken pursuant to the Plan
shall constitute or be evidence of any agreement or understanding, express or
implied, that the Company shall retain the Participant for any period of time or
at any particular rate of compensation.
4.11 EFFECTIVE DATE; DURATION
The Plan shall become effective as of the date the Company is first
admitted to trading on the NASDAQ, subject to approval by shareholders. No grant
may be given under the Plan after May 31, 2000, but grants theretofore granted
may extend beyond such date.
4.12 CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, if a Change in Control of
the Company occurs, then all options shall become fully exercisable and all
restrictions on grants of Restricted Stock shall lapse as of the date such
Change in Control occurred. For the purposes of the Plan, a Change in Control of
the Company shall be deemed to have occurred upon the earliest of the following
events:
(a) when the Company acquires actual knowledge that any person (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other
than any person who was the beneficial owner of 25% or more of the Common
Stock as of the effective date of the Plan, becomes the beneficial owner
(as defined in Rule 13d-3 of the Exchange Act) directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then-outstanding securities;
(b) upon the first purchase of Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the Company);
(c) upon the approval by the Company's shareholders of (i) a merger or
consolidation of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the surviving corporation
and which does not result in any capital reorganization or reclassification
or other change in the Company's then-outstanding shares of Common Stock),
(ii) a sale or disposition of all or substantially all of the Company's
assets or (iii) a plan of liquidation or dissolution of the Company; or
(d) if the Board or any designated committee determines in its sole
discretion that any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a person who exercised a controlling
influence as of the effective date of the Plan, directly or indirectly
exercises a controlling influence over the management or policies of the
Company.
4.13 GOVERNING LAW. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Florida.
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EXHIBIT 2
AMENDED AND RESTATED
1994 LONG TERM INCENTIVE PLAN
OF
PHYSICIAN SALES & SERVICE, INC.
I. GENERAL
1.1 PURPOSE OF THE PLAN
The Amended and Restated 1994 Long Term Incentive Plan (the "Plan") of
Physician Sales & Service, Inc. (the "Company") is intended to advance the best
interests of the Company by providing key employees who have substantial
responsibility for corporate management and growth with additional incentives
through the grant of non-qualified stock options, restricted stock and awards
based upon total shareholder return, thereby increasing the personal stake of
such key employees in the continued success and growth of the Company and
encouraging them to remain in the employ of the Company.
1.2 ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee or its
successor (the "Committee") of the Board of Directors of the Company (the
"Board"). Members of the Committee are not eligible to participate in the Plan.
The Committee shall have full and final authority in its discretion to
interpret conclusively the provisions of the Plan, to adopt such rules and
regulations for carrying out the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan.
The Committee shall meet once each fiscal year, and at such additional
times as it may determine or as is requested by the chief executive officer of
the Company, to designate the eligible employees, if any, to be granted awards
under the Plan and the type and amount of such awards and the time when awards
will be granted. No such designation by the Committee shall be effective as a
grant of an award under the Plan until approved by the Board; provided, however,
that the Board may empower the Committee to grant such awards without approval
by the Board. All awards granted under the Plan shall be on the terms and
subject to the conditions hereinafter provided.
1.3 ELIGIBLE PARTICIPANTS
Key employees, including officers of the Company and the Company's
subsidiaries, shall be eligible to participate in the Plan (any employee
receiving an award under the Plan hereinafter referred to as a "Participant").
Directors who are not employees of the Company shall not be eligible to
participate in the Plan.
1.4 GRANTS UNDER THE PLAN
Grants under the Plan may be stock options (as described in Section II) or
restricted stock (as described in Section III) or Performance Units (as
described in Section IV).
1.5 OTHER COMPENSATION PROGRAM
The adoption of the Plan contemplates the continuation of any existing
incentive compensation plan(s) of the Company and in no way limits or is limited
by the operation, administration or amendment of any such plan(s). The existence
and terms of the Plan shall not limit the authority of the Board in compensating
employees of the Company in such other forms and amounts as it may determine
from time to time.
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1.6 LIMITATIONS ON GRANTS
The maximum amount payable under a Performance Unit to a Participant may
not exceed $1 million per fiscal year of the Company. The aggregate number of
shares of Common Stock, including shares reserved for issuance pursuant to the
exercise of options, which may be granted or issued under the terms of the Plan,
may not exceed 2,190,000 shares, and such shares hereby are reserved for such
purpose. The maximum number of shares of Common Stock that may be subject to
grants under the Plan to a Participant may not exceed 200,000 shares of Common
Stock per fiscal year of the Company. Whenever any outstanding grant or portion
thereof expires, is canceled or forfeited or is otherwise terminated for any
reason without having been exercised, the Common Stock allocable to the expired,
forfeited, canceled or otherwise terminated portion of the grant may again be
the subject of further grants hereunder.
Notwithstanding the foregoing, the number of shares of Common Stock
available for grants at any time under the Plan shall be reduced to such lesser
amount as may be required pursuant to the methods of calculation necessary so
that the exemptions provided pursuant to Rule 16b-3 under the Exchange Act will
continue to be available for transactions involving all current and future
grants. In addition, during the period that any grants remain outstanding under
the Plan, the Committee may make good faith adjustments with respect to the
number of shares of Common Stock attributable to such grants for purposes of
calculating the maximum number of shares of Common Stock available for the
granting of future grants under the Plan, provided that following such
adjustments the exemptions provided pursuant to Rule 16b-3 under the Exchange
Act will continue to be available for transactions involving all current and
future grants.
1.7 DEFINITIONS
The following definitions apply with respect to Article II:
(a) "Common Stock" shall mean the common stock of the Company, $.0l
par value.
