-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LoudN4vT9ZLEqVkrBfha8D0S283QD3ZeRZu7nTFIvKNwpAUZ8wyZnPU2iawmpl9I 06UvNJVzQTBW57C37TUWwQ== 0000920527-02-000009.txt : 20020812 0000920527-02-000009.hdr.sgml : 20020812 20020812165219 ACCESSION NUMBER: 0000920527-02-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020628 FILED AS OF DATE: 20020812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSS WORLD MEDICAL INC CENTRAL INDEX KEY: 0000920527 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 592280364 STATE OF INCORPORATION: FL FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23832 FILM NUMBER: 02727309 BUSINESS ADDRESS: STREET 1: 4345 SOUTHPOINT BLVD STREET 2: STE 250 CITY: JACKSONVILLE STATE: FL ZIP: 32216 BUSINESS PHONE: 9043323000 MAIL ADDRESS: STREET 1: 4345 SOUTHPOINT BLVD STREET 2: STE 250 CITY: JACKSONVILLE STATE: FL ZIP: 32216 FORMER COMPANY: FORMER CONFORMED NAME: PHYSICIAN SALES & SERVICE INC /FL/ DATE OF NAME CHANGE: 19940318 10-Q 1 form_10q1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 2002 ------------- [ ] 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 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 offices) (Zip code) 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 The number of shares of common stock, par value $.01 per share, of the registrant outstanding as of August 9, 2002 was 71,281,065 shares. PSS WORLD MEDICAL, INC. AND SUBSIDIARIES June 28, 2002 TABLE OF CONTENTS
Item Page Information Regarding Forward-Looking Statements............................................ 3 Part I--Financial Information 1. Financial Statements: Consolidated Balance Sheets--June 28, 2002 and March 29, 2002........................... 4 Consolidated Statements of Operations for the Three Months Ended June 28, 2002 and June 29, 2001........................................................................ 5 Consolidated Statements of Cash Flows for the Three Months Ended June 28, 2002 and June 29, 2001........................................................................ 6 Notes to Consolidated Financial Statements--June 28, 2002 and June 29, 2001............. 7 Independent Accountants' Review Report.................................................. 22 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 23 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 32 Part II--Other Information 1. Legal Proceedings........................................................................... 32 2. Changes in Securities and Use of Proceeds................................................... 32 3. Defaults Upon Senior Securities............................................................. 32 4. Submission of Matters to a Vote of Security Holders......................................... 33 5. Other Information........................................................................... 33 6. Exhibits and Reports on Form 8-K............................................................ 33 Signatures.................................................................................. 37
2 CAUTIONARY STATEMENTS Forward-Looking Statements This Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements regarding the Company's and its subsidiaries' (including subsidiaries that are limited liability companies and limited partnerships) expected future financial position, results of operations, cash flows, funds from operations, dividends and dividend plans, financing plans, business strategy, budgets, projected costs, capital expenditures, competitive positions, growth opportunities, plans and objectives of management for future operations and statements that include words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "may," "could," and other similar expressions are forward-looking statements. Such forward-looking statements are inherently uncertain, and stockholders must recognize that actual results may differ from the Company's expectations. Actual future results and trends for the Company may differ materially depending on a variety of factors discussed in the Company's Annual Report on Form 10-K for the year ended March 29, 2002, in this Form 10-Q, and elsewhere in the Company's filings with the Securities and Exchange Commission (the "Commission"). Factors that may affect the plans or results of the Company include, without limitation, those listed in the Company's Annual Report on Form 10-K for the year ended March 29, 2002 under the heading "Risk Factors," and (i) the ability of the Company to successfully implement its strategic business plan; (ii) the availability of sufficient capital to finance the Company's business plans on terms satisfactory to the Company; (iii) competitive factors; (iv) the ability of the Company to adequately defend or reach a settlement of outstanding litigations and investigations involving the Company or its management; (v) changes in labor, equipment and capital costs; (vi) changes in regulations affecting the Company's business; (vii) future acquisitions or strategic partnerships; and (viii) general business and economic conditions. Many of these factors are outside the control of the Company and its management. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which are made pursuant to the private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. The Company undertakes no duty to update such forward-looking statements. 3 PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PSS WORLD MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 28, 2002 and March 29, 2002 (Dollars in Thousands, Except Per Share Data) ASSETS
June 28, March 29, 2002 2002 __________ __________ (Unaudited) Current Assets: Cash and cash equivalents.............................................................. $ 70,346 $ 53,574 Accounts receivable, net............................................................... 225,085 226,955 Inventories, net....................................................................... 162,602 152,923 Employee advances...................................................................... 231 168 Prepaid expenses and other............................................................. 34,440 38,700 __________ __________ Total current assets........................................................... 492,704 472,320 Property and equipment, net............................................................... 84,043 84,841 Other Assets: Goodwill............................................................................... 60,644 60,644 Intangibles, net....................................................................... 14,407 15,195 Employee advances...................................................................... 181 281 Other.................................................................................. 30,954 30,127 __________ __________ Total assets................................................................... $682,933 $663,408 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable....................................................................... $169,371 $146,694 Accrued expenses....................................................................... 32,372 35,790 Other.................................................................................. 13,180 14,981 __________ __________ Total current liabilities...................................................... 214,923 197,465 Long-term debt, net of current portion.................................................... 125,000 125,000 Other..................................................................................... 15,910 16,495 __________ __________ Total liabilities.............................................................. 355,833 338,960 __________ __________ 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, 71,280,731 and 71,270,044 shares issued and outstanding at June 28, 2002 and March 29, 2002, respectively.... 712 712 Additional paid-in capital............................................................. 350,142 350,043 Accumulated deficit.................................................................... (23,754) (26,307) __________ __________ Total shareholders' equity..................................................... 327,100 324,448 __________ __________ Total liabilities and shareholders' equity..................................... $682,933 $663,408 ========== ==========
The accompanying notes are an integral part of these consolidated statements. 4 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 28, 2002 AND JUNE 29, 2001 (Unaudited) (Dollars in Thousands, Except Per Share Data)
Three Months Ended _____________________________ June 28, June 29, 2002 2001 _____________ ____________ Net sales........................................................................ $463,231 $446,740 Cost of goods sold............................................................... 353,690 344,996 _____________ ____________ Gross profit......................................................... 109,541 101,744 General and administrative expenses.............................................. 74,530 68,461 Selling expenses................................................................. 28,513 26,499 International business exit charge reversal...................................... -- (514) _____________ ____________ Income from operations............................................... 6,498 7,298 _____________ ____________ Other (expense) income: Interest expense.............................................................. (3,130) (4,251) Interest and investment income................................................ 221 188 Other income.................................................................. 534 996 _____________ ____________ (2,375) (3,067) _____________ ____________ Income before provision for income taxes and cumulative effect of accounting change.................................... 4,123 4,231 Provision for income taxes....................................................... 1,570 1,541 _____________ ____________ Income before cumulative effect of accounting change............................. 2,553 2,690 Cumulative effect of accounting change (net of taxes of $14,444)................. -- (90,045) _____________ ____________ Net income (loss)................................................................ $ 2,553 $(87,355) ============= ============ Earnings (loss) per share - Basic: Income before cumulative effect of accounting change.......................... $0.04 $ 0.04 Cumulative effect of accounting change........................................ -- (1.26) _____________ ____________ Net income (loss)............................................................. $0.04 $(1.22) ============= ============ Earnings (loss) per share - Diluted: Income before cumulative effect of accounting change.......................... $0.04 $ 0.04 Cumulative effect of accounting change........................................ -- (1.25) _____________ ____________ Net income (loss)............................................................. $0.04 $(1.21) ============= ============
The accompanying notes are an integral part of these consolidated statements. 5 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 28, 2002 AND JUNE 29, 2001 (Unaudited) (Dollars in Thousands)
