FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 0-23832
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PSS WORLD MEDICAL, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Florida 59-2280364
------- ----------
(State or other jurisdiction (IRS employer
of incorporation) Identification number)
4345 Southpoint Blvd.
Jacksonville, Florida 32216
--------------------- -----
(Address of principal executive (Zip code)
offices)
Registrant's telephone number (904) 332-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
As of November 14, 2000 a total of 71,077,236 shares of common stock,
par value $.01 per share, of the registrant were outstanding.
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
September 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2000 and March 31, 2000 3
Condensed Consolidated Statements of Operations -
For the Three and Six Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -
For the Three and Six Months Ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements - September 30, 2000 and 1999 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 23
Item 2 - Change in Securities and Use of Proceeds 23
Item 6 - Exhibits and Reports on Form 8-K 24
SIGNATURES 26
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------------- ------------------
(Unaudited) *
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 42,151 $ 60,414
Marketable securities 985 4,328
Accounts receivable, net 284,218 284,441
Inventories, net 172,561 178,038
Employee advances 3,244 973
Prepaid expenses and other 47,277 57,515
------------------- ------------------
Total current assets 550,436 585,709
Property and equipment, net 70,620 65,783
Other Assets:
Intangibles, net 197,972 202,242
Other 25,786 19,683
------------------- ------------------
Total assets $ 844,814 $ 873,417
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 115,661 $ 124,448
Accrued expenses 29,415 35,434
Current maturities of long-term debt and capital lease obligations 927 4,274
Other 9,123 7,482
------------------- ------------------
Total current liabilities 155,126 171,638
Long-term debt and capital lease obligations, net of current portion 237,849 254,959
Other 6,133 7,193
------------------- ------------------
Total liabilities 399,108 433,790
------------------- ------------------
Shareholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized, no shares
issued and outstanding -- --
Common stock, $.01 par value; 150,000,000 shares authorized, 71,077,236
shares issued and outstanding at September 30, 2000 and March 31, 2000 711 711
Additional paid-in capital 348,701 349,186
Retained earnings 99,069 90,951
Cumulative other comprehensive income (2,775) (390)
------------------- ------------------
445,706 440,458
Unearned ESOP shares -- (831)
------------------- ------------------
Total shareholders' equity 445,706 439,627
------------------- ------------------
Total liabilities and shareholders' equity $ 884,814 $ 873,417
=================== ==================
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated statements.
</TABLE>
3
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------- ----------------------------------------
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 444,917 $ 451,001 $ 915,130 $ 888,002
Cost of goods sold 340,888 337,186 698,047 666,960
------------------- ------------------- ------------------- -------------------
Gross profit 104,029 113,815 217,083 221,042
General and administrative expenses 66,636 66,625 136,401 124,652
Selling expenses 28,578 28,236 57,956 55,558
------------------- ------------------- ------------------- -------------------
Income from operations 8,815 18,954 22,726 40,832
------------------- ------------------- ------------------- -------------------
Other income (expense):
Interest expense (4,687) (2,862) (9,723) (6,376)
Interest and investment income 561 477 1,260 931
Other income 715 7,293 1,527 8,354
------------------- ------------------- ------------------- -------------------
(3,411) 4,908 (6,936) 2,909
------------------- ------------------- ------------------- -------------------
Income before provision for income taxes and
cumulative effect of accounting change 5,404 23,862 15,790 43,741
Provision for income taxes 2,908 9,563 7,672 17,755
------------------- ------------------- ------------------- -------------------
Income before cumulative effect of 2,496 14,299 8,118 25,986
accounting change
Cumulative effect of accounting change -- -- -- (1,444)
------------------- ------------------- ------------------- -------------------
Net income $ 2,496 $ 14,299 $ 8,118 $ 24,542
=================== =================== =================== ===================
Earnings per share - Basic:
Income before cumulative effect of
accounting change $ 0.04 $ 0.20 $ 0.11 $ 0.37
Cumulative effect of accounting change -- -- -- (0.02)
------------------- ------------------- ------------------- -------------------
Net income $ 0.04 $ 0.20 $ 0.11 $ 0.35
=================== =================== =================== ===================
Earnings per share - Diluted:
Income before cumulative effect of
accounting change $ 0.04 $ 0.20 $ 0.11 $ 0.37
Cumulative effect of accounting change -- -- -- (0.02)
------------------- ------------------- ------------------- -------------------
Net income $ 0.04 $ 0.20 $ 0.11 $ 0.35
=================== =================== =================== ===================
The accompanying notes are an integral part of these condensed consolidated statements.
</TABLE>
4
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------
September 30, September 30,
2000 1999
------------------ -----------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income $ 8,118 $ 24,542
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of accounting change -- 1,444
Depreciation and amortization 11,135 9,460
Amortization of debt issuance costs 403 367
Provision for doubtful accounts 2,137 1,374
Gain (loss) on sale of fixed assets 7 (33)
Deferred compensation -- 132
ESOP Amortization 345 --
Changes in operating assets and liabilities, net of effects from business
acquisitions:
Accounts receivable, net (1,913) (21,140)
Inventories 5,477 10,117
Prepaid expenses and other current assets 2,965 (9,368)
Other assets (5,280) (5,745)
Accounts payable, accrued expenses and other liabilities (10,405) 7,278
------------------ -----------------
Net cash provided by operating activities 12,989 18,428
------------------ -----------------
Cash Flows From Investing Activities:
Purchases of marketable securities -- (9,165)
Capital expenditures (9,806) (12,033)
Proceeds from sales of fixed assets 11 38
Purchases of businesses, net of cash acquired -- (28,871)
Payments on non-compete agreements (657) (4,118)
------------------ -----------------
Net cash used in investing activities (10,452) (54,149)
------------------ -----------------
Cash Flows From Financing Activities:
Proceeds from borrowings 60,000 33,500
Repayment of borrowings (80,408) (2,889)
Principal payments under capital lease obligations (49) (163)
Proceeds from issuance of common stock -- 34
Other (343) 41
------------------ -----------------
Net cash (used in) provided by financing activities (20,800) 30,523
------------------ -----------------
Net increase in cash and cash equivalents (18,263) (5,198)
Cash and cash equivalents, beginning of period 60,414 41,106
------------------ -----------------
Cash and cash equivalents, end of period $ 42,151 $ 35,908
================== =================
The accompanying notes are an integral part of these condensed consolidated statements.
</TABLE>
5
<PAGE>
PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
(Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements of PSS World Medical, Inc.
("PSS" or the "Company") reflect, in the opinion of management, all
adjustments necessary to present fairly the financial position and results
of operations for the periods indicated.
The accompanying condensed consolidated financial statements should be read
in conjunction with the financial statements and related notes in the
Company's 2000 Annual Report on Form 10-K. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States have been omitted pursuant to the Securities and Exchange Commission
rules and regulations.
Financial statements for the Company's subsidiaries outside the United
States are translated into U.S. dollars at period-end exchange rates for
assets and liabilities and weighted average exchange rates for income and
expenses. The resulting translation adjustments are recorded in the other
comprehensive income component of shareholders' equity.
The Company operates on a thirteen week quarter which ends on the Friday
closest to each calendar quarter end. For purposes of presentation and
clarity, calendar quarter dates will be used for discussion and tables in
this filing.
The results of operations for the interim periods covered by this report
may not necessarily be indicative of operating results for the full fiscal
year.
Certain fiscal 2000 amounts have been reclassified to conform to fiscal
2001 presentation.
NOTE 2 - BUSINESS ACQUISITIONS
Purchase Acquisitions
There were no acquisitions during the three months ended September 30,
2000.
During the three months ended September 30, 1999, the Company acquired
certain assets and assumed certain liabilities of one physician supply and
equipment distributor and five imaging supply and equipment distributors.
The following is a summary of the transactions:
September 30, 1999
------------------
Number of acquisitions.................... 6
Total consideration....................... $ 34,724
Cash paid, net of cash acquired........... 15,520
Goodwill recorded......................... 19,045
Value of Noncompete Agreements............ 3,755
6
<PAGE>
The operations of the acquired companies have been included in the
Company's results of operations subsequent to the dates of acquisition.
Supplemental pro forma information, assuming these acquisitions had been
made at the beginning of the year, is not provided, as the results would
not be materially different from the Company's reported results of
operations.
These acquisitions were accounted for under the purchase method of
accounting, and accordingly, the assets of the acquired companies have been
recorded at their estimated fair values at the dates of the acquisitions.
The excess of the purchase price over the estimated fair value of the net
assets acquired has been recorded as goodwill and is amortized over 15 to
30 years. The accompanying consolidated financial statements reflect the
final allocation of the purchase price for acquisitions accounted for under
the purchase method of accounting.
The terms of certain of the Company's recent acquisition agreements provide
for additional consideration to be paid if the acquired entity's results of
operations exceed certain targeted levels. Targeted levels are generally
set above the historical experience of the acquired entity at the time of
acquisition. Such additional consideration is to be paid in cash and is
recorded when earned as additional purchase price. The maximum amount of
remaining contingent consideration is approximately $8.4 million (payable
through fiscal 2003).
During the three months ended September 30, 2000, there were earnout
payments to two Imaging Business acquisitions totaling $1.9 million of
which $1.8 million was accrued at September 30, 2000. These amounts were
recorded as an adjustment to goodwill related to the acquisitions.
NOTE 3 - CHARGES INCLUDED IN GENERAL AND ADMINISTRATIVE EXPENSES
Charges Included In General and Administrative Expenses
In addition to normal general and administrative expenses, this caption
includes charges related to merger activity, restructuring activity, and
other special items. The following table summarizes charges included as a
component of general and administrative expenses in the accompanying
consolidated statements of operations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Merger costs and expenses $ 1,584 $ (618) $ 3,159 $ (246)
Restructuring costs and expenses 1,013 7,706 2,253 8,219
Other 1,634 -- 2,420 --
------------- ------------- ------------- -------------
Total $ 4,231 $ 7,088 $ 7,832 $ 7,973
============= ============= ============= =============
</TABLE>
Merger Costs and Expenses
The Company's policy is to accrue merger costs and expenses at the
commitment date of an integration plan if certain criteria under EITF 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity ("EITF 94-3") or EITF 95-14, Recognition of
Liabilities in Anticipation of a Business Combination ("EITF 95-14"), are
met. Merger costs and expenses recorded at the commitment date primarily
include charges for involuntary employee termination costs, branch
shut-down costs, lease termination costs, and other exit costs.
7
<PAGE>
If the criteria described in EITF 94-3 or EITF 95-14 are not met, the
Company records merger costs and expenses as incurred. Merger costs
expensed as incurred include the following: (1) costs to pack and move
inventory from one facility to another or within a facility in a
consolidation of facilities, (2) relocation costs paid to employees in
relation to an acquisition accounted for under the pooling-of-interests
method of accounting, (3) systems or training costs to convert the acquired
companies to the current existing information system, and (4) training
costs related to conforming the acquired companies operational policies to
that of the Company's operational policies. In addition, amounts incurred
in excess of the original amount accrued at the commitment date are
expensed as incurred.
Effective February 1, 2000, the Board of Directors approved and adopted the
PSS World Medical, Inc. Officer Retention Bonus Plan and the PSS World
Medical, Inc. Corporate Office Employee Retention Bonus Plan (collectively
the "Retention Plans"). As part of the Company's strategic alternatives
process, management adopted these plans to retain certain officers and key
employees during the transition period. During the three and six months
ended September 30, 2000, the Company expensed $1,271 and $2,542,
respectively, related to the Retention Plans.
In addition, merger costs and expenses for the three months ended September
30, 2000 and 1999 included $313 and $404, respectively, of merger charges
expensed as incurred, which primarily related to branch shutdown and lease
termination costs. At September 30, 1999, the Company reversed $1,022 of
merger costs and expenses into income, which related to an over accrual for
lease termination costs. Refer to Note 4, Accrued Merger and Restructuring
Costs and Expenses, for further discussion regarding the merger plans.
Restructuring Costs and Expenses
Restructuring costs and expenses for the three months ended September 30,
2000 and 1999 included $1,013 and $2,739, respectively, of charges that
were expensed as incurred, which primarily relate to other exit costs.
Other exit costs include costs to pack and move inventory, costs to set up
new facilities, employee relocation costs, and other related facility
closure costs. In addition, during the three months ended September 30,
1999, management approved and adopted a formal plan to restructure the
company ("Plan C"). Accordingly, the Company recorded restructuring costs
and expenses of $4,967 at the commitment date of the restructuring plan
adopted by management. Refer to Note 4, Accrued Merger and Restructuring
Costs and Expenses, for an update of the current status of this
restructuring plan.
Other
During the three months ended September 30, 2000, the Company incurred
$1,634 in legal and professional fees and other costs pursuant to the
strategic alternative process announced in January 2000.
8
<PAGE>
NOTE 4 - ACCRUED MERGER AND RESTRUCTURING COSTS AND EXPENSES
Summary of Accrued Merger Costs and Expenses
In connection with the consummation of business combinations, management
often develops formal plans to exit certain activities, involuntarily
terminate employees, and relocate employees of the acquired companies.
Management's plans to exit an activity often include identification of
duplicate facilities for closure and identification of facilities for
consolidation into other facilities.
Generally, completion of the integration plans will occur within one year
from the date in which the plans are formalized and adopted by management.
However, intervening events occurring prior to completion of the plan, such
as subsequent acquisitions or system conversion issues, can significantly
impact a plan that had been previously established. Such intervening events
may cause modifications to the plans and are accounted for on a prospective
basis. At the end of each quarter, management reevaluates its integration
plans and adjusts previous estimates.
As part of the integration plans, certain costs are recognized at the date
in which the plan is formalized and adopted by management (commitment
date). These costs are generally related to employee terminations and
relocation, lease terminations, and branch shutdown. In addition, there are
certain costs that do not meet the criteria for accrual at the commitment
date and are expensed as the plan is implemented (refer to Note 3, Charges
Included in General and Administrative Expenses). Involuntary employee
termination costs are employee severance costs and termination benefits.
Lease termination costs are lease cancellation fees and forfeited deposits.
Branch shutdown costs include costs related to facility closure costs.
Employee relocation costs are moving costs of employees of an acquired
company in transactions accounted for under the purchase method of
accounting.
Accrued merger costs and expenses, classified as accrued expenses in the
accompanying consolidated balance sheet, was $878 at September 30, 2000.
The discussion and rollforward of the accrued merger costs and expenses
below summarize the significant and nonsignificant integration plans
adopted by management for business combinations accounted for under the
purchase method of accounting and pooling-of-interests method of
accounting. Integration plans are considered to be significant if the
charge recorded to establish the accrual is in excess of 5% of consolidated
pretax income.
Significant Pooling-of-Interests Business Combination Plan
The Company formalized and adopted an integration plan in December 1997 to
integrate the operations of S&W X-Ray, Inc. ("S&W") with the Imaging
Business. As of September 30, 2000, all of the employees have been
terminated and all of the seven identified distribution facilities have
been shut down. Therefore, all costs related to the merger plan had been
incurred at September 30, 2000, except for lease termination costs for one
location for which payment will extend through fiscal 2002. During the
three months ended September 30, 2000, $22 of lease expense was charged
against the accrual leaving a remaining accrual of $58.
Nonsignificant Poolings-of-Interests Business Combination Plans
The Imaging Business acquired TriStar Imaging Systems, Inc. ("TriStar") in
October 1998, and management formalized and adopted an integration plan in
late fiscal 1999 to integrate the operations of the acquired company. All
costs related to the merger plan had been incurred at September 30, 2000,
except for lease termination costs for which payment will extend through
fiscal 2007. During the three months ended September 30, 2000, $31 of lease
expense was charged against the accrual leaving a remaining accrual of
$484.
9
<PAGE>
Nonsignificant Purchase Business Combination Plans
The following accrued merger costs and expenses were recognized and
additional goodwill was recorded at the date in which the integration plans
were formalized and adopted by management. The following is a summary of
the merger activity for the three months ended September 30, 2000 which
related to three nonsignificant purchase business combinations consummated
during fiscal 1999:
Involuntary
Employee Lease
Termination Termination
Costs Costs Total
------------- ------------- --------------
Balance at June 30, 2000 $ 17 $ 357 $ 374
Adjustments -- -- --
Additions -- -- --
Utilized 10 28 38
------------- ------------- --------------
Balance at September 30, 2000 $ 7 $ 329 $ 336
============= ============= ==============
The Imaging Business acquired South Jersey X-Ray, Inc. in October 1998, and
management formalized and adopted an integration plan during the three
months ended June 30, 1999 to integrate the operations of the acquired
company. Approximately $286 of the $336 remaining accrued merger costs and
expenses at September 30, 2000 relate to this integration plan. As of
September 30, 2000, all locations have been shut down and all employees
were terminated as a result of the plan. However, lease termination
payments will extend through fiscal 2004.
Summary of Accrued Restructuring Costs and Expenses
Primarily as a result of the impact of the Gulf South merger, in order to
improve customer service, reduce costs, and improve productivity and asset
utilization, the Company decided to realign and consolidate its operations.
Accordingly, the Company implemented a restructuring plan during the fourth
quarter of fiscal 1998 that impacted all divisions ("Plan A"). The accruals
related to Plan A were fully utilized at September 30, 2000. Subsequently,
the Company adopted a second restructuring plan during the first quarter of
fiscal 1999 related to the Gulf South division ("Plan B") to further
consolidate its operations.
During the second quarter of fiscal 2000, management evaluated the
Company's overall cost structure and implemented cost reductions in order
to meet internal profitability targets. In addition, management decided to
improve its distribution model and relocate the corporate office for the
GSMS division to Jacksonville, Florida where the corporate offices for the
DI and PSS divisions exist. The Company implemented the restructuring plan
during the second quarter of fiscal 2000 that impacted all divisions ("Plan
C"). The total number of employees to be terminated was 272.
During the fourth quarter of fiscal 2000, the Imaging Business' management
made a discretionary decision to change its business strategy and the way
it operates to improve future operations. These changes include
restructuring the Imaging Business sales force, terminating approximately
50 service engineers, and closure of two distribution centers ("Plan D").
The accruals related to Plan D were fully utilized at September 30, 2000.
Accrued restructuring costs and expenses related to Plans A, B, C and D,
classified as accrued expenses in the accompanying consolidated balance
sheets, totaled $883 at September 30, 2000. The following is a summary of
the restructuring plan activity for the three months ended September 30,
2000:
10
<PAGE>
<TABLE>
<CAPTION>
Involuntary
Employee Lease Branch
Termination Termination Shutdown
Costs Costs Costs Total
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at June 30, 2000 $ 106 $ 712 $ 331 $ 1,149
Adjustments -- -- -- --
Additions -- -- -- --
Utilized 71 105 90 266
------------- ------------- -------------- --------------
Balance at September 30, 2000 $ 35 $ 607 $ 241 $ 883
============= ============= ============== ==============
</TABLE>
Plan B
As of December 31, 1999, all of the six locations had been shut down and
all employees were terminated as a result of the plan. Approximately $126
of lease termination payments remain accrued at September 30, 2000 for
which payments will extend through fiscal 2002.
Plan C
All employees have been terminated at March 31, 2000. Accrued restructuring
costs and expenses related to Plan C at September 30, 2000 were
approximately $757, of which $481 relates to lease terminations, $35 to
involuntary employee terminations, and $241 to branch shut down costs. The
Company is currently evaluating the remaining involuntary employee
termination and branch shut down costs, and will complete this evaluation
in the quarter ended December 31, 2000.