(b) "Disability" shall have the meaning provided in the Company's
applicable disability plan or, in the absence of such a definition, when a
Participant becomes totally disabled as determined by a physician mutually
acceptable to the Participant and the Company before attaining his or her
65th birthday and if such total disability continues for more than three
months. Disability does not include any condition which is intentionally
self-inflicted or caused by illegal acts of the Participant.
(c) "Fair Market Value" means the average of the high and low sales
prices of the shares of the Common Stock or other equity security on such
date on the National Association of Securities Dealers Automated Quotation
System (the "NASDAQ") or on a principal national securities exchange.
(d) "Performance Period" means the period of time set forth in the
Participant's Performance Unit Agreement.
(e) "Retirement" shall have the meaning provided in the Company's
applicable retirement plan or, in the absence of such a definition, the
first day of the month following the month in which the Participant attains
his or her 65th birthday.
(f) "Total Shareholder Return" or "TSR" means the percentage by which
the ending per share price of the Common Stock or other equity security
(determined as the Fair Market Value as of the last date of the applicable
Performance Period, as adjusted for any stock split or other
recapitalization) plus reinvested dividends exceeds the beginning per share
price of the Common Stock or other equity security (determined as the Fair
Market Value as of the first date of the applicable Performance Period).
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II. STOCK OPTIONS
2.1 TYPES OF OPTIONS
Options granted under the Plan shall, at the time of grant, provide that
they will not be treated as an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2.2 TERMS AND CONDITIONS OF OPTIONS
Subject to the following provisions, all options granted under the Plan
shall be in such form and upon such terms and conditions as the Committee, in
its discretion, may from time to time determine, provided such terms and
conditions are clearly designated at the time of grant.
2.3 EXERCISE PRICE
The exercise price per share shall be at least the Fair Market Value of the
Common Stock on the date such option is granted.
2.4 TERM OF OPTIONS
Any option granted under the Plan may be exercised no later than ten (10)
years from the date of grant or such shorter period of time as designated by the
Committee at the time of grant. Subject to Sections 2.8, 2.9 and 2.11 hereof and
the stock option agreement governing the grant of the options under the Plan,
which may contemplate vesting of exercise rights, options may be exercised in
whole or in one or more parts throughout such term. All rights to exercise an
option shall expire at the end of the designated term.
2.5 PAYMENT
Payment for shares for which an option is exercised shall be made in full
to the Corporation in such manner and at such time or times as shall be provided
by the Committee at the time of grant in either (i) cash or its equivalent or
(ii) by tendering shares of previously acquired Common Stock having a Fair
Market Value equal to the exercise price or (iii) by a combination of (i) and
(ii). The proceeds from such payment shall be added to the general funds of the
Corporation and shall be used for general corporate purposes.
2.6 VESTING OF OPTIONS
Options shall be exercisable in whole or in part after completion of such
periods of service or achievement of such conditions as the Committee shall
specify when granting the options; provided however, that in the absence of a
Committee specification to the contrary and subject to Sections 2.8, 2.9 and
2.11, such option shall become fully exercisable five (5) years from the date of
grant.
2.7 NOTICE OF EXERCISE
When exercisable pursuant to the terms of the governing stock option
agreement, options granted under the Plan shall be exercised by the Participant
(or by other authorized persons in accordance with Section 5.9) as to all or
part of the shares subject to the option by delivering written notice of
exercise to the Company at its principal business office or such other office as
the Company may from time to time direct, (a) specifying the number of shares to
be purchased, (b) indicating the method of payment of the exercise price or
including a check payable to the Company in an amount equal to the full exercise
price of the number of shares being purchased, (c) including a Tax Election, if
applicable, in accordance with Section 5.8, and (d) containing such further
provisions consistent with the provisions of the Plan, as the Company may from
time to time prescribe.
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2.8 TERMINATION OF EMPLOYMENT
Except as otherwise provided in this Section 2.8, if a Participant ceases
being an employee of the Company or any subsidiary for any reason, including,
without limitation, Retirement, discharge, layoff or any other voluntary or
involuntary termination of a Participant's employment (a "Termination"), the
unexercisable portion of the option granted hereunder shall immediately
terminate and be null and void, and the unexercised portion of any outstanding
and exercisable options granted hereunder to such Participant shall terminate
and be null and void for all purposes, after three (3) months have elapsed from
the date of the Termination unless extended by the Committee, in its sole
discretion, within thirty (30) days from the date of Termination. Upon a
Termination as a result of death or Disability, any outstanding options may be
exercised by the Participant or the Participant's legal representative within
twelve (12) months after such termination; provided, however, that in no event
shall the period extend beyond the expiration of the option term. Transfer of
employment among the Company and any subsidiaries of the Company shall not be
deemed to be a Termination.
2.9 LIMITATION OF EXERCISE PERIODS
The Committee may limit the time periods within which an option may be
exercised if a limitation on exercise is deemed necessary in order to effect
compliance with applicable law.
2.10 STOCK OPTION AGREEMENT
Each option granted under the Plan shall be evidenced by an individual
stock option agreement which shall be executed by the Company and each
Participant. The agreement shall contain such terms and provisions, not
inconsistent with the terms of the Plan, as shall be determined by the
Committee, including: (a) the number of shares a Participant may acquire
pursuant to the option granted and the exercise price per share; (b) any
conditions affecting the exercise of the option; (c) the procedure for
exercising the option granted; (d) a clear designation of whether the exercise
of the option granted thereby is subject to vesting; (e) representations and
warranties of Participant regarding the acquisition of shares for investment
purposes; and (f) such provisions as the Committee, upon advice of counsel to
the Company, shall deem necessary or appropriate to comply with the requirements
of applicable laws. In the event there shall be any discrepancy or inconsistency
between the terms of the Plan and any term or provision contained in a stock
option agreement, the terms of the Plan, as interpreted by the Committee, shall
govern.