Three Months Ended ________________________ June 28, June 29, 2002 2001 ___________ __________ Cash Flows From Operating Activities: Net income (loss)................................................................... $ 2,553 $(87,355) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of accounting change.......................................... -- 90,045 Depreciation.................................................................... 4,096 2,836 Amortization of intangible assets............................................... 1,496 1,455 Amortization of debt issuance costs............................................. 281 689 Provision for doubtful accounts................................................. 1,092 1,590 Benefit for deferred income taxes............................................... (937) -- Loss on sales of property and equipment......................................... -- 13 International Business exit charge reversal..................................... -- (514) Changes in operating assets and liabilities:: Accounts receivable.......................................................... 778 3,039 Inventories, net............................................................. (9,679) (10,494) Prepaid expenses and other current assets.................................... 4,197 9,051 Other assets................................................................. (527) 7,370 Accounts payable............................................................. 22,425 30,584 Accrued expenses and other liabilities....................................... (5,669) (5,765) ___________ __________ Net cash provided by operating activities................................. 20,106 42,544 ___________ __________ Cash Flows From Investing Activities: Capital expenditures............................................................... (3,309) (6,108) Payments on noncompete agreements.................................................. (106) (138) Proceeds from sales of property and equipment...................................... 11 46 Proceeds from sales and maturities of marketable securities........................ -- 50 Proceeds from sale of International Business....................................... -- 222 ___________ __________ Net cash used in investing activities..................................... (3,404) (5,928) ___________ __________ Cash Flows From Financing Activities: Proceeds from issuance of common stock............................................. 70 -- Net borrowings..................................................................... -- (42,650) Other.............................................................................. -- (4) ___________ __________ Net cash provided by (used in) financing activities....................... 70 (42,654) ___________ __________ Net increase (decrease) in cash and cash equivalents................................... 16,772 (6,038) Cash and cash equivalents, beginning of period......................................... 53,574 34,374 ___________ __________ Cash and cash equivalents, end of period............................................... $70,346 $ 28,336 =========== ==========
The accompanying notes are an integral part of these consolidated statements. 6 PSS WORLD MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 28, 2002 AND JUNE 29, 2001 (Unaudited) (Dollars in Thousands, Except Per Share Data, Unless Otherwise Noted) 1. BACKGROUND AND BASIS OF PRESENTATION Background PSS World Medical, Inc. (the "Company" or "PSSWM") is a specialty marketer and distributor of medical products to physicians, alternate-site imaging centers, long-term care providers, home healthcare providers, and hospital radiology departments through 69 full-service centers to customers in all 50 states. The Physician Sales & Service division ("PSS" or the "Physician Supply Business") is a distributor of medical supplies, equipment, and pharmaceuticals to primary care and other office-based physicians in the United States. At June 28, 2002, PSS operated 42 full-service centers distributing to physician office sites in all 50 states. The Diagnostic Imaging subsidiary ("DI" or the "Imaging Business") is a distributor of medical diagnostic imaging supplies, chemicals, equipment, and services to the acute and alternate-care markets in the United States. At June 28, 2002, DI operated 14 full-service centers, 36 distribution centers, and 16 break-freight locations distributing to customer sites in 42 states. The Gulf South Medical Supply subsidiary ("Gulf South" or the "Long-Term Care Business") is a distributor of medical supplies and related products to nursing homes, home healthcare agencies, and other long-term care facilities. At June 28, 2002, Gulf South operated 13 full-service centers serving all 50 states. The Company divides its operations into three reportable operating segments: the Physician Supply Business, the Imaging Business, and the Long-Term Care Business. A fourth segment, titled Other, includes unallocated corporate overhead and the Company's European operations (the "International Business") which were sold during fiscal year 2002. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Accordingly, 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 SEC rules and regulations. The consolidated financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations for the periods indicated. The consolidated balance sheet as of March 29, 2002 has been derived from the Company's audited consolidated financial statements for the year ended March 29, 2002. The financial statements and related notes included in this report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended March 29, 2002. The Company reports its quarter end financial position and results of operations and cash flows on the Friday closest to June 30, September 30, December 31, and March 31. The three months ended June 28, 2002 and June 29, 2001 each consist of 13 weeks. 7 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. Reclassifications Certain amounts for prior periods have been reclassified to conform to current period presentation. Recent Accounting Pronouncement During June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses the financial accounting and reporting for costs associated with exit or disposal activities, and eliminates the definition and requirements for recognition of exits costs in Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 will require that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. It also establishes that fair value is the objective for initial measurement of the liability. The Company will apply the provisions of SFAS 146 for exit or disposal activities that are initiated after December 31, 2002, the effective date of this statement. 2. CHARGES INCLUDED IN GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses include charges related to restructuring activity, merger activity, and other items. At the end of each period, management reevaluates its restructuring and merger plans and may adjust previous estimates. The following tables summarize charges that are included in general and administrative expenses in the accompanying consolidated statements of operations:
Three Months Ended June 28, 2002 _______________________________________________________________ Physician Long- Supply Imaging Term Care Business Business Business Other Total __________ ___________ ___________ __________ ________ Restructuring costs and expenses....... $718 $224 $-- $ -- $942 Merger costs and expenses.............. -- (7) -- 429 422 Accelerated depreciation............... 84 -- -- -- 84 Reversal of operational tax charge..... -- -- -- (69) (69) Other.................................. 82 -- -- -- 82 __________ ___________ ___________ __________ ________ $884 $217 $-- $360 $1,461 ========== =========== =========== ========== ======== Three Months Ended June 29, 2001 _______________________________________________________________ Physician Long- Supply Imaging Term Care Business Business Business Other Total __________ ___________ ___________ __________ ________ Restructuring costs and expenses....... $144 $ 261 $77 $ 12 $ 494 Merger costs and expenses.............. -- (247) 12 776 541 Reversal of operational tax charge..... -- -- -- (451) (451) Other.................................. -- -- -- 8 8 __________ ___________ ___________ __________ ________ $144 $ 14 $89 $ 345 $ 592 ========== =========== =========== ========== ========
Restructuring Costs and Expenses Restructuring costs and expenses for the three months ended June 28, 2002 and June 29, 2001 primarily include (i) costs expensed as incurred related to the Physician Supply Business' and the Imaging Business' restructuring plans that were adopted during the fourth quarter of fiscal year 2002 and (ii) costs expensed as incurred related to various restructuring plans that were adopted in prior fiscal years. 8 Physician Supply Business Plan Adopted During the Fourth Quarter of Fiscal Year 2002. During the three months ended June 28, 2002, the Physician Supply Business recorded charges of $565, which include branch shut down costs of $268, involuntary employee termination costs of $166, and employee relocation costs of $131. Imaging Business Plan Adopted During the Fourth Quarter of Fiscal Year 2002. During the three months ended June 28, 2002, the Imaging Business recorded charges of $224, which include branch shutdown costs of $118, employee relocation costs of $87, involuntary employee termination costs of $16, and lease termination costs of $3. Various Restructuring Plans Adopted in Prior Fiscal Years. During the three months ended June 28, 2002 and June 29, 2001, the Company recorded $167 and $505, respectively, of restructuring costs as incurred. These costs primarily relate to costs to pack and move inventory, costs to set up new facilities, employee relocation costs, and other related facility closure costs. During the three months ended June 28, 2002 and June 29, 2001, the Company reversed approximately $14 and $11, respectively, of restructuring costs. Merger Costs and Expenses Merger costs and expenses for the three months ended June 28, 2002 and June 29, 2001 primarily include costs related to employee retention bonuses, costs expensed as incurred related to various merger plans that were adopted in prior fiscal years, and adjustments to previous estimates. Effective February 1, 2000, the Board of Directors approved and adopted an Officer Retention Bonus Plan and a 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 strategic alternatives transition period. The total cash compensation costs related to these plans is approximately $10,059, of which $8,628 was expensed in prior fiscal years. Approximately $429 was recognized during the three months ended June 28, 2002 and an additional $1,002 is estimated to be expensed during the remaining nine months of fiscal year 2003. During the three months ended June 29, 2001, the Company expensed approximately $776. During the three months ended June 28, 2002 and June 29, 2001, the Company reversed approximately $7 and $271, respectively, which primarily related to accrued lease termination costs. Merger costs and expenses for the three months ended June 29, 2001 included $36 of charges for merger costs expensed as incurred. Accelerated Depreciation The Physician Supply Business identified certain assets that would be replaced or disposed of as a result of the restructuring plan that was implemented during the fourth quarter of fiscal year 2002. Pursuant to SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," the Company evaluated the recoverability of the assets and determined that impairment did not exist at the division level. Therefore, management revised the estimated useful lives of certain assets in accordance with Accounting Principles Board No. 20, "Accounting Changes." As a result of shortening the useful lives during the fourth quarter of fiscal year 2002 to coincide with the disposal date, the Company recorded $84 of accelerated depreciation during the three months ended June 28, 2002. The effect of this change in estimate decreased basic and diluted earnings per share by less than $0.01 for the three months ended June 28, 2002. Reversal of Operational Tax Charge During the three months ended June 28, 2002 and June 29, 2001, the Company performed an analysis and reversed approximately $69 and $451, respectively, of a previously recorded operating tax charge reserve. 9 Other During the three months ended June 28, 2002 and June 29, 2001, the Company incurred $82 and $8, respectively, primarily relating to certain lease termination costs for locations that were previously vacated in connection with prior restructuring plans. 3. ACCRUED RESTRUCTURING COSTS AND EXPENSES During the quarter ended March 29, 2002, management and the Board of Directors approved and committed to two separate plans to restructure the Physician Supply Business and Imaging Business. These plans were implemented in order to reduce overhead costs, improve customer satisfaction, and improve the distribution infrastructure. Physician Supply Business Plan Adopted During the Fourth Quarter of Fiscal Year 2002. The total estimated costs related to this plan are approximately $6,505 of which approximately $4,174 was recognized during fiscal year 2002 and approximately $2,331 will be expensed as incurred during fiscal year 2003. Management anticipates that this plan will be completed by the end of the fourth quarter of fiscal year 2003. As a result of the plan, approximately 161 employees, including operations leaders, administrative and warehouse personnel, will be involuntarily terminated. As of June 28, 2002, 26 employees had been terminated. To improve the distribution infrastructure, certain administrative functions, such as accounts receivable billing and collections and inventory management, at 13 service center locations will be consolidated into larger existing facilities within a geographic location. The operations in the affected facilities will be reduced to receiving and distributing inventory, customer service, and sales support. Such locations will be referred to as "break-freight" locations. As of June 28, 2002, certain administrative functions at 4 of the 13 service center locations were consolidated into existing facilities. To improve the inventory purchasing structure and to leverage purchasing volumes, the purchasing function for 33 service locations will be centralized to the corporate office located in Jacksonville, Florida. As of June 28, 2002, the purchasing function for 12 of the 33 service center locations was centralized to Jacksonville, Florida. Accrued restructuring costs and expenses related to the Physician Supply Business plan, classified as accrued expenses in the accompanying consolidated balance sheets, were $3,665 and $3,666 at June 28, 2002 and March 29, 2002, respectively. The following is a summary of the restructuring activity related to the plan described above:
