SUPPLY AGREEMENT
This Supply Agreement is made this 19th day of June, 1997 between McKesson
Drug Company, a division of McKesson Corporation ("McKesson") and Phar-Mor, Inc.
("Phar-Mor") to establish a program for the supply of prescription drugs and
other health and beauty aids to Phar-Mor and its retail pharmacies. The parties
hereto agree as follows:
1. MERCHANDISE
For purposes hereof, "Merchandise" shall be defined as all items
normally stocked by McKesson, including prescription drugs (which
include all diabetic products), ethical Over the Counter (OTC) drugs,
select pharmaceutical supplies mutually agreed to by the parties and
select Phar-Mor private label products as mutually agreed by both
parties hereto. This Agreement does not apply to merchandise sold to
Phar-Mor by McKesson Corporation divisions or subsidiaries other than
McKesson Drug Company.
2. ORDERING AND DELIVERY
McKesson shall provide an electronic order entry system to facilitate
Phar-Mor's ordering of Merchandise. Prescription products will be
delivered to Phar-Mor's in-store pharmacies up to five (5) times per
week, as needed.
Orders transmitted by any Phar-Mor stores by 9:00 p.m. will be
delivered by 12:00 noon on the next business day in accordance with the
attached schedule.
3. MANUFACTURERS' CONTRACTS
McKesson agrees to service all manufacturers' contracts negotiated by
Phar-Mor, provided such manufacturers are approved suppliers of
McKesson. Merchandise will be supplied at Phar-Mor's negotiated
contract prices, plus McKesson's reduction or xxxx-up, as applicable,
as described in Section 19 "Cost of Goods" of this Agreement.
4. PHARMACEUTICAL PRICE INCREASE
For prescription drug items only that incur price increases and for
which McKesson receives the opportunity from the manufacturer to obtain
additional inventory or is allowed additional allocation buys, a rebate
will be paid to Phar-Mor headquarters for the difference between the
old price and new price based on average purchases made by Phar-Mor for
these items for the thirty (30) days prior to the announced increase.
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
McKesson guarantees that the savings associated with this rebate will
not fall below (*) of total Phar-Mor purchases for each one year period
of this Agreement.
5. MANUFACTURER PRICE CHANGE COMMUNICATIONS
Advance notice of prescription drug price increases, when and if
received from the manufacturer, shall be submitted to Phar-Mor in the
fastest manner possible. McKesson agrees to use fax communication to
provide immediate information related to open to buy price increases,
special deals, extended dating or investment buy opportunities
(speculative) in order to maximize Phar-Mor's investment opportunities.
Other investment purchasing information will be provided on regular
basis, whether via fax or electronic mail.
McKesson will notify Phar-Mor in writing thirty (30) days prior to the
expiration or termination of all goods for which Phar-Mor has
negotiated a contract price with pharmaceutical manufacturers.
6. TECHNOLOGY
McKesson will provide the resources reasonably necessary to meet
Phar-Mor's systems and technology requirements in furtherance of its
commitment to provide "Best in Class" service through leading edge
technology. Phar-Mor will be given the opportunity to partner in
McKesson's technology development by testing new programs and system
enhancements whenever appropriate. Technology created and owned by
McKesson will be provided at no further cost to Phar-Mor.
7. PURCHASE PRICE: DEFINITION OF COST
The purchase price of the Merchandise delivered to Phar-Mor shall be
the Cost of the Merchandise less the reductions or plus the xxxx-up, as
applicable, set forth in the cost of goods schedule set forth in
Section 19, below. "Cost" means the manufacturers' invoice cost to
McKesson (exclusive of cash discounts) at the time of shipment to
Phar-Mor reduced for selected bonus goods, manufacturers' off-invoice
allowances, and manufacturers' deal prices.
The following Merchandise will be net items and not subject to the
retail cost of goods pricing in Section 19, Cost of Goods: SunMark,
Durable Medical Equipment (DME), Home Health Care, RxPak, MultiSource,
Select Generics, selected slow-moving products (defined as OTC product
with less than three turns per year) and any additional mutually agreed
upon net priced items.
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
8. PURCHASE COMMITMENT AND DEVELOPMENTAL FUNDS
Purchase Commitment
The cost of goods schedule set forth in Section 19 below is based on
Phar-Mor purchasing a total of (*) (net of returns and allowances) per
year from the Implementation Date as defined in Section 11 of this
Agreement in volume of Direct Store Delivery (D.S.D.) Merchandise. If
at the end of any Phar-Mor fiscal quarter following the first year of
this Agreement Phar-Mor has not achieved the appropriate pro-rata
purchase volume, McKesson reserves the right to redetermine the agreed
upon cost of goods upon thirty (30) days advance written notice to
Phar-Mor. In the event that the parties cannot mutually agree on the
redetermined cost of goods within thirty (30) days of written notice,
either party has the option to terminate the Agreement. If either party
terminates this Agreement due to failure to reach a mutually agreed
redetermined cost of goods, such termination shall not constitute a
breach of this Agreement and neither party shall have any liability to
the other, except for obligations which accrued prior to or upon such
termination.
