EXHIBIT 10.1
CONFIDENTIAL
SUPPLY AGREEMENT
This Supply Agreement dated this 30th day of April, 1998, between McKesson
U.S. Health Care, a division of McKesson Corporation ("McKesson") and Horizon
Pharmacies Inc. ("Horizon") shall be to establish a five (5) year program for
the supply of prescription drugs and other health and beauty care products by
McKesson to retail pharmacies owned or operated by Horizon (referred to
herein as "Pharmacies" or "Stores"). The parties hereto agree as follows:
1. MERCHANDISE
For purposes hereof, "Merchandise" shall comprise all items normally
stocked or drop-shipped by McKesson Drug Distribution Centers servicing
the 48 contiguous states, including prescription drugs, OTC drugs, health
and beauty aids and sundries. This Agreement does not apply to
merchandise sold to Horizon by McKesson Corporation divisions or
subsidiaries other than McKesson Drug Company.
2. TERM
The term of this Agreement shall be for the five year period commencing
on April 30, 1998, and during such period Horizon agrees to designate
McKesson as its primary supplier of prescription drugs and to purchase
from McKesson substantially all of the requirements of its retail
pharmacies for prescription drugs and other items covered hereunder.
3. ORDERING AND DELIVERY
A. Prescription products will be delivered to Horizon pharmacies up to
five (5) times per week, on mutually agreed upon days. Orders
transmitted by 8:00 p.m. local time Sunday through Thursday will be
delivered the next day, with every reasonable attempt to deliver by
noon (of next day). Currently Horizon has three stores requiring a
Saturday (Rx only and limited items) delivery (Store #21, #23, and
#29). In order to receive a Saturday delivery, orders for Stores #21
and #29 will be transmitted by no later than noon on Friday. Store
#23 will transmit no later than 2:00 p.m., Friday. Although Saturday
delivery is not a common practice, both parties mutually agree to
discuss future needs as Horizon acquires new stores. McKesson agrees
to maintain a [redacted - Confidential Treatment] service level to
Horizon Pharmacies chainwide on an aggregate basis for prescription
Merchandise, tested on a monthly basis. Service level is defined as
total lines ordered (partial lines included) less total omit lines
(ordered but not filled). Items that manufacturers are unable to
supply, manufacturer back-orders, product recalls, same item ordered
again within 72 hours, items the manufacturer has discontinued, and
new items with no inventory demand shall be excluded from the service
level calculation.
-1-
CONFIDENTIAL
B. Non-prescription Merchandise will be delivered to Horizon Pharmacies
up to 5 days per week. McKesson agrees to maintain a [redacted -
Confidential Treatment] service level to Horizon Pharmacies
chainwide on an aggregate basis for non-prescription Merchandise.
Service level is defined as total lines ordered (partial lines
included) less total omit lines (ordered but not filled). Items that
manufacturers are unable to supply, manufacturer back-orders,
product recalls, same item ordered again within 72 hours, items the
manufacturer has discontinued, and new items with no inventory
demand shall be excluded from the service level calculation.
X. XxXxxxxx will provide daily updates of AWP and acquisition cost to
the National Data Corporation pharmacy system for pharmaceutical
Merchandise. In addition, McKesson will provide retail and
acquisition cost fields for non-pharmaceutical Merchandise to the
Horizon system no less often than weekly.
4. PAYMENT TERMS
A. The payment terms options for the Merchandise covered by this
Agreement are as follows: Horizon Pharmacies may elect one of the
following options for payment terms for the Merchandise covered by
this Agreement, and shall have the right to elect to switch to the
other options during the term of this Agreement after giving a 30
day written notice. Any changes to payment terms will be made at the
beginning of a payment cycle.
STANDARD SEMI-MONTHLY PAYMENT TERMS
Payment for Merchandise delivered to Horizon retail pharmacies shall
be paid by Horizon as follows: Invoices dated from the 1st to the
15th of the month are due and payable on the 25th day of the same
month. Invoices dated from the 16th to the end of the month are due
and payable on the 10th of the following month.
30-DAY EXTENDED PAYMENT TERMS
Invoices dated from the 1st to the end of the month are due and
payable on the 10th day of the following month.
45 DAY EXTENDED PAYMENT TERMS
Invoices dated from the 1st of the month to the end of same month
are due and payable on the 25th day of the following month.