NOTE 5 - COMPREHENSIVE INCOME
Comprehensive income is defined as net income plus direct adjustments to
shareholders' equity. The following details the components of comprehensive
income for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income.............................. $ 2,496 $ 14,299 $ 8,118 $ 24,540
Other comprehensive (expense) income, net of tax:
Foreign currency translation
adjustment................ (504) 304 (343) 41
Unrealized loss on available for
sale security (534) -- (2,041) --
------------- ------------- ------------- -------------
Comprehensive income.................... $ 1,458 $ 14,603 $ 5,734 $ 24,581
============= ============= ============= =============
</TABLE>
11
<PAGE>
NOTE 6 - EARNINGS PER SHARE
In accordance with SFAS No. 128, Earnings Per Share, the calculation of
basic net earnings per common share and diluted earnings per common share
is presented below (share amounts in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income............................... $ 2,496 $ 14,299 $ 8,118 $ 24,540
============= ============= ============= =============
Earnings per share - Basic:
Income before cumulative effect of
accounting change.................. $ 0.04 $ 0.20 $ 0.11 $ 0.37
Cumulative effect..................... -- -- -- (0.02)
------------- ------------- ------------- -------------
Net income............................ $ 0.04 $ 0.20 $ 0.11 $ 0.35
============= ============= ============= =============
Earnings per share - Dilutive:
Income before cumulative effect of
accounting change.................. $ 0.04 $ 0.20 $ 0.11 $ 0.37
Cumulative effect..................... -- -- -- (0.02)
------------- ------------- ------------- -------------
Net income............................ $ 0.04 $ 0.20 $ 0.11 $ 0.35
============= ============= ============= =============
Weighted average shares outstanding:
Common shares......................... 71,187 70,905 71,187 70,889
Assumed exercise of stock options..... 19 224 71 289
------------- ------------- ------------- -------------
Diluted shares outstanding............ 71,206 71,129 71,258 71,178
============= ============= ============= =============
</TABLE>
NOTE 7 - SEGMENT INFORMATION
SFAS No. 131, Disclosure About Segments of an Enterprise and Related
Information, requires segment reporting in interim periods and disclosures
regarding products and services, geographic areas, and major customers.
The Company's reportable segments are strategic businesses that offer
different products and services to different segments of the health care
industry, and are based upon how management regularly evaluates the
Company. These segments are managed separately because of different
customers and products. These segments include Physician Sales & Service
division (the "Physician Supply Business"), Diagnostic Imaging, Inc. ("DI"
or the "Imaging Business"), Gulf South Medical Supply, Inc. ("GSMS" or the
"Long-Term Care Business"), and WorldMed International, Inc. ("WorldMed
Int'l") combined with the Holding Company.
The Physician Supply Business is a distributor of medical supplies,
equipment and pharmaceuticals to office-based physicians in the United
States. DI is a distributor of medical diagnostic imaging supplies,
chemicals, equipment, and service to the acute and alternate-care markets
in the United States. GSMS is a distributor of medical supplies and related
products to the long-term care market in the United States. WorldMed Int'l
along with WorldMed, Inc. manages and develops PSS' European medical
equipment and supply distribution market
The Company primarily evaluates the operating performance of its segments
based on net sales and income from operations. The following table presents
financial information about the Company's business segments:
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
NET SALES:
<S> <C> <C> <C> <C>
Physician Supply Business $ 170,576 $ 180,328 $ 347,791 $ 353,233
Imaging Business 182,431 170,663 379,181 334,803
Long-Term Care Business 88,806 92,089 180,003 184,292
Other (a) 3,104 7,921 8,155 15,674
------------- ------------- ------------- -------------
Total net sales $ 444,917 $ 451,001 $ 915,130 $ 888,002
============= ============= ============= =============
CHARGES INCLUDED IN GENERAL AND ADMINISTRATIVE
EXPENSES:
Physician Supply Business $ 96 $ 1,218 $ 170 $ 1,230
Imaging Business 985 1,492 2,154 1,814
Long-Term Care Business 238 3,437 625 3,988
Other (a) 2,912 941 4,883 941
------------- ------------- ------------- -------------
Total charges included in general and
administrative expenses $ 4,231 $ 7,088 $ 7,832 $ 7,973
============= ============= ============= =============
INCOME FROM OPERATIONS:
Physician Supply Business $ 7,039 $ 11,959 $ 18,626 $ 23,217
Imaging Business 1,997 6,444 5,493 13,404
Long-Term Care Business 1,796 986 3,585 4,091
Other (a) (2,017) (435) (4,978) 120
------------- ------------- ------------- -------------
Total income from operations $ 8,815 $ 18,954 $ 22,726 $ 40,832
============= ============= ============= =============
DEPRECIATION:
Physician Supply Business $ 1,118 $ 996 $ 2,127 $ 1,981
Imaging Business 867 866 1,680 1,551
Long-Term Care Business 463 465 924 811
Other (a) 112 35 219 100
------------- ------------- ------------- -------------
Total depreciation $ 2,560 $ 2,362 $ 4,950 $ 4,443
============= ============= ============= =============
AMORTIZATION OF INTANGIBLE AND OTHER ASSETS:
Physician Supply Business $ 431 $ 545 $ 859 $ 1,063
Imaging Business 2,015 1,431 4,020 2,697
Long-Term Care Business 566 621 1,126 1,161
Other (a) 291 200 583 463
------------- ------------- ------------- -------------
Total amortization of intangible and other $ 3,303 $ 2,797 $ 6,588 $ 5,384
assets ============= ============= ============= =============
PROVISION FOR DOUBTFUL ACCOUNTS:
Physician Supply Business $ 279 $ 273 $ 202 $ 266
Imaging Business (227) 585 140 243
Long-Term Care Business 600 357 1,794 857
Other -- 8 -- 8
------------- ------------- ------------- -------------
Total provision for doubtful accounts $ 652 $ 1,223 $ 2,136 $ 1,374
============= ============= ============= =============
CAPITAL EXPENDITURES:
Physician Supply Business $ 3,690 $ 3,515 $ 6,446 $ 5,968
Imaging Business 1,314 2,397 2,541 3,680
Long-Term Care Business 190 723 390 1,852
Other (a) 205 251 429 533
------------- ------------- ------------- -------------
Total capital expenditures $ 5,399 $ 6,886 $ 9,806 $ 12,033
============= ============= ============= =============
September 30, 2000 March 31, 2000
------------------ --------------
ASSETS:
Physician Supply Business $ 248,962 $ 243,020
Imaging Business 345,545 346,073
Long-Term Care Business 183,622 182,024
Other (a) 66,685 102,300
------------------ --------------
Total assets $ 844,814 $ 873,417
================== ==============
(a) Other includes the holding company and the
International subsidiaries
</TABLE>
13
<PAGE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with certain executive officers which
provide that in the event of their termination or resignation, under
certain conditions, the Company may be required to continue salary payments
and provide insurance for a period ranging from 12 to 36 months for the
Chief Executive Officer and from 3 to 12 months for other executives and to
repurchase a portion or all of the shares of common stock held by the
executives upon their demand at the fair market value at the time of
repurchase. The period of salary and insurance continuation and the level
of stock repurchases are based on the conditions of the termination or
resignation.
During fiscal 2000, the Board of Directors approved and adopted the PSS
World Medical, Inc. Officer Retention Bonus Plan and the PSS World Medical,
Inc. Corporate Office Employee Retention Bonus Plan. Refer to Note 3,
Charges included in General and Administrative Expenses for further
discussion.
PSS and certain of its current officers and directors were named as
defendants in a purported securities class action lawsuit filed on or about
May 28, 1998. The allegations are based upon a decline in the PSS stock
price following announcements by PSS in May 1998 regarding the Gulf South
merger that resulted in earnings below analyst's expectations. The Company
believes that the allegations contained in the complaints are without merit
and intends to defend vigorously against the claims. There can be no
assurances that this litigation will ultimately be resolved on terms that
are favorable to the Company.
Although the Company does not manufacture products, the distribution of
medical supplies and equipment entails inherent risks of product liability.
The Company has not experienced any significant product liability claims
and maintains product liability insurance coverage. In addition, the
Company is party to various legal and administrative proceedings and claims
arising in the normal course of business. While any litigation contains an
element of uncertainty, management believes that the outcome of any
proceedings or claims which are pending or known to be threatened will not
have a material adverse effect on the Company's consolidated financial
position, liquidity, or results of operations.
On September 30, 1999, DI entered into a three year distributorship
agreement with an imaging supply vendor. The agreement stipulates that,
among other things, in the event of termination of the agreement due to a
change in control of DI, the Company will pay liquidated damages to the
vendor in the amount of $250,000 times the number of months remaining under
the agreement.
The Company's trade receivables are subject to pre-petition bankruptcy risk
relating to certain Gulf South customers that resulted from receivable
balances outstanding prior to notification by these customers of
their intent to seek Chapter 11 bankruptcy protection. In addition, the
Company is subject to credit risk through the continued servicing of these
customers on a post-petition basis with payments remitted under negotiated
terms. As these customers are in the process of reorganization, the
Company is not able to estimate the final collectability of the accounts.
As of September 30, 2000, the balances subject to pre-petition bankruptcy
risk totaled approximately $9.9 million and the total outstanding balances
related to these customers totaled approximately $18.0 million. Based on
information currently available, management believes the Company has
recorded an appropriate reserve for these outstanding receivables.
However, should circumstances change that would cause these balances to
become uncollectible, the resulting bad debt charge would be material to
the financial statements.
NOTE 9 - SUBSEQUENT EVENTS
On October 2, 2000, the Company's chairman and chief executive officer
resigned. In addition, subsequent to September 30, 2000, the Company
severed several other officers as part of a restructuring plan. The
Company is currently quantifying severance and other termination costs and
will record an accrual during the quarter ending December 31, 2000 related
to the resignation and restructuring plan.
14
<PAGE>
ITEM 2. PSS WORLD MEDICAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
PSS World Medical, Inc. (the "Company" or "PSS") is a specialty marketer
and distributor of medical products to physicians, alternate-site imaging
centers, long-term care providers, home care providers, and hospitals
through 101 service centers to customers in all 50 states and four European
countries. Since its inception in 1983, the Company has become a leader in
three of the market segments it serves with a focused, market specific
approach to customer service, a consultative sales force, strategic
acquisitions, strong arrangements with product manufacturers, innovative
systems, and a unique culture of performance.
The Company, through its Physician Sales & Service division, is the leading
distributor of medical supplies, equipment and pharmaceuticals to
office-based physicians in the United States based on revenues, number of
physician-office customers, number and quality of sales representatives,
number of service centers, and exclusively distributed products. Physician
Sales & Service currently operates 51 medical supply distribution service
centers with approximately 685 sales representatives ("Physician Supply
Business") serving over 100,000 physician offices (representing
approximately 50% of all physician offices) in all 50 states. The Physician
Supply Business' primary market is the approximately 400,000 physicians who
practice medicine in approximately 200,000 office sites throughout the
United States.
The Company, through its wholly owned subsidiary Diagnostic Imaging, Inc.
("DI"), is the leading distributor of medical diagnostic imaging supplies,
chemicals, equipment, and service to the acute care and alternate-care
markets in the United States based on revenues, number of service
specialists, number of distribution centers, and number of sales
representatives. DI currently operates 34 imaging distribution service
centers with approximately 825 service specialists and 210 sales
representatives ("Imaging Business") serving over 45,000 customer sites in
42 states. The Imaging Business' primary market is the approximately 5,000
acute-care hospitals, 3,000 imaging centers, and 100,000 private practice
physicians, veterinarians and chiropractors.
Through its wholly owned subsidiary Gulf South Medical Supply, Inc.
("GSMS"), the Company is a leading national distributor of medical supplies
and related products to the long-term care industry in the United States
based on revenues, number of sales representatives, and number of service
centers. GSMS currently operates 14 distribution service centers with
approximately 121 sales representatives ("Long-Term Care Business") serving
over 14,000 long-term care accounts in all 50 states. The Long-Term Care
Business' primary market is comprised of a large number of independent
operators, small to mid-sized local and regional chains, and several
national chains representing over 17,000 long-term care sites.
In addition to its operations in the United States, the Company, through
its wholly owned subsidiary WorldMed International, Inc. ("WorldMed"),
operates two European service centers ("International Business")
distributing medical products to the physician office and hospital markets
in Belgium, France, Germany, and Luxembourg.
15
<PAGE>
INDUSTRY
According to industry estimates, the United States medical supply and
equipment segment of the health care industry represents a $34 billion
market comprised of distribution of medical products to hospitals, home
health care agencies, imaging centers, physician offices, dental offices,
and long-term care facilities. The Company's primary focus includes
distribution to the physician office, providers of imaging services, and
long-term care facilities that comprise $14 billion or approximately 40% of
the overall market.
Revenues of the medical products distribution industry are estimated to be
growing as a result of a growing and aging population, increased health
care awareness, proliferation of medical technology and testing, and
expanding third-party insurance coverage. In addition, the physician market
is benefiting from the shift of procedures and diagnostic testing from
hospitals to alternate sites, particularly physician offices, despite a
migration of significantly lower hospital medical product pricing into the
physician office market.
The health care industry is subject to extensive government regulation,
licensure, and operating procedures. National health care reform has been
the subject of a number of legislative initiatives by Congress.
Additionally, government and private insurance programs fund the cost of a
significant portion of medical care in the United States. In recent years,
government-imposed limits on reimbursement to hospitals, long-term care
facilities, and other health care providers have affected spending budgets
in certain markets within the medical products industry. Recently, Congress
has passed radical changes to reimbursements for nursing homes and home
care providers. The industry has struggled with these changes and the
ability of providers, distributors, and manufacturers to adopt to the
changes is not yet determined. These changes also effect some distributors
who directly bill the government for these providers. The industry
estimates that approximately 19% of the beds represented by homes in the
long-term care industry have filed for bankruptcy protection, which also is
the Company's percentage for fiscal 2000.
Over the past few years, the health care industry has undergone significant
consolidation. Physician provider groups, long-term care facilities, and
other alternate-site providers along with the hospitals continue to
consolidate. The consolidation creates new and larger customers. However,
the majority of the market serviced by the Company remains a large number
of small customers with no single customer exceeding 10% of the
consolidated Company's revenues. However, the Long-Term Care Business
depends on a limited number of large customers for a significant portion of
its net sales and approximately 37% of Long-Term Care Business revenues
for the three months ended September 30, 2000 represented sales to its top
five customers. Three of the top five of these customers are currently in
Chapter 11 bankruptcy reorganization and represent approximately 23.5% of
the Long-Term Care Business revenues for the three months ended September
30, 2000. Growth in the Long-Term Care Business, as well as
consolidation of the health care industry, may increase the Company's
dependence on large customers.
16
<PAGE>
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the results of
operations for the three and six months ended September 30, 2000 and 1999.
THREE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1999
Net Sales. Net sales for the three months ended September 30, 2000 totaled
$444.9 million, a decrease of $6.1 million, or 1.4%, over the three months
ended September 30, 1999 total of $451.0 million. Net sales for the six
months ended September 30, 2000 totaled $915.1 million, an increase of
$27.1 million, or 3.1%, over the six months ended September 30, 1999 total
of $888.0 million. During the three months ended September 30, 2000, the
Company's sales continued to be impacted by the disruption caused by the
strategic alternatives process that ended in September 2000. This impact
was partially offset by the implementation of strategies to mitigate
vendor supply issues and long-term care industry issues experienced in the
fourth quarter of fiscal 2000 that continued into the current fiscal year.
These strategies include (i) converting and replacing manufacture recalled
products in the Physician division, (ii) replacing the revenues interrupted
by supplier backorders with new products in the Imaging division, and (iii)
maintaining revenue while tightening credit policies in the Long-term Care
division.
Gross Profit. Gross profit for the three months ended September 30, 2000
totaled $104.0 million, a decrease of $9.8 million, or 8.6%, over the three
months September 30, 1999 total of $113.8 million. Gross profit for the six
months ended September 30, 2000 totaled $217.1 million, a decrease of $3.9
million, or 1.8%, over the six months September 30, 1999 total of $221.0
million. Gross profit as a percentage of net sales was 23.4% and 25.2% for
the three months ended September 30, 2000 and 1999, respectively. Gross
profit as a percentage of net sales was 23.7% and 24.9% for the six months
ended September 30, 2000 and 1999, respectively. The decrease in gross
profit as a percent of net sales is attributable to (i) the increased mix
of the Imaging division revenues as a percent of total revenues, (ii) the
vendor supply interruption in the Physician and Imaging businesses that
primarily impacted higher margin products, partially offset by (iii) an
increase in the sales of higher margin private label products.
Beginning in fiscal 1999 and continuing into fiscal 2001, the Company has
experienced margin pressures in the Long-Term Care Business as a result of
its large chain customers renegotiating prices due to the implementation of
PPS. The Company expects this trend to continue in the Long-Term Care
Business.
General and Administrative Expenses. General and administrative expenses
for the three months ended September 30, 2000 and 1999 totaled $66.6
million. General and administrative expense as a percentage of net sales
increased to 15.0% from 14.8% for the comparable three-month period.
General and administrative expenses for the six months ended September 30,
2000 totaled $136.4 million, an increase of $11.7 million, or 9.4%, from
the six months ended September 30, 1999 total of $124.7 million. General
and administrative expense as a percentage of net sales increased to 14.9%
from 14.0% for the comparable six-month period.
General and administrative expenses includes charges related to merger
activity, restructuring activity, and other special items. See Note 3,
Charges Included in General and Administrative Expenses, to the condensed
consolidated financial statements for additional discussion.
In addition to items characterized as charges related to merger activity,
restructuring activity, and other special items, the Company has incurred
incremental costs to implement its strategies to replace and convert
products recalled and backordered by manufacturers. These incremental costs
have not been leveraged with incremental sales. The sales generated by
incremental costs have only replaced recalled and backordered revenues. The
Company believes there will be a return to prior levels of cost leveraging
in future periods.
17
<PAGE>
Selling Expenses. Selling expenses for the three months ended September 30,
2000 totaled $28.6 million, an increase of $0.4 million, or 1.4%, over the
three months ended September 30, 1999 total of $28.2 million. Selling
expense as a percentage of net sales was approximately 6.4% and 6.3% for
the three months ended September 30, 2000 and 1999. Selling expenses for
the six months ended September 30, 2000 totaled $58.0 million, an increase
of $2.4 million, or 4.3%, over the six months ended September 30, 1999
total of $55.6 million. Selling expense as a percentage of net sales was
approximately 6.3% for the six months ended September 30, 2000 and 1999.
The Company utilizes a variable commission plan, which pays commissions
based on gross profit as a percentage of net sales.
Operating Income. Operating income for the three months ended September 30,
2000 totaled $8.8 million, a decrease of $10.2 million, or 53.7%, over the
three months ended September 30, 1999 total of $19.0 million. As a
percentage of net sales, operating income decreased to 2.0% from 4.2% from
the comparable prior year period primarily due to the impact of the factors
described above. Operating income for the six months ended September 30,
2000 totaled $22.7 million, a decrease of $18.1 million, or 44.4%, over the
six months ended September 30, 1999 total of $40.8 million. As a percentage
of net sales, operating income decreased to 2.5% from 4.6% from the
comparable prior year period primarily due to the impact of the factors
described above.
Interest Expense. Interest expense for the three months ended September 30,
2000 totaled $4.7 million, an increase of $1.8 million, or 62.0%, over the
three months ended September 30, 1999 total of $2.9 million. Interest
expense for the six months ended September 30, 2000 totaled $9.7 million,
an increase of $3.3 million, or 51.6%, over the six months ended September
30, 1999 total of $6.4 million. The increase in interest expense for the
three and six month periods is primarily attributable to higher debt
balances under the revolving credit facility over the prior year period
primarily due to acquisitions completed during fiscal 2000.