Developmental Funds
In consideration for Phar-Mor's purchase commitment specified above,
McKesson agrees to pay to Phar-Mor within forty-five (45) days of
execution of this Agreement by both parties ("Execution Date") the sum
of $(*) as developmental funds and thereafter upon each anniversary of
the Execution Date, McKesson shall pay Phar-Mor an additional
$(*)during the term of this Agreement.
If this Agreement is terminated prior to expiration of the sixty (60)
month term for any reason whatsoever, Phar-Mor shall immediately
reimburse to McKesson the then applicable portion of the
above-specified developmental funds as determined by the following
pro-rata reimbursement formula.
Total Amount of Developmental Number of months remaining
Funds Previously Paid By times in the sixty month contract
McKesson to Phar-Mor period upon the date of
termination
--------------------------
60
9. PAYMENT TERMS
Retail Pharmacies
Payment for Merchandise shipped directly to Phar-Mor's retail
pharmacies shall be paid by Phar-Mor as follows: Invoices dated from
the 1st to the 15th of the month are due and payable on the last work
day of the same month. Invoices dated from the 16th to the end of the
month are due and payable on the 15th of the following month.
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
Prepay Incentives
30-day Prepayment Terms Defined: The prepayment is a one-time payment
equivalent to 30 days' worth of purchases which is held as a deposit in
a separate account. The deposit shall be adjusted monthly to cover
increases or decreases in purchase volume. After the one-time payment,
all purchases are payable under regular Payment Terms as described
above.
15-day Prepayment Terms Defined: The prepayment is a one-time payment
equivalent to 15 days' worth of purchases which is held as a deposit in
a separate account. The deposit shall be adjusted monthly to cover
increases or decreases in purchase volume. After the one-time payment,
all purchases are payable under regular Payment Terms as described
above.
Phar-Mor shall be entitled to a reduction in the xxxx-up set forth in
the cost of goods schedule in Section 19 for prepayment if Phar-Mor
elects this prepayment option. The prepay incentive shall be as
follows:
Prepay Incentive Xxxx-Up Reduction
30 Days (*)%
15 Days (*)%
Until EDI financial technology is available to Phar-Mor, checks will be
deposited on the specified due dates.
If for whatever reason payments are not made as indicated herein, any
late payments will result in a one and one-half percent (1.5%)
increase in the purchase price of the Merchandise, and a one percent
(1%) service charge will be imposed semi-monthly on all balances
delinquent more than fifteen (15) days. In the unlikely event any
penalties do occur, both parties agree to meet and resolve this issue
as soon as practical.
This Agreement is conditioned upon Phar-Mor's maintaining a sound
financial condition throughout the term hereof and to that end,
Phar-Mor agrees to promptly substantiate in writing, at McKesson's
request, the existence of such condition with publicly available
financial and other publicly available supporting information
reasonably requested by McKesson.
McKesson reserves the right to change a payment term or limit total
credit if there has been either a material adverse change in
Phar-Mor's financial condition or a payment default based on the
payment terms and conditions specified in this Agreement which remains
uncured for more than ten (10) days following notice of such payment
default to Phar-Mor by McKesson. Upon the occurrence of either such
event, McKesson may
require cash payment or appropriate security before shipment of any
further Merchandise to Phar-Mor. In the event of such changes by
McKesson, Phar-Mor may terminate this Agreement on ten (10) days
written notice to McKesson. Any such termination will not be
considered a default under this Agreement subject to the payment of
damages; provided however such termination shall not relieve Phar-Mor
of its obligations hereunder for accounts receivable balances or any
other payments due and payable upon termination of this Agreement.
10. NEW PHARMACY OPENINGS
Except as specified below, opening order invoices for any new pharmacy
opened by Phar-Mor which was not previously in existence ("Newly Opened
Pharmacy") or any newly affiliated pharmacy resulting from a Business
Combination as defined in Section 11 ("Newly Affiliated Pharmacy") will
receive 90 day payment terms. For purposes of this Section 10, any
Newly Affiliated Pharmacy that is already being serviced by McKesson
shall not be entitled to such 90 day payment terms. Opening orders
include new pharmacy orders submitted to McKesson up to two (2) weeks
after the pharmacy begins filling prescriptions.
The prescription drug and OTC purchases made by any of Phar-Mor's Newly
Opened Pharmacies, regardless of the applicable cost of goods pricing
schedule, shall not be included in the calculation of the minimum
chainwide or group-wide average monthly purchase volumes specified
herein for a period of 18 months after the Newly Opened Pharmacy's
opening order.
A one time cleanup with no handling charges will be provided after six
(6) months of opening date for which a credit equal to 100% of the
purchase price of all eligible Merchandise shall be given by McKesson
to Phar-Mor. In order to qualify as eligible Merchandise under this
paragraph, the Merchandise must have at least six months' dating
remaining and be in salable condition.