-2-
CONFIDENTIAL
PREPAYMENT INCENTIVES
Prepayment Terms (30 day, 15 day and 7 day): The prepayment is a
one-time payment equivalent to thirty (30) or fifteen (15) or seven
(7) days worth of purchases (based on the most recent three-month
purchase history) which is held as a deposit by McKesson. The amount
of the required deposit will be adjusted quarterly, and may be
adjusted as often as monthly, to cover increases or decreases in
purchase volume. Following such one-time payment, all purchases are
payable under the Standard Semi-Monthly Payment Terms as described
above.
Horizon shall be entitled to a reduction in the markup set forth in
the cost of goods schedule for prepayment if Horizon elects this
prepayment option. The prepay incentive shall be as follows:
PREPAY INCENTIVE MARKUP REDUCTION
30 Days [redacted - Confidential Treatment]
15 Days [redacted - Confidential Treatment]
7 Days [redacted - Confidential Treatment]
B. Any payments made after the due date indicated herein shall result
in a [redacted - Confidential Treatment] (or the maximum amount
permissible under applicable law, if lower) increase in the purchase
price of the Merchandise. A [redacted - Confidential Treatment]
percent ([redacted Confidential Treatment]%) service charge
(or the maximum amount permissible under applicable law, if
lower) will be imposed semi-monthly on all balances delinquent
more than [redacted - Confidential Treatment] days. If payment
is due on a Saturday or Sunday, the payment due date will be
the Monday immediately following any such Saturday or Sunday.
C. Horizon hereby grants to McKesson a purchase money security interest
covering all Merchandise sold and shipped to Horizon by McKesson to
secure repayment of amounts due McKesson under this Agreement. Such
security interest shall be subject and inferior to security
interests covering inventory of specific pharmacies granted by
Horizon in favor of prior owners of such pharmacies who have
provided Horizon with secured seller financing in the past or who
provide such secured seller financing in the future for new
pharmacies acquired by Horizon. The security interest of McKesson
shall be subordinate to seller financing security interests
notwithstanding the filing dates of financing statements or any
rights under applicable law which McKesson may otherwise have as the
holder of a purchase money security interest. Horizon agrees to
execute from time to time such financing statements as McKesson may
request for the purpose of perfecting McKesson's security interest.
-3-
CONFIDENTIAL
D. This Agreement is conditioned upon Horizon not being in default
under the terms of the Credit Agreement throughout the term hereof
and to that end, Horizon agrees to promptly substantiate in writing,
at McKesson's request, the existence of such condition with annual
audited and quarterly unaudited financial statements and any other
supporting information required by McKesson.
X. XxXxxxxx reserves the right, in its sole discretion, to change a
payment term (including imposing the requirement of cash payment
upon delivery) or limit total credit, if (i) McKesson concludes
there has been a material adverse change in Horizon's financial
condition or an unsatisfactory payment performance; or (ii) Horizon
is in default under the terms of the Credit Agreement. Upon the
occurrence of any of the events of default specified above in (i) or
(ii) of this Section, McKesson shall allow a five (5) day period from
receipt of written notice of default to cure the default before
changing the payment terms. During that period, Horizon must adhere
to its normal buying patterns. If the default is not cured after five
days, McKesson will change the payment term to limit its risk, but
will continue to ship product for thirty (30) days before
suspending or discontinuing shipment of any additional orders to
Horizon pharmacies.
5. COST OF GOODS
A. In consideration for the Cost of Goods specified herein, Horizon
expressly commits to purchase throughout the term of this Agreement
(i) no less than [redacted - Confidential Treatment] percent
(redacted %) of its pharmaceutical Merchandise from McKesson, (ii)
no less than [redacted - Confidential Treatment] percent (redacted
%) of its OTC drug, HBA, and DME Merchandise from McKesson, and
(iii) not less than a monthly average of [redacted - Confidential
Treatment] percent (redacted %) (net of returns, allowances and
rebates) during any three month period of this Agreement in Direct
Store Pharmacy Delivery ("D.S.D.") volume of Merchandise from
McKesson ("Volume Purchase Commitment"). Unless otherwise
indicated, Horizon shall at the time of implementation of service
under this Agreement ("Implementation Date") be charged, in
accordance with its designated payment terms, the applicable markup
specified below for such Purchase Volume Commitment amount.