Interest and Investment Income. Interest and investment income for the
three months ended September 30, 2000 totaled $0.6 million, an increase of
$0.1 million, or 20%, over the three months ended September 30,1999 total
of $0.5 million. Interest and investment income for the six months ended
September 30, 2000 totaled $1.3 million, an increase of $0.4 million, or
44.4%, over the six months ended September 30, 1999 total of $0.9 million.
Other Income. Other income for the three months ended September 30, 2000
totaled $0.7 million, a decrease of $6.6 million, or 90.4%, over the three
months ended September 30, 1999 total of $7.3 million. Other income for the
six months ended September 30, 2000 totaled $1.5 million, a decrease of
$6.8 million, or 81.9%, over the six months ended September 30, 1999 total
of $8.3 million. Normally, other income primarily consists of finance
charges on customer accounts and financing performance incentives. The
decrease is primarily attributable to a $6.5 million favorable medical
x-ray film anti-trust settlement claim received in the prior fiscal year
that is nonrecurring in the current fiscal year.
Provision for Income Taxes. Provision for income taxes for the three months
ended September 30, 2000 totaled $2.9 million, a decrease of $6.7 million,
or 69.8%, over the three months ended September 30, 1999 total of $9.6
million. The effective income tax rate was approximately 53.8% and 40.0%
for the three months ended September 30, 2000 and 1999, respectively.
Provision for income taxes for the six months ended September 30, 2000
totaled $7.7 million, a decrease of $10.1 million, or 56.7%, over the six
months ended September 30, 1999 total of $17.8 million. The effective
income tax rate was approximately 48.6% and 40.6% for the six months ended
September 30, 2000 and 1999, respectively. The effective tax rate is
generally higher than the Company's statutory rate due to the to the
nondeductible nature of certain merger related costs and the impact of the
Company's foreign subsidiary.
Net Income. Net income for the three months ended September 30, 2000
totaled $2.5 million, a decrease of $11.8 million, or 82.5%, over the three
months ended September 30, 1999 total of $14.3 million. As a percentage of
net sales, net income decreased to 0.6% from 3.2% for the comparable prior
year period primarily due to the factors described above. Net income for
the six months ended September 30, 2000 totaled $8.1 million, a decrease of
$16.4 million, or 66.9%, over the six months ended September 30, 1999 total
18
<PAGE>
of $24.5 million. As a percentage of net sales, net income decreased to
0.9% from 2.8% for the comparable prior year period primarily due to the
factors described above.
LIQUIDITY AND CAPITAL RESOURCES
As the Company's business grows, its cash and working capital requirements
will also continue to increase as a result of the need to finance
acquisitions and anticipated growth of the Company's operations. This
growth will be funded through a combination of cash flow from operations,
revolving credit borrowings and proceeds from any future public offerings.
Net cash provided by operating activities was $13.0 million and $18.4
million for the six months ended September 30, 2000 and 1999, respectively.
The variation in operating cash flows primarily results from a decrease in
operating income as discussed in prior sections of the MD&A.
Net cash used in investing activities was ($10.5) million and ($54.1)
million for the six months ended September 30, 2000 and 1999, respectively.
The decrease in cash outflows from investing activities primarily results
from a reduction of purchase business combinations over the prior
comparable period and a reduction in investments made in marketable
securities.
Net cash (used in) provided by financing activities was ($20.8) million and
$30.5 million for the six months ended September 30, 2000 and 1999,
respectively. During the current fiscal year, the increase in cash outflows
for financing activities primarily results from a net $20 million
repayment on the revolving credit facility and other debt. During the
prior fiscal year, cash provided by financing activities was primarily used
to fund purchase business acquisitions.
The Company had working capital of $395.3 million and $414.1 million as of
September 30, 2000 and March 31, 2000, respectively. Accounts receivable,
net of allowances, were $284.2 million and $284.4 million at September 30,
2000 and March 31, 2000. The average number of days sales in accounts
receivable outstanding was approximately 55.9 and 55.8 days for the six
months ended September 30, 2000 (annualized) and the year ended March 31,
2000, respectively. For the six months ended September 30, 2000, the
Company's Physician Supply, Imaging, and Long-Term Care Businesses had
annualized days sales in accounts receivable of approximately 51.7, 45.6,
and 81.2 days, respectively.
Inventories were $172.6 million and $178.0 million as of September 30, 2000
and March 31, 2000, respectively. The Company had inventory turnover of
8.0x for the six months ended September 30, 2000 (annualized) and the year
ended March 31, 2000. For the six months ended September 30, 2000, the
Company's Physician Supply, Imaging, and Long-Term Care Businesses had
annualized inventory turnover of 7.0x, 8.9x, and 8.5x, respectively.
19
<PAGE>
The following table presents EBITDA and other financial data for the three
and six months ended September 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Other Financial Data:
Income before provision for income taxes and
cumulative effect of accounting change $ 5,404 $ 23,862 $ 15,790 $ 43,740
Plus: Interest Expense 4,687 2,862 9,723 6,376
------------- ------------- ------------- -------------
EBIT (a) 10,091 26,724 25,513 50,116
Plus: Depreciation and amortization 5,661 4,975 11,135 9,460
------------- ------------- ------------- -------------
EBITDA (b) 15,752 31,699 36,648 59,576
Unusual Charges Included in Continuing Operations 4,231 7,088 7,832 7,973
Cash Paid For Unusual Charges Included in Continuing (4,513) (5,662) (7,276) (9,046)
Operations
------------- ------------- ------------- -------------
Adjusted EBITDA (c) 15,470 33,125 37,204 58,503
EBITDA Coverage (d) 3.4x 11.1x 3.8x 9.3x
EBITDA Margin (e) 3.5% 7.0% 4.0% 6.7%
Adjusted EBITDA Coverage (f) 3.3x 11.6x 3.8x 9.2x
Adjusted EBITDA Margin (g) 3.5% 7.3% 4.1% 6.6%
Cash provided by operating activities $ 13.0 $ 18.4
Cash used in investing activities (10.5) (54.1)
Cash (used in) provided by financing activities (20.8) 30.5
</TABLE>
(a) EBIT represents income before income taxes plus interest expense.
(b) EBITDA represents EBIT plus depreciation and amortization. EBITDA is
not a measure of performance or financial condition under generally
accepted accounting principles ("GAAP"). EBITDA is not intended to
represent cash flow from operations and should not be considered as an
alternative measure to income from operations or net income computed in
accordance with GAAP, as an indicator of the Company's operating
performance, as an alternative to cash flow from operating activities,
or as a measure of liquidity. In addition, EBITDA does not provide
information regarding cash flows from investing and financing
activities which are integral to assessing the effects on the Company's
financial position and liquidity as well as understanding the Company's
historical growth. The Company believes that EBITDA is a standard
measure of liquidity commonly reported and widely used by analysts,
investors, and other interested parties in the financial markets.
However, not all companies calculate EBITDA using the same method and
the EBITDA numbers set forth above may not be comparable to EBITDA
reported by other companies.
(c) Adjusted EBITDA represents EBITDA plus unusual charges included in
continuing operations less cash paid for unusual charges included in
continuing operations.
(d) EBITDA coverage represents the ratio of EBITDA to interest expense.
(e) EBITDA margin represents the ratio of EBITDA to net sales.
(f) Adjusted EBITDA coverage represents the ratio of Adjusted EBITDA to
interest expense.
(g) Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to net
sales.
On October 7, 1997, the Company issued, in a private offering under Rule
144A of the Securities Act of 1933, an aggregate principal amount of $125.0
million of its 8.5% senior subordinated notes due in 2007 (the "Private
Notes") with net proceeds to the Company of $119.5 million after deduction
for offering costs. The Private Notes are unconditionally guaranteed on a
senior subordinated basis by all of the Company's domestic subsidiaries. On
February 10, 1998, the Company closed its offer to exchange the Private
20
<PAGE>
Notes for senior subordinated notes (the "Notes") of the Company with
substantially identical terms to the Private Notes (except that the Notes
do not contain terms with respect to transfer restrictions). Interest on
the Notes accrues from the date of original issuance and is payable
semiannually on April 1 and October 1 of each year, commencing on April 1,
1998, at a rate of 8.5% per annum. The semiannual payments of approximately
$5.3 million will be funded by the operating cash flow of the Company. No
other principal payments on the Notes are required over the next five
years. The Notes contain certain restrictive covenants that, among other
things, limit the Company's ability to incur additional indebtedness.
Provided, however, that no event of default exist, additional indebtedness
may be incurred if the Company maintains a consolidated fixed charge
coverage ratio, after giving effect to such additional indebtedness, of
greater than 2.0 to 1.0.
On February 11, 1999, the Company entered into a $140.0 million senior
revolving credit facility with a syndicate of financial institutions with
NationsBank, N.A. as principal agent. Borrowings under the credit facility
are available for working capital, capital expenditures, and acquisitions,
and are secured by the common stock and assets of the Company and its
subsidiaries. The credit facility expires February 10, 2004 and borrowings
bear interest at certain floating rates selected by the Company at the time
of borrowing. The credit facility contains certain affirmative and negative
covenants, the most restrictive of which require maintenance of a maximum
leverage ratio of 3.5 to 1.0, maintenance of consolidated net worth of
$337.0 million, and maintenance of a minimum fixed charge coverage ratio of
2.0 to 1.0. In addition, the covenants limit additional indebtedness and
asset dispositions, require majority lender approval on acquisitions with a
total purchase price greater than $75.0 million, and restrict payments of
dividends.
On October 20, 1999, the Company amended its $140.0 million senior
revolving credit facility to allow for repurchases of up to $50.0 million
of the Company's common stock through October 31, 2000. In addition, the
amendment modified the consolidated net worth maintenance covenant to
reduce the $337.0 million minimum compliance level by any repurchases made
by the Company of its common stock.
Effective August 4, 2000, the Company obtained an amendment to its senior
revolving credit agreement. This amendment modifies the leverage ratio from
an original 3.5 to 1.0 to no greater than 3.75 to 1.0 for the quarter ended
June 30, 2000, and no greater than 4.3 to 1.0 for the quarters ended
September 30 and December 31, 2000. In addition, this amendment modifies
the fixed charge coverage ratio from an original 2.0 to 1.0 to no less than
1.5 to 1.0 for the quarters ended June 30, September 30, and December 31,
2000. Subsequent to these periods, the fixed charge coverage and leverage
ratios revert back to their original requirements.
Effective September 30, 2000, the Company obtained a limited waiver to
its senior revolving credit agreement for failure to meet the criteria for
the fixed charge coverage ratio and the leverage ratio for the fiscal
quarter ended September 30, 2000. Until December 15, 2000, this limited
waiver waives compliance with the requirements that (i) the fixed charge
coverage ratio for the fiscal quarter ended September 30, 2000 not be less
than 1.5 to 1.0 and (ii) the leverage ratio for the fiscal quarter ended
September 30, 2000 not be greater than 4.30 to 1.00. If the Company does
not obtain a permanent waiver or amendment of such provision by December
15, 2000, an Event of Default will occur under the senior revolving credit
agreement. The Company is in discussion with the lenders under its senior
revolving credit agreement regarding an amendment and management
anticipates that it will obtain such amendment. However, there can be no
assurance that such an amendment will be executed on or prior to December
15, 2000, if at all.
As of September 30, 2000, the Company has not entered into any material
working capital commitments that require funding. The Company believes
that the expected cash flows from operations, available borrowing under the
credit facility, and capital markets are sufficient to meet the Company's
anticipated future requirements for working capital and capital
expenditures for the foreseeable future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2000, the Company did not hold any derivative financial
or commodity instruments. The Company is subject to interest rate risk and
certain foreign currency risk relating to its operations in Europe;
however, the Company does not consider its exposure in such areas to be
material. The Company's interest rate risk is related to its Senior
Subordinated Notes, which bear interest at a fixed rate of 8.5%, and
borrowings under its Credit Facility, which bear interest at variable
rates, at the Company's option, at either the lender's base rate plus
0.625% (10.125% at September 30, 2000) or LIBOR plus 1.625% (a weighted
average of 8.3% at September 30, 2000).
21
<PAGE>
All statements contained herein that are not historical facts, including, but
not limited to, statements regarding anticipated growth in revenue, gross
margins and earnings, statements regarding the Company's current business
strategy, the Company's projected sources and uses of cash, and the Company's
plans for future development and operations, are based upon current
expectations. These statements are forward-looking in nature and involve a
number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company; competitive factors; the ability of the
Company to adequately defend or reach a settlement of outstanding litigation and
investigations involving the Company or its management; changes in labor,
equipment and capital costs; changes in regulations affecting the Company's
business; future acquisitions or strategic partnerships; general business and
economic conditions; and other factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
22
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
PSS and certain of its current officers and directors are named as
defendants in a purported securities class action lawsuit entitled Jack
Hirsch v. PSS World Medical, Inc., et al., Civil Action No.
98-502-cv-J-20A. The action, which was filed on or about May 28, 1998, is
pending in the United States District Court for the Middle District of
Florida, Jacksonville Division. An amended complaint was filed on December
11, 1998. The plaintiff alleges, for himself and for a purported class of
similarly situated stockholders who allegedly purchased the Company's stock
between December 23, 1997 and May 8, 1998, that the defendants engaged in
violations of certain provisions of the Exchange Act, and Rule 10b-5
promulgated thereunder. The allegations are based upon a decline in the PSS
stock price following announcement by PSS in May 1998 regarding the Gulf
South Merger which resulted in earnings below analyst's expectations. The
plaintiff seeks indeterminate damages, including costs and expenses. PSS
filed a motion to dismiss the first amended complaint on January 25, 1999.
The court granted that motion without prejudice by order dated February 9,
2000. Plaintiffs filed their second amended complaint on March 15, 2000.
PSS filed a motion to dismiss the second amended complaint on May 1, 2000,
which is pending. PSS believes that the allegations contained in the second
amended complaint are without merit and intends to defend vigorously
against the claims. There can be no assurance that this litigation will be
ultimately resolved on terms that are favorable to PSS.
Although PSS does not manufacture products, the distribution of medical
supplies and equipment entails inherent risks of product liability. PSS is
a party to various legal and administrative legal proceedings and claims
arising in the normal course of business. However, PSS has not experienced
any significant product liability claims and maintains product liability
insurance coverage. While any litigation contains an element of
uncertainty, management believes that, other than as discussed above, the
outcome of any proceedings or claims which are pending or known to be
threatened will not have a material adverse effect on the Company's
consolidated financial position, liquidity, or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
23
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this Quarterly Report on
Form 10-Q:
Exhibit
Number Description
------- -----------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation dated March 15,
1994, as amended.(11)
3.2 Amended and Restated Bylaws dated March 15, 1994.(1)
4.1 Form of Indenture, dated as of October 7, 1997, by and among the
Company, the Subsidiary Guarantors named therein, and SunTrust
Bank, Central Florida, National Association, as Trustee.(2)
4.2 Registration Rights Agreement, dated as of October 7, 1997, by
and among the Company, the Subsidiary Guarantors named therein,
BT Alex. Brown Incorporated, Salomon Brothers Inc.and
NationsBanc Montgomery Securities, Inc.(2)
4.3 Form of 81/2% Senior Subordinated Note due 2007, including Form
of Guarantee (Private Notes).(2)
4.4 Form of 81/2% Senior Subordinated Note due 2007, including Form
of Guarantee (Exchange Notes).(2)
4.5 Shareholder Protection Rights Agreement, dated as of April 20,
1998, between PSS World Medical, Inc. and Continental Stock
Transfer & Trust Company, as Rights Agent.(10)
4.5a Amendment to Shareholder Protection Rights Agreement, dated as
of June 21, 2000, between PSS World Medical, Inc. and
Continental Stock Transfer & Trust Company as Rights Agent.(15)
10.1 Incentive Stock Option Plan dated May 14, 1986.(3)
10.2 Amended and Restated Directors Stock Plan.(6)
10.3 Amended and Restated 1994 Long-Term Incentive Plan.(6)
10.4 Amended and Restated 1994 Long-Term Stock Plan.(6)
10.5 1994 Employee Stock Purchase Plan.(4)
10.6 1994 Amended Incentive Stock Option Plan.(3)
10.7 PSS World Medical, Inc. 1999 Long-Term Incentive Plan(13)
10.8 Distributorship Agreement between Abbott Laboratories and PSS
World Medical, Inc. (Portions omitted pursuant to a request for
confidential treatment -- Separately filed with Commission).
10.9 Stock Purchase Agreement between Abbott Laboratories and
Physician Sales & Service, Inc.(5)
10.10 Amendment to Employee Stock Ownership Plan.(6)
24
<PAGE>
Exhibit
Number Description
------- -----------------------------------------------------------------
10.10b First Amendment to the Physician Sales and Service, Inc.
Employee Stock Ownership and Savings Plan.(6)
10.11 Agreement and Plan of Merger dated December 14, 1997 by and
among the Company, PSS Merger Corp.
and Gulf South Medical Supply, Inc.(9)
10.12 Credit Agreement dated as of February 11, 1999 among the
Company, the several lenders from time to time hereto and
NationsBank, N.A., as Agent and Issuing Lender.(12)
10.13 First Amendment dated as of October 20, 1999 to the Credit
Agreement dated as of February 11, 1999
among the Company, the several lenders from time to time hereto
and NationsBank, N.A. as Agent and Issuing Lender.(14)
10.14 Second Amendment dated as of July 26, 2000 to the Credit
Agreement dated as of February 11, 1999 among the Company, the
several lenders from time to time hereto and NationsBank, N.A.
as Agent and Issuing Lender.
10.15 Limited waiver dated as of November 14, 2000 to the Credit
Agreement dated as of February 11, 1999 among the Company, the
several lenders from time to time hereto and NationsBank, N.A.
as Agent and Issuing Lender.
27 Financial Data Schedule (for SEC use only)
(1) Incorporated by Reference to the Company's Registration Statement on
Form S-3, Registration No. 33-97524.
(2) Incorporated by Reference to the Company's Registration Statement on
Form S-4, Registration No. 333-39679.
(3) Incorporated by Reference from the Company's Registration Statement on
Form S-1, Registration No. 33-76580.
(4) Incorporated by Reference to the Company's Registration Statement on
Form S-8, Registration No. 33-80657.
(5) Incorporated by Reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 30, 1995.
(7) Incorporated by Reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996.
(8) Incorporated by Reference to the Company's Current Report on Form 8-K,
filed January 3, 1997.
(9) Incorporated by Reference from Annex A to the Company's Registration
Statement on Form S-4, Registration No. 333-33453.
(10) Incorporated by Reference from Annex A to the Company's Registration
Statement on Form S-4, Registration No. 333-44323.
(11) Incorporated by Reference to the Company's Current Report on Form 8-K,
filed April 22, 1998.
(12) Incorporated by Reference to the Company's Current Report on Form 8-K,
filed April 8, 1998.
(13) Incorporated by Reference to the Company's Current Report on Form 8-K,
filed February 23, 1999.
(14) Incorporated by Reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1999.
(15) Incorporated by Reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended December 31, 1999.
(16) Incorporated by Reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2000.
(b) Reports on Form 8-K
The following current reports on Form 8-K were filed during the quarter
ended September 30, 2000:
----------------------------- -----------------------------------------
Date of Report Items Reported
----------------------------- -----------------------------------------
September 5, 2000 Announcing the termination of the merger
agreement between the Company and Fisher
Scientific International, Inc.
----------------------------- -----------------------------------------
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Jacksonville, State
of Florida, on November 14, 2000.
PSS WORLD MEDICAL, INC.