Involuntary Employee Lease Branch Termination Termination Shutdown Costs Costs Costs Total _____________ ___________ __________ _________ Balance at March 29, 2002............ $ 783 $2,535 $348 $3,666 Additions......................... 174 -- -- 174 Utilized.......................... (106) (51) (18) (175) _____________ ___________ __________ _________ Balance at June 28, 2002............. $851 $2,484 $330 $3,665 ============= =========== ========== =========
The amount of severance that involuntarily terminated employees receive is based on the number of months of service. Employees will earn additional severance during the period from March 30, 2002 until the closure date of the service center. This additional severance is being accrued when earned throughout fiscal year 2003. The Physician Supply Business accrued an additional $174 of involuntary employee termination costs during the three months ended June 28, 2002. Imaging Business Plan Adopted During the Fourth Quarter of Fiscal Year 2002. This plan consists of two phases. The total estimated costs related to this plan are approximately $3,014, of which approximately $2,028 was recognized during fiscal year 2002 and approximately $986 will be expensed as incurred during fiscal year 2003. Management anticipates that this plan will be completed by the end of fiscal year 2003. As a result of the plan, approximately 123 employees, including operations leaders, administrative and warehouse personnel, will be involuntarily terminated. As of June 28, 2002, 51 employees had been terminated. 10 During Phase I, certain administrative functions, such as accounts receivable billing and collections and customer service, at 18 full-service center locations will be consolidated into 7 regional centers and 2 operation centers. The operations in the affected facilities will be significantly reduced and such locations will be referred to as distribution centers or "break-freight" locations. Distribution centers will receive inventory from the regional centers and vendors and distribute directly to customers. Break-freight locations will receive inventory only from full-service center locations or distribution centers and distribute directly to customers. As of June 28, 2002, certain administrative functions at 13 of 18 service locations were consolidated. In addition, the call dispatch function for 27 service center locations will be centralized to Jacksonville, Florida. As of June 28, 2002, the call dispatch function for 16 of 27 service center locations was centralized to Jacksonville, Florida. During Phase II, the product and service distribution network will be realigned. As of the adoption date of this plan, management had identified two full-service centers to be closed. As of June 28, 2002, these service centers were closed. Other full-service centers may be closed, converted to a distribution center or break-freight location, or relocated after the consolidation of the administrative functions is complete or as current lease agreements expire. Accrued restructuring costs and expenses related to the Imaging Business plan, classified as accrued expenses in the accompanying consolidated balance sheets, were $1,464 and $1,793 at June 28, 2002 and March 29, 2002, respectively. The following is a summary of the restructuring activity related to the plan described above:
Involuntary Employee Lease Branch Termination Termination Shutdown Costs Costs Costs Total _____________ ___________ __________ _________ Balance at March 29, 2002............ $ 690 $ 832 $ 271 $1,793 Additions......................... -- -- -- -- Utilized.......................... (256) (62) (11) (329) _____________ ___________ __________ _________ Balance at June 28, 2002............. $434 $770 $260 $1,464 ============= =========== ========== =========
Prior Fiscal Years During the prior fiscal years, management and the Board of Directors approved and committed to several plans to restructure the Physician Supply Business, the Imaging Business, and the Long-Term Care Business. Accrued restructuring costs and expenses related to plans adopted in the prior fiscal years, classified as accrued expenses in the accompanying consolidated balance sheets, totaled $1,160 and $1,439 at June 28, 2002 and March 29, 2002, respectively. The following is a summary of the restructuring activity related to the plans adopted in prior fiscal years:
Involuntary Employee Lease Termination Termination Costs Costs Total ______________ ___________ __________ Balance at March 29, 2002............ $1,385 $ 54 $1,439 Adjustments....................... -- (14) (14) Utilized.......................... (258) (7) (265) ______________ ___________ __________ Balance at June 28, 2002............. $1,127 $ 33 $1,160 ============== =========== ==========
The accrued involuntary employee termination costs at June 28, 2002 and March 29, 2002 relate to Plan E that was adopted during the third quarter of fiscal year 2001. The remaining $1,127 will be paid to the terminated employees in fiscal year 2003 in accordance with the severance agreements. The accrued lease termination costs at June 28, 2002 relates to Plan C. The remaining accrued lease termination payments will be made during fiscal year 2003. 11 4. EARNINGS PER SHARE In accordance with SFAS No. 128, "Earnings Per Share," the calculation of basic earnings per common share and diluted earnings per common share is presented below (share amounts in thousands, except per share data):
Three Months Ended ________________________ June 28, June 29, 2002 2001 __________ _________ Income before cumulative effect of accounting change................ $2,553 $ 2,690 Cumulative effect of accounting change (net of taxes of $14,444).... -- (90,045) __________ _________ Net income (loss)................................................... $2,553 $(87,355) ========== ========= Earnings (loss) per share - Basic: Income before cumulative effect of accounting change............. $0.04 $ 0.04 Cumulative effect of accounting change........................... -- (1.26) __________ _________ Net income (loss)................................................ $0.04 $(1.22) ========== ========= Earnings (loss) per share - Dilutive: Income before cumulative effect of accounting change............. $0.04 $ 0.04 Cumulative effect of accounting change........................... -- (1.25) __________ _________ Net income (loss)................................................ $0.04 $(1.21) ========== ========= Weighted average shares outstanding: Common shares.................................................... 71,272 71,201 Assumed exercise of stock options................................ 1,098 300 __________ _________ Diluted shares outstanding....................................... 72,370 71,501 ========== =========
The treasury stock method was used in calculating the assumed exercise of stock options. Options to purchase approximately 3,055 and 5,248 shares of common stock that were outstanding during the three months ended June 28, 2002 and June 29, 2001, respectively, were not included in the computation of diluted earnings per share for each of the respective periods because the options' exercise prices exceeded the fair market value of the Company's common stock. 5. INTANGIBLES The following table summarizes, by business segment and major asset class, the gross carrying amount and accumulated amortization for existing intangible assets subject to amortization.
12 As of June 28, 2002 As of March 29, 2002 ____________________________________ _________________________________ Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Net Amount Amortization Net _________ ____________ __________ _________ ____________ _______ Noncompetition Agreements: Physician Supply Business.......... $ 4,305 $ (3,217) $ 1,088 $ 4,053 $ (3,073) $ 980 Imaging Business................... 20,452 (10,684) 9,768 20,457 (9,939) 10,518 Long-Term Care Business............ 1,770 (786) 984 2,070 (876) 1,194 _________ ____________ __________ _________ ____________ _______ 26,527 (14,687) 11,840 26,580 (13,888) 12,692 _________ ____________ __________ _________ ____________ _______ Signing Bonuses: Physician Supply Business.......... 1,483 (613) 870 1,027 (426) 601 Imaging Business................... 1,850 (1,325) 525 1,954 (1,300) 654 Long-Term Care Business............ 200 (160) 40 200 (150) 50 _________ ____________ __________ _________ ____________ _______ 3,533 (2,098) 1,435 3,181 (1,876) 1,305 _________ ____________ __________ _________ ____________ _______ Other Intangibles: Physician Supply Business.......... 2,993 (1,861) 1,132 2,993 (1,795) 1,198 Imaging Business................... -- -- -- -- -- -- Long-Term Care Business............ -- -- -- -- -- -- _________ ____________ __________ _________ ____________ _______ 2,993 (1,861) 1,132 2,993 (1,795) 1,198 _________ ____________ __________ _________ ____________ _______ Total.................... $33,053 $(18,646) $14,407 $32,754 $(17,559) $15,195 ========= ============ ========== ========= ============ =======
The weighted-average amortization period, in total and by major intangible asset class, is as follows: June 28, March 29, 2002 2002 _________ _________ (in years) Noncompetition Agreements........ 8.6 8.5 Signing Bonuses.................. 4.2 4.4 Other Intangibles................ 12.4 12.8 _________ _________ Total weighted-average period. 8.4 8.6 ========= ========= Total amortization expense for intangible assets for the three months ended June 28, 2002 was $1,496. The estimated amortization expense for the next five fiscal years and thereafter is as follows: Fiscal Year: 2003 (9 months)............................. $ 3,504 2004........................................ 3,590 2005........................................ 2,411 2006........................................ 1,092 2007........................................ 885 Thereafter.................................. 2,925 _______ Total.............................. $14,407 ======= Total payments made under noncompetition agreements during the three months ended June 28, 2002 were $106. Future minimum payments required under noncompetition agreements at June 28, 2002 are as follows: Fiscal Year: 2003 (9 months)............................. $462 2004........................................ 59 2005........................................ 43 2006........................................ 36 2007........................................ 36 Thereafter.................................. 144 ____ Total.............................. $780 ==== 6. SEGMENT INFORMATION The Company's reportable segments are strategic businesses that offer different products and services to different segments of the healthcare industry, and are the basis for which management regularly evaluates the Company. These segments are managed separately because of different customers and products. 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:
Three Months Ended ________________________ June 28, June 29, 2002 2001 __________ _________ NET SALES: Physician Supply Business............................................... $182,873 $171,343 Imaging Business........................................................ 176,765 179,608 Long-Term Care Business................................................. 103,593 95,358 Other -- 431 __________ _________ Total net sales..................................................... $463,231 $446,740 ========== =========
13