2.11 CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, if a Change in Control has
occurred, then any outstanding option shall immediately become exercisable with
respect to all shares subject to such option on the date such Change in Control
occurred.
III. RESTRICTED STOCK
3.1 TERMS AND CONDITIONS OF AWARDS
The Committee may grant shares of stock subject to the restrictions
described in Section 3.2 ("Restricted Stock") under a restricted stock
agreement, without payment by the Participant for such Restricted Stock. Such
agreement shall specify the number of shares granted and the conditions and
terms of the grant. Restricted Stock, with restrictions noted on the face of the
certificates, shall be issued in the name of the Participant granted the
Restricted Stock and deposited with a trust administered by the Committee (and
subject to the claims of the Company's creditors) during the restriction period.
3.2 RESTRICTIONS
Until the restrictions have lapsed in accordance with Section 3.3, the
shares of Restricted Stock granted hereunder may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated. The
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Committee may impose such other restrictions on any shares of restricted stock
as required by law including, without limitation, restrictions under applicable
federal or state securities laws, and may place legends on the certificates
representing such Restricted Stock to provide appropriate notice of such
restrictions.
3.3 PERIOD OF RESTRICTION
Subject to Section 3.6, the restrictions set forth in Section 3.2 shall
lapse and such shares shall be freely transferable upon completion of such
periods of service or achievement of such conditions as the Committee shall
specify in an individual Restricted Stock Agreement between the Company and the
Participant when granting the shares of Restricted Stock.
3.4 TERMINATION OF EMPLOYMENT
If a Participant's employment is terminated prior to the lapsing of the
restrictions in accordance with Section 3.3 as a result of death, Retirement or
Disability, restrictions on the shares of Restricted Stock granted to the
Participant shall immediately lapse on the date of such death, Disability or
Retirement. If any Participant's employment is terminated prior to the lapsing
of restrictions in accordance with Section 3.3 for any reason other than death,
Disability or Retirement, the shares of Restricted Stock granted to such
Participant shall be forfeited and shall revert to the Company.
3.5 RIGHTS AS SHAREHOLDER
Prior to the lapsing of restrictions in accordance with Section 3.3,
Participants holding shares of Restricted Stock shall be entitled to receive all
dividends and other distributions paid with respect to such shares while they
are held by the Participant. If any such dividend or distribution is paid in
shares of Common Stock, such shares shall be subject to the same restrictions on
transferability as the shares of Restricted Stock with respect to which they
were paid.
3.6 CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, if a Change in Control has
occurred, then all restrictions on shares of Restricted Stock shall immediately
lapse on the date such Change in Control occurred.
3.7 SECTION 83(B) ELECTION
Participants shall not be permitted to make an election under Section 83(b)
or any successor provision of the Code with respect to shares of Restricted
Stock granted under the Plan.
IV. PERFORMANCE UNITS
4.1 TERMS AND CONDITIONS OF GRANTS
(a) Each Participant shall be eligible for a performance award (a
"Performance Unit") determined in accordance with the table set forth in Section
4.1(b) and based on the Company's percentile rank among the companies comprising
the NASDAQ Composite Index (the "NASDAQ Companies") on a TSR basis. The Fair
Market Value of the Common Stock as of the first date of the Performance Period
will be indexed to 100 so that the Company's accumulated compound shareholder
return can be compared to and ranked on a percentile basis among the NASDAQ
Companies as provided by Compustat Services, a subsidiary of Standard & Poor's,
Inc. or by another reputable source publishing the same information. In the
event that the Company is not listed on the NASDAQ, the Company shall be ranked
against an equivalent broad-based group of peer companies designated by the
Committee in its sole discretion as such TSR information is published by a
reputable source. The Committee shall establish a percentage of each
Participant's annual base salary as of the last day of any Performance Period as
a "Target Award." An agreement with respect to a particular Performance Unit
granted to a Participant (a "Performance Unit Agreement") shall set forth the
Target Award, Performance Period, and the number of Performance Units granted.
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(b) The percentage of the Target Award and cash value of each Performance
Unit shall be determined in accordance with the following table:
<TABLE>
<CAPTION>
TSR PERCENTILE PERCENT OF
RANK AMONG THE TARGET AWARD PERFORMANCE
NASDAQ COMPANIES PAYABLE* UNIT CASH VALUE
---------------- ------------ ---------------
<S> <C> <C> <C>
Threshold................................. 50 50% $ 500
55 75 750
Target.................................... 60 100 1,000
65 130 1,300
70 160 1,600
75 195 1,950
80 230 2,300
85 265 2,650
Maximum................................... 90 300% $ 3,000
</TABLE>
- ---------------
* Interpolate between points
(c) No performance award will be payable if the Company's TSR as a
percentile among the NASDAQ Companies or an equivalent group of peer companies
is less than the 50th, and the maximum performance award payable is 300% of the
Target Award. If the TSR as a percentile among the NASDAQ Companies or an
equivalent group of peer companies is not specifically shown in the table in
Section 4.1(b), the Committee shall interpolate between the amounts shown.
4.2 PAYMENT
Upon the expiration of the Performance Period and the determination of the
Committee of the Company's TSR Percentile Rank, the Company shall distribute
cash, or registered shares of the Common Stock or a combination thereof, to the
Participant equal to the cash value of the Performance Unit as calculated in
accordance with Section 4.1(b) using the TSR Percentile Rank determined by the
Committee.