By: /s/ David A. Smith
-----------------------------
David A. Smith,
President and Chief Financial Officer
26
<PAGE>
Exhibit 10.8
DISTRIBUTORSHIP AGREEMENT
THIS DISTRIBUTORSHIP AGREEMENT ("Agreement') is made and entered into
by and between ABBOTT LABORATORIES INC., a Delaware corporation with offices
located at 100 Abbott Park Road, Abbott Park, Illinois 60064 ("Abbott) and a
wholly owned subsidiary of Abbott Laboratories, an Illinois corporation, and PSS
WORLD MEDICAL, INC., a Florida corporation with offices located at 4345
Southpoint Boulevard, Jacksonville, Florida 32216 ("PSS"), and effective as of
(i) November 1, 2000 if the merger ("Merger") of PSS with Fisher Scientific
International Inc. ("Fisher") pursuant to the Agreement and Plan of Merger dated
as of June 21, 2000 among Fisher, FSI Merger Corporation ("FSI") and PSS has
been consummated on or before November 1, 2000, or (ii) December 1, 2000 if the
Merger has not been consummated on or before November 1, 2000 ("Effective
Date").
RECITALS
WHEREAS, Abbott markets a broad line of diagnostic and other health
care products manufactured by its parent company, Abbott Laboratories,
throughout the world;
WHEREAS, PSS is a physician supply company which distributes various
diagnostic and other health care products to physicians in the United States;
WHEREAS, Abbott desires to renew the appointment of PSS as an exclusive
distributor (with certain exceptions) of certain Abbott diagnostic products in
the United States under the terms and conditions stated below; and
WHEREAS, PSS desires to accept such appointment from Abbott under the
terms and conditions stated below; NOW, THEREFORE, in consideration of
the premises and the mutual promises contained herein, the parties
agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
<PAGE>
1.1 "Abbott Trademarks/Trade Names" shall mean the Abbott-owned
trademarks and trade names used by Abbott, its Affiliates (as defined in Section
1.2) and authorized distributors with the Products (as defined in Section 1.9).
A current list of such Abbott Trademarks/Trade Names is included within Exhibit
1.1 attached hereto and incorporated herein.
1.2 "Affiliate" shall mean, with respect to a party, any other business
entity which directly or indirectly controls, is controlled by, or is under
common control with, such party. A business entity or party shall be regarded as
in control of another business entity if it owns, or directly or indirectly
controls, at least thirty percent (30%) of the Voting stock or other ownership
interest of the other business entity, or if it directly or indirectly possesses
the power to direct or cause the direction of the management and policies of the
other business entity by any means whatsoever.
1.3 "Commercially Reasonable Best Efforts" shall mean the commercially
reasonable best efforts of the party referenced, as such party is constituted as
of September 1, 2000, and shall not be deemed to take into account the
commercial interests of any other party with whom such party may become
affiliated after September 1, 2000.
1.4 "Contract Quarter" shall be consistent with calendar quarters
during the Term (as defined in Section 8.1).
1.5 "Contract Year" shall mean the twelve (12,) month period beginning
on April 1, 2001 and each subsequent twelve (12) month period during the Term,
provided that effective as of the Merger, "Contract Year" shall mean the twelve
(12) month period beginning on January 1, 2001 and each subsequent twelve (12)
month period during the Term.
1.6 "FDA" shall mean the United States Food and Drug Administration
and any successor agency thereto.
1.7 "Instruments" shall mean Abbott diagnostic instruments included
within the list of Products.
1.8 "Physician Customers" shall mean all physicians in the Territory
(as defined in Section 1.10) practicing in offices with twenty-four (24) or
fewer physicians located at a single geographic office site, excluding those
listed in Exhibit 1.8. The Physician Customers covered by this Agreement shall
also be subject to change by mutual agreement of the parties pursuant to
Section 2.3.
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<PAGE>
1.9 "Products" shall mean the Abbott diagnostic products listed in
Exhibit 1.1, which may be amended from time to time by the addition or deletion
of new or existing Abbott diagnostic products to such list, upon prices and
terms to be mutually agreed upon pursuant to Sections 2.3 or 3.13(f).
1.10 "Territory" shall mean the fifty (50) United States of America and
the District of Columbia. Additional terms used in specific Sections of this
Agreement shall be defined in such Sections.
ARTICLE 2
APPOINTMENT AND AUTHORIZATION
2.1 Appointment. During the Term, Abbott hereby appoints PSS as its
exclusive distributor of Products to Physician Customers, subject to the other
terms and conditions of this Agreement, and PSS hereby accepts such appointment
from Abbott, provided that Physician Customers in the Territory may contract and
have Products shipped to them directly from Abbott or through redistribution
agreements or arrangements directly with or directly by hospitals or healthcare
institutions formally affiliated with such Physician Customers (but not by
non-hospital-owned distribution companies which service hospitals or healthcare
institutions and other than by such Physician Customers having admitting or
staff privileges at such hospitals or institutions). Abbott shall take all steps
Abbott deems reasonably necessary to prevent unauthorized parties from
distributing Products to Physician Customers.
2.2 Authorization. Abbott hereby authorizes PSS to represent itself as
Abbott's exclusive authorized distributor of Products to Physician Customers in
the Territory using Abbott Trademarks/Trade Names, provided that PSS shall not
disseminate or publish any written promotional materials or advertisements
intended for customer distribution representing itself as such without Abbott's
prior written approval, which approval shall not be unreasonably withheld. PSS
shall forward any written promotional materials or advertisements requiring
Abbott's approval pursuant to the terms of this Section 2.2 to the attention of
Vice President U.S. Marketing Dept., 939 Bldg. AP6C5, 100 Abbott Park Road,
Abbott Park IL 60064. Abbott shall review and comment on such written
promotional materials or advertisements within forty-five
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<PAGE>
(45) days after receipt thereof from PSS. If Abbott does not respond during
such forty-five (45) day period, such promotional materials shall be deemed
approved.
2.3 Changes to Physician Customers and Products. The Physician
Customers to be supplied with Products by PSS hereunder shall be subject to
adjustment by mutual written agreement of the parties upon review during the
Annual Goal Setting Meeting (as hereinafter defined) to reflect changes in
market conditions, including, but not limited to, legal or regulatory changes,
health care reform, and expansion of integrated health networks. The parties
acknowledge that one purpose of such annual review of market conditions shall be
to address and correct issues which may arise if consolidation in the physician
market occurs to an extent that the total market of physicians practicing in
offices with twenty-four (24) or fewer physicians materially decreases. During
each Annual Goal Setting Meeting, the parties shall also discuss in good faith
whether to add or delete any new or existing Abbott diagnostic products to the
list of Products, with the objective of providing at least three (3) months
lead-time before such diagnostic products are added to or deleted from the list
of Products to facilitate PSS's compliance with its obligations under Section
3.13. If the parties mutually agree to any changes in the Physician Customers or
Products subject to this Agreement, the parties shall take such changes into
consideration in establishing the annual goals, compensation plans and
promotional funding at the Annual Goal Setting Meeting.
ARTICLE 3
PSS OBLIGATIONS
3.1 FDA Registration. During the Term, subject to the provisions of
Section 4.5, PSS shall apply for, shall use Commercially Reasonable Best Efforts
to obtain and shall maintain any FDA registrations or approvals and other
regulatory registrations and approvals that are required for the performance of
its obligations under this Agreement, including but not limited to an FDA
Medical Device Registration Certificate if the FDA requires medical device
distributors to maintain such certificates. Upon Abbott's request, PSS shall
provide Abbott with copies of all such registrations and approvals. The parties
acknowledge their mutual belief that PSS is not required to be registered as a
medical device distributor with the FDA as of the Effective Date. If PSS should
be required to be registered as a medical device distributor because of its
distribution
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<PAGE>
of Products, then PSS and Abbott shall share equally in the cost of such
registration. If either Abbott or PSS determines that such registration
costs are unacceptable, such party shall give written notice of its intent to
terminate this Agreement within thirty (30) days of the effective date of such
registration requirement, such termination to take effect sixty (60) days after
the effective date of such requirement.
3.2 Promotional Activities. During the Term, PSS shall use its
Commercially Reasonable Best Efforts to promote Products to Physician Customers
in the Territory, including, but not limited to, the following activities:
(a) Product Promotional Materials. PSS shall make reasonably
diligent use of such promotional materials for the Products as Abbott
may furnish to PSS from time to time pursuant to Section 4.1. In
addition, PSS may, at its own expense, develop and use its own
promotional materials for the Products, provided such promotional
materials are reviewed and approved in writing by Abbott prior to use
pursuant to Section 2.2.
(b) Sales Force. PSS shall retain an adequately sized,
trained and motivated sales force to promote the Products to Physician
Customers in the Territory.
(c) Compensation of Sales Force. PSS shall develop and
implement a separate sales force commission/compensation program for
the Products in accordance with Section 33(a).
(d) Sales Calls. PSS sales representatives shall make adequate
sales calls to Physician Customers to promote actively the Products in
a manner consistent with PSS's current call frequency with the
objective of maintaining a high level of Physician Customer
satisfaction.
(e) Trade Shows. Upon Abbott's request, PSS shall provide
personnel to assist Abbott in Abbott's participation in conferences,
conventions, exhibits and trade shows promoting the Products to
Physician Customers in the Territory in such manner as may be mutually
agreed upon. Abbott shall provide PSS with appropriate prior written
notice of such conferences, conventions, exhibits and trade shows.
(f) Degree of Efforts. PSS shall use a degree of effort in
promoting the Products to Physician Customers in the Territory that is
at least as high as the degree of effort PSS uses to promote its most
important products to Physician Customers in the Territory, including
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<PAGE>
but not limited to designating Abbott as a preferred supplier of
selected products in PSS's "CAN DO" and Platinum Sales Promotion
Programs or any equivalent supplier emphasis programs and placing a
high degree of PSS leadership emphasis on the sale of Products, subject
to the terms and conditions of such programs.
(g) Placement of Instruments. PSS shall use its Commercially
Reasonable Best Efforts to place Instruments with Physician Customers
by (i) sale, (ii) lease/rental, or (iii) for AXSYM(R) and IMx(R)
Instruments only, participation in Abbotts Reagent Agreement Plan
Program ("RAP Program"), whereby Physician Customers shall be allowed
the use of an AXSYM(R) or IMx(R) Instrument in consideration for
purchasing from PSS certain minimum quantities of AXSYM(R) or IMx(R)
Reagent Products, as the case may be. PSS shall be responsible for
making any necessary contractual arrangements with Physician Customers
for the sale or lease/rental of Instruments, and Physician Customers
who elect to receive an AXSYM(R) or IMx(R) Instrument by participation
in the RAP Program shall enter into a written agreement with Abbott in
the form of Exhibit 3.2 attached hereto and incorporated herein or in
any other form approved in advance and in writing by Abbott, under the
RAP Program participation criteria and conditions set forth in Exhibit
3.2.
(h) Abbott Presence at Sales Meetings. PSS shall allow Abbott
representatives to attend all PSS national sales/marketing meetings.
PSS's charge to Abbott to attend national sales/marketing meetings has
been included in Abbott's promotional/sales support payment set forth
in Section 4.4. PSS shall allow Abbott representatives to attend all
PSS regional and branch sales/marketing meetings free of charge. PSS
shall provide Abbott with appropriate prior written notice of all such
national, regional and district branch meetings.
3.3 Sale and Distribution of Products. During the Term, Abbott
shall sell to PSS and PSS shall purchase from Abbott PSS's total requirements of
Products for distribution to Physician Customers, subject to the following
conditions:
(a) Annual Goal Setting. Abbott and PSS shall meet no later
than December 15 of each calendar year during the Term to establish
annual goals, review compensation plans for each party, mutually agree
on rules for use of promotional funding as set in Section 4.4, set
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<PAGE>
dates for Quarterly Reviews and discuss any Physician Customer and/or
Product changes (the "Annual Goal Setting Meeting'). PSS shall develop
and review its sales force commission/ compensation program,
particularly as it relates to the sale of Products, during the Annual
Goal Setting Meeting. The strategic intent of the PSS sales force
compensation program for Products, as set forth in this Section, is to
achieve the objectives of this Agreement. Any branch bonus plan
established by PSS shall assign equal weight to achievement of each
element of the plan and/or assign equal or greater weight to
achievement of Abbott element of the plan.
The sales force compensation program with respect to IMx(R)
and AXSYM(R) Products shall be calculated on a customer account basis
and shall provide for higher commissions on IMx(R) and AXSYM(R)
Products compared to products of other vendors sold by the PSS sales
force with similar gross margins, provided that such program shall not
negatively impact commissions on other products sold to such accounts
or to other accounts by PSS sales representatives. The sales force
compensation program with respect to IMx(R) and AXSYM(R). Products may
also provide for reduced commissions on a customer account basis
compared to products of other vendors sold by the PSS sales force with
similar margins for PSS sales representatives whose IMx(R) and AXSYM(R)
Product sales to such account decline after the Effective Date. The
sales force compensation program with respect to all non IMx(R) and
AXSYM(R) Products shall provide for, at minimum, similar commissions
compared to products of other vendors sold by the PSS sales force with
similar margins.
PSS shall share growth performance incentives generated under
this Agreement among PSS sales representatives based upon each
representative's sales of Products. PSS shall not impose new customer
fees or increase existing fees that disproportionately burden Product
sales without the prior written approval of Abbott. The commission
structure, branch goals, bonus or sales loads defined at each Annual
Goal Setting, Meeting shall not be materially altered without Abbott's
prior written approval. The following issues shall also be discussed at
the Annual Goal Setting Meeting (i) perceived gaps in product
availability, including plans to pursue alternative vendors and new
and/or alternative Abbott products, (ii) internal accounting and/or
financial policy changes that may materially affect the other party,
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<PAGE>
(iii) appropriate responses to declining or obsolete Products, and (iv)
any other topic a party deems relevant.
Prior to each January 1 following an Annual Goal Setting
Meeting during the Term, Abbott and PSS shall enter into a letter
agreement setting forth sales goals, amounts and forms of
marketing/promotional funds to be paid by Abbott, including conditions
thereto, and minimum numbers of Abbott sales support representatives
and PSS sales representatives. In the event that PSS and Abbott are
unable to agree upon sales goals for any Contract Year within thirty
(30) days of the applicable Annual Goal Setting Meeting, the sales
goals for such Contract Year shall be set at [***] in excess of the
sales goals for the prior Contract Year, on a category-by-category
basis. If either Abbott or PSS determines that such [***] default
increase is unacceptable, such party shall give written notice of its
intent to terminate this Agreement within thirty (30) days of the
applicable Annual Goal Setting Meeting, such termination to take effect
sixty (60) days after such Annual Goal Setting Meeting. If PSS
demonstrates to Abbott's reasonable satisfaction that PSS has
experienced a loss in sales or market share of Abbott TestPack(R),
TestPack Plus, Signify(R) or FlexSure(R) ("Rapid Products") of [***] or
more due to entry into the market of a competitive product, PSS and
Abbott shall renegotiate the goals established with respect to such
Product. In the event that the parties are unable to successfully
renegotiate such goals, PSS shall promptly discontinue sales of Rapid
Products and Abbott shall thereafter be responsible for all sales of
Rapid Products to Physician Customers in the Territory.
(b) Purchase of Products for Resale. PSS shall purchase
Products from Abbott solely for resale to Physician Customers in the
Territory for their own use. PSS may not resell or otherwise transfer
or exchange Products to any parties (i) in the Territory other than
Physician Customers, (ii) identified by Abbott as diverters, provided
that Abbott shows reasonable evidence supporting such identification,
or (iii) outside of the Territory. Upon reasonable prior notice and at
mutually agreeable times, Abbott may, at Abbott's expense, audit PSS's
sales records to verify PSS's compliance with its obligations under
this Section 3.3(b) in accordance with the audit procedures set forth
in Exhibit 3.3(b).
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<PAGE>
3.4 Purchase Prices. PSS's purchase prices for the Products as of the
Effective Date are set forth in Exhibit 3.4(a) [***] attached hereto and
incorporated herein, subject to the IMx(R)/AXSYM(R) incentive system set forth
in Exhibit 3.4(b), attached hereto and incorporated herein.
(a) Price Adjustments. After the first anniversary of this
Agreement Abbott may increase purchase prices on a Product-by-Product
basis, provided that the net effect of any such price increase on PSS's
sales price to Physician Customers shall not exceed any price increase
to Physician Customers purchasing Products directly from Abbott as
described in Exhibit 3.4(c), upon forty-five (45) days' prior written
notice to PSS, and no more than once per Contract Year. Abbott price
increases to PSS are in no way contingent upon PSS agreeing to increase
prices to their Physician Customers nor their effectiveness in
increasing prices to their Physician Customers. Abbott will review with
PSS the market and industry data supporting such increases prior to
such written notice.
(b) Resale Prices. PSS shall set its own prices for resale of
the Products to Physician Customers provided that Abbott may, at its
option, suggest resale prices to PSS. Abbott shall not publish such
suggested resale prices except for Abbott's published price catalogs
and list prices which are made available to all Abbott diagnostic
customers.
3.5 Other Terms and Conditions of Sale. PSS's purchase of Products
from Abbott hereunder shall also be subject to the following terms and
conditions of sale:
(a) Payment Terms. Payment terms for all shipments of Products
to PSS shall be net thirty (30) days from the date of Abbott's invoice
to PSS for each shipment of Products, provided that Abbott shall not
invoice PSS until the date of actual Product shipment.
(b) Order Entry. PSS shall use its normal purchase order forms
to order Products from Abbott hereunder, provided that such purchase
orders may specify only the description and quantities of Products
ordered (including identification of Products by the appropriate Abbott
product list numbers), the requested shipment date, and the shipment
destination. Any other terms and conditions stated on such purchase
orders shall not be applicable to purchases hereunder.
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<PAGE>
(c) Delivery. Abbott shall use its Commercially Reasonable
Best Efforts to ship Products to PSS, F.O.B. Abbott's manufacturing
facilities in accordance with PSS's requested delivery dates, except as
otherwise provided in Exhibit 3.5(c) attached hereto and incorporated
herein. Such shipments shall be sufficient in amount and sufficiently
timely to permit PSS to meet its customer order fill rate standards set
forth in Section 3.6 hereof. Except as otherwise mutually agreed,
Abbott shall ship Instruments directly to Physician Customers. Abbott
shall select the carriers for all shipments of Products hereunder,
provided that (i) Abbott shall use its Commercially Reasonable Best
Efforts to select carriers offering competitive prices with reasonably
satisfactory quality and reliability standards and (ii) PSS may suggest
alternate carriers for Abbott's consideration if PSS believes cost
savings can be achieved with alternate carriers having comparable
quality and reliability to Abbott's designated carrier(s). Except as
provided in Exhibit 3.5(c), PSS shall be responsible for shipping
charges for the Products (including any Products shipped directly to
Physician Customers), which shall be added to Abbott's invoices to PSS,
provided that PSS shall be entitled to shipping charge discounts in
accordance with Exhibit 3.5(c). Title and risk of loss shall pass to
PSS upon delivery of the Products to the carrier for shipment.
(d) Returns. Except for return of any defective Products which
do not comply with the applicable warranty for repair or replacement by
Abbott and other returns authorized in accordance with the Returned
Goods Policy set forth in Exhibit 3.5(d) attached hereto and
incorporated herein, all sales of the Products are final and no
Products may be returned without Abbott's prior written consent. Upon
PSS's request, and with Abbott's approval, which approval shall not be
unreasonably withheld, Abbott shall refurbish Instruments that are
returned hereunder for resale by PSS to Physician Customers in such a
manner as may be mutually agreed upon in accordance with applicable
laws and regulations. Except as otherwise mutually agreed, the cost of
such refurbishment shall be Abbott's standard refurbishment cost and
such cost shall be borne by PSS.