Horizon's Cost of Goods thereafter shall be subject to quarterly
review by McKesson and will be adjusted, if and to the extent
necessary, to reflect Horizon's actual chain-wide monthly average
purchase volume. If at any time after the first year of this
Agreement Horizon has not achieved the appropriate pro rata
purchase volume based on its Volume Purchase Commitment, McKesson,
in addition to the other rights and remedies available to it
hereunder, reserves the right in its sole discretion to redetermine
the Cost of Goods pricing specified below.
B. Horizon hereby further agrees to maintain a minimum chain-wide
monthly average volume per retail pharmacy operation location of
[redacted - Confidential Treatment] in D.S.D. prescription and OTC
product purchases (net of returns, allowances and rebates) from
McKesson throughout the term of this Agreement. In the event that
Horizon
-4-
CONFIDENTIAL
fails to maintain this minimum chainwide average volume of
$ [redacted-Confidential Treatment] in net D.S.D. prescription drug
and OTC product purchases per retail pharmacy operation location per
month from McKesson during any three month period of this Agreement
[excluding the first three (3) months of this Agreement], all Cost
of Goods xxxx-ups hereunder shall be increased by
[redacted - Confidential Treatment] during each subsequent three (3)
month period until such time as the minimum chainwide net D.S.D.
prescription drug and OTC product purchases volume requirement of
$ [redacted-Confidential Treatment] is met for three (3) consecutive
months.
C. Subject to the terms and conditions of this Section, the Cost of
Goods for Merchandise delivered to Horizon shall be Cost plus the
applicable markup as specified below. [redacted - Confidential
Treatment]
D. Subject to the terms and conditions herein, the Cost of Goods hereunder
shall be in accordance with the pricing schedule set forth below.
CHAIN-WIDE MONTHLY VOLUME FOR
[REDACTED - CONFIDENTIAL TREATMENT] PAYMENT COST PLUS MARKUP
TERMS (NET OF RETURNS, ALLOWANCES AND REBATES) RX OTC
---------------------------------------------- ------- -------------------
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
CHAIN-WIDE MONTHLY VOLUME FOR
[REDACTED - CONFIDENTIAL TREATMENT] PAYMENT COST PLUS MARKUP
TERMS (NET OF RETURNS, ALLOWANCES AND REBATES) RX OTC
----------------------------------------------------- ------- -------------------
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
-5-
CONFIDENTIAL
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
CHAIN-WIDE MONTHLY VOLUME FOR
[REDACTED - CONFIDENTIAL TREATMENT] PAYMENT COST PLUS MARKUP
TERMS (NET OF RETURNS, ALLOWANCES AND REBATES) RX OTC
---------------------------------------------- ------- -------------------
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]% [redacted - Confidential Treatment]%
NET BILLED ITEMS: The purchase price for selected Merchandise,
including but not limited to the following product lines, will be
net-billed and not covered by the above-specified Cost of Goods
pricing: [redacted - Confidential Treatment]
E. All Horizon pharmacies will be invoiced at Cost plus [redacted -
Confidential Treatment] for all Merchandise except net-billed items.
A rebate will be calculated based on the difference between such
invoiced amount and the then applicable Cost of Goods pricing as
determined by the Horizon's respective chainwide monthly Volume
Level and current payment terms. Said rebate amount will be issued
monthly via check to Horizon's headquarters by the eighteenth (18th)
of the following month.
F. If Horizon Pharmacies elects not to participate in the McKesson
Select Generic Program as specified in Section 10 of this Agreement
or discontinues its participation in the McKesson Select Generics
Program at any time during the term of this Agreement, an
-6-
CONFIDENTIAL
increase in the Cost of Goods markups set forth in Section 5.D. above will
apply in accordance with the following schedule:
Applicable Payment Terms Markup Increase
------------------------ ---------------
45 Days [redacted - Confidential Treatment]%
30 Days [redacted - Confidential Treatment]%
15 Days [redacted - Confidential Treatment]%
Such increase will become effective immediately upon the occurrence of
either the above-referenced events regarding participation in the
McKesson Select Generics Program.