4.3 TERMINATION OF EMPLOYMENT
(a) Retirement, Death or Disability. If a Participant's employment is
terminated prior to the end of the Performance Period because of Retirement,
death or Disability, the extent to which a Performance Unit shall be deemed to
have been earned and payable shall be determined by multiplying (1) the cash
value of the Performance Unit as calculated in accordance with Section 4.1(b)
using the Company's TSR Percentile Rank as of the date of termination (or if
such rank is not available, the date closest to the date of termination for
which such rank is available) by (2) a fraction, the numerator of which is the
number of full calendar months such Participant was employed during the
Performance Period and the denominator of which is the total number of full
calendar months in the Performance Period.
(b) Other Causes. If a Participant's employment terminates for any reason
other than because of Retirement, death, Disability, or a Change in Control (as
defined in Section 5.13), the Performance Unit and any and all rights to payment
under such Performance Unit shall be immediately cancelled and the Performance
Unit Agreement with such terminated Participant shall be null and void.
V. ADDITIONAL PROVISIONS
5.1 GENERAL RESTRICTIONS
Each grant of an option or restricted stock under the Plan shall be subject
to the requirement that if the Committee shall determine, at any time, that (a)
the listing, registration or qualification of the shares of Common Stock subject
or related thereto upon any securities exchange or under any state or federal
law, (b) the consent or approval of any government regulatory body, or (c) an
agreement by the Participant with
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respect to the disposition of shares of Common Stock, is necessary or desirable
as a condition of, or in connection with, the granting or the issuance or
purchase of shares of Common Stock thereunder, such grant may not be consummated
in whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
5.2 ADJUSTMENTS FOR CERTAIN CORPORATE EVENTS
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, liquidation, dissolution, merger,
consolidation, spin-off or sale of assets, or any other change in or affecting
the corporate structure or capitalization of the Company, the Board shall make
such adjustments as the Committee may recommend, and as the Board in its
discretion may deem appropriate, in the number and kind of shares authorized by
the Plan, in the number, exercise price or kind of shares covered by the grants
and in any outstanding grants under the Plan in order to prevent substantial
dilution or enlargement thereof.
5.3 NATURE OF PERFORMANCE UNITS
Performance Units granted under the Plan shall at all times be reflected on
the Company's books and records as a general, unsecured and unfunded obligation
of the Company, and the Plan shall not give any person any right or security
interest in any asset of the Company nor shall it imply a trust or segregation
of assets by the Company.
5.4 AMENDMENTS
The Board may discontinue the Plan at any time, and may amend it from time
to time, as it deems advisable and in the best interests of the Company, but no
amendment, without approval by shareholders, may (a) increase the total number
of shares which may be issued under the Plan, except as provided in Section 5.2
hereof, (b) change the class of employees of the Company to whom grants may be
granted, or (c) cause the Plan to no longer comply with Rule 16b-3 of the
Exchange Act or any other federal or state statutory or regulatory requirements.
5.5 MODIFICATION, SUBSTITUTION OR CANCELLATION OF GRANTS
Subject to the terms of the Plan, the Committee may modify outstanding
grants under the Plan or accept the surrender of outstanding grants and make new
grants in substitution for them. Notwithstanding the foregoing, no modification
of any grant shall adversely alter or impair any rights or obligations of the
Participant without the Participant's consent. Any grant under the Plan may be
canceled at any time with the consent of the Participant, and a new grant may be
provided to such Participant in lieu thereof.
5.6 SHARES SUBJECT TO THE PLAN
Shares distributed pursuant to the Plan shall be made available from
authorized but unissued shares or from shares purchased or otherwise acquired,
in open market, in private transactions or otherwise, by the Company for use in
the Plan, as shall be determined from time to time by the Committee.
5.7 RIGHTS OF A SHAREHOLDER
Participants under the Plan, unless otherwise provided by the Plan, shall
have no rights as shareholders by reason thereof unless and until certificates
for shares of Common Stock are issued to them.
5.8 WITHHOLDING
The Company shall have the right to deduct from any distribution of cash to
any Participant an amount equal to the federal, state and local income taxes and
other amounts as may be required by law to be withheld with respect to any grant
or distribution under the Plan.
The Company shall have the right to deduct from any distribution of Common
Stock to any Participant an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to
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<PAGE> 40
be withheld (the "Withholding Taxes") with respect to any grant under the Plan.
If a Participant is to experience a taxable event in connection with the receipt
of cash or shares of Common Stock pursuant to an option exercise (a "Taxable
Event"), the Participant shall pay the Withholding Taxes to the Company prior to
the issuance of such shares of Common Stock. In satisfaction of the obligation
to pay Withholding Taxes to the Company, the Participant may make a written
election (the "Tax Election"), which may be accepted or rejected in the
discretion of the Committee, to have withheld a portion of the shares of Common
Stock then issuable to the Participant having an aggregate Fair Market Value on
the day immediately preceding the date of such issuance equal to the Withholding
Taxes, provided that in respect of a Participant who may be subject to liability
under Section 16(b) of the Exchange Act either: (i) in the case of a Taxable
Event involving a stock option or the grant of restricted stock, (A) the Tax
Election is made at least six (6) months prior to the date of the Taxable Event
and (B) the Tax Election is irrevocable with respect to all Taxable Events of a
similar nature occurring prior to the expiration of six (6) months following a
revocation of the Tax Election; (ii) in the case of the exercise of an option
(A) the Participant makes the Tax Election at least six (6) months after the
date the option was granted, (B) the option is exercised during the ten (10) day
period beginning on the third business day and ending on the twelfth business
day following the release for publication of the Company's quarterly or annual
statement of sales and earnings (the "Window Period") and (C) the Tax Election
is made during the Window Period in which the option is exercised or prior to
such Window Period and subsequent to the immediately preceding Window Period; or
(iii) in the case of a Taxable Event relating to the payment of an award, (A)
the Participant makes the Tax Election at least six (6) months after the date of
grant and (B) the Tax Election is made (1) in the case of a Taxable Event
occurring within a Window Period, during the Window Period in which the Taxable
Event occurs or (2) in the case of a Taxable Event not occurring within a Window
Period, during the Window Period immediately preceding the Taxable Event.