(e) Warranty. Abbott warrants that (i) Instruments (excluding
refurbished Instruments) shall comply with Abbott's standard warranty
therefor set forth in the applicable Operator's Manual, (ii)
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refurbished Instruments shall comply with Abbott's standard warranty
therefor for a period of six (6) months from the date of shipment by
Abbott, and (iii) Products other than Instruments shall comply with
Abbott's standard warranty therefor set forth in the then current
Abbott Diagnostics Division Price Catalog. ABBOTT MAKES NO OTHER
WARRANTIES, WHETHER EXPRESS OR IMPLIED, AND ABBOTT EXCLUDES AND
DISCLAIMS ANY OTHER WARRANTIES INCLUDING, BUT NOT LIMITED TO, THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. EXCEPT AS PROVIDED IN SECTION 7.3, ABBOTT SHALL HAVE NO
LIABILITY FOR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES
RELATING TO THE SALE OR USE OF THE PRODUCTS, AND ABBOTT'S LIABILITY
THEREFOR SHALL BE LIMITED TO THE COST OF REPAIR OR REPLACEMENT OF
DEFECTIVE PRODUCTS.
3.6 Inventory. PSS shall use Commercially Reasonable Best Efforts to
maintain a level of inventory of all Products that PSS distributes in the
Territory (excluding Instruments) sufficient to ensure that PSS is able to fill
at least ninety-five percent (95%) of Physician Customers' orders within one (1)
business day of PSS's receipt of such orders. PSS shall store such inventory in
its distribution centers in a manner appropriate for maintaining such Products
in good and saleable condition as required on Product labeling and consistent
with the Product dating and storage conditions specified by Abbott. All PSS
distribution centers shall conform to the temperature control requirements of
the Abbott facilities audit checklist set forth in Exhibit 3.6(a), attached
hereto and incorporated herein, and shall be subject to periodic audit by Abbott
by no more than three (3) Abbott representatives per audit at mutually agreeable
reasonable times and upon reasonable prior notice. PSS's current list of
distribution centers is set forth in Exhibit 3.6(b), attached hereto and
incorporated herein, and PSS shall promptly notify Abbott in writing of any
changes to this list at least once per Contract Quarter. PSS shall maintain a
distribution record system reasonably sufficient to enable Abbott and/or PSS to
promptly notify Physician Customers of Product safety information or issues. If
required by applicable laws or regulations, PSS shall establish and maintain an
auditable distribution record system including an accurate, traceable lot number
control system which is traceable to Physician Customers for such Products
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purchased from PSS. In the event that compliance with applicable laws and
regulations requires PSS to make significant modification to the record system
in place on the Effective Date, then PSS and Abbott shall share equally in the
documented cost of such modifications. If either Abbott or PSS determines that
such modification costs are unacceptable, such party shall give written notice
to the other party of its intent to terminate this Agreement within thirty (30)
days of such determination, such termination to take effect sixty (60) days
after such notice.
3.7 Records. PSS shall maintain complete and accurate records of
Products delivered hereunder, inventory and sales to Physician Customers. PSS
shall make such records available to Abbott within fifteen (15) days after the
end of each calendar month in an automated format to be mutually agreed upon and
Abbott may utilize such records in its Quality Field Watch Program in the Abbott
Customer Support Center.
3.8 Reports and Customer Lists. Within fifteen (15) days after the end
of each calendar month during the Term, PSS shall furnish written reports to
Abbott on PSS's Product sales and other distribution activities relating to the
Products in the Territory, in a mutually agreed upon format. Such reports shall
include the names and addresses (including zip codes) of each Physician
Customer, the dates of distribution, the quantities and prices of Products sold,
the aggregate total dollar sales volume for Physician Customer purchases on a
Product group-by-Product group basis, and such other information as Abbott may
reasonably request.
3.9 Quarterly Reviews. PSS shall review the status of its activities
under this Agreement with Abbott at least once per Contract Quarter at mutually
agreed upon times and locations (the "Quarterly Review"). At each Quarterly
Review, the parties shall review PSS's performance under this Agreement and
factors contributing to PSS's progress on the goals set at the Annual Goal
Setting Meeting (the "Annual Goals"), including but not limited to delays in
Product launches, major competitive changes and market conditions. At each
Quarterly Review, the parties shall also review Abbott's field sales
performance, customer service performance and overall Product quality. The
Quarterly Review shall also serve as the forum for PSS to present and propose
alternative strategies necessary to achieve the Annual Goals and for the Parties
to discuss future product development needs and opportunities.
3.10 Product Recalls and Complaints. Upon Abbott's request, PSS shall
assist Abbott in identifying Physician Customers for notification in connection
with any Product recalls. Within twenty-four (24) hours of PSS's own receipt of
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notice (at PSS headquarters) of any Physician Customer technical questions,
complaints or actual or alleged Product defects, PSS shall notify Abbott thereof
orally, followed promptly by a written notice using the "Abbott Laboratories
Product Complaint Inquiry Form," the current form of which is set forth in
Exhibit 3.10, attached hereto and incorporated herein.
3.11 Billing and Collections. PSS shall have sole responsibility for
billings to and collections from Physician Customers for PSS's sales of Products
to Physician Customers.
3.12 Use of Abbott Trademarks/Trade Names. PSS shall promote the
Products to Physician Customers in the Territory using Abbott Trademarks/Trade
Names and PSS shall not use any name, mark or style to identify the Products
other than Abbott Trademarks/Trade Names without Abbott's prior written consent.
PSS acknowledges that Abbott Trademarks/Trade Names are valid trademarks and
trade names and the sole property of Abbott, and PSS shall not disparage or
challenge the validity of Abbott Trademarks/Trade Names during the Term. PSS
shall promptly notify Abbott of any actual or alleged infringements of Abbott
Trademarks/Trade Names of which PSS becomes aware during the Term. Nothing
contained herein shall be construed to authorize PSS: (a) to use any Abbott
Trademarks/Trade Names as a style or name, or as a part of the style or name, of
any firm, partnership or corporation; (b) to apply Abbott Trademarks/Trade Names
to any goods other than the Products; or (c) at any time after the termination
of this Agreement, to apply Abbott Trademarks/Trade Names to goods or to any
other use whatsoever.
3.13 Non-Competition Obligations. [***], PSS and its
Affiliates shall not promote or sell any [***] ("Competitive Products") to
Physician Customers, and shall take active steps to prevent violation of this
provision, including but not limited to enforcing the penalties set forth in
Section 3.13(d), subject to the following exceptions and conditions:
(a) Competitive Products. Competitive Products shall include
[***]
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In the event that PSS or any of its Affiliates desires to distribute an
instrument sold principally to perform [***] but also capable of
performing any analyte listed in Section 3.13 (c), PSS shall request
that such instrument be added to the Excluded Competitive Products
list and approval of such request shall not be unreasonably withheld
by Abbott. Competitive Products shall also include [***].
Competitive Products shall include [***]. Any issues with regard to
Competitive Products shall be discussed at the Annual Goal Setting
Meeting.
(b) Excluded Competitive Products. Competitive Products shall
exclude the products referenced in Exhibit 3.13(b) attached hereto and
incorporated herein by reference ("Excluded Competitive Products"). PSS
and its Affiliates shall have the right to continue to promote and sell
Excluded Competitive Products to Physician Customers that are
purchasing such Excluded Competitive Products from PSS or its
Affiliates on the Effective Date; provided, however, that PSS and its
Affiliates shall not promote or sell Excluded Competitive Products to
any other Physician Customers during the Term, except as otherwise
provided in Exhibit 3.13(b). Exhibit 3.13(b) may be amended only by
mutual written agreement of the Parties. Any issues with regard to
Excluded Competitive Products shall be discussed at the Annual Goal
Setting Meeting.
(c) Exception for Recall or Withdrawal. If at any time during
the Term a Product is the subject of a recall, withdrawal or
interruption of Product supply for a period in excess of [***]
days, or a Product is not available for resale to Physician Customers
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due to Abbott's inability to supply such Products, PSS may, at its
option, purchase and resell to Physician Customers reasonably
comparable replacement products for the duration of such recall or
withdrawal or Product unavailability, provided that (i) PSS shall
notify Abbott prior to purchasing and reselling replacement products,
and keep Abbott apprised of the replacement products it is purchasing
and reselling throughout the duration of such recall, withdrawal or
Product unavailability; (ii) PSS shall sell alternative Abbott products
rather than competitor's products if alternative Abbott products are
available and meet the criteria listed in (iii) (A) and (B); (iii) PSS
shall return to selling recalled, withdrawn or unavailable Products or
Abbott alternative products and discontinue selling competitor's
products within sixty (60) days of (A) the availability of such
Products or Abbott alternatives to such Products which perform analysis
for the same analytes, have the same CLIA classifications and are
available at the same price from Abbott as the recalled, withdrawn or
unavailable Products and in quantities sufficient to satisfy Physician
Customer requirements and (B) implementation of a marketing plan
regarding such products developed mutually and in good faith by the
parties; and (iv) Abbott shall notify PSS in writing at least
forty-five (45) days prior to the availability of such Products or
Abbott alternatives to such Products to enable PSS to commence
reduction of competitive product stock. In the event that PSS does not
cease selling replacement products and resume selling Products or
Abbott alternative products as set forth above within three (3) months
of such Products becoming available, Abbott shall have the right,
without prejudice to any other rights or remedies available to it, to
terminate this Agreement upon ninety (90) days' prior written notice to
PSS. In the event of recall, withdrawal or unavailability of Products,
the parties shall in good faith negotiate appropriate changes to the
Annual Goals.
(d) Compliance Audit. Upon reasonable prior written notice to
PSS and at mutually agreeable times, Abbott may, at Abbott's expense,
audit PSS's sales records, branch inventory and any other records
necessary to verify PSS's compliance with its obligations under this
Section 3.13. In the event that any such audit reveals that PSS or any
PSS branch is materially non-compliant with the provisions of this
Section 3.13 or that PSS has given to Abbott false sales data or other
information concerning the purchase or sale of Products, Abbott shall
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notify PSS of the results of such audit and PSS shall have sixty (60)
days to cure any identified deficiencies. In the event that PSS does
not cure any identified deficiencies within such sixty (60) day
period, Abbott may in its sole discretion terminate this Agreement on
ninety (90) days' notice to PSS. Any PSS branch found in an audit
conducted pursuant to the terms of this Section 3.13(d) to be stocking
or servicing Competitive Products during the term of this Agreement
(except for Excluded Competitive Products or as permitted under
Section 3.13(c) hereof) shall pay a penalty of [***] to PSS Field
Support. If any subsequent audit conducted at least sixty (60) days
after the initial audit reveals a second offense by such PSS branch,
such branch shall forfeit fifty percent (50%) of its branch leadership
bonus to PSS Field Support.
ARTICLE 4
ABBOTT OBLIGATIONS
4.1 Promotional Materials. At no cost to PSS, Abbott shall provide PSS
with such promotional materials relating to the Products as Abbott deems
appropriate in such quantities as may be mutually agreed for PSS's use
hereunder.
4.2 Training. At no cost to PSS, during the Term Abbott shall provide
PSS and Physician Customers with appropriate training in the use and operation
of Products.
4.3 Service. Unless otherwise mutually agreed in writing, Abbott or its
designees shall perform all warranty service on Products and maintenance service
for Instruments. PSS shall not perform any such warranty or maintenance services
for any Products (including Instruments) and PSS shall refer all Physician
Customer service inquiries to Abbott. PSS shall receive a mutually agreed upon
finder's fee for each renewed Abbott Instrument service agreement resulting from
PSS's referring Physician Customer Instrument service inquiries to Abbott.
4.4 Advertising/Promotional Support. During each Contract Year, Abbott
shall pay PSS an advertising/promotional support payment to be used by PSS to
support its national sales meeting and promotional programs relating to the
Products, including but not limited to "CAN DO" and Product promotional programs
(including regional, local, university and other programs). The amount of the
advertising/promotional support payment shall be [***] per Contract Year, such
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payment to be made prior to the beginning of such Contract Year. In addition,
Abbott shall pay PSS [***] in calendar year 2000 for customer retention programs
necessitated by Product withdrawals. In any Contract Year in which PSS achieves
at least [***] growth in Product sales over the previous Contract Year, or if
PSS exceeds the Abbott goals established for the first Contract Year as
described in Attachment 3.4(b), Abbott shall pay PSS an additional [***] as a
Contract Year-end incentive to be applied toward advertising/promotional support
of Products.
4.5 Assistance with PSS Legal Compliance. If the FDA or any other
regulatory agency institutes any new registration or approval requirements
during the Term and PSS is not able to comply immediately with such
requirements, then for a period of up to three (3) months from the effective
date of such requirements Abbott shall, upon PSS's request and if Abbott itself
is able to comply with such requirements, supply Physician Customers with
Products directly until such time as PSS complies with such requirements. PSS
shall receive contract credit for all such sales and all shipping charges for
such direct shipments shall be paid by PSS or the Physician Customers receiving
such shipments.
4.6 Field Sales Force. Abbott will maintain an adequate field sales
force to support PSS in the attainment of its sales quotas.
4.7 Voluntary Product Withdrawals and Discontinuations. To the extent
practicable, Abbott will provide PSS advance written notice of any voluntary
Product withdrawal or significant Product change. Abbott will provide PSS with
[***] days prior written notice of any Product discontinuation.
ARTICLE 5
CONFIDENTIALITY AND PUBLICITY
5.1 Confidentiality. During the Term and for a period of [***] years
thereafter, each party shall keep in confidence any information and/or
documentation received from the other ("Confidential Information"), and each
party shall use the Confidential Information only for purposes of this
Agreement. Except as expressly provided in this Agreement, neither party shall
at any time use or permit others to use any Confidential Information for any
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purposes. The foregoing obligations shall not apply to, and the definition of
"Confidential Information" does not include:
(a) Publicly Available Information - information that was
already in the public domain or subsequent to disclosure to a party
becomes part of the public domain other than through the fault of such
party;
(b) Previously Known Information - information that was
rightfully known (as evidenced by written records) prior to the date of
disclosure by the other party;
(c) Subsequently Disclosed Information - information that was
received from a third party having a lawful right to disclose the same;
or
(d) Legally Required Disclosures of Information - information
that, in the opinion of a party's counsel, is required to be disclosed
to comply with any applicable law, regulation or order of a government
authority or court of competent jurisdiction, in which event the party
required to make such disclosure shall advise the other party in
advance of the need for such disclosure and use its best efforts to
obtain confidential treatment of such information. Notwithstanding the
foregoing, any party may disclose Confidential Information to its
employees and agents to the extent reasonably necessary for the
performance of this Agreement, provided that such recipients are
subject in writing to obligations of confidentiality and non-use with
respect to such information to the same extent as each party is
obligated hereunder.
5.2 Publicity. Neither party may disclose the existence or terms of this
Agreement, or make any public relations announcement concerning this Agreement
or the Abbott-PSS business relationship, without the prior written consent of
the other party, except as may be legally required in the determination of the
disclosing party's legal counsel. If either party desires to or believes it is
legally required to announce the execution of this Agreement, the parties shall
cooperate in determining the date and format of such announcement, giving
consideration to the requirements of any applicable laws and regulations. Abbott
acknowledges that PSS may discuss this Agreement generally with securities
analysts and that this Agreement will be disclosed and generally described in
PSS securities law filings, provided that PSS shall give Abbott reasonable
advance notice of any such public disclosure, to the extent reasonably
practicable and legally permissible. Abbott also acknowledges that this
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Agreement must be filed by PSS with the Securities and Exchange Commission (the
"SEC") as a "material contract." PSS agrees to seek "confidential
treatment" of certain pricing information contained in this Agreement in any
such SEC filing.
ARTICLE 6
CERTAIN REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants to the other party as
follows:
6.1 Corporate Existence and Power. Such party (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state in
which it is incorporated, (b) has the corporate power and authority and the
legal right to own and operate its property and assets, to lease the property
and assets it operates under lease, and to carry on its business as it is now
being conducted and as it is proposed to be conducted hereunder, and (c) is in
compliance with all requirements of applicable laws and regulations, except as
previously disclosed to the other party or to the extent that any noncompliance
would not have a material adverse effect on the properties, business, or
financial condition of such party and would not materially and adversely affect
such party's ability to perform its obligations under this Agreement.
6.2 Authorization and Enforcement of Obligations. Such party (a) has
the corporate power and authority and the legal right to enter into this
Agreement and to perform its obligations hereunder, and (b) has taken all
necessary corporate action on its part to authorize the execution and delivery
of this Agreement and the performance of its obligations hereunder. This
Agreement has been duly executed and delivered on behalf of such party, and
constitutes a legal, valid, binding obligation, enforceable against such party
in accordance with its terms.
6.3 Consents. All necessary consents, approvals and authorizations of
all governmental authorities and other persons required to be obtained by such
party in connection with the execution, delivery and performance of this
Agreement have been obtained.
6.4 No Conflict. The execution and delivery of this Agreement and the
performance of such party's obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations and (b) do not
conflict with, violate or breach or constitute a default or require any consent
under, any contractual obligation of such party.
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6.5 Compliance With Laws. Such party shall perform its obligations
hereunder in compliance with all applicable federal, state and local laws,
regulations and guidelines.
ARTICLE 7
INDEMNIFICATION AND INSURANCE
7.1 PSS Indemnification. PSS shall defend, indemnify and hold harmless
Abbott, its Affiliates, and the officers, directors, employees and agents of
Abbott and its Affiliates, from and against any and all liabilities, damages,
claims, demands, costs, or expenses (including reasonable attorneys' fees)
claimed by any third party for any property or other economic loss or damage or
injury or death suffered by it to the extent the same is determined to have been
caused by PSS's negligence, willful misconduct or breach of this Agreement.
7.2 PSS Insurance. During the Term, PSS shall maintain general business
liability insurance coverage in the minimum aggregate amount of [***].
7.3 Abbott Indemnification. Abbott shall defend, indemnify and hold
harmless PSS, its Affiliates, and the officers, directors, employees and agents
of PSS and its Affiliates, from and against any and all liabilities, damages,
claims, demands, costs, or expenses (including reasonable attorneys' fees)
claimed by any third party for any property or other economic loss or damage or
injury or death suffered by it to the extent the same is determined to have been
caused by Abbott's negligence, willful misconduct or breach of this Agreement or
any alleged defect in the design or manufacture of the Products.
7.4 Conditions of Indemnifications. If Abbott seeks indemnification
from PSS pursuant to Section 7.1 or PSS seeks indemnification from Abbott
pursuant to Section 7.3, the party seeking indemnification shall (a) notify the
other party in writing of the claim or suit for which indemnification is sought
within fifteen (15) days after the date the party seeking indemnification itself
receives notice of such claim or suit, and (b) allow the other party to control
the defense or settlement of such claim or suit, provided that the party seeking
indemnification may, at its own option and expense, participate in the defense
or settlement of such claim or suit, and provided further that the indemnifying
party shall not enter into any binding settlement, consent to any judgment or
otherwise resolve any such claim or suit pursuant to which the other party would
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be obligated to take or refrain from taking any action or to make any payments
or admissions, without the other party's prior written consent.
ARTICLE 8
TERM AND TERMINATION
8.1 Expiration. Unless terminated earlier by written agreement of the
parties or pursuant to Sections 3.3(a), 3.6, 3.13(b), 3.13(c), 3.13(e), 8.3 or
8.4, the term of this Agreement shall commence on the Effective Date and
continue until three (3) years thereafter ("Term").
8.2 Early Termination by Either Party. Either party shall have the
right, without prejudice to any other rights or remedies available to it, to
terminate this Agreement for cause by written notice to the other party in any
of the following events:
(a) Bankruptcy. A party may terminate this Agreement if the
other party becomes insolvent, is adjudged bankrupt, applies for
judicial or extra-judicial settlement with its creditors, makes an
assignment for the benefit of its creditors, voluntarily files for
bankruptcy or has a receiver or trustee (or the like) in bankruptcy
appointed by reason of its insolvency, or in the event an involuntary
bankruptcy action is filed against the other party and not dismissed
within sixty (60) days, or if the other party becomes the subject of
liquidation or dissolution proceedings or otherwise discontinues
business.