G. It is further understood and agreed by the parties that if:
i) Horizon fails to maintain a minimum chain-wide average volume
of [redacted - Confidential Treatment] in D.S.D. prescription
drug and OTC product purchases (net of returns, allowances and
rebates) per month from McKesson during any consecutive three
(3) months of this Agreement (excluding the first three (3)
month period of this Agreement); or
ii) Horizon fails to maintain a minimum average volume per Store
per month of [redacted - Confidential Treatment] in D.S.D.
prescription drug and OTC product purchases (net of returns,
allowances and rebates) from McKesson during any consecutive
three (3) months of this Agreement (excluding the first (3)
month period of this Agreement),
either such failure shall constitute a non-monetary default under
this Agreement by Horizon as contemplated in Section 13.A.
H. Prior to making any adjustments to amounts payable by Horizon
pursuant to Section 5.D. as a result of different volumes of
Merchandise purchased, McKesson will first give written notice to
Horizon of the proposed change and provide sufficiently detailed
backup information to Horizon to substantiate the proposed change.
Horizon will have an opportunity to review the information provided
by McKesson to verify the accuracy of the calculations, to request
additional information and to discuss the matter with McKesson
personnel responsible for such information, and in any event, shall
have no less than thirty (30) days to complete such verification.
6. CONVERSION ALLOWANCE
In consideration for Horizon's Volume Purchase Commitment specified
above, McKesson agrees to pay to Horizon a conversion allowance
("Conversion Allowance") based on the following terms and conditions:
-7-
CONFIDENTIAL
A. The Conversion Allowance to be paid under this Agreement shall be
[redacted - Confidential Treatment]% of the [redacted - Confidential
Treatment] as hereinafter defined. Such Run Rate shall equal the
amount of Horizon's [redacted - Confidential Treatment] purchases,
net of returns, allowances, rebates and any net-billed items, from
McKesson following the Implementation Date of this Agreement. The
[redacted - Confidential Treatment] shall be defined as those
purchases hereunder beginning [redacted - Confidential Treatment].
This one-time payment will occur thirty (30) days following
expiration of the [redacted - Confidential Treatment] set forth
above.
B. If Horizon has not met its Purchase Volume Commitment as specified
in Section 5.A. above at the time of either expiration of this
Agreement or termination of this Agreement by either party, Horizon
shall repay to McKesson in accordance with the following formula a
pro-rata portion of the Conversion Allowance previously paid
hereunder to Horizon pursuant to Section 6.A. above:
[redacted - Confidential Treatment]
Such repayment amount shall be paid in full by Horizon within five
(5) days of the effective date of such expiration or termination of
this Agreement in immediately available funds, without making any
deductions, offsets, short payments or other unauthorized accounts
payable adjustments. Notwithstanding anything in this Section 6 to
the contrary, Horizon shall have no repayment obligation hereunder
in the event of termination of this Agreement by Horizon due to a
default by McKesson resulting from a material breach of its
obligations that is not cured in accordance with the terms and
conditions set forth in Section 13.A. below.
7. RETURNED GOODS
A. Credits for returned goods from McKesson are divided into four
categories, depending on the reason for the claim. Credits will be
issued for any of the following reasons:
1) Non-merchandise problems, such as shortages and pricing errors;
2) McKesson merchandise received in error;
3) Recalls; and
4) Outdated merchandise (defined as items with less than 6 months
dating)
-8-
CONFIDENTIAL
B. The amount of credit allowed by McKesson will vary as follows:
1) [redacted - Confidential Treatment] credit will be given for:
a) Pricing errors, shipping errors and billing errors;
b) Shortages (required to be phoned into the Customer Service
Center within 48 hours of receipt of Merchandise);
c) Ordering errors (must be returned within 30 days of receipt);
d) Manufacturer recalls;
e) Items received from McKesson with less than six (6)
months dating; and
f) Merchandise that had concealed damage.
Invoice number is required in each of the above-specified instances,
except recalls, for full credit.
2) [redacted - Confidential Treatment] credit will be given for:
Clean, salable merchandise with at least nine (9) months dating
returned more than 30 days after store receipt.
3) [redacted - Confidential Treatment] credit will be given for:
a) Unsalable merchandise which can be returned to manufacturer,
b) Outdated items (subject to the approved vendor list); and
c) Salable merchandise with price tickets NOT removed.