Notwithstanding the foregoing, the Committee may, by the adoption of rules or
otherwise, (i) modify the provisions of this Section 4.7 as may be necessary to
ensure that the Tax Elections will be exempt transactions under Section 16(b) of
the Exchange Act, and (ii) permit Tax Elections to be made at such other times
and subject to such other conditions as the Committee determines will constitute
exempt transactions under Section 16(b) of the Exchange Act.
5.9 NONASSIGNABILITY
Except as expressly provided in the Plan, no awards under the Plan shall be
transferable except by will, the laws of descent and distribution or a qualified
domestic relations order ("QDRO") as defined by the Internal Revenue Code of
1986, as amended, or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. A Participant may from time to time
name in writing any person or persons to whom his or her benefit is to be paid
if he or she dies before complete payment of such benefit has occurred. Each
such beneficiary designation will revoke all prior designations by the
Participant with respect to the Plan, shall not require the consent of any
previously named beneficiary, shall be in a form prescribed by the Committee,
and will be effective only when filed with the Committee during the
Participant's lifetime.
If the Participant fails to designate a beneficiary before his or her
death, as provided above, or if the beneficiary designated by the Participant
dies before the date of the Participant's death or before complete payment of
the Participant's benefit has occurred, the Company may pay the remaining unpaid
portion of the Participant's benefit to either (i) one or more of the
Participant's relatives by blood, adoption, or marriage, and in such proportion
as the Company determines; or (ii) the legal representative or representatives
of the estate of the last to die of the Participant and his or her designated
beneficiary.
5.10 NONUNIFORM DETERMINATIONS
Determinations by the Committee under the Plan (including, without
limitation, determinations of the persons to receive grants, the form, amount
and timing of such grants, and the terms and provisions of such grants and the
agreements evidencing the same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, grants under
the Plan, whether or not such persons are similarly situated.
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<PAGE> 41
5.11 NO GUARANTEE OF EMPLOYMENT
Neither grants under the Plan nor any action taken pursuant to the Plan
shall constitute or be evidence of any agreement or understanding, express or
implied, that the Company shall retain the Participant for any period of time or
at any particular rate of compensation.
5.12 EFFECTIVE DATE; DURATION
The Plan shall become effective as of the date the Company is first
admitted to trading on the NASDAQ. No grant may be given under the Plan after
six (6) years from the effective date of the Plan.
5.13 CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, if a Change in Control of
the Company occurs or if the Committee determines in its sole discretion that a
Change in Control has occurred, then, as of the date of such Change in Control,
(i) all options shall become fully exercisable, (ii) all restrictions on grants
of Restricted Stock shall lapse, and (iii) all Performance Units shall become
fully payable at the TSR Percentile Rank of the Company calculated using the TSR
of the Company as of the date of the Change in Control as compared the TSR of
the NASDAQ Companies or equivalent group of peer companies as of the last
quarterly period for which such TSR information is available.
For the purposes of the Plan, a Change in Control of the Company shall be
deemed to have occurred upon the earliest of the following events:
(a) when the Company acquires actual knowledge that any person (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other
than any such person who is the beneficial owner of 25% or more of the
Common Stock as of the effective date of the Plan, becomes the beneficial
owner (as defined in Rule 13d-3 of the Exchange Act) directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities;
(b) upon the first purchase of Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the Company);
(c) upon the approval by the Company's shareholders of (i) a merger or
consolidation of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the surviving corporation
and which does not result in any capital reorganization or reclassification
or other change in the Company's then-outstanding shares of Common Stock),
(ii) a sale or disposition of all or substantially all of the Company's
assets or (iii) a plan of liquidation or dissolution of the Company;
(d) if the Board or any designated committee determines in its sole
discretion that any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a person who exercises a controlling
influence over the Company on the effective date of the Plan, directly or
indirectly exercises a controlling influence over the management or
policies of the Company.
5.14 GOVERNING LAW
The Plan and all actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of Florida.
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<PAGE> 42
EXHIBIT 3
PHYSICIANS SALES & SERVICE, INC.
AMENDED AND RESTATED
DIRECTORS' STOCK PLAN
I. GENERAL
1.1 PURPOSE OF THE PLAN
The purpose of the Physician Sales & Service, Inc. Directors' Stock Plan
(the "Plan") is to enable Physician Sales & Service, Inc. (the "Company") to
attract and retain persons of exceptional ability to serve as directors of the
Company and to align the interests of directors and shareholders in enhancing
the value of the Company's common stock (the "Common Stock").
1.2 ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee or its
successor (the "Committee") of the Company's Board of Directors (the "Board")
which shall have full and final authority in its discretion to interpret,
administer and amend the provisions of the Plan; to adopt rules and regulations
for carrying out the Plan; to decide all questions of fact arising in the
application of the Plan; and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee shall consist of at
least two persons and shall meet once each fiscal year, and at such additional
times as it may determine or as is requested by the chief executive officer of
the Company.
1.3 ELIGIBLE PARTICIPANTS
Each member of the Board who is not a full-time employee of the Company or
any of its subsidiaries shall be a participant (a "Participant") in the Plan.