(b) Default. A party may terminate this Agreement if the other
party commits a material breach of this Agreement and the party alleged
to be in breach fails to (i) cure , such breach, or (ii) commence
dispute resolution proceedings under Section 9.11 contesting whether a
breach has occurred and/or whether such breach is a material breach
within sixty (60) days after receipt of written notice from the party
asserting the breach. For purposes of this Section, a material breach
by PSS shall include, but is not limited to, any material breach by PSS
of its non-competition obligations pursuant to Section 3.13.
(c) IMx(R) and AXSYM(R) Product Sales. A party may terminate
this Agreement if total sales of IMx(R) and AXSYM(R) Products to
end-user customers by PSS sales representatives in the first Contract
Year decline by more than [***] compared to annualized total sales of
IMx(R) and AXSYM(R) Products sold to end-user customers by PSS sales
representatives from January through June of 2000. A party may also
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terminate this Agreement if total sales of IMx(R) and AXSYM(R) Products
to end-user customers by PSS sales representatives in any Contract Year
after the first Contract Year decline by more than [***] compared to
total sales of IMx(R) and AXSYM(R) Products sold to end-user customers
by PSS sales representatives during the previous Contract Year, as
calculated in accordance with paragraph nine (9) of Exhibit 3.4(b).
Lastly, a party may terminate this Agreement if PSS experiences [***]
of declining semi-annual end-user sales in excess of [***] for IMx(R)
and AXSYM(R) Products. Notwithstanding anything to the contrary in this
Section 8.2(c), Abbott shall not terminate this Agreement if it fails
to timely provide sufficient IMx(R) and AXSYM(R) Products to PSS as
required by this Agreement.
8.3 Termination for Business Combination. Each party shall have the
right, without prejudice to any other rights or remedies available to it, to
terminate this Agreement for cause by written notice to the other party, to be
given as soon as ten (10) days after such party has received written notice from
such other party that a Business Combination either has occurred or will occur.
For purposes of this Section 8.3, a "Business Combination" shall mean a
transaction in which a controlling interest in a party is acquired in a merger,
share exchange, sale of assets or otherwise by any third party.
8.4 Other Termination by Abbott. In addition to Abbott's termination
rights pursuant to Clauses 3.3(a), 3.6, 3.13(b), 3.13(c) and 3.13(e) and
Sections 8.2 and 8.3, Abbott shall have the right, without prejudice to any
other rights or remedies available to it, to terminate this Agreement for cause
by giving PSS ninety (90) days' prior written notice upon the occurrence of
either of the following events:
(a) Products are no longer serviced and delivered from
dedicated PSS warehouses which maintain same day and/or next day service and
delivery; or
(b) PSS ships Products through Fisher warehouses.
8.5 PSS Obligations Upon Termination. If Abbott terminates this
Agreement pursuant to Clauses 3.3(a), 3.6, 3.13(b), 3.13(c) or 3.13(e) or
Sections 8.1, 8.2, 8.3 or 8.4, or if PSS terminates this Agreement pursuant to
Clauses 3.3(a) or 3.6 or Section 8.1, then PSS shall, upon Abbott's request,
assist Abbott in transitioning sales of Products to Physician Customers from PSS
to Abbott by forwarding to the attention of Vice President U.S. Marketing Dept.
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939 Bldg. AP6C5 100 Abbott Park Road Abbott Park IL 60064 all original
contracts, and any attachments, amendments and modifications thereto, related to
Products and assisting in joint communications to customers as Abbott may
reasonably request. If PSS terminates this Agreement pursuant to Section 8.2,
then PSS shall have no obligation to assist Abbott in transitioning sales of
Products to Physician Customers from PSS to Abbott. Any sales of Products for
which PSS has billed Physician Customers but not yet collected prior to
termination or expiration of this Agreement shall be PSS's sales. Provided that
(i) PSS complies with its obligations under this Section 8.5; (ii) PSS complies
with its obligations pursuant to Article 5, as such obligations are limited by
the exceptions set forth therein, with respect to the following Confidential
Information (A) Abbott pricing to PSS and Physician Customers, (B) marketing
information and programs discussed in the course of business between Abbott and
PSS and (C) the terms of this Agreement, to the extent such terms have been
granted confidential treatment by the SEC, and the terms of any agreements
entered into with Physician Customers pursuant to this Agreement; and (iii)
neither PSS nor any Affiliate of PSS attempts to tortiously interfere, in
violation of applicable law, with existing and valid contracts between Abbott
and a customer, PSS shall be entitled to sell Competitive Products to any
customer after the termination or expiration of this Agreement.
8.6 Effect of Termination. Termination or expiration of this Agreement
through any means and for any reason shall not relieve the parties of any
obligations accruing prior thereto, and shall be without prejudice to the rights
and remedies of either party with respect to any breach of any of the provisions
of this Agreement.
ARTICLE 9
MISCELLANEOUS
9.1 Entire Agreement; Amendment. This Agreement contains the entire
understanding of the parties with respect to the subject matter thereof and
supersedes all previous verbal and written agreements, representations and
warranties with respect to such subject matter, including the Distributorship
Agreement between the parties dated as of April 1, 1995, provided that the
confidentiality provisions of such Distributorship Agreement shall continue to
survive for [***] years after the term of such agreement, as contemplated in
Section 6.1 thereof. This Agreement may be amended only by a written agreement,
signed by authorized representatives of both parties.
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9.2 Force Majeure. Failure of either party to perform its obligations
under this Agreement (except the obligation to make payments) shall not subject
such party to any liability or constitute a breach of this Agreement if such
failure is caused by any event or circumstances beyond the reasonable control of
such nonperforming party, including without limitation acts of God, fire,
explosion, flood, drought, war, riot, sabotage, embargo, strikes or other labor
trouble, failure in whole or in part of suppliers to deliver on schedule
materials, equipment or machinery, interruption of or delay in transportation
(unless caused by the party so affected), a national health emergency or
compliance with any order or regulation of any government entity. A party whose
performance is affected by a force majeure event shall take prompt action to
remedy the effects of the force majeure event.
9.3 Waiver. A failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of such rights nor shall a waiver
by either party in one or more instances by construed as constituting a
continuing waiver or as a waiver in other instances. Any waiver of breach
executed by either party shall affect only the specific breach and shall not
operate as a waiver of any subsequent or preceding breach.
9.4 No Assignment. Except as otherwise expressly provided herein,
neither party may sell, assign, pledge, subcontract or otherwise dispose of all
or any portion of its rights or obligations under this Agreement except, in the
case of Abbott, to an Affiliate. Subject to the foregoing, this Agreement shall
inure to the benefit of and be binding upon the parties and their respective
permitted successors and assigns.
9.5 Severability. If any clause or provision of this Agreement is
declared invalid or unenforceable by a court of competent jurisdiction, such
provision shall be severed and the remaining provisions of the Agreement shall
continue in full force and effect. The parties shall use all Commercially
Reasonable Best Efforts to agree upon a valid and enforceable provision as a
substitute for the severed provision, taking into account the intent of this
Agreement.
9.6 Relationship of Parties. The parties shall have the status of
independent contractors under this Agreement and nothing in this Agreement shall
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be construed as authorization for either of the parties to act as a joint
venturer with, agent for, or partner of, the other party.
9.7 Non-Solicitation. During the Term and for a period of six (6)
months thereafter, neither party nor their Affiliates shall solicit for
employment or employ any employee of the other party without the other party's
prior written consent.
9.8 Notices. Any notice, request or other communication required to be
given pursuant to the provisions of this Agreement shall be in writing and shall
be deemed to be given when delivered in person or five (5) days after being
deposited in the United States mail, postage prepaid, certified, return receipt
requested, or by overnight courier (return receipt requested), to the parties
addressed as follows:
(a) If to Abbott to:
Vice President/Diagnostic Operations, US and Canada
Abbott Diagnostics Division
Abbott Laboratories
100 Abbott Park Road
D-922, AP6C
Abbott Park, Illinois 60064-3500
Tel: (847) 938-8962
Fax: (847) 938-3232
With a copy to:
Abbott Laboratories
Domestic Legal Operations
100 Abbott Park Road D-322, AP6D
Abbott Park, Illinois 60064-6049
Attention: Divisional Vice President
Tel: (847) 937-5032
Fax: (847) 938-1206
(b) If to PSS to:
Chief Executive Officer
PSS World Medical, Inc.
4345 Southpoint Boulevard
Jacksonville, Florida 32216
Tel: (904) 281-0011
Fax: (904) 281-9555
With a copy to:
-25-
<PAGE>
J. Vaughan Curtis, Esq.
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Tel: (404) 881-7000
Fax: (404) 881-7777
Either party may change its address or its fax number by giving the other party
written notice, delivered in accordance with this Section 9.8.
9.9 Further Instruments. Each party shall execute and deliver such
further instruments and do such further reasonable acts and things as reasonably
may be required to carry out the intent and purpose of this Agreement.
9.10 Governing Law. The validity, performance, construction, and
effect of this Agreement shall be governed by the laws of the State of Illinois,
without giving effect to conflict of law rules.
9.11 Alternative Dispute Resolution. All disputes arising out of or in
connection with this Agreement (except those involving actions commenced by or
involving third parties) shall be resolved by Alternative Dispute Resolution
("ADR") proceedings in accordance with Exhibit 9.11, attached hereto and
incorporated herein.
9.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against the party whose
signature appears thereon, but all of which taken together shall constitute one
and the same instrument, and signatures received by facsimile transmission shall
constitute legal and valid signatures hereto.
IN WITNESS WHEREOF, each party has caused this Agreement to be signed
by its duly authorized representative as of the Effective Date.
ABBOTT LABORATORIES INC. PSS WORLD MEDICAL, INC.
By: By:
Title: Title:
-26-
<PAGE>
EXHIBIT 1.1
PRODUCTS
* Diagnostic products including
* Test kits
* Controls
* Abbott Vision(R)System including
* Abbott Vision Analyzer
* Test cartridge reagent kits
* Calibrators
* Controls
% Instrument accessories
* Reagent accessories
* Instrument disposables
* Cell-Dyng System including
* Cell-Dyn Analyzers: 1200/CD 1400/CD 1600/CD 1600CS/CD 1700/CD
1700CS/ CD 3000CS/CD 3000SL/CD 3200CS/ CD 3200SL/CD 3500CS/CD
3500SL/CD3700CS/CD 3700SL/CD4000SL
* Reagents
* Calibrators
* Controls
* Instrument accessories
* Reagent accessories
* Instrument disposables
* IMx(R)System including
* IMx analyzer
* Reagents
* Calibrators
* Controls
* Instrument accessories
* Reagent accessories
* Instrument disposables
* AxSYM(R)System including
* AxSYM(R)analyzer
* Reagents
* Calibrators
* Controls
* Instrument accessories
* Reagent accessories
* Instrument disposables
* Aeroset(R)System including
* Aeroset analyzer
* Reagents
* Calibrators
-27-
<PAGE>
* Controls
* Instrument accessories
* Reagent accessories
* Instrument disposables
* LCx(R)System including
* LCx analyzer
* Reagents
* Calibrators
* Controls
* Instrument accessories
* accessories
* Instrument disposables
* Abbott Spectrum(R)System including
* Spectrum Analyzer
* Reagents
* Calibrators
* Controls
* Instrument accessories
* Reagent accessories)
* Instrument disposables
-28-
<PAGE>
GUIDE TO SPELLING OF U.S. TRADEMARKS
<TABLE>
<CAPTION>
ADD
<S> <C> <C>
--------------------------- ---------------------------- -----------------------
AARTS (with design)(R) COMMANDER(R) TDX FLX(R)
--------------------------- ---------------------------- -----------------------
ABA-200(R) CORAB(R) TDX (stylized)(R)
--------------------------- ---------------------------- -----------------------
ABBOTTALCYONv CORZYME(R) TETRABEAD(R)
--------------------------- ---------------------------- -----------------------
ABBOTT ALLIANCE(R) *DATATRAC THYPINONE(R)
--------------------------- ---------------------------- -----------------------
*ABBOTT DMS *DATAWAY *THYROGRAPH
--------------------------- ---------------------------- -----------------------
ABBOTT MATRIX(R) DYN-A-PAK(R) *TOXO G-EIA
--------------------------- ---------------------------- -----------------------
ABBOTT PRISM(R) DYNA-LYTE(R) *TOXO-G
--------------------------- ---------------------------- -----------------------
ABBOTT PROCLAIM(R) EPX(R) *TOXO-M
--------------------------- ---------------------------- -----------------------
ABBOTT QUALITY INSTITUTE(R) *FLEX PROTOCOL TRIOBEAD(R)
--------------------------- ---------------------------- -----------------------
ABBOTT SPECTRUM(R) *FLEXIBLE PLATFORM TURBO (with design)(R)
--------------------------- ---------------------------- -----------------------
ABBOTT SPECTRUM EPX(R) *FLEXRATE VISION (with design)(R)
--------------------------- ---------------------------- -----------------------
ABBOTT TESTPACK(R) FLEXSURE(R) VP SUPER SYSTEM(R)
--------------------------- ---------------------------- -----------------------
ABBOTT VISION(R) GONOZYME(R) X SYSTEMS(R)
--------------------------- ---------------------------- -----------------------
ABBOTT VISION PROCLAIM(R) *HIVAB
--------------------------- ---------------------------- -----------------------
*ABBOTT VP *HIVAG with Corporate Logo
--------------------------- ---------------------------- -----------------------
ABBOTTBASE(R) *HTDX
--------------------------- ---------------------------- -----------------------
ADVISOR(R) IMX (stylized)(R)
--------------------------- ---------------------------- -----------------------
ADX(R) *IMX CORE
--------------------------- ---------------------------- -----------------------
ADX (stylized)(R) *IMX CORE-M
--------------------------- ---------------------------- -----------------------
A-GENT(R) IMX SELECT(R)
--------------------------- ---------------------------- -----------------------
ALCYON(R) LCX(R)
--------------------------- ---------------------------- -----------------------
AMPVETTE(R) *MTDX
--------------------------- ---------------------------- -----------------------
ANSR(R) OBC(R)
--------------------------- ---------------------------- -----------------------
AQI(R) PENTAWASH(R)
--------------------------- ---------------------------- -----------------------
ARCHITECT(R) *PRO-FILES
--------------------------- ---------------------------- -----------------------
*ARCHITECT ARM PROQUANTUM(R)
--------------------------- ---------------------------- -----------------------
AUSAB(R) *QCP
--------------------------- ---------------------------- -----------------------
AUSCELL(R) *QUANTUM
--------------------------- ---------------------------- -----------------------
AUSRIA(R) *QUANTUMATIC
--------------------------- ---------------------------- -----------------------
AUSZYME(R) QWIKWASH(R)
--------------------------- ---------------------------- -----------------------
AXSYM(R) RAB(R)
--------------------------- ---------------------------- -----------------------
*AXSYM2 REA(R)
--------------------------- ---------------------------- -----------------------
*AXSYM CORE RIABEAD(R)
--------------------------- ---------------------------- -----------------------
*AXSYM CORE-M ROTAZYME(R)
--------------------------- ---------------------------- -----------------------
AXSYM EXEC(R) RUBAZYME(R)
--------------------------- ---------------------------- -----------------------
AXSYM EXTEND(R) SERA-SEAL(R)
--------------------------- ---------------------------- -----------------------
*CCX (stylized) *SERIES II
--------------------------- ---------------------------- -----------------------
CDIM(R) SIGNIFY(R)
--------------------------- ---------------------------- -----------------------
CELL-DYN(R) *SPA
--------------------------- ---------------------------- -----------------------
CELL-DYN(R)NAVIGATOR
--------------------------- ---------------------------- -----------------------
CELL-DYN(R)WORK CELL
--------------------------- ---------------------------- -----------------------
* CELL-DYN(R)HEMCAL
--------------------------- ---------------------------- -----------------------
CHLAMYDIAZYME(R)
--------------------------- ---------------------------- -----------------------
--------------------------- ---------------------------- -----------------------
--------------------------- ---------------------------- -----------------------
--------------------------- ---------------------------- -----------------------
</TABLE>
* NOT REGISTERED
IMPORTANT: There should be no display of a trademark in the plural form, no
possessives, or removal or addition of hyphens.
Trademarks are to be spelled with initial capitals, all capital letters, or in a
distinctive manner.
-29-
<PAGE>
EXHIBIT 1.8
EXCLUDED PHYSICIANS
Attached List to be updated to include changes in name, address or new
satellite locations of pre-existing Excluded Customers since the date of
original production. Update to be finalized and agreed upon by the parties
prior to the Effective Date of the Agreement.
-30-
<PAGE>
EXHIBIT 3.2
RAP PARTICIPATION CRITERIA
Physicians Office Customers desiring to participate in the RAP program to
receive the use of an IMx or AxSYM Instrument shall be required to enter into a
written agreement with PSS in a form approved in writing by Abbott. At minimum,
such agreement shall contain the following terms:
1. The participate Physicians Office Customers shall be required to
purchase minimum quantities of IMx / AxSYM reagents from PSS equivalent
to [***] per month for IMx or AxSYM Instrument respectively (measured
on the basis of Abbott's prices to PSS hereunder for such reagents).
2. The participating Physicians Office Customers shall be required to
comply with the terms of Part B of Abbott's Customer Incentive
Agreement/Reagent Agreement Plan, the current form of which is
attached. Any modifications to such terms shall require Abbott's prior
written approval.
3. Abbott shall be, specifically identified as the owner of the IMx and/or
AxSYM Instrument and a third party beneficiary of the PSS-Physicians
Office Customer agreement with the express right for Abbott to enforce
the agreement directly against the Physicians Office Customer by legal
action and/or repossession of the IMx Instrument. PSS shall promptly
notify Abbott of any Physicians Office Customer breaches of such
agreements.
-31-
<PAGE>
[***]
-32-
<PAGE>
[***]
-33-
<PAGE>
EXHIBIT 3.3(b)
AUDIT PROCEDURES
Pursuant to Article 3: Upon PSS's receipt of written notice from Abbott of at
least five (5) business days prior notice, PSS shall permit Abbott internal
auditors or its third party designee access to each facility where Product is
stored in order to verify that storage conditions consistent with product
requirements and labeling are being met, provided that any such audit shall not
exceed five (5) business days. PSS agrees to maintain an adequate inventory
record system capable of tracing the receipt, storage, resale and ultimate
disposition of Product. PSS agrees to permit said auditors access to various
books, records, files and other materials pertaining to the resale, transfer or
exchange of Products and agrees to make such records, files and other materials
available for inspection during regular business hours by Abbott or its
designee. PSS shall permit Abbott to conduct such audits once per calendar year
per distribution site except that Abbott may conduct such audits once per
calendar quarter in so far as they have a reasonable concern that (a) sales
records and/or chargeback requests reported to Abbott by PSS may contain errors
whether intentional or unintentional, (b) a PSS facility has sold, transferred
or exchanged Product to customers other than those authorized or, (c) a PSS
facility has stocked or is stocking non-excluded Competitive Product.
Abbott or its designated auditors shall treat all information gathered or
observed during such audits as confidential as previously defined in this
agreement.
-34-
<PAGE>
EXHIBIT 3.4(a)
PURCHASE PRICES
Note: Prices reflected DO NOT include the [***] on all IMx and AxSYM System
products effective upon this contract's Effective Date
The minimum transfer price is [***] of the applicable product transfer price.
-35-
<PAGE>
EXHIBIT 3.4(b)
IMx(R)/AXSYM(R) INCENTIVE SYSTEM
This incentive system applies to sales of IMx(R) and AXSYM(R) Products
only.