4) [redacted - Confidential Treatment] credit will be given for:
a) Merchandise damaged in store pharmacies;
b) Merchandise from manufacturers not listed on the approved
vendor list; and
c) Merchandise not purchased from McKesson.
These items will be sent back to the store which initiated the return.
C. [redacted - Confidential Treatment]
-9-
CONFIDENTIAL
8. CUSTOMER SUPPORT CENTER
A. Customer Service Support personnel will be available at the McKesson
Premier Service Center from 8:00 a.m. EST to 8:00 p.m. EST Monday
through Friday. Technical and emergency support is available 24 hours
a day, seven (7) days a week. A Customer Service POD will be assigned
to the Horizon chain of Stores with a key National Account contact as
well.
B. Horizon 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.
X. XxXxxxxx will provide the necessary training for Horizons employees
on all programs and services described in this Agreement and provide
personnel to complete the initial store conversion at no charge.
Additionally McKesson will provide assistance for a one-time reset to
coincide with POS installation (this may or may not occur at the same
time as conversion).
9. CONTRACT MANAGEMENT
X. XxXxxxxx agrees to service all manufacturers' contracts negotiated by
Horizon, provided such manufacturers are approved suppliers of
McKesson. Merchandise will be supplied at Horizon's negotiated bid
price plus McKesson's applicable markup as described above in the
Cost of Goods section.
B. Horizon's eligibility for participation under a vendor contract must
be authorized by the vendor, before the contract is loaded by
McKesson. Horizon shall be liable for unpaid charge backs resulting
from eligibility issues.
C. In the event that a manufacturer in the case of a Horizon negotiated
contract (i) makes an assignment for the benefit of creditors, files
a petition in bankruptcy, is adjudicated insolvent or bankrupt, or
if a receiver of trustee is appointed with respect to a substantial
part of the vendor's property or a proceeding is commenced against it
which will substantially impair its ability to pay on charge backs or
(ii) otherwise defaults in the payment of charge backs to McKesson,
Horizon shall be invoiced and become liable for the unpaid charge
backs allocable to its purchases from such vendor.
10. GENERIC PHARMACEUTICALS
Horizon agrees that upon commencement of the term of this Agreement to
participate in McKesson's Select Generics Program through its
auto-substitution feature and to thereby designate this program as
Horizon's primary source of generic pharmaceuticals. A
-10-
CONFIDENTIAL
quarterly rebate shall be paid to Horizon in accordance with the
following matrix based on such participation:
CHAIN-WIDE QUARTERLY SELECT
GENERICS VOLUME (NET OF RETURNS, QUARTERLY REBATE % ON
ALLOWANCES AND REBATES) SELECT GENERICS PURCHASES
------------------------------- -------------------------
REBATE UNDER [REDACTED - CONFIDENTIAL REBATE UNDER [REDACTED - CONFIDENTIAL
TREATMENT] PAYMENT TERMS TREATMENT] PAYMENT TERMS
[redacted - Confidential Treatment] [redacted - Confidential Treatment]00% [redacted - Confidential Treatment]00%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]00% [redacted - Confidential Treatment]00%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]00% [redacted - Confidential Treatment]00%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]00% [redacted - Confidential Treatment]00%
[redacted - Confidential Treatment] [redacted - Confidential Treatment]00% [redacted - Confidential Treatment]00%
11. REPACKAGED PHARMACEUTICALS
A competitive and comprehensive program will be made available to
Horizon to participate in, at its option, for repackaged pharmaceutical
products. Stores shall be net-billed on McKesson's RxPak line of
repackaged branded pharmaceutical products.
12. SYSTEM SERVICES, EQUIPMENT AND PROGRAMS
The following systems and services will be made available to Horizon
Pharmacy as specified:
REQUIRED:
A. ECONOMOST order system offers the following:
1) Telxon order entry device
2) Customized retail price capabilities
3) Scannable shelf identification labels
4) Item price stickers for pharmaceutical and H.B.C. merchandise
5) Controlled substance report (A detailed listing of all
controlled substances purchased from the servicing McKesson DC.
6) Manufacturer off invoice allowances automatically applied upon
ordering
7) McKesson Advantage. (Monthly publication that lists manufacturer
off invoice allowances, new Rx and OTC merchandise, advertising
allowances, etc.)