Three Months Ended ________________________ June 28, June 29, 2002 2001 __________ _________ INCOME FROM OPERATIONS: Physician Supply Business............................................... $ 5,521 $ 5,735 Imaging Business........................................................ (1,228) 107 Long-Term Care Business................................................. 3,823 1,773 Other................................................................... (1,618) (317) __________ _________ Total income from operations........................................ $ 6,498 $ 7,298 ========== ========= DEPRECIATION: Physician Supply Business............................................... $ 2,048 $ 1,145 Imaging Business........................................................ 1,222 1,097 Long-Term Care Business................................................. 467 462 Other................................................................... 359 132 __________ _________ Total depreciation.................................................. $ 4,096 $ 2,836 ========== ========= AMORTIZATION OF INTANGIBLE ASSETS: Physician Supply Business............................................... $ 398 $ 234 Imaging Business........................................................ 878 1,117 Long-Term Care Business................................................. 220 104 Other................................................................... -- -- __________ _________ Total amortization of intangible assets............................. $ 1,496 $ 1,455 ========== ========= PROVISION FOR DOUBTFUL ACCOUNTS: Physician Supply Business............................................... $ 49 $ 320 Imaging Business........................................................ 370 325 Long-Term Care Business................................................. 673 945 Other................................................................... -- -- __________ _________ Total provision for doubtful accounts............................... $ 1,092 $ 1,590 ========== ========= INTEREST EXPENSE: Physician Supply Business............................................... $ 974 $ 278 Imaging Business........................................................ 2,207 2,592 Long-Term Care Business................................................. 1,232 1,377 Other................................................................... (1,283) 4 __________ _________ Total interest expense.............................................. $ 3,130 $ 4,251 ========== ========= INTEREST AND INVESTMENT INCOME: Physician Supply Business............................................... $ 23 $ 1 Imaging Business........................................................ -- -- Long-Term Care Business................................................. -- -- Other................................................................... 198 187 __________ _________ Total interest and investment income................................ $ 221 $ 188 ========== ========= PROVISION FOR INCOME TAXES: Physician Supply Business............................................... $ 1,858 $ 2,284 Imaging Business........................................................ (1,258) (840) Long-Term Care Business................................................. 990 231 Other................................................................... (20) (134) __________ _________ Total provision for income taxes................................... $ 1,570 $ 1,541 ========== ========= CAPITAL EXPENDITURES: Physician Supply Business............................................... $ 2,024 $ 3,292 Imaging Business........................................................ 457 878 Long-Term Care Business................................................. 206 183 Other................................................................... 622 1,755 __________ _________ Total capital expenditures.......................................... $ 3,309 $ 6,108 ========== =========
14
June 28, March 29, 2002 2002 __________ _________ ASSETS: Physician Supply Business............................................... $223,216 $231,757 Imaging Business........................................................ 221,939 223,374 Long-Term Care Business................................................. 157,331 154,929 Other................................................................... 80,447 53,348 __________ _________ Total assets....................................................... $682,933 $663,408 ========== =========
7. COMMITMENTS AND CONTINGENCIES Litigation The Company, through its Long-Term Care Business, its Physician Supply Business, and/or predecessor companies, has been named as one of many defendants in latex glove product liability claims in various Federal and state courts. The defendants are primarily distributors of certain brands of latex gloves. Currently, state litigation exists in New Hampshire, Massachusetts, and California, while Federal and/or Federal multidistrict litigation are present in Washington, Georgia, Pennsylvania, and Ohio. Defense costs are currently allocated by agreement between a consortium of insurers on a pro rata basis for each case depending upon policy years and alleged years of exposure. All of the insurance carriers are defending subject to a reservation of rights. Ultimately, the manufacturers from which the gloves were purchased may assume the defense and liability obligations. The Company intends to vigorously defend the proceedings; however, there can be no assurance that this litigation will be ultimately resolved on terms that are favorable to the Company. The Company 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. 3:98-cv 502-J-21TEM. 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 Company's stock price following announcement by the Company 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. The Company 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. The Company filed a motion to dismiss the second amended complaint on May 1, 2000, which is pending. The Company believes that the allegations contained in the 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 the Company. 15 The Company has been named as a defendant in ten, related class action complaints, the first of which was filed on July 13, 2001 and all of which had been filed in the United States District Court for the Middle District of Florida. By Order of the Court dated January 14, 2002, those ten actions were consolidated into a single action under the caption "In Re PSS World Medical Inc. Securities Litigation." Following that consolidation, on March 22, 2002, lead plaintiffs served their Amended Class Action Complaint for Violation of Securities Laws. On May 14, 2002, defendants filed their motion to dismiss the Amended Complaint, and, on August 1, 2002, the Court entered an Order denying that motion and directing the Company to answer the Amended Complaint by August 12, 2002. The Amended Complaint named the Company along with certain present and former directors and officers. The Amended Complaint was filed as a purported class action on behalf of persons who purchased or acquired PSS World Medical, Inc. common stock at various times during the period between October 26, 1999 and October 3, 2000. The Amended Complaint alleges, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeks unspecified damages. The plaintiffs allege that the Company issued false and misleading statements and failed to disclose material facts concerning, among other things, the Company's financial condition. The plaintiffs further allege that because of the issuance of false and misleading statements and/or failure to disclose material facts, the price of PSS World Medical, Inc. common stock was artificially inflated during the class period. The Company believes that the allegations contained in the 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 the Company. The Company has been named as a defendant in a suit brought by three former and present employees of the Company, entitled Angione, et al. v. PSS World Medical Inc., which was filed on or about June 4, 2002 in the U.S. District Court for the Central District of California, Santa Ana Division (Case No. CV SA 02-533 AHS (ANx)). In response to the Motion to Transfer Venue filed by the Company, the plaintiffs have agreed to stipulate that venue of the case may be transferred to the United States District Court in Jacksonville, Florida. The parties await Court approval of the motion to transfer venue. The plaintiffs allege that the Company wrongfully classifies its Purchasers, Operations Leader Trainees, and Accounts Receivable Representatives as exempt from the overtime requirements imposed by the Fair Labor Standards Act and the California Wage Orders. The plaintiffs seek court approval to proceed as a collective action under the Fair Labor Standards Act, a representative action under California's Unfair Competition Act, and/or a class action on behalf of all persons in the United States who have occupied any one of the three positions within the pertinent limitations period. PSSWM will oppose this motion, though it is likely that the Court will tentatively approve a collective action and allow discovery on the issue of who is eligible to participate in the collective action. The Plaintiffs seek to recover back pay, interest, costs of suit, declaratory and injunctive relief, and applicable statutory penalties. In addition, two of the three named plaintiffs bring individual claims for gender discrimination and retaliation under Title VII of the Civil Rights Act of 1964 and the Equal Pay Act of 1963. The Company is vigorously defending against the claims and is working with human resource personnel to collect personnel and payroll information necessary to determine (i) the employees who are potentially eligible to participate in the suit and (ii) the extent of overtime liability, if any. There can be no assurance that this litigation will be ultimately resolved on terms that are favorable to the Company. The Company is also a party to various other legal and administrative proceedings and claims arising in the normal course of business. While any litigation contains an element of uncertainty, the Company, after consultation with outside legal counsel, believes that the outcome of such other 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. The Company has various insurance policies, including product liability insurance, covering risks and in amounts it considers adequate. In many cases in which the Company has been sued in connection with products manufactured by others, the Company is provided indemnification by the manufacturer. There can be no assurance that the insurance coverage maintained by the Company is sufficient or will be available in adequate amounts or at a reasonable cost, or that indemnification agreements will provide adequate protection for the Company. 16 Commitments and Other 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 3 to 12 months for certain 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 2, Charges included in General and Administrative Expenses for further discussion. 8. CONDENSED CONSOLIDATED FINANCIAL INFORMATION During fiscal year 1998, the Company filed a registration statement with the Securities and Exchange Commission to authorize the issuance of $125,000 in debt securities ("Senior Subordinated Notes"). The following tables present condensed consolidating financial information for the parent or issuer of the debt, the guarantor subsidiaries, and the nonguarantor subsidiaries of the Senior Subordinated Notes. The nonguarantor subsidiary was the International Business, which was divested during the three months ended June 29, 2001. Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees and the Company believes the condensed consolidating financial information is more meaningful in understanding the financial position, results of operations, and cash flows of the guarantor subsidiaries. In addition, the guarantor subsidiaries are 100% owned subsidiaries of the Company. 17 Balance Sheets June 28, 2002 and March 29, 2002