(1) The transfer prices and minimum transfer prices for IMx(R) and
AXSYM(R) Products are set forth on Exhibit 3.4(a). Prices shown Do Not include a
[***] IMx and AxSYM System products which is effective upon the Effective Date.
(2) Except as set forth below, Abbott shall pay, [***] on all sales of
IMx(R) and AXSYM(R) Products sold to end-user customers by PSS sales
representatives at or above the minimum transfer prices in effect for such
Products at the time of sale. As used herein, gross profit margin means the
quotient obtained by dividing gross profit by net sales, where gross profit is
determined by subtracting transfer cost from net sales and adding net rebate.
(3) Abbott shall pay [***] on all sales of B12, Folate, Ferritin,
Hepatitis B Surface Ag and IGE Products sold to end-user customers by PSS sales
representatives at or above the transfer prices in effect for such Products at
the time of sale; provided that [***] one calendar year following reintroduction
of such Products to the U.S. market.
(4) Abbott shall pay [***] on all sales of IMx(R) and AXSYM(R) Products
sold to end-user customers by PSS sales representatives that exceed total IMx(R)
and AXSYM(R) sales made by PSS sales representatives to end-user customers
during the previous Contract Year [***] or more.
(5) Abbott shall pay [***] on all sales of IMx(R) and AXSYM(R) Products
sold to end-user customers by PSS sales representatives that exceed total IMx(R)
and AXSYM(R) sales made by PSS sales representatives to end-user customers
during the pervious Contract Year [***].
(6) Abbott shall pay [***]
(7) PSS shall pay to Abbott a Contract Year-end assessment equal to
[***] between total sales of IMx(R) and AXSYM(R) Products sold to end-user
customers by PSS sales representatives in the first Contract Year and total
sales of IMx(R) and AXSYM(R) Products sold to end-user customers by PSS sales
representatives during the period set forth in (9) below.
(8) PSS shall pay to Abbott a Contract Year-end assessment equal to
[***] between total sales of IMx(R) and AXSYM(R) Products to end-user customers
by PSS sales representatives in any Contract Year after the first Contract Year
and total sales of IMx(R) and AXSYM(R) Products sold to end-user customers by
PSS sales representatives during the previous Contract Year.
-36-
<PAGE>
(9) For purposes of calculating increases and decreases in sales of
IMx(R) and AXSYM(R) Products in (4), (5) and (7) above for the first Contract
Year, such sales shall be compared to annualized sales of IMx(R) and AXSYM(R)
Products sold to end-user customers by PSS sales representatives from January
through June of 2000; provided that such calculations with respect to sales of
IMx(R) Glycated Hemoglobin shall be compared to such annualized sales from July
through December of 2000.
-37-
<PAGE>
EXHIBIT 3.4(c)
PRICE INCREASE PARITY EXAMPLE
Formula: A = B + (B x C)
[***]
-38-
<PAGE>
EXHIBIT 3.5(c)
SHIPPING CHARGES AND DISCOUNTS
Weekly Free Freight Order
o Each week every branch may place a stock order which ships to the branch
without freight charges. There is no minimum value for the order.
o All free freight orders ship by a refrigerated truck and take three to five
business days to deliver.
o All refrigerated truck deliveries should be counted and inspected. If there
is any damage to the stretch-wrap, document the damage when the
packages/delivery is signed for. Call Distributor Service the same day you
receive the delivery to document the situation.
Shipping Charges
o Orders shipped directly to PSS customers are charged shipping.
o Any order shipping to a PSS branch that is not part of a weekly free
freight order will be charged shipping.
o Shipping charges are based on the weight of each order.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
For Material Price Group 4 = M2 (Standard), M4 (Hematology Accessories), M5 (MediSense)
--------------------------------------------------------------------------------------------------------------------
Rate
--------------------------------------------------------------------------------------------------------------------
Condition Type Priority 1 Priority 2/4 Priority 3/5 Saturday Counter to
Counter
--------------------------------------------------------------------------------------------------------------------
Z301 flat fee (base) $[***] $[***] $[***] $[***] N/A
--------------------------------------------------------------------------------------------------------------------
Z303 per pound $[***] $[***] $[***] $[***] N/A
(weight)
--------------------------------------------------------------------------------------------------------------------
Z304 flat fee $[***] N/A N/A $[***] $[***]
(emergency)
--------------------------------------------------------------------------------------------------------------------
Z306 flat fee N/A N/A N/A $[***] N/A
(emergency
Saturday)
--------------------------------------------------------------------------------------------------------------------
Z3XX Other N/A N/A N/A $[***] N/A
--------------------------------------------------------------------------------------------------------------------
</TABLE>
-39-
<PAGE>
Shipping Charges (cont.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
For Material Price Group 4 = M3 (Hematology Reagents)
--------------------------------------------------------------------------------------------------------------------
Rate
--------------------------------------------------------------------------------------------------------------------
Condition Type From Scale Priority 1 Priority 3/5 Saturday Counter to
(lbs) Counter
--------------------------------------------------------------------------------------------------------------------
Z301 flat fee (base) 0 $[***] $[***] $[***]
--------------------------------------------------------------------------------------------------------------------
21 $[***] $[***] $[***]
--------------------------------------------------------------------------------------------------------------------
701 N/A $[***] N/A
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Z303 per pound 51 $[***] $[***] $[***]
(weight)
--------------------------------------------------------------------------------------------------------------------
201 $[***] $[***] $[***]
--------------------------------------------------------------------------------------------------------------------
701 $[***] N/A $[***]
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Z304 flat fee N/A N/A N/A N/A $[***]
(emergency)*
--------------------------------------------------------------------------------------------------------------------
* Emergency ship charge will be combined with overall ship charge; it will
not be split out
--------------------------------------------------------------------------------------------------------------------
Z306 flat fee N/A N/A N/A $[***] N/A
(emergency
Saturday)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Also please refer to PSS Branch Leader Manual for Abbott Products
-40-
<PAGE>
EXHIBIT 3.5(d)
RETURNED GOODS (DISTRESSED INVENTORY) POLICY
o All credit requests must be called into Distributor Service: 800-872-1387.
o Do not create a Vendor Charge Back (VCB). Abbott does not accept VCB's.
o Product returns must be authorized by and returned to Distributor Service.
Call Distributor Service to document the situation and authorize the
credit, replacement or return. 800-872-1387.
Also please refer to PSS Branch Leader Manual for Abbott Products
-41-
<PAGE>
EXHIBIT 3.6(a)
--------------------------------------------------------------------------------
Distributor Quality Checklist
--------------------------------------------------------------------------------
Abbott Representative: Date:
--------------------------------------------------------------------------------
Distribution Name:
--------------------------------------------------------------
Address:
--------------------------------------------------------------
City: State: Zip Code:
------------------------------- ----- ----------
Telephone: FAX:
------------------------------- -------------------------
Primary individuals contacted:
Name: Title:
---------------------------------------- ----------------------------
Name: Title:
---------------------------------------- ----------------------------
Is the company division or a subsidiary of another corporation? If yes, Name:
--------------------------------------------------------------------------------
Has a Local, State or Federal Regulatory Agency inspected the facility? If yes,
provide dates and results.
--------------------------------------------------------------------------------
Is the distributor registered with the FDA? [ ] YES [ ] NO [ ] Applied
If yes, registration numbers:
--------------------------------------------------
--------------------------------------------------------------------------------
A. Nature of visit:
Prospective Distributor: ______ Initial Inspection
______ Follow-up Inspection
Current Distributor: ______ Scheduled Inspection
______ Problem Investigation
Nature of Problem
---------------------------
---------------------------
B. Abbott Products Distributed: C. Abbott Products intended to distribute:
----------------- ----------------- -------------- ----------------------------
List Number Description
----------------- ----------------- -------------- ----------------------------
----------------- ----------------- -------------- ----------------------------
----------------- ----------------- -------------- ----------------------------
----------------- ----------------- -------------- ----------------------------
----------------- ----------------- -------------- ----------------------------
----------------- ----------------- -------------- ----------------------------
----------------- -----------------
----------------- -----------------
List Number Description
----------------- -----------------
----------------- -----------------
-42-
<PAGE>
EXHIBIT 3.6(a)
<TABLE>
<CAPTION>
(continued)
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
Distributor Quality Checklist
-----------------------------------------------------------------------------------------------------------
Rating
(3) (2) (1) (0) N/A
------------------------------------------------------------------- ------- ------- ------- ------- -------
1. Does the distributor demonstrate ability to conduct receipt, [ ] [ ] [ ] [ ] [ ]
identification and reconciliation of incoming shipments?
At a minimum:
a. Incoming shipments are inspected to ensure conformance
to purchase order
b. Incoming shipments are inspected for damage to products
c. Receiving inspection records indicate damage or
rejection of incoming materials
d. Records of receiving activities are retained and are
maintained in a manner that provides easy access
Comments:
------------------------------------------------------------------- ------- ------- ------- ------- -------
2. Does the distributor effectively manage and control [ ] [ ] [ ] [ ] [ ]
inventory?
At a minimum:
a. A system to produce a current "in stock" inventory list
comprised of product list number, and quantity in stock
b. A rotated stock system is employed, i.e.: FIFO
c. A system to monitor product inventory to assure
material that has expired will not be shipped
d. A system in place to segregate "quarantined" product and
place on shipping hold
e. A reliable stock locator system
f. A procedure for discrepant storage/handling reporting
(i.e.: product damaged by water, product stored outside
of label storage conditions)
Comments:
</TABLE>
-43-
<PAGE>
EXHIBIT 3.6(a)
(continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
Distributor Quality Checklist
-----------------------------------------------------------------------------------------------------------
(3) (2) (1) (0) N/A
------------------------------------------------------------------- ------- ------- ------- ------- -------
3. Are the facilities adequate for the storage of product [ ] [ ] [ ] [ ] [ ]
awaiting distribution?
At a minimum:
a. The facility reflects an adequate housekeeping and
maintenance program
b. There is an adequate pest control program
c. All product is stored off the floor on pallets or
suitable shelving
d. Temperature controlled storage areas are monitored at a
minimum by a calibrated thermometer and the temperature
is checked and recorded at least once every 12 hours
e. The facility or a designated area of the facility is
suitable for room temperature storage
Comments:
4. Is there a safety program in place at the facility? [ ] [ ] [ ] [ ] [ ]
At a minimum:
a. Eating, drinking and smoking are not permitted in the
work area
b. Waste containers are located in appropriate areas
c. There is a procedure for proper clean up and disposal of
damaged goods
d. MSDS are maintained on-site for all distributed products
e. If required, OSHA guidelines are followed
f. There is a training program for employees on material
handling, and if required OSHA guidelines
Comments:
</TABLE>
-44-
<PAGE>
EXHIBIT 3.6(a)
(continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
Distributor Quality Checklist
-----------------------------------------------------------------------------------------------------------
(3) (2) (1) (0) N/A
-----------------------------------------------------------------------------------------------------------
5. Does the distributor demonstrate acceptable distribution [ ] [ ] [ ] [ ] [ ]
practices?
At a minimum:
a. Packing and shipping containers are acceptable to
protect the product
b. When product is not hand delivered to account, the
shipping container is adequately marked to identify the
contents
c. Packing and shipping records reflect the individuals
performing the shipping operations
d. Distribution records contain the following:
1) the name, address, phone number of consignee
2) the date shipped
3) the list number, description and quantity of item(s)
shipped
e. There is an adequate product withdrawal, recall procedure
Comments:
6. Does an adequate complaint handling system exist? [ ] [ ] [ ] [ ] [ ]
At a minimum:
a. There is a process in place to ensure product
performance/material defect complaints are relayed back
to the manufacture in a timely manner
b. There is a process in place for MDR reporting
c. There is training of employees on complaint handling
procedures
Comments:
-----------------------------------------------------------------------------------------------------------
</TABLE>
-45-
<PAGE>
EXHIBIT 3.6(a)
(continued)
Distributor Quality Checklist
Quality Rating System
--------------------------------------------------------------------------------
Rating Meaning Interpretation
--------------------------------------------------------------------------------
3 Excellent Item/area/system/knowledge is superior
--------------------------------------------------------------------------------
2 Adequate Item/area/system/knowledge meets basic
minimum requirements
--------------------------------------------------------------------------------
1 Poor Item/area/system/knowledge is weak and
not up to acceptable standards
--------------------------------------------------------------------------------
0 Unsatisfactory Item/area/system/knowledge is missing or
of such nature to warrant serious quality
/compliance concerns
--------------------------------------------------------------------------------
N/A Not Question is not applicable to type of
Applicable operation or item was unable to be
addressed during the inspection
--------------------------------------------------------------------------------
Comment: Some users of the checklist may find responses to some
questions are difficult to quantify on a 0-3 scale and prefer
to use a simple "yes" or "no" approach. In such cases, a "yes"
should be assigned a "2" value and a "no" should be assigned a
"0" value.
Summary
Rating Results:
Number of excellent observations ( ) Times 3= ( )
Number of adequate observations ( ) Times 2= ( )
Number of poor observations ( ) Times 1= ( )
Number of unsatisfactory observations ( ) Times 0= ( )
Total Number of Observations = ( ) Rating Total = ( )
Rating Total ( )
----------------- ----------- = Facility Rating ( )
Number of Observations
-46-
<PAGE>
EXHIBIT 3.6(b)
PSS CURRENT DISTRIBUTION CENTERS
(to come from PSS)
-47-
<PAGE>
EXHIBIT 3.10
ABBOTT DIAGNOSTICS
PRODUCT COMPLAINT FORM
DATE___/___/
DISTRIBUTOR INFORMATION:
Company Name
--------------------------------------------------
Abbott Customer Number
----------------------------------------
Representative Name
-------------------------------------------
Representative Name
-------------------------------------------
ACCOUNT INFORMATION:
Name
----------------------------------------------------------
Street Address
------------------------------------------------
City State Zip Code
----------------------- ------------ ----------
Phone ( ) -
---------------------------------------------------------
Contact Name
--------------------------------------------------
PRODUCT INFORMATION:
Description List # Date of Complaint ___/___/
--------------------------- ----------
Serial Number or Lot Number
------------------------- ------------------------------
Nature of Complaint
-------------------------------------------------------------
Call the appropriate Abbott Diagnostics Customer Support Center to report
product concerns or questions. If the Support Center is not available, the
Distributor Representative must complete all areas of this form and FAX it to
the appropriate Customer Support Center. A Customer Support Specialist will call
the account between 7:30am and 6:00pm Central time.
Customer Support Center 1-8004 FAX
-----------------------------------------------------------------------------
Cell-Dyn 1-800-235-5396 1-408-982-4866
-----------------------------------------------------------------------------
IMx/Spectrum 1-800-527-1869 1-214-518-7476
-----------------------------------------------------------------------------
Vision/TestPack 1-800-323-9100 1-708-938-6255
Abbott Laboratories
Dept. 34G, Bldg. AP6C
Customer Support Center
100 Abbott Park Road Abbott Park, IL 60064-3500
-48-
<PAGE>
EXHIBIT 3.13(b)
EXCLUDED COMPETITIVE PRODUCTS
Becton Dickinson QBC family of instruments and supplies. BD Qtest, Directigen
and Link 2 rapid tests for Strep A to the extent of sales made to existing PSS
Physician Customers for said products and for no longer than six (6) months
after the re-launch of product in the TestPack / TestPack + Strep A family or
configuration.
Elan Diagnostics - ATAC 6000 and 8000 Chemistry Analyzers and supplies
(excluding those reagents which compete with Abbott assays)
Johnson & Johnson Vitros 250 and 950 Chemistry Analyzer and supplies (excluding
those reagents which compete with Abbott assays)
Roche/BMC - MIRA Chemistry Analyzer and supplies (excluding those reagents which
compete with Abbott assays)
Bayer DCA 2000 Analyzer and supplies
Beckman Coulter hematology reagents and supplies to the extent of sales made to
Physician Customers for use on Coulter Analyzers purchased from PSS prior to
April 1, 1995
-49-
<PAGE>
EXHIBIT 9.11
ALTERNATIVE DISPUTE RESOLUTION
The parties recognize that bona fide disputes as to certain matters may arise
from time to time during the term of this Agreement which relate to either
party's rights and/or obligations under this Agreement. To have such a dispute
resolved by this Alternative Dispute Resolution ("ADR") provision, a party first
must send written notice, as provided in Section 9.8 of the Agreement, of the
dispute to the other party for attempted resolution by good faith negotiations
between their respective presidents (or their designees) of the affected
subsidiaries, divisions, or business units within twenty-eight (28) days after
such notice is received (all references to "days" in this ADR provision are to
calendar days).
If the matter has not been resolved within twenty-eight (28) days of the notice
of dispute, if the parties fail to meet within such twenty-eight (28) days, or
if the parties have not agreed in writing to extend the time for good faith
negotiations beyond the twenty-eight (28) day period, either party may initiate
an ADR proceeding as provided herein. The parties shall have the right to be
represented by counsel in such a proceeding.
1. To begin an ADR proceeding, a party shall provide written notice to the
other party of the issues to be resolved by ADR, including the specific
provisions of the Agreement in issue. Within fourteen (14) days after
its receipt of such notice, the other party may, by written notice to
the party initiating the ADR, add additional issues to be resolved
within the same ADR.
2. Within twenty-one (21) days following receipt of the original ADR
notice, the parties shall select a mutually acceptable neutral to
preside in the resolution of any disputes in this ADR proceeding. If
the parties are unable to agree on a mutually acceptable neutral within
such period, either party may request the President of the CPR
Institute for Dispute Resolution ("CPR"), 366 Madison Avenue, 14th
Floor, New York, New York 10017, to select a neutral pursuant to the
following procedures:
(a) The CPR shall submit to the parties a list of not less than
five (5) candidates within fourteen (14) days after receipt of
the request, along with a Curriculum Vitae for each candidate.
No candidate shall be an employee, director, or shareholder of
either party or any of their subsidiaries or affiliates.
(b) Such list shall include a statement of disclosure by each
candidate of any circumstances likely to affect his or her
impartiality.
(c) Each party shall number the candidates in order of preference
(with the number one (1) signifying the greatest preference)
and shall deliver the list to the CPR within seven (7) days
following receipt of the list of candidates. If a party
believes a conflict of interest exists regarding any of the
candidates, that party shall provide a written explanation of
the conflict to the CPR along with its list showing its order
-50-
<PAGE>
of preference for the candidates. Any party failing to return
a list of preferences on time shall be deemed to have no order
of preference.
(d) If the parties collectively have identified fewer than three
(3) candidates deemed to have conflicts, the CPR immediately
shall designate as the neutral the candidate for whom the
parties collectively have indicated the greatest preference,
excluding any candidate deemed by a party to have conflicts.
If a tie should result between two candidates, the CPR may
designate either candidate. If the parties collectively have
identified three (3) or more candidates deemed to have
conflicts, the CPR shall review the explanations regarding
conflicts and, in its sole discretion, may either (i)
immediately designate as the neutral the candidate for whom
the parties collectively have indicated the greatest
preference, or (ii) issue a new list of not less than five (5)
candidates, in which case the procedures set forth in
subparagraphs 2(a) - 2(d) shall be repeated.
3. No earlier than twenty-eight (28) days or later than fifty-six (56)
days after selection, unless otherwise agreed to in writing by the
parties, the neutral shall hold a hearing to resolve each of the issues
identified by the parties. The ADR proceeding shall take place at a
location agreed upon by the parties. If the parties cannot agree, the
neutral shall designate a location other than the principal place of
business of either party or any of their subsidiaries or affiliates.
4. At least seven (7) days prior to the hearing, each party shall submit
the following to the other party and the neutral:
(a) a copy of all exhibits on which such party intends to rely in
any oral or written presentation to the neutral;
(b) a list of any witnesses such party intends to call at the
hearing, and a short summary of the anticipated testimony
of each witness;
(c) a proposed ruling on each issue to be resolved, together with
a request for specific damage award or other remedy for each
issue. The proposed rulings and remedies shall not contain any
recitation of the facts or any legal arguments and shall not
exceed one (1) page per issue.