Fee is $ [redacted - Confidential Treatment] per month per location.
-11-
CONFIDENTIAL
OPTIONAL:
A. Valu-Rite offers the following:
1) National identification
2) Extensive line of Valu-Rite private label merchandise
3) Circular advertising (Promotions unlimited)
4) Chain class a contract pricing on Xxxxx Xxxxxxxx prescription
xxxx
5) No charge Yellow Page ad under Valu-Rite Pharmacies
6) 0-000 Xxxx-Xxxx locator number.
7) Quarterly rebate program ([redacted - Confidential Treatment]
McKesson Select Generics, [redacted - Confidential Treatment]
Private Label Products)
8) National advertising program
9) New neighbor program, and marketing services
10) Prefer Rx-Contract pricing on select branded name pharmaceuticals
11) MAP Zone pricing for each retail pharmacy location.
Fee is $[redacted - Confidential Treatment] per month per location.
B. Microfiche
Microfiche Updated twice per month
Fee is $[redacted - Confidential Treatment] per mo. per location.
C. EconoLink* offers the following:
1) Includes IBM compatible windows based system with color monitor,
printer and modem. Hardware and software maintenance are
included in monthly charge.
2) Customized data base and reports.
3) Contract compliance and best price search
4) Daily automatic price and product updates.
5) On line listing of product availability
6) Order submission via electronic data interchange
7) Quantity acknowledgments (instant purchase order confirmation
with a detailed listing of merchandise filled and out of stock
Fee is $ [redacted - Confidential Treatment] per mo. per location-
Optional.
* One (1) Econolink Host system shall be provided to Horizon's
headquarters, at [redacted - Confidential Treatment]. EconoLink shall
be subject to a separate license agreement between the parties
governing use and maintenance.
D. OmniLink: Terms and conditions for utilization of McKesson's OmniLink
program will be agreed to under separate contract.
-12-
CONFIDENTIAL
13. DEFAULT AND REMEDIES
A. Failure of either party to make any payments within five (5) days of
when due in accordance with the terms of this Agreement shall
constitute a default. Any breach by either party of a material
non-monetary provision of the Agreement or any other agreement
between Horizon and McKesson (i.e. a provision not requiring the
payment of money), which is capable of being cured and has not been
caused by any action or omission of the other party, shall
constitute a default if not cured to the reasonable satisfaction of
the other party within sixty (60) days after the giving of written
notice of such breach by the non-breaching party. Such written
notice shall specify the nature of the breach and be accompanied by
calculations and other appropriate materials to substantiate the
allegation of breach in order for the alleged breach to be verified
if necessary. Upon default by either party the non-breaching party
may, at its option, terminate the Agreement immediately without
further notice and pursue any remedy available to it under this
Agreement, at law or in equity or any combination thereof.
B. Either party may, on ten (10) days notice, terminate this Agreement:
1) If the other party shall file any petition under any
bankruptcy, reorganization, insolvency or moratorium laws, or
any other law or laws for the relief of or in relation to the
relief of debtors; or
2) If 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 the date of such filing or
appointment, or
3) If 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
4) If 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.
C. In the event of a termination hereunder the following continuing
obligations and liabilities shall survive termination and remain in
full force and effect:
1) Liability for accounts receivable balances or any other
payment due hereunder to the other party at the date of or upon
the occurrence of such termination; and
-13-
CONFIDENTIAL
2) Obligations imposed on each party under the Proprietary and
Confidentiality Information section set forth below.
14. PROPRIETARY AND CONFIDENTIAL INFORMATION
A. Any and all accounts, records, books, files, and lists regarding any
transaction provided for or contemplated hereunder, shall be
confidential and proprietary to the party creating or generating
such information. This Agreement, and the terms and conditions
hereof, are confidential. The parties expressly agree to maintain
such terms and conditions in confidence, 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.
B. Horizon and McKesson each acknowledge that, in connection with their
respective businesses, they have developed certain operating
manuals, symbols, trademarks, trade names, service marks, trade
secrets, customer lists, procedures, formulas, and other patented,
copyrighted, or legally protected materials which are confidential
and proprietary to each of them.