As of June 28, 2002 ________________________________________________________ Guarantor Parent Subsidiaries Eliminations Consolidated _________ ____________ ____________ ____________ Current Assets: Cash and cash equivalents............... $ 59,936 $ 10,410 -- $ 70,346 Accounts receivable, net................ 76,837 148,248 -- 225,085 Inventories, net........................ 52,044 110,558 -- 162,602 Intercompany receivables................ 136,958 (136,958) -- -- Other current assets.................... 7,823 26,848 -- 34,671 _________ ____________ ____________ ____________ Total current assets........... 333,598 159,106 -- 492,704 Property and equipment, net................ 55,680 28,363 -- 84,043 Other Assets: Goodwill, net........................... 9,788 50,856 -- 60,644 Intangibles, net........................ 3,088 11,319 -- 14,407 Investment in subsidiary................ 286 28,083 $(28,369) -- Other noncurrent assets................. 11,752 19,383 -- 31,135 _________ ____________ ____________ ____________ Total assets................... $414,192 $ 297,110 $(28,369) $ 682,933 ========= ============ ============ ============ Current Liabilities: Accounts payable........................ $ 62,878 $106,493 -- $ 169,371 Other current liabilities............... 28,808 16,744 -- 45,552 _________ ____________ ____________ ____________ Total current liabilities...... 91,686 123,237 -- 214,923 Long-term debt, net of current portion..... 125,000 -- -- 125,000 Other...................................... 13,455 2,455 -- 15,910 _________ ____________ ____________ ____________ Total liabilities.............. 230,141 125,692 -- 355,833 _________ ____________ ____________ ____________ Shareholders' Equity: Common stock............................ 713 329 $ (330) 712 Additional paid-in capital.............. 191,666 150,150 8,326 350,142 Accumulated (deficit) earnings.......... (8,328) 20,939 (36,365) (23,754) _________ ____________ ____________ ____________ Total shareholders' equity..... 184,051 171,418 (28,369) 327,100 _________ ____________ ____________ ____________ Total liabilities and shareholders' equity........ $414,192 $297,110 $(28,369) $ 682,933 ========= ============ ============ ============
18 Balance Sheets (Continued):
As of March 29, 2002 ________________________________________________________ Guarantor Parent Subsidiaries Eliminations Consolidated _________ ____________ ____________ ____________ Current Assets: Cash and cash equivalents............... $ 39,531 $ 14,043 -- $ 53,574 Accounts receivable, net................ 78,911 148,044 -- 226,955 Inventories, net........................ 48,706 104,217 -- 152,923 Intercompany receivables................ 157,314 (157,314) -- -- Other current assets.................... 13,517 25,351 -- 38,868 _________ ____________ ____________ ____________ Total current assets........... 337,979 134,341 -- 472,320 Property and equipment, net................ 55,449 29,392 -- 84,841 Other Assets: Goodwill, net........................... 9,788 50,856 -- 60,644 Intangibles, net........................ 2,777 12,418 -- 15,195 Investment in subsidiary................ 286 28,083 $(28,369) -- Other noncurrent assets................. 11,074 19,334 -- 30,408 _________ ____________ ____________ ____________ Total assets................... $417,353 $274,424 $(28,369) $663,408 ========= ============ ============ ============ Current Liabilities: Accounts payable........................ $ 62,181 $ 84,513 -- $146,694 Other current liabilities............... 33,038 17,733 -- 50,771 _________ ____________ ____________ ____________ Total current liabilities...... 95,219 102,246 -- 197,465 Long-term debt, net of current portion..... 125,000 -- -- 125,000 Other ..................................... 13,853 2,642 -- 16,495 _________ ____________ ____________ ____________ Total liabilities.............. 234,072 104,888 -- 338,960 _________ ____________ ____________ ____________ Shareholders' Equity: Common stock............................ 713 329 $ (330) 712 Additional paid-in capital.............. 191,567 150,150 8,326 350,043 Accumulated (deficit) earnings.......... (8,999) 19,057 (36,365) (26,307) _________ ____________ ____________ ____________ Total shareholders' equity..... 183,281 169,536 (28,369) 324,448 _________ ____________ ____________ ____________ Total liabilities and shareholders' equity........ $417,353 $274,424 $(28,369) $663,408 ========= ============ ============ ============
19 Statements of Operations For the Three Months Ended June 28, 2002 and June 29, 2001
Three Months Ended June 28, 2002 ______________________________________ Guarantor Parent Subsidiaries Consolidated ________ ____________ ____________ Net sales............................................. $154,915 $308,316 $463,231 Cost of goods sold.................................... 107,738 245,952 353,690 ________ ____________ ____________ Gross profit.............................. 47,177 62,364 109,541 General and administrative expenses................... 31,137 43,393 74,530 Selling expenses...................................... 14,647 13,866 28,513 ________ ____________ ____________ Income from operations.................... 1,393 5,105 6,498 Other income (expense)................................ 1,116 (3,491) (2,375) ________ ____________ ____________ Income before provision for income taxes.............. 2,509 1,614 4,123 Provision (benefit) for income taxes.................. 1,838 (268) 1,570 ________ ____________ ____________ Net income............................................ $ 671 $ 1,882 $ 2,553 ======== ============ ============
Three Months Ended June 29, 2001 ______________________________________________________ Guarantor Nonguarantor Parent Subsidiaries Subsidiary Consolidated ________ ____________ ___________ ____________ Net sales............................................. $144,095 $302,214 $431 $446,740 Cost of goods sold.................................... 102,623 242,078 295 344,996 ________ ____________ ___________ ____________ Gross profit.............................. 41,472 60,136 136 101,744 General and administrative expenses................... 26,621 41,787 53 68,461 Selling expenses...................................... 12,808 13,678 13 26,499 International Business exit charge.................... -- -- (514) (514) ________ ____________ ___________ ____________ Income from operations.................... 2,043 4,671 584 7,298 Other (expense) income ............................... 778 (3,831) (14) (3,067) ________ ____________ ___________ ____________ Income before provision (benefit) for income taxes and cumulative effect of accounting change......... 2,821 840 570 4,231 Provision (benefit) for income taxes.................. 2,151 (610) -- 1,541 ________ ____________ ___________ ____________ Income before cumulative effect of accounting change.. 670 1,450 570 2,690 Cumulative effect of accounting change................ -- (90,045) -- (90,045) ________ ____________ ___________ ____________ Net income (loss)..................................... $ 670 $(88,595) $570 $(87,355) ======== ============ =========== ============
20 Statements of Cash Flows For the Three Months Ended June 28, 2002 and June 29, 2001
Three Months Ended June 28, 2002 _______________________________________ Guarantor Parent Subsidiaries Consolidated __________ ____________ ____________ Net income............................................. $ 671 $ 1,882 $ 2,553 __________ ____________ ____________ Net cash provided by operating activities.............. 2,584 17,522 20,106 __________ ____________ ____________ Cash Flows From Investing Activities: Capital expenditures................................ (2,587) (722) (3,309) Payments on noncompete agreements................... (12) (94) (106) Proceeds from sales of property and equipment....... -- 11 11 __________ ____________ ____________ Net cash used in investing activities...... (2,599) (805) (3,404) __________ ____________ ____________ Cash Flows From Financing Activities: Proceeds from issuance of common stock.............. 70 -- 70 Inter-company borrowings............................ 20,350 (20,350) -- __________ ____________ ____________ Net cash provided by (used in) financing activities.............................. 20,420 (20,350) 70 __________ ____________ ____________ Net increase (decrease) in cash and cash equivalents... 20,405 (3,633) 16,772 Cash and cash equivalents, beginning of year........... 39,531 14,043 53,574 __________ ____________ ____________ Cash and cash equivalents, end of year................. $59,936 $10,410 $70,346 ========== ============ ============
Three Months Ended June 29, 2001 _______________________________________________________ Guarantor Nonguarantor Parent Subsidiaries Subsidiary Consolidated __________ ____________ ____________ ____________ Net income (loss)...................................... $ 670 $(88,595) $570 $(87,355) __________ ____________ ____________ ____________ Net cash provided by operating activities.............. 24,940 17,549 55 42,544 __________ ____________ ____________ ____________ Cash Flows From Investing Activities: Capital expenditures................................ (4,966) (1,142) -- (6,108) Payments on noncompete agreements................... (29) (109) -- (138) Proceeds from sale of property and equipment........ 35 11 -- 46 Proceeds from sale of marketable security........... 50 -- -- 50 Proceeds from sale of International Business........ 610 -- (388) 222 __________ ____________ ____________ ____________ Net cash used in investing activities...... (4,300) (1,240) (388) (5,928) __________ ____________ ____________ ____________ Cash Flows From Financing Activities: Net borrowings...................................... (42,640) (10) -- (42,650) Inter-company borrowings............................ 5,873 (6,206) 333 -- Other............................................... (4) -- -- (4) __________ ____________ ____________ ____________ Net cash (used in) provided by financing activities.............................. (36,771) (6,216) 333 (42,654) __________ ____________ ____________ ____________ Net (decrease) increase in cash and cash equivalents... (16,131) 10,093 -- (6,038) Cash and cash equivalents, beginning of year........... 31,725 2,649 -- 34,374 __________ ____________ ____________ ____________ Cash and cash equivalents, end of year................. $ 15,594 $12,742 $ -- $ 28,336 ========== ============ ============ ============
9. SUBSEQUENT EVENT On July 30, 2002, the Company's Board of Directors approved a stock repurchase program authorizing the Company, depending upon market conditions and other factors, to repurchase up to a maximum of 5% of its common stock, or approximately 3.6 million common shares, in the open market, in privately negotiated transactions or otherwise. Such repurchases will be made in compliance with applicable rules and regulations and the terms of the Company's debt agreements, and may be discontinued at any time. 21 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Shareholders PSS World Medical, Inc.: We have reviewed the consolidated balance sheet of PSS World Medical, Inc. and subsidiaries as of June 28, 2002, and the related consolidated statements of operations and cash flows for the three-month period ended June 28, 2002. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of PSS World Medical, Inc. and subsidiaries as of March 29, 2002, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated May 22, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of March 29, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG LLP Jacksonville, Florida July 31, 2002 22 ITEM 2. Management's Discussion and Analysis Of Financial Condition and Results of Operations General PSS World Medical, Inc. (the "Company" or "PSSWM"), a Florida corporation, is a specialty marketer and distributor of medical products to physician offices, alternate-site and acute imaging providers, long-term care and home care providers through 69 full-service centers to customers in all 50 states. Since its inception in 1983, the Company has become a leader in the three market segments it serves as a result of a focused and differentiated approach to customer service, a consultative sales force, unique arrangements with product manufacturers, innovative information systems, and a culture of performance. Physician Sales & Service ("PSS" or the "Physician Supply Business"), a division of the Company, is a leading distributor of medical supplies, equipment, and pharmaceuticals to primary care office-based physicians in the United States based on revenues, number of physician-office customers, number and quality of sales representatives, and number of products distributed under unique arrangements. PSS currently operates 42 full-service centers with approximately 717 sales representatives serving physician offices in all 50 states. Diagnostic Imaging, Inc. ("DI" or the "Imaging Business"), a wholly owned subsidiary, is a leading distributor of medical diagnostic imaging supplies, chemicals, equipment, and services to the acute and alternate-care markets in the United States based on consumable revenues, number of service specialists, and number of sales representatives. DI currently operates 14 full-service centers, 36 distribution centers, and 16 break-freight locations with approximately 765 service specialists and 196 sales representatives serving customer sites in 42 states. The Imaging Business' primary markets are acute-care radiology departments, free-standing imaging centers, private practice physicians, veterinarians, and chiropractors. Gulf South Medical Supply, Inc. ("Gulf South" or the "Long-Term Care Business"), a wholly owned subsidiary, is a leading national distributor of medical supplies and related products to the long-term care industry in the United States based on revenues and number of sales representatives. Gulf South currently operates 13 full-service centers with approximately 122 sales representatives serving long-term care accounts in all 50 states. The Long-Term Care Business' primary markets are independent, regional, and national skilled nursing facilities, assisted living centers, and home care providers. INDUSTRY According to industry estimates, the United States medical supply and equipment segment of the healthcare industry represents approximately a $45 billion market comprised of medical products and equipment which are distributed to acute care facilities, home healthcare agencies, imaging centers, physician offices, dental offices, and long-term care facilities. The Company's primary focus is the distribution of medical products to physician offices, alternate-site and acute imaging providers, long-term care and home care providers. Approximately 60% of products in this market come through the distributor channel, representing a $27 billion market potential for the Company. Revenues of the medical products distribution industry are estimated to be growing as a result of a growing and aging population, increased healthcare awareness, the proliferation of medical technology and testing, and expanding third-party insurance coverage. In addition, the physician market continues to benefit 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. Also, as the cosmetic surgery and elective procedure markets continue to grow, physicians are increasingly performing more procedures in their offices. 23 The healthcare industry is subject to extensive government regulation, licensure, and operating procedures. National healthcare 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 of hospitals, long-term care facilities, and other healthcare providers have affected spending budgets in certain markets within the medical products industry. During 1997, the Balanced Budget Act passed by Congress made significant changes to reimbursements for nursing homes and home care providers. The industry continues to be impacted by these changes. Over the past few years, the healthcare industry has undergone significant consolidation. Physician provider groups, long-term care facilities, and other alternate-site providers, along with hospitals, continue to consolidate, creating new and larger customers. The majority of the market serviced by the Company continues to include small customers, with no single customer exceeding 10% of the consolidated Company's net sales. However, the Long-Term Care Business depends on a limited number of large customers for a significant portion of its net sales, and approximately 34% of Long-Term Care Business' revenues for the three months ended June 28, 2002 represented sales to its top five customers. NEW ACCOUNTING PRONOUNCEMENT During June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses the financial accounting and reporting for costs associated with exit or disposal activities, and eliminates the definition and requirements for recognition of exits costs in Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 will require that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. It also establishes that fair value is the objective for initial measurement of the liability. The Company will apply the provisions of SFAS 146 for exit or disposal activities that are initiated after December 31, 2002, the effective date of this statement. THREE MONTHS ENDED JUNE 28, 2002 VERSUS THREE MONTHS ENDED JUNE 29, 2001 Net Sales. Three Months Ended ____________________ (dollars in millions) June 28, June 29, Increase 2002 2001 (Decrease) _________ ________ __________ Physician Supply Business... $182.9 $171.4 $11.5 Imaging Business............ 176.8 179.5 (2.7) Long-Term Care Business..... 103.5 95.4 8.1 Other....................... -- 0.4 (0.4) _________ ________ __________ Total Company... $463.2 $446.7 $16.5 ========= ======== ========== Physician Supply Business--The change in net sales is primarily attributable to an increase in medical disposables sales of approximately $13.4 million, of which private label and pharmaceuticals sales represented approximately 34% of this growth, offset by a slight decrease in equipment sales. The launch of the new pediatrics SRxSM module contributed to the increase in medical disposables sales and the addition of 26 new sales representatives increased overall net sales. The decrease in equipment sales primarily resulted from the discontinuance of the marketing and distribution of a product line. Imaging Business--The change in net sales is primarily attributable to a decline in analog film and chemistry product sales of approximately $3.0 million as a result of customer conversions from wet x-ray film handling to dry lasers that eliminate the need for certain consumable products such as film chemistry. This decrease was partially offset by an increase in total equipment sales of approximately $0.6 million related to growth derived from the Women's Health strategic business unit ("SBU"). 24 Long-Term Care Business--The increase in net sales is primarily attributable to the ANSWERS(TM) marketing program that aligns improved business processes ("best practices"), typically in the ordering process of nursing home operations and purchasing, with efficient distribution activities. To date, over 150 customers have adopted the program, which generated approximately $3.3 million of incremental revenue during the three months ended June 28, 2002. In addition, net sales increased due to growth initiatives that are focusing on regional accounts and expansion of product line. Other--The Company's European operations (the "International Business"), which were divested during the three months ended June 29, 2001, reported net sales of $0.4 million during the three months ended June 29, 2001. Gross Profit. Gross profit for the three months ended June 28, 2002 totaled $109.5 million, an increase of $7.8 million, or 7.7%, from gross profit of $101.7 million for the three months ended June 29, 2001. Gross profit as a percentage of net sales was 23.6% and 22.8% for the three months ended June 28, 2002 and June 29, 2001, respectively. The increase in gross profit is attributable to (i) the overall increase in net sales described above, (ii) a change in sales mix to higher gross profit consumable products in the Physician Supply Business and equipment in the Imaging Business, (iii) an increase in manufacturer incentive rebates earned by the Company, and (iv) improved purchase economies resulting from the centralization of the purchasing function and consolidation of vendors. General and Administrative Expenses.
Three Months Ended ________________________________________ June 28, 2002 June 29, 2001 ________________ __________________ % of % of Net Net Increase (dollars in millions) Amount Sales Amount Sales (Decrease) ______ _____ ______ ______ __________ Physician Supply Business... $33.3 18.2% $29.0 16.9% $4.3 Imaging Business............ 22.0 12.4 21.2 11.8 0.8 Long-Term Care Business..... 17.6 17.0 17.3 18.1 0.3 Other....................... 1.6 -- 1.0 -- 0.6 ______ _____ ______ ______ __________ Total Company... $74.5 16.1% $68.5 15.3% $6.0 ====== ===== ====== ====== ==========
During fiscal year 2002, the Company initiated and invested in programs to support future profitability and growth. The cost of these programs include (i) additional depreciation expense for completed phases of its Enterprise Resource Planning ("ERP") system, electronic commerce platforms (including myPSS.com and myDIOnline.com), and supply chain integration, (ii) employee and consulting fees incurred for the rollout of ERP and electronic commerce platforms, (iii) consulting fees for assistance in the validation of its strategic plan and other expenses for business process improvements, and (iv) investments in enterprise-wide learning initiatives to increase employee competencies and knowledge and conform to consistent business practices. The additional costs associated with these programs are continuing into fiscal year 2003. Physician Supply Business--The change in general and administrative expenses is primarily attributable to (i) an increase in salary and travel expenses as a result of the conversion to the new ERP system and the restructuring plan that was adopted during the fourth quarter of fiscal year 2002 ("rationalization programs"), (ii) an increase in employee incentive compensation as a result of improved branch profitability, and (iii) additional depreciation for completed phases of its ERP system, myPSS.com electronic commerce platform, and supply chain initiatives. Imaging Business--The change in general and administrative expenses is primarily attributable to (i) an increase in salary and contract labor expenses as a result of the centralization of the call dispatch function to Jacksonville, Florida, (ii) an increase in expenses related to the Fiscal Year 2003 National Sales Meeting as there was no such meeting in the prior fiscal period, and (iii) an increase in depreciation expense related to the myDIOnline.com electronic commerce platform and supply chain initiatives. Long-Term Care Business--The change in general and administrative expenses is primarily attributable to (i) an increase in salary expense and employee incentive compensation as a result of improved profitability and (ii) an increase in amortization expense for an impaired noncompete intangible asset, offset by a decrease in warehouse expenses as a result of closing a satellite service center. 25 Other--The increase in general and administrative expenses is primarily attributable to (i) an increase in salary expense as a result of the supply chain initiative and two executive positions filled during fiscal year 2002 and (ii) an increase in depreciation expense for the supply chain initiative and leasehold improvements related to the centralization of certain administrative functions to the corporate headquarters located in Jacksonville, Florida. General and administrative expenses also include charges related to restructuring activity, merger activity, and other items. These charges increased approximately $0.9 million during the three months ended June 28, 2002 compared to the same period of the prior fiscal period. The following table summarizes special charges that are included in general and administrative expenses in the accompanying consolidated statements of operations (in millions):
Three Months Ended June 28, 2002 ___________________________________________________________ Physician Long- Supply Imaging Term Care Business Business Business Other Total _________ _________ _________ ________ ______ Restructuring costs and expenses.. $0.7 $0.2 $-- $ -- $0.9 Merger costs and expenses......... -- -- -- 0.5 0.5 Accelerated depreciation.......... 0.1 -- -- -- 0.1 Reversal of operational tax charge -- -- -- (0.1) (0.1) Other............................. 0.1 -- -- -- 0.1 _________ _________ _________ ________ ______ Total................. $0.9 $0.2 $-- $0.4 $1.5 ========= ========= ========= ======== ====== Percent of net sales.............. 0.5% 0.1% -- -- 0.3%
Three Months Ended June 29, 2001 ___________________________________________________________ Physician Long- Supply Imaging Term Care Business Business Business Other Total _________ _________ _________ ________ ______ Restructuring costs and expenses.. $0.1 $0.3 $0.1 $ -- $ 0.5 Merger costs and expenses......... -- (0.2) -- 0.8 0.6 Reversal of operational tax charge -- -- -- (0.5) (0.5) _________ _________ _________ ________ ______ Total................. $0.1 $0.1 $0.1 $ 0.3 $ 0.6 ========= ========= ========= ======== ====== Percent of net sales.............. 0.1% 0.1% 0.1% -- 0.1%