1.4 GRANTS UNDER THE PLAN
Grants under the Plan shall be in the form of stock options as described in
Section II (an "Option" or "Options") and subject to restrictions described in
Section III ("Restricted Stock").
1.5 SHARES
The aggregate number of shares of Common Stock, including but not limited
to shares reserved for issuance pursuant to the exercise of Options, which may
be granted or issued under the terms of the Plan, may not exceed 200,000 shares
and hereby are reserved for such purpose. Whenever any outstanding grant or
portion thereof expires, is canceled or forfeited or is otherwise terminated for
any reason without having been exercised, the Common Stock allocable to the
expired, forfeited, canceled or otherwise terminated portion of the grant may
again be the subject of further grants hereunder.
Notwithstanding the foregoing, the number of shares of Common Stock
available for grants at any time under the Plan shall be reduced to such lesser
amount as may be required pursuant to the methods of calculation necessary so
that the exemptions provided pursuant to Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") will continue to be
available for transactions involving all current and future grants. In addition,
during the period that any grants remain outstanding under the Plan, the
Committee may make good faith adjustments with respect to the number of shares
of Common Stock attributable to such grants for purposes of calculating the
maximum number of shares of Common Stock available for the granting of future
grants under the Plan, provided that following such adjustments the exemptions
provided pursuant to Rule 16b-3 under the Exchange Act will continue to be
available for transactions involving all current and future grants.
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1.6 DEFINITIONS
The following definitions shall apply to the Plan:
(a) "Disability" shall have the meaning provided in the Company's
applicable disability plan or, in the absence of such a definition, when a
Participant becomes totally disabled (as determined by a physician mutually
acceptable to the Participant and the Company) before termination of his or
her service on the Board if such total disability continues for more than
three (3) months.
(b) "Fair Market Value" means the average of the high and low sales
prices of the shares of Common Stock on such date on the principal national
securities exchange or automated quotation system of a registered
securities association on which such shares of Common Stock are listed or
admitted to trading. If the shares of Common Stock on such date are not
listed or admitted to trading, the Fair Market Value shall be the value
established by the Board in good faith.
(c) "Retirement" shall have the meaning provided in the Company's
retirement policy applicable to directors of the Company.
II. OPTIONS
2.1 TERMS AND CONDITIONS OF OPTIONS
Each Participant shall receive an annual grant of an Option to Purchase
1,500 shares of Common Stock on the date of each annual meeting of shareholders
of the Company at which directors are elected (an "Annual Meeting Date") during
the period such director serves on the Board.
2.2 NONQUALIFIED STOCK OPTIONS
The terms of the Options shall, at the time of grant, provide that the
Options will not be treated as incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2.3 OPTION PRICE
The option price per share shall be the Fair Market Value of the Common
Stock on the date the Option is granted.
2.4 TERM AND EXERCISE OF OPTIONS
(a) The term of an Option shall not exceed ten (10) years from the date of
grant. Except as provided in this Section 2.4, after a Participant ceases to
serve as a director of the Company for any reason, including, without
limitation, Retirement, or any other voluntary or involuntary termination of a
Participant's service as a director (a "Termination"), the unexercisable portion
of an Option shall immediately terminate and be null and void, and the
unexercised portion of any outstanding Options held by such Participant shall
terminate and be null and void for all purposes, after three (3) months have
elapsed from the date of the Termination unless extended by the Committee, in
its sole discretion, within thirty (30) days from the date of the Termination.
Upon a Termination as a result of death or Disability, any outstanding Options
may be exercised by the Participant or the Participant's legal representative
within twelve (12) months after such death or Disability; provided, however,
that in no event shall the period extend beyond the expiration of the option
term.
(b) Options shall become exercisable in whole or in part after one (1) year
has elapsed from the date of grant. In no event, however, shall an Option be
exercised after the expiration of ten (10) years from the date of grant.
(c) A Participant, by written notice to the Company, may designate one or
more persons (and from time to time change such designation) including his or
her legal representative, who, by reason of his or her death, shall acquire the
right to exercise all or a portion of the Option. If no designation is made
before the death of
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<PAGE> 44
the Participant, the Participant's Option may be exercised by the personal
representative of the Participant's estate, or by a person who acquired the
right to exercise such Option by will or the laws of descent and distribution.
If the person with exercise rights desires to exercise any portion of the
Option, such person must do so in accordance with the terms and conditions of
this Plan.
2.5 NOTICE OF EXERCISE
When exercisable pursuant to the terms of the Plan and the governing stock
option agreement, an Option shall be exercised by the Participant as to all or
part of the shares subject to the Option by delivering written notice of
exercise to the Company at its principal business office or such other office as
the Company may from time to time direct, (a) specifying the number of shares to
be purchased, (b) accompanied by a check payable to the Company in an amount
equal to the full exercise price of the number of shares being exercised, (c)
including a Tax Election, if applicable, in accordance with Section 4.7, and (d)
containing such further provisions consistent with the provisions of the Plan,
as the Company may from time to time prescribe. No Option may be exercised after
the expiration of the term specified in Section 2.4 hereof.
2.6 LIMITATION OF EXERCISE PERIODS
The Committee may limit the time periods within which an Option may be
exercised if a limitation on exercise is deemed necessary in order to effect
compliance with applicable law.
2.7 CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, if a Change in Control has
occurred, then the Option shall immediately become exercisable on the date such
Change in Control occurred.