C. Neither party may disclose the terms of this Agreement during the
term hereof and for an additional period of twenty-four (24) months
following the effective date of expiration or other termination of
this Agreement. Furthermore, except upon the prior written consent
of the other party, neither party may divulge, disclose,
communicate, or use any of the other party's confidential or
proprietary information generally described in Subsection A and B
above, in any manner or for any purpose, including, without
limitation, use in advertising or for promotional materials, except
upon the prior written consent of the other party. A party hereto
may refuse consent to the use of its confidential or proprietary
information for any or no reason. In the event that any such
confidential or proprietary information is used during the course of
this Agreement it shall retain its confidential and proprietary
nature and shall be returned immediately to its owner or destroyed
upon termination of this Agreement. Notwithstanding anything herein
to the contrary, nothing in this subsection shall require either
party to maintain in confidence any information, materials, or data
which is in the public domain, enters the public domain through
no fault of such party, was in possession of the party prior to being
furnished to it by the other, was supplied to the party by a third
party or parties lawfully in possession thereof, which is required
to be disclosed to the Securities and Exchange Commission or other
commission or agency regulating the activities of either party or
which the party is required to divulge pursuant to process of any
judicial or governmental body of competent jurisdiction, provided
that notice of receipt of such process is given to the other.
-14-
CONFIDENTIAL
15. FORCE MAJEURE
If service from any McKesson distribution center to any Horizon 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 Horizon, to maintain
service as mutually agreed upon to affected stores from an alternate
McKesson Distribution Center. Any adverse effects upon Horizon's
performance of this Agreement occurring as a result of the events
described in this section shall not in any way be considered a breach of
this Agreement.
16. NOTICES
All notices pertaining to this Agreement shall be delivered in person,
sent by certified mail, delivered by air courier, or transmitted by
facsimile and confirmed in writing (sent by air courier or certified
mail) to a party at the address or facsimile number shown in this
Section, or such other address or facsimile number as a party may
notify the other party from time to time. Notices delivered in person,
and notices dispatched by facsimile prior to 4:00 p.m. and confirmed,
shall be deemed to be received on the day sent. All other facsimiles
and notices shall be deemed to have been received on the business day
following receipt; provided, however, if such day falls on a weekend or
legal holiday, receipt shall be deemed to occur on the next business
day. Notices may also be transmitted electronically between the
parties, provided that proper arrangements are made in advance to
facilitate such communications and provide for their security and
verification.
IF TO MCKESSON: IF TO HORIZON:
McKesson Corporation Horizon Pharmacies Inc.
000 000xx Xx. 000 X. Xxxxxxxxx Xx.
Xxxxxxxxx, XX 00000 Xxxxxxxxx, XX 00000
ATTENTION: Xxxxxx Xxxxxx ATTENTION: Xxxx XxXxxx
Vice President Sales President
FAX: (000) 000-0000 FAX: (000) 000-0000
17. 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 with the exception
of any promissory note, security agreement or other credit or
financial related document(s) executed by Horizon or between
Horizon and McKesson. This Agreement may not be modified,
supplemented or extended except by a writing signed by both
parties.
-15-
CONFIDENTIAL
B. This Agreement supersedes any and all prior McKesson agreements and
discount plans in which any Horizon pharmacy may currently be
participating.
C. Except as provided above in Section 15, neither party shall have any
obligation hereunder for failure or delay of performance due to
fire, shortage of materials or transportation, government acts, or
any other cause beyond its control.
D. Neither party shall have the right to assign this Agreement or any
interest therein without the prior written consent of the other
party, and any such attempted assignment shall be without effect,
except that either party may, without the consent of the other, assign
this Agreement to an affiliate of such party and except that this
provision shall not be applicable to any corporate reorganization
of either party, including but not limited to any merger,
reincorporation or sale of a significant portion of either party's
assets.
E. This Agreement shall be construed in accordance with the State of
California without regard to the provisions of Section 1654 of the
California Civil Code or the rules regarding conflict of laws.
F. If any provisions of this Agreement shall be held invalid under
any applicable law, such invalidity shall not affect any other
provision of this Agreement.
G. 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.
H. If any federal, state, or local tax currently or in the future
(e.g. Minnesota Care Tax) is levied upon McKesson in a
jurisdiction where either McKesson or Horizon does business and
such tax relates or applies to the Merchandise and or any
applicable service fees covered by this Agreement (excluding taxes
imposed on McKesson's net income), the Cost of Goods to those
Horizon pharmacies involved will be increased a corresponding
percentage amount.