Restructuring Costs and Expenses Restructuring costs and expenses for the three months ended June 28, 2002 and June 29, 2001 primarily include (i) costs expensed as incurred related to the Physician Supply Business' and the Imaging Business' restructuring plans that were adopted during the fourth quarter of fiscal year 2002 and (ii) costs expensed as incurred related to various restructuring plans that were adopted in prior fiscal years. Refer to Note 3, Accrued Restructuring Costs and Expenses, for further details regarding these plans. Physician Supply Business Plan Adopted During the Fourth Quarter of Fiscal Year 2002. The total estimated costs related to this plan are approximately $6.5 million, of which approximately $4.1 million and $0.6 million was recognized during fiscal year 2002 and the three months ended June 28, 2002, respectively, and approximately $1.7 million will be expensed as incurred during the remaining nine months of fiscal year 2003. Management anticipates that this plan will be completed by the end of the fourth quarter of fiscal year 2003. During the three months ended June 28, 2002, the Physician Supply Business recorded charges of $0.6 million, which include branch shut down costs of $0.3 million, involuntary employee termination costs of $0.2 million, and employee relocation costs of $0.1 million. 26 Imaging Business Plan Adopted During the Fourth Quarter of Fiscal Year 2002. The total estimated costs related to this plan are approximately $3.0 million, of which approximately $2.0 million and $0.2 million was recognized during fiscal year 2002 and the three months ended June 28, 2002, respectively, and approximately $0.8 million will be expensed as incurred during the remaining nine months of fiscal year 2003. Management anticipates that this plan will be completed by the end of fiscal year 2003. During the three months ended June 28, 2002, the Imaging Business recorded charges of $0.2 million, which include branch shutdown costs of $0.1 million, and employee relocation costs of $0.1 million. Various Restructuring Plans Adopted in Prior Fiscal Years. During the three months ended June 28, 2002 and June 29, 2001, the Company recorded $0.1 million and $0.5 million, respectively, of restructuring costs as incurred. These costs primarily relate to costs to pack and move inventory, costs to set up new facilities, employee relocation costs, and other related facility closure costs. Merger Costs and Expenses Merger costs and expenses for the three months ended June 28, 2002 and June 29, 2001 primarily include costs related to employee retention bonuses, costs expensed as incurred related to various merger plans that were adopted in prior fiscal years, and adjustments to previous estimates. Effective February 1, 2000, the Board of Directors approved and adopted an Officer Retention Bonus Plan and a 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 strategic alternatives transition period. The total cash compensation costs related to these plans is approximately $10.1 million, of which $8.6 million was expensed in prior fiscal years. Approximately $0.5 million was recognized during the three months ended June 28, 2002 and an additional $1.0 million is estimated to be expensed during the remaining nine months of fiscal year 2003. During the three months ended June 29, 2001, the Company expensed approximately $0.8 million. During the three months ended June 29, 2001, the Company reversed approximately $0.2 million, which primarily related to accrued lease termination costs. Accelerated Depreciation The Physician Supply Business identified certain assets that would be replaced or disposed of as a result of the restructuring plan that was implemented during the fourth quarter of fiscal year 2002. Pursuant to SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," the Company evaluated the recoverability of the assets and determined that impairment did not exist at the division level. Therefore, management revised the estimated useful lives of certain assets in accordance with Accounting Principles Board No. 20, "Accounting Changes." As a result of shortening the useful lives during the fourth quarter of fiscal year 2002 to coincide with the disposal date, the Company recorded $0.1 million of accelerated depreciation during the three months ended June 28, 2002. The effect of this change in estimate decreased basic and diluted earnings per share by less than $0.01 for the three months ended June 28, 2002. Reversal of Operational Tax Charge During the three months ended June 28, 2002 and June 29, 2001, the Company performed an analysis and reversed approximately $0.1 million and $0.5 million, respectively, of a previously recorded operating tax charge reserve. Other During the three months ended June 28, 2002, the Company incurred $0.1 million primarily relating to certain lease termination costs for locations that were previously vacated in connection with prior restructuring plans. 27 Selling Expenses.
Three Months Ended ________________________________________ June 28, 2002 June 29, 2001 ________________ __________________ % of % of Net Net Increase (dollars in millions) Amount Sales Amount Sales (Decrease) ______ _____ ______ ______ __________ Physician Supply Business... $17.3 9.5% $15.2 8.9% $2.1 Imaging Business............ 8.2 4.6 8.3 4.6 (0.1) Long-Term Care Business..... 3.0 2.9 3.0 3.1 -- Other....................... -- -- -- -- -- ______ _____ ______ ______ __________ Total Company... $28.5 6.2% $26.5 5.9% $2.0 ====== ===== ====== ====== ==========
Physician Supply Business--The change in selling expenses is primarily attributable to an increase in sales commission expense due to increased sales volume and the addition of 26 new sales representatives. Commissions are generally paid to sales representatives based on gross profit as a percentage of net sales. Gross profit as a percent of net sales slightly increased period to period. Imaging Business--The change in selling expenses is primarily attributable to a strong focus on controlling costs coupled with a decrease in training expense. Selling expense as a percent of net sales remained relatively unchanged. Long-Term Care Business--Although net sales increased, selling expenses remained relatively constant from period to period. Commissions are generally paid to sales representatives based on gross profit as a percentage of net sales. Gross profit as a percent of net sales remained relatively unchanged from period to period. International Business Exit Charge Reversal. During fiscal year 2001, the Company adopted a plan for divesting the International Business and recorded a charge of approximately $14.9 million. The sale of the International Business was completed during the three months ended June 29, 2001. Upon completion of the sale, the Company recorded a reversal of $0.5 million of the previously established charge due to lower than expected costs to exit the operations. Income from Operations. Three Months Ended ____________________ (dollars in millions) June 28, June 29, Increase 2002 2001 (Decrease) ____________________ __________ Physician Supply Business... $ 5.5 $ 5.7 $(0.2) Imaging Business............ (1.2) 0.1 (1.3) Long-Term Care Business..... 3.8 1.8 2.0 Other....................... (1.6) (0.3) (1.3) ________ _________ __________ Total Company... $ 6.5 $ 7.3 $(0.8) ======== ========= ========== Income from operations for each business segment changed due to the factors discussed above. Interest Expense. Interest expense for the three months ended June 28, 2002 totaled $3.1 million, a decrease of $1.2 million, or 27.9%, from interest expense of $4.3 million for the three months ended June 29, 2001. The decrease is primarily attributable to lower outstanding debt balances under the Company's revolving credit agreement over the prior period partially offset by the accelerated amortization of approximately $0.4 million of debt issuance costs as a result of refinancing the prior credit facility on May 24, 2001. Interest and Investment Income. Interest and investment income totaled $0.2 million for each of the three month periods ended June 28, 2002 and June 29, 2001. Although cash and cash equivalents have increased significantly from period to period, interest and investment income remained unchanged primarily due to a general reduction in interest rates. Other Income. Other income for the three months ended June 28, 2002 totaled $0.5 million, a decrease of $0.5 million, or 50.0%, from other income of $1.0 million for the three months ended June 29, 2001. The decrease in other income is primarily attributable to a decrease in finance charge income on customer accounts and an increase in losses incurred on the sales of property and equipment. Provision for Income Taxes. Provision for income taxes was $1.6 million for the three months ended June 28, 2002, a change of $0.1 million from the provision for income taxes of $1.5 million for the three months ended June 29, 2001. The effective income tax rate was approximately 38.1% and 36.4% for the three months ended June 28, 2002 and June 29, 2001, respectively. The increase in the effective rate is primarily attributable to (i) an increase in unfavorable permanent items and (ii) an increase in the income before provision for income taxes, excluding the effect of the International Business, offset by a valuation allowance recorded during fiscal year 2002 against certain deferred tax assets resulting from capital loss carryforwards generated from the sale of the International Business. 28 Net Income (Loss). Net income for the three months ended June 28, 2002 totaled $2.6 million compared to a net loss of $87.4 million. The net loss for the three months ended June 29, 2001 primarily related to a goodwill impairment charge of $90.0 million, net of income taxes of $14.4 million, recorded as a cumulative effect of an accounting change due to the implementation of SFAS 142, "Goodwill and Other Intangible Assets." Excluding the charge for the cumulative effect of accounting change, net income remained unchanged from period to period. 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 anticipated growth of the Company's operations. This growth will be funded through a combination of cash flows from operating activities, revolving credit borrowings, and other financing arrangements. Statement of Cash Flows Discussion Net cash provided by operating activities was $20.1 million and $42.5 million for the three months ended June 28, 2002 and June 29, 2001, respectively. During the three months ended June 29, 2002, cash flows from operating activities were positively impacted by noncash items of $6.0 million related to depreciation, amortization of intangible assets, amortization of debt issuance costs, provision for doubtful accounts, and benefit for deferred income taxes. Cash flows from operating activities were also positively impacted by the continued implementation of working capital reduction initiatives that started in the last half of fiscal year 2001 and continued into fiscal year 2003. During the three months ended June 28, 2002, accounts payable increased approximately $22.4 million, accounts receivable decreased approximately $0.8 million, and inventories increased approximately $9.7 million, resulting in a net $13.5 million decrease in operating working capital, which positively impacted operating cash flows. Approximately $8.0 million of the accounts payable increase resulted from the timing of vendor payments at quarter end. The Company expects accounts payable levels to decrease in subsequent periods and return to a normal level. In addition, inventories at the Physician Supply Business and Imaging Business increased approximately $3.7 million and $6.4 million, respectively. The Company believes these increases are the short-term result of the rationalization programs (e.g., conversion to the new ERP system at the Physician Supply Business and the centralization of the purchasing function at the Physician Supply Business and Imaging Business) and the goal of minimizing customer disruptions during these process changes. Management expects these levels to decrease in future periods once standard stock levels are measured and optimal service levels are achieved. The change in prepaid expenses and other current assets and other assets, net of the change in accrued expenses and other liabilities, resulted in a reduction of approximately $2.0 million of cash flows from operations which included the collection of approximately $4.2 million in refunds from the Internal Revenue Service and various states. Net cash used in investing activities was $3.4 million and $5.9 million for the three months ended June 28, 2002 and June 29, 2001, respectively. During the three months ended June 28, 2002 and June 29, 2001, capital expenditures related to the continued development of the Company's ERP system, electronic commerce platforms, and supply chain integration were approximately $0.2 million and $3.6 million, respectively. During fiscal year 2003, the Company is focusing on reducing overall capital expenditures and expects reduced levels of capital expenditures with the planned completion of the ERP system conversions during the first quarter of fiscal year 2004. Net cash provided by financing activities was $0.1 million for the three months ended June 28, 2002 compared to net cash used in financing activities of $42.7 million for the three months ended June 29, 2001. During the three months ended June 28, 2002, no amounts were outstanding under the revolving credit agreement. During fiscal year 2002, the Company repaid a significant amount of debt outstanding under the agreement using cash flows from operating activities. Operating Trends The Company had working capital of $277.8 million and $274.9 million as of June 28, 2002 and March 29, 2002, respectively. Accounts receivable, net of allowances, were $225.1 million and $227.0 million at June 28, 2002 and March 29, 2002, respectively. The average number of days sales in accounts receivable outstanding was approximately 43.9 and 43.8 days for the three months ended June 28, 2002 and March 29, 2002, respectively. For the three months ended June 28, 2002, the Company's Physician Supply, Imaging, and Long-Term Care Businesses had days sales in accounts receivable of approximately 44.5, 39.3, and 50.8 days, respectively. 