11. PRIMARY SUPPLIER
The term of this Agreement shall be for the sixty (60) month period
from the Implementation Date of this Agreement, and for such period
Phar-Mor agrees to designate McKesson as its primary supplier for
Merchandise and to purchase from McKesson substantially all of the
requirements of its pharmacies for Merchandise. It is agreed by the
parties that the Implementation Date of this Supply Agreement shall be
November 15, 1996, provided that this Agreement is signed by Phar-Mor
no later than June 20, 1997. In the event that Phar-Mor does not sign
this Agreement by June 20, 1997, the Implementation Date will become
the date that this Agreement is fully executed by both parties. Except
as otherwise expressly specified in this Agreement, the annual
periods specified in this Agreement and all volume incentives, rebates
and other amounts to be paid hereunder by McKesson shall be based on
the Implementation Date.
Both parties agree to review this Agreement annually between November 1
and December 1. The purpose of this review process is to allow both
parties to address any pertinent changes within the market or their own
internal organizations that would influence the structure of this
Agreement. Provided that Phar-Mor meets its commitment to both sales
volume and timely payments, McKesson will not propose any increase to
this Agreement's cost of goods schedule. Quarterly meetings will be
held between senior managers of both parties to ensure constant
communication.
In the event of an acquisition, merger or other business combination
that involves Phar-Mor, directly or indirectly ("Business
Combination"), it is intended by the parties that one of the three
specific pricing options set forth below shall apply to such Newly
Affiliated Pharmacies:
(i) If any such Newly Affiliated Pharmacies are subject to
existing agreements which, after reasonable efforts by
Phar-Mor, cannot be terminated without penalty, then such
pharmacies will not be subject to this Agreement until such
agreements expire. Further, if such pharmacies are subject to
agreements with better terms and conditions than those
provided for herein, then Phar-Mor may provide McKesson with
the opportunity to meet the terms and conditions provided in
such agreement for such pharmacy. If within fifteen (15) days
of its receipt of such notice from Phar-Mor, McKesson is
unable or unwilling to meet such terms and conditions, then
such Newly Affiliated Pharmacy shall not be subject to this
Agreement, and Phar-Mor shall have no obligation to purchase
goods from McKesson for such pharmacy. Any such inability or
unwillingness on the part of McKesson to meet such terms and
conditions shall not constitute a breach of this Agreement; or
(ii) Phar-Mor, at its election, may exclude a group of Newly
Affiliated Pharmacies acquired through a Business Combination
from the pricing terms specified in Section 19 below and
instead base its Cost of Goods for Merchandise for such Newly
Affiliated Pharmacies on the following pricing schedule.
Phar-Mor's purchases of Merchandise from McKesson pursuant to
this subsection 11.(ii) shall be included in calculating each
of the following:
(i) Prepayment payment amount and incentive specified
in Section 9;
(ii) Chainwide returns in Section 16.B.;
(iii) Annual Volume Incentive specified in Section 19;
(iv) Select Generics Program in Section 20; and
(v) Repack quarterly volume in Section 21.
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
The parties agree to meet to discuss possible further
reductions in the prepayment incentive percentages set forth
in Section 9 based on any additional purchase volume provided
pursuant to this Section 11.(ii).
Group-wide Monthly Average
per Newly Affiliated Pharmacy Rx OTC
-------------------------------------------------------------
$ (*) (*) (*)
$ (*) (*) (*)
$ (*) (*) (*)
$ (*) (*) (*)
$ (*) (*) (*)
$ (*) (*) (*)
$ (*) (*) (*)
$ (*) (*) (*)
$ (*) (*) (*)
$ (*) (*) (*)
$ (*) (*) (*)
It is further understood and agreed by the parties that if
Phar-Mor is unable to achieve or fails to maintain a minimum
group-wide average monthly volume of $(*) in net D.S.D.
prescription drug and OTC product purchases from McKesson per
each Newly Affiliated Pharmacy involved in a given Business
Combination during any rolling three (3) month period of this
Agreement [excluding the first three (3) months following
consummation of the Business Combination], McKesson shall have
the right, in its sole discretion, to refuse to service such
Newly Affiliated Pharmacies. Such refusal on the part of
McKesson shall not constitute a breach of this Agreement .
For purposes of this Subsection 11. (ii), each Business
Combination shall constitute a separate transaction and
Phar-Mor shall be permitted to combine the purchase volumes of
groups of Newly Affiliated Pharmacies acquired in separate and
distinct Business Combinations; or
(iii) Purchases by Newly Affiliated Pharmacies shall be
covered by the Cost of Goods pricing terms set forth in
Section 19.
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
12. COMPETITIVE BID
If at any time after the second anniversary of the Implementation Date
of this Agreement, Phar-Mor is able to secure more competitive material
terms favorable to Phar-Mor, including value-added business solutions,
Phar-Mor may terminate this Agreement upon giving thirty (30) days
written notice. Said written notice will provide McKesson with the
exclusive opportunity to meet or exceed those more competitive material
terms and/or services, Phar-Mor shall make available in writing
pertinent sections of any competitive material bid for review by
McKesson for this process. McKesson shall have fifteen (15) days from
receipt of this notice to accept or reject the change in terms
necessary to meet the more competitive material offer or agreement;
provided however, that any such rejection by McKesson shall not
constitute a default of this Agreement.