I. Horizon represents and warrants that similar conditions, including
prices, rebates, terms and delivery, have been made available to
Horizon by wholesale drug competitors of McKesson in the areas
covered by this Agreement.
J. If and to the extent any product discounts, rebates or other
purchasing incentives are earned by or granted to Horizon and paid
by McKesson under this Agreement, then applicable provisions of the
Medicare/Medicaid and state health care fraud and
abuse/antikickback laws and regulations (collectively, "fraud and
abuse laws") may require disclosure of the applicable price
reduction on Horizon's claims or cost reports for reimbursement
from governmental or other third party health care programs or
provider plans. Horizon agrees to comply with all
-16-
CONFIDENTIAL
applicable provisions of the fraud and abuse laws and to indemnify
and hold McKesson harmless for any failure on its part to do so.
K. Participation hereunder by any of Horizon's pharmacies in
McKesson's Preferred Provider Network may be terminated by McKesson
if such pharmacy fails to comply with the terms and conditions of
this Agreement or the M.P.P.N. Agreement. Membership to these two
Networks are granted as members of McKesson's Valu Rite program and
at Horizon's discretion pharmacies can opt out of individual
managed care plans it so designates. Such membership shall be
discontinued for any Horizon Pharmacy not using McKesson as its
primary wholesaler as defined herein.
X. XxXxxxxx shall be entitled to set off any delinquent amount owing
from Horizon to McKesson after either of the five day cure periods
referenced in Sections 4.E. and 13.A. against any amount payable at
such time by McKesson to Horizon, whether arising under this
Agreement or otherwise. For purposes of this Section, Horizon and
McKesson in each case shall include its subsidiaries and affiliates.
M. Whenever possible, each provision of this Agreement shall be
interpreted so as to be effective and valid under applicable law,
but if any provision of this Agreement should be prohibited or
invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without
invalidating the other of such provision or the remaining
provisions of this Agreement. The parties agree to replace any such
invalid provision with a new provision which has the most nearly
similar permissible economic effect.
N. The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
O. This Agreement may be executed in any number of counterparts, and
each such counterpart hereof shall be deemed an original
instrument, but all such counterparts together shall constitute one
agreement.
P. In the event Horizon decides to develop its own private label (OTC)
line, McKesson, based on its current understanding of the
contemplated distribution requirements posed by such an arrangement,
agrees to establish a service fee of [redacted - Confidential
Treatment] percent ([redacted - Confidential Treatment]%) [separate
from any amounts due under this Agreement] for stocking and
shipping products covered by the designated Horizon private label.
It is understood and agreed by the parties that this fee would be
subject to an increase adjustment in the event of a material change
in the distribution requirements actually applicable at the time of
implementation of such services. All inventory of such private
label products stored at McKesson Distribution Centers will be
under the complete ownership of Horizon Pharmacies, Inc.
-17-
CONFIDENTIAL
X. XxXxxxxx and Horizon agree to conduct an annual business review of
the supply arrangement created by this Agreement ("Annual Review")
which shall occur throughout the term hereof during the month
immediately preceding the anniversary of the commencement date of
this Agreement. The purpose of this Annual Review shall be to allow
the parties to discuss then current market conditions or other
competitive considerations which are directly related to the
parties' existing business relationship.
IN WITNESS WHEREOF the parties have caused this Agreement to be duly executed
as of the date and year written below and the persons signing warrant that
they are duly authorized to sign for and on behalf of the respective parties.
This Agreement shall be deemed accepted by McKesson only upon execution by a
designated signatory of McKesson.
HORIZON PHARMACIES INC. McKESSON U.S. HEALTH CARE,
A DIVISION OF McKESSON CORPORATION
By: /s/ Xxxx XxXxxx By: /s/ Xxxxxxx X. Xxxxx
------------------------------- -------------------------------
Name: Xxxx XxXxxx Name: Xxxxxxx X. Xxxxx
----------------------------- -----------------------------
(Print or Type) (Print or Type)
Senior Vice President,
Title: President Title: Customer Operations
----------------------------- -----------------------------
Date: 4/30/98 Date: 4/30/98
----------------------------- -----------------------------
-18-