(d) a brief in support of such party's proposed rulings and
remedies, provided that the brief shall not exceed twenty (20)
pages. This page limitation shall apply regardless of the
number of issues raised in the ADR proceeding.
Except as expressly set forth in subparagraphs 4(a) - 4(d), no
discovery shall be required or permitted by any means, including
depositions, interrogatories, requests for admissions, or production of
documents.
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<PAGE>
5. The hearing shall be conducted on two (2) consecutive days and shall be
governed by the following rules:
(a) Each party shall be entitled to five (5) hours of hearing time
to present its case. The neutral shall determine whether each
party has had the five (5) hours to which it is entitled.
(b) Each party shall be entitled, but not required, to make an
opening statement, to present regular and rebuttal testimony,
documents or other evidence, to cross-examine witnesses, and
to make a closing argument. Cross-examination of witnesses
shall occur immediately after their direct testimony, and
cross-examination time shall be charged against the party
conducting the cross-examination.
(c) The party initiating the ADR shall begin the hearing and, if
it chooses to make an opening statement, shall address not
only issues it raised but also any issues raised by the
responding party. The responding party, if it chooses to make
an opening statement, also shall address all issues raised in
the ADR. Thereafter, the presentation of regular and rebuttal
testimony and documents, other evidence, and closing arguments
shall proceed in the same sequence.
(d) Except when testifying, witnesses shall be excluded from the
hearing until closing arguments.
(e) Settlement negotiations, including any statements made
therein, shall not be admissible under any circumstances.
Affidavits prepared for purposes of the ADR hearing also shall
not be admissible. As to all other matters, the neutral shall
have sole discretion regarding the admissibility of any
evidence.
6. Within seven (7) days following completion of the hearing, each party
may submit to the other party and the neutral a post-hearing brief in
support of its proposed rulings and remedies, provided that such brief
shall not contain or discuss any new evidence and shall not exceed ten
(10) pages. This page limitation shall apply regardless of the number
of issues raised in the ADR proceeding.
7. The neutral shall rule on each disputed issue within fourteen (14) days
following completion of the hearing. Such ruling shall adopt in its
entirety the proposed ruling and remedy of one of the parties on each
disputed issue but may adopt one party's proposed rulings and remedies
on some issues and the other party's proposed rulings and remedies on
other issues. The neutral shall not issue any written opinion or
otherwise explain the basis of the ruling.
8. The neutral shall be paid a reasonable fee plus expenses. These fees
and expenses, along with the reasonable legal fees and expenses of the
prevailing party (including all expert witness fees and expenses), the
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<PAGE>
fees and expenses of a court reporter, and any expenses for a hearing
room, shall be paid as follows:
(a) If the neutral rules in favor of one party on all disputed
issues in the ADR, the losing party shall pay 100% of
such fees and expenses.
(b) If the neutral rules in favor of one party on some issues and
the other party on other issues, the neutral shall issue with
the rulings a written determination as to how such fees and
expenses shall be allocated between the parties. The neutral
shall allocate fees and expenses in a way that bears a
reasonable relationship to the outcome of the ADR, with the
party prevailing on more issues, or on issues of greater value
or gravity, recovering a relatively larger share of its legal
fees and expenses.
9. The rulings of the neutral and the allocation of fees and expenses
shall be binding, non-reviewable, and non-appealable (except in the
case of fraud or bad faith on the part of the neutral), and may be
entered as a final judgment in any court having jurisdiction.
10. Except as provided in paragraph 9 or as required by law, the existence
of the dispute, any settlement negotiations, the ADR hearing, any
submissions (including exhibits, testimony, proposed rulings, and
briefs), and the rulings shall be deemed Confidential Information
(except for information contained in exhibits or testimony that is
already public or later becomes public through no fault of the parties
or which is lawfully disclosed to a party through an independent third
party). The neutral shall have the authority to impose sanctions for
unauthorized disclosure of Confidential Information.
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<PAGE>
Exhibit 10.14
SECOND AMENDMENT dated as of July 26, 2000
(this "Second Amendment"), to the Credit
Agreement dated as of February 11, 1999 (as
amended by the First Amendment dated as of
October 20, 1999, the "Credit Agreement"),
among PSS World Medical, Inc., a Florida
corporation (the "Borrower"), the several
lenders party to the Credit Agreement (the
"Lenders") and Bank of America, N.A.,
formerly known as NationsBank, N.A., as
agent for the Lenders (the "Agent") and as
issuing lender.
The Borrower has requested the Agent and the Lenders to make certain
changes to the Credit Agreement. The parties hereto have agreed, subject to the
terms and conditions hereof, to amend the Credit Agreement as provided herein.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement (the Credit Agreement,
as amended by, and together with, this Second Amendment, and as hereinafter
amended, modified, extended or restated from time to time, being called the
"Amended Agreement").
Accordingly, the parties hereto hereby agree as follows:
- Amendments to Section 7.19(a). (a) Section 7.19(a) of the Credit
Agreement is hereby amended by adding the following proviso at the end
thereof:
"provided, however, that notwithstanding the foregoing, for
each of the fiscal quarters ended June 30, 2000, September 30, 2000 and
December 31, 2000 only, the Borrower will not permit the Fixed Charge
Coverage Ratio, as of the last day of any such fiscal quarter, to be
less than 1.50 to 1.0."
(b) Section 7.19(b) of the Credit Agreement is hereby amended by adding the
following proviso at the end thereof:
"provided, however, that notwithstanding the foregoing, for
the fiscal quarter ended June 30, 2000 only, the Borrower will not
permit the Leverage Ratio, as of the last day of such fiscal quarter,
to be greater than 3.75 to 1.00 and for each of the fiscal quarters
ended September 30, 2000 and December 31, 2000 only, the Borrower will
not permit the Leverage Ratio, as of the last day of any such fiscal
quarter, to be greater than 4.30 to 1.00."
- Representations and Warranties. The Borrower hereby represents and
warrants to each Lender and the Agent, as follows:
(c) The representations and warranties set forth in Section 5 of the
Amended Agreement, and in each other Credit Document, are true and
correct in all material respects on and as of the date hereof and on
and as of the Second Amendment Effective Date (as hereinafter defined)
with the same effect as if made on and as of the date hereof or the
Second Amendment Effective Date, as the case may be, except to the
extent such representations and warranties expressly relate solely to
an earlier date.
<PAGE>
(d) Each of the Borrower and the other Credit Parties is in compliance with
all the terms and conditions of the Amended Agreement and the other
Credit Documents on its part to be observed or performed and no Event
of Default has occurred and is continuing.
(e) The execution, delivery and performance by the Borrower of this Second
Amendment have been duly authorized by the Borrower.
(f) This Second Amendment constitutes the legal, valid and binding
obligation of the Borrower, enforceable against it in accordance with
its terms.
(g) The execution, delivery and performance by the Borrower of this Second
Amendment (i) do not (A) violate or conflict with any provision of its
articles or certificate of incorporation or bylaws or other
organizational or governing documents of the Borrower, (B) violate,
contravene or conflict with any Requirement of Law applicable to the
Borrower or its Properties, (C) violate, contravene or conflict with
contractual provisions of, cause an event of default under, or give
rise to material increased, additional, accelerated or guaranteed
rights of the Borrower under, any indenture, loan agreement, mortgage,
deed of trust, contract or other agreement or instrument to which it
is a party or by which it may be bound, or (D) result in or require
the creation of any Lien (other than the Lien of the Collateral
Documents) upon or with respect to the Borrower's Properties and (ii)
do not require any consents under, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default or give rise
to increased, additional, accelerated or guaranteed rights of any
person under any such indenture, agreement or instrument.
- Effectiveness. This Second Amendment shall become effective only upon
satisfaction of the following conditions precedent (the first date upon
which each such condition has been satisfied being herein called the
"Second Amendment Effective Date"):
(h) The Agent shall have received duly executed counterparts of this Second
Amendment which, when taken together, bear the authorized signatures of
the Borrower and the Required Lenders.
(i) The Agent and the Lenders shall be satisfied that the representations
and warranties set forth in Section 1.02 of this Second Amendment are
true and correct on and as of the Second Amendment Effective Date and
that no Default or Event of Default has occurred and is continuing.
(j) There shall not be any action pending or any judgment, order or decree
in effect which, in the judgment of the Agent or the Lenders, is likely
to restrain, prevent or impose materially adverse conditions upon
performance by the Borrower or any other Credit Party of its
obligations under the Amended Agreement.
(k) The Agent shall have received such other documents, legal opinions,
instruments and certificates relating to this Second Amendment as they
2
<PAGE>
shall reasonably request and such other documents, legal opinions,
instruments and certificates shall be satisfactory in form and
substance to the Agent and the Lenders. All corporate and other
proceedings taken or to be taken in connection with this Second
Amendment and all documents incidental thereto, whether or not referred
to herein, shall be satisfactory in form and substance to the Agent and
the Lenders.
(l) The Borrower shall have paid all fees and expenses referred to in
Section 1.05 of this Second Amendment.
- APPLICABLE LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
- Expenses. The Borrower shall pay all reasonable out-of-pocket expenses
incurred by the Agent and the Lenders in connection with the preparation,
negotiation, execution, delivery and enforcement of this Second Amendment,
including, but not limited to, the reasonable fees and disbursements of
counsel to the Agent.
- Counterparts. This Second Amendment may be executed in any number of
counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one agreement. Delivery of an
executed counterpart of a signature page to this Second Amendment by
telecopier shall be effective as delivery of a manually executed
counterpart of this Second Amendment.
- Credit Documents. Except as expressly set forth herein, the amendments
provided herein shall not by implication or otherwise limit, constitute a
waiver of, or otherwise affect the rights and remedies of the Lenders or
the Agent under the Amended Agreement or any other Credit Document, nor
shall they constitute a waiver of any Event of Default, nor shall they
alter, modify, amend or in any way affect any of the terms, conditions,
obligations, covenants or agreements contained in the Amended Agreement or
any other Credit Document. Each of the amendments provided herein shall
apply and be effective only with respect to the provisions of the Amended
Agreement specifically referred to by such amendments. Except as expressly
amended herein, the Amended Agreement and the other Credit Documents shall
continue in full force and effect in accordance with the provisions
thereof. As used in the Amended Agreement, the terms "Agreement", "herein",
"hereinafter", "hereunder", "hereto" and words of similar import shall
mean, from and after the date hereof, the Amended Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed by duly authorized officers, all as of the date
first above written.
PSS WORLD MEDICAL, INC., as Borrower
By: /s/ David A. Smith
---------------------------------
Name: David A. Smith
Title: Executive Vice President and
Chief Financial Officer
BANK OF AMERICA, N.A., formerly known
as NationsBank, N.A., as Agent, as Issuing
Lender and as a Lender
By: /s/ Jonathan H. Hudson
---------------------------------
Name: Jonathan H. Hudson
Title: Associate
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A. "RABOBANK NEDERLAND", as a Lender
By: /s/ J. David Thomas
---------------------------------
Name: J. David Thomas
Title: Vice President
By: /s/ W. Jefferey Vollack
---------------------------------
Name: W. Jefferey Vollack
Title: Senior Vice President
BANKERS TRUST COMPANY, as a Lender
By: /s/ Susan L. LeFevre
---------------------------------
Name: Susan L. LeFevre
Title: Director
4
<PAGE>
SUNTRUST BANK, NORTH FLORIDA, N.A., as a Lender
By: /s/ C. William Buchholz
---------------------------------
Name: C. William Buchholz
Title: Vice President
FIRST UNION NATIONAL BANK, as a Lender
By: /s/ Joyce L. Barry
---------------------------------
Name: Joyce L. Barry
Title: Senior Vice President
5
<PAGE>
Exhibit 10.15
EXECUTION COPY
LIMITED WAIVER
LIMITED WAIVER, dated as of November 14, 2000 (this "Limited Waiver"),
among PSS World Medical, Inc., a Florida corporation (the "Borrower"), the
several banks and other financial institutions party to the Credit Agreement (as
defined below) (the "Lenders") and Bank of America, N.A., formerly known as
NationsBank, N.A., as agent for the Lenders (the "Agent") and as issuing lender.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders and the Agent have entered into a Credit
Agreement, dated as of February 11, 1999 (as amended by the First Amendment to
the Credit Agreement dated as of October 20, 1999 among the Borrower, the
Lenders and the Agent and the Second Amendment to the Credit Agreement dated as
of July 26, 2000 among the Borrower, the Lenders and the Agent, the "Credit
Agreement"). Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Credit Agreement.
Section 7.19 of the Credit Agreement provides that as of the fiscal
quarter of the Borrower ended September 30, 2000, the Borrower will not permit
(i) the Fixed Charge Coverage Ratio to be less than 1.5 to 1.0 and (ii) the
Leverage Ratio to be greater than 4.30 to 1.00.
The Borrower has informed the Agent that it will not meet the criteria
for the Fixed Charge Coverage Ratio and the Leverage Ratio for the fiscal
quarter of the Borrower ended September 30, 2000.
The Borrower hereby requests a limited waiver of its non-compliance
with Section 7.19 with respect to the Fixed Charge Coverage Ratio and the
Leverage Ratio for the fiscal quarter of the Borrower ended September 30, 2000.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
SECTION 1.01. Limited Waiver of Certain Provisions. Solely with respect
to the Fixed Charge Coverage Ratio and the Leverage Ratio for the fiscal quarter
of the Borrower ended September 30, 2000, the undersigned hereby agree to waive
effective September 30, 2000 compliance with the following provisions of the
Credit Agreement until December 15, 2000:
(a) the requirement set forth in Section 7.19(a) of the Credit
Agreement that the Fixed Charge Coverage Ratio for the fiscal quarter
of the Borrower ended September 30, 2000 not be less than 1.5 to 1.0;
and
(b) the requirement set forth in Section 7.19(b) of the Credit
Agreement that the Leverage Ratio for the fiscal quarter of the
Borrower ended September 30, 2000 not be greater than 4.30 to 1.00.
<PAGE>
SECTION 1.02. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Lenders, as follows:
(a) The representations and warranties set forth in Section 5
of the Credit Agreement, and in each other Credit Document, are true
and correct in all material respects on and as of the date hereof and
on and as of the Effective Date (as defined below) with the same effect
as if made on and as of the date hereof or the Effective Date, as the
case may be, except to the extent such representations and warranties
expressly relate solely to an earlier date.
(b) After giving effect to this Limited Waiver, each of the
Borrower and the other Credit Parties is in compliance with all the
terms and conditions of the Credit Agreement and the other Credit
Documents on its part to be observed or performed and no Default or
Event of Default has occurred or is continuing under the Credit
Agreement.
(c) The execution, delivery and performance by the Borrower of
this Limited Waiver have been duly authorized by the Borrower.
(d) This Limited Waiver constitutes the legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms.
(e) The execution, delivery and performance by the Borrower of
this Limited Waiver (i) do not conflict with or violate (A) any
provision of law, statute, rule or regulation, or of the certificate of
incorporation or by-laws of the Borrower, (B) any order of any
Governmental Authority or (C) any provision of any indenture, agreement
or other instrument to which the Borrower is a party or by which it or
any of its property may be bound, and (ii) do not require any consents
under, result in a breach of or constitute (alone or with notice or
lapse of time or both) a default or give rise to increased, additional,
accelerated or guaranteed rights of any person under any such
indenture, agreement or instrument.
SECTION 1.03. Effectiveness. This Limited Waiver shall become effective
only upon satisfaction of the following conditions precedent (the first date
upon which each such condition has been satisfied being herein called the
"Effective Date"):
(a) The Agent shall have received duly executed counterparts
of this Limited Waiver which, when taken together, bear the authorized
signatures of the Borrower and the Required Lenders.
(b) The Agent and the Lenders shall be satisfied that the
representations and warranties set forth in Section 1.02 hereof are
true and correct on and as of the Effective Date and that after giving
effect to this Limited Waiver no Default or Event of Default has
occurred or is continuing.
(c) There shall not be any action pending or any judgment,
order or decree in effect which, in the judgment of the Agent and the
2
<PAGE>
Lenders or their counsel, is likely to restrain, prevent or impose
materially adverse conditions upon performance by the Borrower or any
other Credit Party of its obligations under the Credit Documents.
(d) The Agent shall have been paid (i) all reasonable
out-of-pocket expenses incurred by the Agent in connection with the
preparation, negotiation, execution and delivery of this Limited
Waiver, including but not limited to, the reasonable fees and
disbursements of counsel for the Agent, and (ii) a non-refundable
waiver fee which shall be deemed earned upon execution of this Limited
Waiver equal to $100,000. Such non-refundable waiver fee shall be paid
to all Lenders executing this Limited Waiver on or prior to the
Effective Date (the "Approving Lenders") in proportion to such
Approving Lender's Commitment over all Approving Lenders' Commitments
and shall be applied against the amendment fee paid in connection with
the next amendment of the Credit Agreement.
(e) The Borrower shall have delivered an irrevocable written
notice to the Agent to permanently reduce the Revolving Committed
Amount to $130,000,000.
(f) The Borrower shall have made a voluntary prepayment
of the Loans in the amount of $10,000,000.
(g) The Agent and the Lenders shall have received such other
documents, legal opinions, instruments and certificates relating to
this Limited Waiver as they shall reasonably request and such other
documents, legal opinions, instruments and certificates shall be
satisfactory in form and substance to the Agent, the Lenders and their
counsel. All corporate and other proceedings taken or to be taken in
connection with this Limited Waiver and all documents incidental
thereto, whether or not referred to herein, shall be satisfactory in
form and substance to the Agent, the Lenders and their counsel.
SECTION 1.04. APPLICABLE LAW. THIS LIMITED WAIVER SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 1.05. Counterparts. This Limited Waiver may be executed in any
number of counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one agreement. Delivery by
facsimile by any of the parties hereto of an executed counterpart of this
Limited Waiver shall be as effective as an original executed counterpart hereof
and shall be deemed a representation that an original executed counterpart
hereof will be delivered, but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability or binding effect of
this Limited Waiver.
SECTION 1.06. Credit Agreement. Except as expressly waived herein, the
Credit Agreement shall continue in full force and effect in accordance with the
provisions thereof. This Limited Waiver is a Credit Document executed under the
Credit Agreement and shall be construed in accordance with the Credit Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Limited Waiver
to be duly executed by their duly authorized officers, all as of the date first
above written.
PSS WORLD MEDICAL, INC.
By: /s/ David D. Klarner
--------------------------------------
Name: David D. Klarner
Title: Vice President, Treasury and Financial
Reporting
BANK OF AMERICA, N.A., formerly known as
NationsBank, N.A., as Agent, as Issuing Lender
and as a Lender
By: /s/ Jonathan H. Hudson
--------------------------------------
Name: Jonathan H. Hudson
Title: Associate
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A. "RABOBANK NEDERLAND", as a Lender
By: /s/ R. Todd Kemme
--------------------------------------
Name: R. Todd Kemme
Title:
By: /s/ Edward Peyser
--------------------------------------
Name: Edward Peyser
Title: Executive Director
BANKERS TRUST COMPANY, as a Lender
By: /s/ Pam Divino
--------------------------------------
Name: Pam Divino
Title: Vice President
4
<PAGE>
SUNTRUST BANK, NORTH FLORIDA, N.A., as a
Lender
By: /s/ C. William Buchholz
--------------------------------------
Name: C. William Buchholz
Title: Vice President
FIRST UNION NATIONAL BANK, as a Lender
By: /s/ Joyce L. Barry
--------------------------------------
Name: Joyce L. Barry
Title: Senior Vice President