Notwithstanding the foregoing provisions, nothing in this Section 12
shall relieve Phar-Mor of its liability or obligation for any accounts
receivable balances or any other payments due to McKesson at the date
of termination.
13. SERVICE COMMITMENT
A. Inventory
1) Service Level
McKesson will ensure a (*)% service level for any
prescription drug products. In the unlikely event the
chainwide average falls below (*)% for (*) consecutive
(*), a (*) penalty will be paid to Phar-Mor on its total
purchases for that period.
In the event of a breach of this service level
requirement, in addition to the termination rights
accorded Phar-Mor hereunder, Phar-Mor, at its own expense,
may remedy the shortfall with the purchase of goods from
third parties without any liability to McKesson for same.
Service level is defined as total lines ordered (partial
lines included) less total omit lines (ordered but not
filled). Items that the manufacturer is unable to supply,
manufacturer back-orders, product recalls and new items
for a (*) day period from first distribution by McKesson
to any of Phar-Mor's pharmacies are to be excluded from
the service level calculation.
2) Items out of Stock
a) In the event the primary Distribution Center is
temporarily out of stock of Phar-Mor prescription drug
and ethical OTC products, the Distribution
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
Center will utilize McKesson's National Distribution
Network to make those items ordered available for
re-order, within (*) hours. If the item is not
available within the McKesson network, it will be drop
shipped from the vendor if stock is available. In the
event that prescription drug and ethical OTC products
are not available within (*)hours, Phar-Mor, at its
own expense, shall be entitled to purchase any
prescription drug products from any third party
without penalty.
b) Any prescription drug and ethical OTC products not
stocked by the primary Distribution Center will be
available through McKesson's Premier Customer Service
Center. If stocked in another McKesson location it
will be available for store order, within (*) hours.
If not stocked in any McKesson location, it will be
drop shipped from the vendor, if stock is available.
In the event that any prescription drug and ethical
OTC products are not available within (*) hours,
Phar-Mor, at its own expense, shall be entitled to
purchase any prescription drug and ethical OTC
products from any third party without penalty.
B. Delivery
All deliveries to Phar-Mor pharmacies will be made in
accordance with the attached delivery schedule. An exception
to the delivery schedule may arise in the event of inclement
weather conditions which would disallow normal delivery
performance. In such circumstances, McKesson will exercise its
best efforts to deliver the Merchandise as close to the
scheduled time as possible.
14. SYSTEMS AND SERVICES
All Phar-Mor in-store pharmacies will be provided access to the
following components of the ECONOMOST Asset Management System:
A. On-line access to Phar-Mor data via McKesson's Information
Warehouse technology (to include Phar-Mor requested reports)
at no charge.
B. Telxon electronic order entry equipment (including shelf
wand) at no charge.
C. Item price stickers, at no charge, with Phar-Mor custom
pricing, where required,
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
and other features such as:
1) Department number
2) Invoice cost
3) Month and year ordered
4) Store name
5) AWP or retail pricing
(Note: Each feature is available for both Rx and OTC.)
D. Bar-coded shelf labels, at no charge.
E. Consolidated Quarterly Purchase Reports for all Phar-Mor
store purchases, at no charge.
F. Monthly report of controlled substances purchased from
McKesson Drug for each store, at no charge.
G. A complete catalog or microfiche of items stocked by
McKesson's Distribution Centers, at no charge.
H. Econolink system available for the Pharmacy and OTC
departments located at Phar-Mor Headquarters, at no charge.
Retail Econolink systems will be available to all Phar-Mor
pharmacies, at no charge. Econolink shall be subject to a
separate agreement between the parties governing use and
maintenance at no charge.
I. Electronic price update information will be provided weekly,
at no charge.
J. OmniLink: Terms and conditions for utilization of McKesson's
OmniLink program will be agreed to under separate contract.
McKesson guarantees that Phar-Mor's average cost benefit for
this program will not fall below (*) per transaction. This
guarantee is contingent on Phar-Mor participating in all
designated transaction edits that McKesson and Phar-Mor have
reasonably identified as being capable of creating economic
value. Phar-Mor will reserve the right to negotiate directly
for competitive switch fees in the event they choose to do so.
Phar-Mor will reserve the right to negotiate directly for
competitive switch fees in the event they choose to do so.
OmniLink will serve as the platform for McKesson's future
development of additional value added programs, e.g., market
share, patient enhancement, asset management, etc.
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
McKesson will provide Phar-Mor with a test of the OmniLink
program to one region in Phar-Mor's chain at no charge to
Phar-Mor.
15. ON-SITE SUPPORT
McKesson will pay Phar-Mor (*) within thirty (30) days following the
execution of this Agreement by both parties and annually upon the
anniversary of the Implementation Date towards the cost of hiring an
employee to provide internal support at Phar-Mor for the execution and
administration of this Agreement and its prescription drug business.