III. RESTRICTED STOCK
3.1 TERMS AND CONDITIONS
Each Participant shall receive an annual grant of 1,500 shares of Common
Stock subject to the restrictions set forth in Section 3.2 ("Restricted Stock")
on the Annual Meeting Date at which the shareholders elect such Participant to
serve as a director; provided however, that (a) as of the date of their
election, Participants elected to serve as a Class II or Class III director in
1994 shall receive a grant of 500 and 1,000 shares, respectively, and (b) as of
the date of their election, Participants who are elected to fill a vacancy for a
term less than three (3) years shall receive a grant of 500 shares per year for
each full year of the term to which such Participant is elected. Restricted
Stock, with such restrictions noted on the face of the certificates, shall be
issued in the name of the Participant granted the Restricted Stock and such
certificates shall be deposited with a trust administered by the Committee (and
subject to the claims of the Company's creditors) during the restriction period
set forth in Section 3.3.
3.2 RESTRICTIONS
Until the lapse of the restriction period set forth in Section 3.3, the
shares of Restricted Stock granted hereunder may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated. The Committee may
impose such other restrictions on any shares of restricted stock as required by
law including, without limitation, restrictions under applicable federal or
state securities laws, and may place legends on the certificates representing
such restricted stock to provide appropriate notice of such restrictions.
3.3 PERIOD OF RESTRICTION
Subject to Section 3.6, the restrictions set forth in Section 3.2 shall
lapse and such shares shall be freely transferable upon the expiration of the
director's term in office as specified in accordance with Article VIII of the
Company's Amended and Restated Articles of Incorporation.
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<PAGE> 45
3.4 TERMINATION OF SERVICE AS A DIRECTOR
If a Participant ceases to serve as a director of the Company prior to the
lapsing of the restrictions in accordance with Section 3.3 as a result of death,
Disability or Retirement, restrictions on the shares of Restricted Stock granted
to the Participant shall immediately lapse on the date of death, Disability or
Retirement. If a Participant ceases to serve as a director of the Company prior
to the lapsing of restrictions in accordance with Section 3.3 for any reason
other than death, Disability or Retirement, the shares of Restricted Stock
granted to such Participant shall be forfeited and shall revert to the Company.
3.5 RIGHTS AS SHAREHOLDER
Prior to the lapsing of restrictions in accordance with Section 3.3,
Participants holding shares of Restricted Stock shall be entitled to receive all
dividends and other distributions paid with respect to such shares while they
are held by the Participant. If any such dividend or distribution is paid in
shares of Common Stock, such shares shall be subject to the same restrictions on
transferability as the shares of Restricted Stock with respect to which they
were paid.
3.6 CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, if a Change in Control has
occurred, then all restrictions on the Restricted Stock shall lapse on the date
such Change in Control occurred.
3.7 SECTION 83(B) ELECTION
Participants shall not be permitted to make an election under Section 83(b)
of the Code with respect to shares of Restricted Stock granted under the Plan.
IV. GENERAL PROVISIONS
4.1 GENERAL RESTRICTIONS
Each grant under the Plan shall be subject to the requirement that if the
Committee shall determine, at any time, that (a) the listing, registration or
qualification of the shares of Common Stock subject or related thereto upon any
securities exchange or under any state or federal law, or (b) the consent or
approval of any government regulatory body, or (c) an agreement by the
Participant with respect to the disposition of shares of Common Stock, is
necessary or desirable as a condition of, or in connection with, the granting or
the issuance or purchase of shares of Common Stock thereunder, such grant may
not be consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITALIZATION
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, liquidation, dissolution, merger,
consolidation, spin-off or sale of assets, or any other change in or affecting
the corporate structure or capitalization of the Company, the Board shall make
such adjustments as the Committee may recommend, and as the Board in its
discretion may deem appropriate, in the number and kind of shares authorized by
the Plan, in the number, Option price or kind of shares covered by the grants
and in any outstanding grants under the Plan in order to prevent substantial
dilution or enlargement thereof.
4.3 AMENDMENTS
Without further approval of the shareholders, the Board may discontinue the
Plan at any time and may amend it from time to time in such respects as the
Board may deem advisable, unless shareholder or regulatory approval is required
by law or regulation, and subject to any conditions established by the terms of
such amendment; provided however, that the Plan may not be amended more than
once every six (6) months
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<PAGE> 46
other than to comport with changes in the Code, the Employee Retirement Income
Security Act or the rules thereunder.
4.4 MODIFICATION, SUBSTITUTION OR CANCELLATION OF GRANTS
No rights or obligations under any outstanding Option may be altered or
impaired without the Participant's consent. Any grant under the Plan may be
canceled at any time with the consent of the Participant, and a new grant may be
provided to such Participant in lieu thereof.
4.5 SHARES SUBJECT TO THE PLAN
Shares distributed pursuant to the Plan shall be made available from
authorized but unissued shares or from shares purchased or otherwise acquired by
the Company for use in the Plan, as shall be determined from time to time by the
Committee.
4.6 RIGHTS OF A SHAREHOLDER
Participants under the Plan, unless otherwise provided by the Plan, shall
have no rights as shareholders by reason thereof unless and until certificates
for shares of Common Stock are issued to them.