Such individual will be an employee of Phar-Mor, and McKesson shall
have no obligation to such employee whatsoever, its only obligation
relating to the payment of funds as provided herein. Upon the
termination of this Agreement, McKesson's obligation to fund the
position provided for in this Section 15 shall cease without the
payment of any further monies in connection with same. Further, in the
event of early termination of this Agreement by either party, Phar-Mor
shall immediately repay to McKesson a pro-rata portion of the monies
paid hereunder in accordance with the following reimbursement formula:
Total Amount of On-Site Number of months
Support Monies Previously times remaining in the sixty
Paid By McKesson to month contract period
Phar-Mor upon date of termination
-----------------------
60
16. RETURNED GOODS HANDLING
A. The following policy is predicated on Phar-Mor's ability to
not exceed an average monthly return percentage of (*)%. All
returns to be processed through McKesson's electronic order
entry system. Merchandise purchased from Phar-Mor's previous
wholesale supplier will be eligible for return in accordance
with the following guidelines.
1. Credits from McKesson are divided into four (4) categories,
depending on the reason for the claim. Credits will be issued for
any of the following reasons:
a) Non-merchandise problems, such as shortages, shipping,
billing and pricing errors;
b) McKesson merchandise received in error; c) Recalls; and
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
d) Outdated merchandise [defined as items with less than six
(6) months dating].
2. The amount of credit allowed by McKesson will vary, as follows:
a) (*)credit will be given for:
i. Pricing errors, shipping errors and billing errors;
ii. Shortages (required to be phoned into the Distribution
Center within 48 hours of receipt of Merchandise);
iii. Ordering errors (must be returned within 30 days of
receipt);
iv. Manufacturer recalls,
v. Items received with less than six (6) months dating,
and
vi. Merchandise that had concealed damage.
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
b) (*) credit will be given for: i. Clean, salable merchandise
with at least nine (9) months dating returned more than 30
days after store receipt.
c) (*) credit will be given for: i. Unsalable merchandise;
which can be returned to manufacturer ii. Outdated items
(subject to the approved vendor list); and iii. Salable
merchandise with price tickets not removed.
d) (*) credit will be given for:
i. Merchandise damaged in in-store pharmacies, and ii.
Merchandise from manufacturers not listed on the approved
vendor list. These items will be returned to the store of
origination.
e) Phar-Mor stores will be allowed to return overstock
Merchandise for 100% credit one time per year with no
handling charge assessed. The Merchandise must have at least
six (6) months dating remaining and be in salable condition.
B. Understanding that returns are a costly process for both parties,
McKesson agrees to provide the following pricing adjustment, as
applicable, to Phar-Mor:
Adjustment to Cost of Goods
Chainwide Returns & Reduction/Xxxx Up
Allowances to Net Purchases on all Net Purchases
--------------------------- --------------------
(*) (*)
(*) (*)
Adjustment to Cost of Goods Reduction/Xxxx Up will be calculated
at the end of each quarter and will be credited on the
immediately previous quarter's business (i.e., 1st quarter,
Returns & Allowances = 0.0%, (*) adjustment paid on 1st quarter
purchases.)
X. XxXxxxxx agrees to undertake certain administrative activities to
reasonably assist Phar-Mor with the processing of its returns of
outdated and damaged goods through BFI Pharmaceutical Services
Inc. ("BFI"). In this regard, McKesson will credit Phar-Mor (or
pay in the event of amounts due following termination of this
Agreement) the full amount of any related payments made directly
to McKesson by the manufacturers to which such goods were
returned by BFI on Phar-Mor's behalf. Returns through BFI will be
made three (3) times per year and credit shall be issued to
Phar-Mor within thirty (30) days following McKesson's receipt of
payment from the manufacturer or other party in connection with
such returns. Notwithstanding the foregoing, McKesson hereby
assumes no liability or responsibility for the actual collection
or timely payment of any such sums contemplated by Phar-Mor from
the manufacturer based on this returns process.
17. CUSTOMER SUPPORT
A. National Account Customer service personnel will be available
at the McKesson Premier Service Center from 8:00 a.m. to 7:00
p.m. Monday through Friday. Technical and emergency support is
available 24 hours a day, seven days a week.
B. A National Account Executive and National Accounts Customer
Relations Manager will be assigned to Phar-Mor's headquarters
and will be available as needed.
C. Phar-Mor will be provided the names and telephone numbers of
its key contacts at McKesson as well as the names and telephone
numbers of McKesson's designated support personnel.
D. A McKesson representative will visit each of Phar-Mor's stores
once each quarter during the term hereof. Such visits will be
scheduled with reasonable advance notice with such stores.
18. INSTALLATION AND TRAINING
McKesson field management will contact Phar-Mor's Headquarters
personnel to arrange meetings for orientation to begin the
implementation process with timing that is mutually agreeable to the
parties.
McKesson agrees to provide the necessary training on the Economost
system at no cost prior to the Implementation Date. This will include
training on the electronic order entry device if needed as well as
instruction on how to utilize the information provided on the invoice,
item sticker and shelf label. Other appropriate in-store training,
e.g., EconoLink will be made available at no cost as reasonably needed.
McKesson agrees to provide the manpower reasonably necessary to install
shelf labels for all stores at no cost.
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
19. COST OF GOODS
The following Retail Cost of Goods is based on Phar-Mor achieving a
minimum chainwide average volume of (*) in Direct Store Delivery
("D.S.D.") prescription drug and OTC product purchases (net of returns
and allowances) per store per month from McKesson throughout the term
of this Agreement.
Retail Direct Store Delivery
Rx Cost (*)
OTC Cost (*)
In the event that Phar-Mor fails to maintain a minimum chainwide
average volume of (*) in net D.S.D. prescription drug and OTC product
purchases per store per month from McKesson during any (*) month period
of this Agreement [excluding the first (*) months of this Agreement],
all retail cost of goods pricing hereunder shall be increased to the
then applicable pricing based on the following schedule during each
subsequent (*) month period until such time as the minimum chainwide
net D.S.D. prescription drug and OTC product purchase volume
requirement of (*) is met for (*) consecutive months.
Chain-wide Monthly
Average Per Store Rx OTC
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
It is further understood and agreed by the parties that if Phar-Mor
fails to maintain a minimum chainwide average volume of (*) in net
D.S.D. prescription drug and OTC product purchases per store per month
from McKesson during any rolling (*) month period of this Agreement
[excluding the first (*) months of this Agreement], such failure shall
constitute a default of this Agreement by Phar-Mor.
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
Annual Volume Incentive
McKesson agrees to pay Phar-Mor a volume incentive payment based on
Phar-Mor's annual purchase volume of D.S.D. prescription drug and OTC
products (net of returns and allowances) in accordance with the
following schedule. This annual purchase volume shall be calculated
using the twelve month period commencing on the Implementation Date of
this Agreement or the anniversary thereof, as appropriate, and any such
volume incentive earned by Phar-Mor shall be paid by check within
forty-five (45) days following the anniversary date of the
Implementation Date of this Agreement. The net D.S.D. prescription drug
and OTC products purchased by both Phar-Mor's Newly Opened Pharmacies
and Newly Affiliated Pharmacies shall be included in the Volume
Incentive calculation.
Volume Incentive
Annual D.S.D. Prescription Drug
and OTC Product Purchases % on Total
Less than (*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
20. GENERIC PHARMACEUTICALS
McKesson shall pay to Phar-Mor an annual guaranteed rebate based on
Phar-Mor's participation in McKesson's Select Generics Program. In
order to qualify as participation hereunder, all generic
pharmaceuticals purchased by Phar-Mor pharmacies shall be required to
be purchased through McKesson's Select Generics Program. Provided
Phar-Mor's participation meets the percentage levels as specified below
in any year, the guaranteed rebate schedule shall be as follows:
Select Generics Rebate Schedule
% of Select Generics to Total Rx Rebate
----------------------------------------------------------------------
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
Select Generics Rebate Schedule
% of Select Generics to Total Rx Rebate
--------------------------------- ------
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
(*) (*)
The guaranteed rate shall be paid in prorated payments to Phar-Mor
quarterly.
McKesson shall conduct quarterly reviews of the Select Generics Program
to ensure Phar-Mor of the market competitiveness of the Select Generics
Program.
McKesson will ensure a (*)% service level for products purchased
under the Select Generics Program, assuming the manufacturers'
ability to supply the product.
In the event of a Business Combination, the parties agree to modify
the above Select Generics Rebates prorata to include the additional
new Select Generics volume that results from the combination. For
example, if Phar-Mor's annual total Rx purchases are (*) and
Phar-Mor is purchasing McKesson Select Generics at the(*)% of total
Rx level and Phar-Mor then combines with a comparable-sized
business entity (that is also purchasing (*) in total Rx purchases)
and that also purchases Select Generics at the (*)% of total Rx
purchases level, then the combined entity's rebate would be (*)
annually.
21 . REPACK PHARMACEUTICALS
A competitive and comprehensive program will be made available to
Phar-Mor for repacked pharmaceuticals. Stores shall be net-billed with
an additional volume rebate to be paid to Phar-Mor headquarters, each
quarter.
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
Quarterly Repack Volume Rebate %
(*) (*)
(*) (*)
(*) (*)
2. FORCE MAJEURE
If service from any of McKesson's Distribution Centers to any Phar-Mor
store(s) is interrupted or delayed because of strike, lockout, labor
dispute, fire or other casualty, or any other reasons beyond the
reasonable control of McKesson, McKesson will take such action as may
be reasonably necessary, without additional cost or expense to Phar-Mor
to maintain service as mutually agreed upon to affected Stores from an
alternate McKesson distribution center. Notwithstanding anything
contained herein to the contrary, if McKesson cannot deliver the
Merchandise in accordance with the terms of this Agreement, Phar-Mor,
at its own expense, shall be entitled to purchase the Merchandise from
any third party without penalty.