4.7 WITHHOLDING
The Company shall have the right to deduct from any distribution of Common
Stock to any Participant an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to any grant under the Plan. If a Participant
is to experience a taxable event in connection with the receipt of cash or
shares of Common Stock pursuant to an Option exercise (a "Taxable Event"), the
Participant shall pay the Withholding Taxes to the Company prior to the issuance
of such shares of Common Stock. In satisfaction of the obligation to pay
Withholding Taxes to the Company, the Participant may make a written election
(the "Tax Election"), which may be accepted or rejected in the discretion of the
Committee, to have withheld a portion of the shares of Common Stock then
issuable to the Participant having an aggregate Fair Market Value on the day
immediately preceding the date of such issuance equal to the Withholding Taxes,
provided that in respect of a Participant who may be subject to liability under
Section 16(b) of the Exchange Act either: (i) in the case of a Taxable Event
involving an Option or a grant of Restricted Stock, (A) the Tax Election is made
at least six (6) months prior to the date of the Taxable Event and (B) the Tax
Election is irrevocable with respect to all Taxable Events of a similar nature
occurring prior to the expiration of six (6) months following a revocation of
the Tax Election; (ii) in the case of the exercise of an Option (A) the
Participant makes the Tax Election at least six (6) months after the date the
Option was granted, (B) the Option is exercised during the ten (10) day period
beginning on the third business day and ending on the twelfth business day
following the release for publication of the Company's quarterly or annual
statement of sales and earnings (the "Window Period") and (C) the Tax Election
is made during the Window Period in which the Option is exercised or prior to
such Window Period and subsequent to the immediately preceding Window Period; or
(iii) in the case of a Taxable Event relating to the payment of an award, (A)
the Participant makes the Tax Election at least six (6) months after the date of
grant and (B) the Tax Election is made (1) in the case of a Taxable Event
occurring within a Window Period, during the Window Period in which the Taxable
Event occurs or (2) in the case of a Taxable Event not occurring within a Window
Period, during the Window Period immediately preceding the Taxable Event.
Notwithstanding the foregoing, the Committee may, by the adoption of rules or
otherwise, (i) modify the provisions of this Section 4.7 as may be necessary to
ensure that the Tax Elections will be exempt transactions under Section 16(b) of
the Exchange Act, and (ii) permit Tax Elections to be made at such other times
and subject to such other conditions as the Committee determines will constitute
exempt transactions under Section 16(b) of the Exchange Act.
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<PAGE> 47
4.8 NONASSIGNABILITY
Except as expressly provided in the Plan, no grant shall be transferable
except by will, the laws of descent and distribution or a qualified domestic
relations order ("QDRO") as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
During the lifetime of the Participant, except as expressly provided in the
Plan, grants under the Plan shall be exercisable only by such Participant or by
the guardian or legal representative of such Participant or pursuant to a QDRO.
4.9 NONUNIFORM DETERMINATIONS
Determinations by the Committee under the Plan (including, without
limitation, determinations of the persons to receive grants, the form, amount
and timing of such grants, and the terms and provisions of such grants and the
agreements evidencing the same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards under
the Plan, whether or not such persons are similarly situated.
4.10 EFFECTIVE DATE; DURATION
The Plan shall become effective as of the date the Company becomes admitted
to trading on the NASDAQ, subject to approval by the shareholders. No grant may
be given under the Plan after May 31, 2000, but grants theretofore granted may
extend beyond such date.
4.11 CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, if a Change in Control of
the Company occurs, then all Options shall become fully exercisable and all
restrictions on the Restricted Stock shall lapse as of the date such Change in
Control occurred. For the purposes of the Plan, a Change in Control of the
Company shall be deemed to have occurred upon the earliest of the following
events:
(a) when the Company acquires actual knowledge that any person (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other
than any person who was the beneficial owner of 25% or more of the Common
Stock as of the effective date of the Plan, becomes the beneficial owner
(as defined in Rule 13d-3 of the Exchange Act) directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then-outstanding securities;
(b) upon the first purchase of Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the Company);
(c) upon the approval by the Company's shareholders of (i) a merger or
consolidation of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the surviving corporation
and which does not result in any capital reorganization or reclassification
or other change in the Company's then-outstanding shares of Common Stock),
(ii) a sale or disposition of all or substantially all of the Company's
assets or (iii) a plan of liquidation or dissolution of the Company; or
(d) if the Board of Directors or any designated committee determines
in its sole discretion that any person (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than a person who exercised a
controlling influence as of the effective date of the Plan, directly or
indirectly exercises a controlling influence over the management or
policies of the Company.
4.12 GOVERNING LAW
The Plan and all actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of Florida.
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APPENDIX A
PHYSICIAN SALES & SERVICE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Patrick C. Kelly and David A. Smith as
Proxies, each with the power to appoint his substitute, and hereby authorizes
either one or both of them to represent and to vote, as designated below, all
the shares of Common Stock of Physician Sales & Service, Inc. held of record by
the undersigned on May 22, 1996, at the Annual Meeting of Shareholders to be
held on July 8, 1996.
1. ELECTION OF DIRECTORS. To elect Delmer W. Dallas, Fred Elefant and John F.
Sasen, Sr. to serve as Class III directors until the 1999 Annual Meeting of
Shareholders of the Company and until their successors are elected and
qualified.
FOR / / WITHHOLD AUTHORITY / /
To withhold authority to vote for any individual nominee, write that
nominee's name in the space provided:
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2. PROPOSAL TO ratify the adoption of the Company's Amended and Restated 1994
Long Term Stock Plan.
FOR / / AGAINST / / ABSTAIN / /
3. PROPOSAL TO ratify the adoption of the Company's Amended and Restated 1994
Long Term Incentive Plan.
FOR / / AGAINST / / ABSTAIN / /
4. PROPOSAL TO ratify the adoption of the Company's Annual Incentive Plan.
FOR / / AGAINST / / ABSTAIN / /
5. PROPOSAL TO ratify the adoption of the Company's Amended and Restated
Directors' Stock Option Plan.
FOR / / AGAINST / / ABSTAIN / /
(Continued and to be dated and signed on reverse side)
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES FOR DIRECTOR LISTED ABOVE AND FOR PROPOSALS 2, 3, 4 AND 5
ABOVE.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign
in full corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
DATED: , 1996
----------------
------------------------------
Signature
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Signature if held jointly