23. TERMINATION
Any breach of this Agreement by either party shall constitute a default
if not cured within sixty (60) days after written notice of such breach
is given by the non-breaching party. Upon default by either party, the
other party may terminate this Agreement on five (5) days' written
notice.
Either party may, on ten (10) days notice, terminate this Agreement,
if:
A. The other party shall file any petition under bankruptcy,
reorganization, insolvency or moratorium laws, or any other laws
for the relief of or intention to the relief of debtors; or
B. The other party shall file any involuntary petition under any
bankruptcy statute or a receiver or trustee shall be appointed to
take possession of all or substantial part of the assets of the
party which has not been dismissed or terminated within sixty
(60) days of such filing or appointment; or
C. The other party shall make a general assignment for the benefit
of creditors or shall become unable or admit in writing its
inability to meet its obligations as they mature; or
D. The other party shall institute any proceedings for liquidation
or the winding up of its business other than for purposes of
reorganization, consolidation or merger; or
E. The other party fails to make any payment when due in accordance
with the terms of this Agreement; provided however, such
termination shall not take effect if the payment default is cured
prior to expiration of the ten (10) day notice period.
Upon termination pursuant to this Section 23, neither party shall have
any further obligations or liabilities hereunder except for accounts
receivable balances or any other payments due to either party based
upon obligations under this Agreement at the date or upon the
occurrence of such termination.
24. CONFIDENTIALITY
The parties agree to maintain in confidence the terms and conditions
contained herein, and shall take every precaution to disclose the
contents of this Agreement only to those employees of each of the
parties who have a reasonable need to know such information or as
required by law or legal process. Notwithstanding the foregoing, each
party hereto may reveal the terms of this Agreement, or appropriate
portions hereof, to (i) those of its (or its affiliates') employees,
directors, agents, and outside accountants, auditors, legal counsel,
and lenders who need to know the information embodied herein to carry
out the express purposes of this Agreement or otherwise to advise them
or (ii) potential lenders, potential investment bankers, or potential
bona fide investors or (iii) professionals (legal counsel and
accountants) representing either of the parties to the extent deemed
necessary or advisable by a party, provided each such party hereto
informs each such employee, director, agent, outside accountant or
auditor, or any other authorized third-party recipient specified above
of the confidential nature of this Agreement and such persons'
obligations to maintain the confidentiality herein provided.
25. NOTICES
All notices given or required to be given hereunder shall be in writing
and shall be deemed to have been duly given when delivered in person or
three (3) days after being sent by certified mail, return receipt
requested, postage prepaid, or when received via overnight courier,
confirmed telecopy, telex or other electronic transmission, in all
cases addressed to the party from whom intended at its address set
forth below, provided that either party may, by like notice, change the
address to which subsequent notices shall be sent.
If to McKesson: If to Phar-Mor:
McKesson Drug Company Phar-Mor, Inc.
0000 Xxxxxx Xxxxx 00 Xxxxxxx Xxxxx Xxxx
Xxxxxxxxxx, XX 00000 X.X. Xxx 000
ATTN: Senior Vice President, Xxxxxxxxxx, XX 00000-0000
National Accounts East ATTN: Vice President,
Facsimile: (000)000-0000 Pharmacy Operations
Facsimile: (000)000-0000
With a copy to
McKesson Corporation With a copy to:
One Post Street Phar-Mor, Inc.
Xxx Xxxxxxxxx, XX 00000 00 Xxxxxxx Xxxxx Xxxx
XXXX: General Counsel X.X. Xxx 000
Facsimile: (000)000-0000 Xxxxxxxxxx, XX 00000-0000
ATTN: General Counsel
Facsimile: (000)000-0000
26. MISCELLANEOUS
A. This Agreement embodies the entire agreement between the
parties with regard to the subject matter hereof and
supersedes all prior agreements, understandings and
representations and may not be modified except by writing
signed by the parties hereto.
B. Neither party shall have the right to assign this Agreement
or any interest therein without the prior written consent of
the other party.
C. This Agreement shall be construed in accordance with the
laws of the State of Ohio without regard to the rules
regarding conflicts of laws.
D. If any federal, state or local tax currently or in the
future is levied upon McKesson in a jurisdiction where
McKesson or Phar-Mor do business and such tax relates or
applies to the Merchandise or any transactions covered by this
Agreement (excluding taxes imposed on McKesson's net income),
the cost of goods payable to McKesson by Phar-Mor hereunder
shall be increased by a corresponding percentage amount, or in
the alternative, the amount of any such tax will be paid by
Phar-Mor as a separate invoice charge.
E. If any provision of this Agreement shall be held invalid
under any applicable law, such invalidity shall not affect any
other provision of this Agreement, except to the extent the
absence of such invalid provision deprives a party of the
benefit of its bargain hereunder, in which case, the party so
deprived may terminate this Agreement on ten (10) days written
notice to the other party, without any further liability other
than for any amount owed at the time of such termination.
F. The failure of either party to enforce at any time or for
any period of time any one or more of the provisions thereof
shall not be construed to be a waiver of such provisions or of
the right of such party thereafter to enforce each such
provision.
G. Phar-Mor understands and acknowledges that all product
discounts and rebates earned by or granted to its stores under
McKesson's programs may be subject to certain state and
federal laws and regulations regarding reporting and/or
disclosure requirements and may be required to be reflected in
the costs claimed or charges made by Phar-Mor's stores under
Medicaid, Medicare or any other health care reimbursement
program or provider plan.
X. XxXxxxxx carries significant insurance. However, it also
requires its vendors to provide insurance coverage of at least
three million dollars ($3,000,000) to cover product claims and
looks to them for any deficiencies.
McKesson shall at its own expense obtain and maintain
comprehensive general liability insurance including products
liability, personal injury and contractual liability, covering
McKesson's actions and omissions with respect to its
performance hereunder, including those of all its employees,
agents and representatives, in the minimum amount of not less
than Three Million Dollars ($3,000,000) per person, per
occurrence, and Five Hundred Thousand ($500,000) for Property
damage . Such policy shall be deemed primary as to any other
valid and collectible insurance which may be carried by any
other liable party. Such policy shall name Phar-Mor as an
additional insured and shall provide at least 30 days prior
written notice to Phar-Mor of any proposed cancellation or
material change in the policy for any cause. McKesson shall
provide a certificate of insurance reflecting all such
coverages within ten days of execution of this Agreement. It
is agreed by the parties that McKesson shall have the option
to self-insure for this coverage.
X. XxXxxxxx shall defend, indemnify, and hold Phar-Mor
harmless from and against any and all losses, claims, damages,
liabilities, and expenses (including attorneys' fees) arising
out of or resulting from (1) the storage, handling, or
delivery by
McKesson of products sold to Phar-Mor hereunder and
(2) for product liability to the extent that the
manufacturer fails to indemnify Phar-Mor from any
liability for
such manufacturer's products sold to Phar-Mor hereunder and
(2) for product liability to the extent that the manufacturer
fails to indemnify Phar-Mor from any liability for such
manufacturer's products sold to Phar-Mor hereunder; provided,
however, that such indemnification shall not apply to the
extent Phar-Mor has caused such losses, claims, damages,
liabilities, and expenses by reason of the acts or omissions
of Phar-Mor, its employees or agents.
J. Phar-Mor shall have the right, during normal business hours
upon thirty (30) days written notice to McKesson, to audit
such portions of the books and records of
Confidential Treatment Requested.
The redacted material has been separately filed with the Commission.
McKesson relating to the purchase of goods sold
hereunder to Phar-Mor, which audit shall be limited in scope
to verification of the cost to McKesson of goods sold and the
amount and price of goods shipped hereunder. In connection
with any such audit, McKesson shall (1) provide Phar-Mor and
its legal counsel, accountants, and other representatives with
reasonable access to all facilities, employees, and
accountants (upon reasonable request and advance notice), and
such portions of the books and records of McKesson relating to
such cost, price, and shipment hereunder and (2) furnish
Phar-Mor and such persons copies of such documents,
information, and data concerning such cost, price and shipment
hereunder as Phar-Mor or such persons may reasonably request.
If, after any such audit pursuant hereto, Phar-Mor
disputes the cost, price of amount of goods shipped or
received hereunder or the calculation of cost as reflected on
the books and records of McKesson, Phar-Mor shall provide
McKesson with a written report reflecting Phar-Mor's
determination of such disputed items. Within fifteen (15) days
after receiving such report, McKesson shall (3) pay Phar-Mor
any additional amounts due to Phar-Mor or the portion thereof
which is not disputed or (4) provide Phar-Mor with notice that
McKesson disagrees with Phar-Mor's determination of such
disputed items and the specific details of such disagreement.
If McKesson and Phar-Mor are unable to resolve such
disagreement within fifteen (15) days after such negotiations
begin, then such disagreement shall be submitted to a mutually
satisfactory independent auditor for resolution. Such
independent auditor's resolution of any such disagreement
shall be reflected in a written report which shall be
delivered to, and shall be binding upon, Phar-Mor and
McKesson. Any amounts due as a result of such resolution shall
be paid by the party required to make such payment to the
other party within fifteen (15) days after such paying party
receives the independent auditor's written report. Phar-Mor
shall pay all costs and fees of the independent auditor unless
McKesson is required to pay an amount in excess of $100,000 as
a result of the resolution by the independent auditor of any
disagreement, in which case, McKesson shall pay all costs and
fees of the independent auditor.
IN WITNESS WHEREOF the parties have caused this Agreement to be duly
executed, subject to ratification by Phar-Mor's Board of Directors on or before
July 15, 1997, as of the date and year first above written.
Phar-Mor, Inc.
By:___Robert Sarvas________________ Title: Vice President, Pharmacy Operations
Print
Name: Xxxxxx Xxxxxx Date: ___6/19/97____________________
McKESSON DRUG COMPANY
a Division of McKESSON CORPORATION
By: Xxxx Xxxxxxx Title: President, Customer Operations
Print
Name: Xxxx Xxxxxxx Date: ____6/23/97_______________________