29 Inventories were $162.6 million and $152.9 million as of June 28, 2002 and March 29, 2002, respectively. The Company had inventory turnover of 9.0x and 9.1x for the three months ended June 28, 2002 and March 29, 2002, respectively. For the three months ended June 28, 2002, the Company's Physician Supply, Imaging, and Long-Term Care Businesses had inventory turnover of 9.0x, 8.2x, and 10.8x, respectively. The following table presents Adjusted EBITDA and other financial data for the three months ended June 28, 2002 and June 29, 2001 (in millions):
Other Financial Data: Three Months Ended ______________________ June 28, June 29, 2002 2001 _________ __________ Income from operations................................................ $ 6,498 $ 7,298 Plus: Other income................................................... 534 996 Plus: Depreciation and amortization of intangible assets............. 5,592 4,291 Plus: Charges included in general and administrative expenses (d).... 1,377 592 Plus: International Business exit charge reversal.................... -- (514) _________ __________ Adjusted EBITDA (a)................................................... $ 14,001 $ 12,663 Interest expense...................................................... $ 3,130 $ 4,251 Interest coverage (b)................................................. 4.5x 3.0x Adjusted EBITDA Margin (c)............................................ 3.0% 2.8% Net cash provided by operating activities............................. $ 20,106 $ 42,544 Net cash used in investing activities................................. (3,404) (5,928) Net cash provided by (used in) financing activities................... 70 (42,654) As of ______________________ June 28, June 29, 2002 2001 _________ __________ Return on committed capital (e) (d) 12.6% 10.7% Ratio of debt to capitalization (f) 27.6% 31.8%
(a) Adjusted EBITDA represents income from operations, plus other income, depreciation and amortization of intangible assets, charges included in general and administrative expenses (refer to Note 2, Charges Included in General and Administrative Expenses, in the accompanying consolidated financial statements), and International Business exit charge reversal. Adjusted EBITDA excludes interest expense and provision for income taxes. Adjusted EBITDA is not a measure of performance or financial condition under generally accepted accounting principles ("GAAP"). Adjusted EBITDA is not intended to represent cash flows 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 flows from operating activities, or as a measure of liquidity. In addition, Adjusted 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 Adjusted 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 Adjusted EBITDA using the same method and the Adjusted EBITDA numbers set forth above may not be comparable to Adjusted EBITDA reported by other companies. (b) Interest coverage represents the ratio of Adjusted EBITDA to interest expense. (c) Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to net sales. (d) Charges included in general and administrative expenses for the three months ended June 28, 2002 excludes $84 of accelerated depreciation. Accelerated depreciation is included in depreciation and amortization in the Adjusted EBITDA calculation. 30 (e) Return on committed capital equals Adjusted EBITDA less depreciation divided by the average of the two most recent fiscal quarters of total assets less the sum of cash and cash equivalents, goodwill, net intangibles, accounts payable, accrued expenses, and other current and noncurrent liabilities. The result of this calculation is then annualized. (f) Ratio of debt to capitalization is calculated as long-term debt plus current portion of long-term debt divided by the sum of long-term debt, current portion of long-term debt, and shareholders' equity. Senior Subordinated Notes The Company's Senior Subordinated Notes (the "Notes") are unconditionally guaranteed on a senior subordinated basis by all of the Company's domestic subsidiaries. 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 are expected to be funded by the cash flows from operating activities of the Company. The Notes mature on October 1, 2007, and are callable beginning October 1, 2002, at the option of the Company. The Notes contain certain restrictive covenants that, among other things, limit the Company's ability to incur additional indebtedness. The Company may incur indebtedness up to certain specified levels and, provided that no event of default exists, 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 to 1. Revolving Credit Agreement On May 24, 2001, the Company entered into a credit agreement (the "Credit Agreement"), by and among the Company, as borrower thereunder (the "Borrower"), the subsidiaries of the Borrower party thereto, the lenders from time to time party thereto (the "Lenders"), Bank of America, N.A., as Agent for the Lenders (in such capacity, the "Agent", or the "Bank") and Banc of America Securities LLC, as Arranger. The Credit Agreement provides for a four-year credit facility consisting of an aggregate $120 million revolving line of credit and letters of credit (the "Credit Facility"). Availability of borrowings under the Credit Facility depends upon (a) the amount of a borrowing base consisting of accounts receivable and, upon satisfaction of certain requirements, inventory and (b) compliance with certain debt incurrence tests under the Company's Indenture, dated as of October 7, 1997, relating to the Notes. The Credit Facility bears interest at the Bank's prime rate plus a margin of between 0.25% and 1.0% based on the Company's ratio of funded debt to EBITDA (as defined in the Agreement) or at LIBOR plus a margin of between 1.75% and 3.5% based on the Company's ratio of funded debt to EBITDA. Under the Credit Agreement, the Company and its subsidiaries are subject to certain covenants, including but not limited to, limitations on (a) paying dividends and repurchasing stock, (b) repurchasing its Notes, (c) selling or transferring assets, (d) making certain investments (including acquisitions) and (e) incurring additional indebtedness and liens. Initial proceeds from the Credit Facility were used to refinance existing indebtedness outstanding under the Company's prior credit agreement, and future proceeds will be used to issue letters of credit, finance ongoing working capital requirements and general corporate purposes of the Company. The Credit Facility matures on May 24, 2005. On June 28, 2001, the Company entered into a First Amendment to the Credit Agreement (the "Amendment"), by and among the Company, as borrower thereunder, the subsidiaries of the Company party thereto, the Lenders and the Agent for the Lenders. The Amendment amended the Credit Agreement to increase the maximum available borrowings under the Credit Agreement from $120 million to $150 million. The Amendment also, among other things, increased the percentage of Lenders whose consent was required for an amendment of the Credit Agreement from more than 50% to more than 55% and amended certain provisions relating to protective advances, limitations on issuances of letters of credit, indemnification, and landlord consents. As of June 28, 2002, the Company has not entered into any material working capital commitments that require funding. The Company believes that the expected cash flows from operations, borrowing availability under the credit facility, and capital markets are sufficient to meet the Company's anticipated future requirements for working capital, capital expenditures, and acquisitions for the foreseeable future. 31 The Company may from time to time seek to retire its outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. On July 30, 2002, the Company's Board of Directors approved a stock repurchase program authorizing the Company, depending upon market conditions and other factors, to repurchase up to a maximum of 5% of its common stock, or approximately 3.6 million common shares, in the open market, in privately negotiated transactions or otherwise. Such repurchases will be made in compliance with applicable rules and regulations and the terms of the Company's debt agreements, and may be discontinued at any time. In the normal course of business, the Company enters into obligations and commitments that require future contractual payments. The commitments primarily result from repayment obligations for borrowings under the Notes and Credit Facility, as well as, contractual lease payments for facility, vehicles and equipment leases, and contractual payments under noncompetition agreements and employment agreements. As of June 28, 2002, the Company had no borrowings outstanding under the credit facility. The following table presents, in aggregate, scheduled payments under contractual obligations (in thousands):
Fiscal Year ________________________________________________________ (9 months) 2003 2004 2005 2006 2007 Thereafter Total __________ _________ _________ _________ ___________ __________ ________ Long-term debt......... $ -- $ -- $ -- $ -- $ -- $125,000 $125,000 Operating leases: Restructuring....... 924 1,084 718 301 34 -- 3,061 Operating........... 20,840 20,869 14,200 7,594 5,191 5,255 73,949 Noncompetition agreements......... 462 59 43 36 36 144 780 Employment agreements. 2,558 -- -- -- -- -- 2,558 __________ _________ _________ _________ ___________ __________ ________ Total......... $24,784 $22,012 $14,961 $7,931 $5,261 $130,399 $205,348 ========== ========= ========= ========= =========== ========== ========
ITEM 3. Quantitative and qualitative disclosures about market risk The Company believes there has been no material change in its exposure to market risk from that discussed in Item 7A in the Annual Report on Form 10-K for the fiscal year ended March 29, 2002. PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 7, Commitments and Contingencies, of this Form 10-Q and Item 3 of the Company's Annual Report on Form 10-K for the year ended on March 29, 2002. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. 32 ITEM 4. SUBMISSION OF MATTERS TO A VOATE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K:
Exhibit Number Description 3.1 Amended and Restated Articles of Incorporation, dated as of March 15, 1994. (9) 3.1a Articles of Amendment to Articles of Incorporation, dated as of September 24, 2001. (18) 3.1b Articles of Amendment to Articles of Incorporation, dated as of November 9, 2001. (18) 3.2 Amended and Restated Bylaws, dated as of March 15, 1994. (3) 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. (7) 4.1a Supplemental Indenture, dated as of February 15, 2001, by and among the New Subsidiary Guarantors named therein and SunTrust Bank (formerly known as SunTrust Bank, Central Florida, National Association), as Trustee. (13) 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. (7) 4.3 Form of 8 1/2% Senior Subordinated Notes due 2007, including Form of Guarantee (Exchange Notes). (7) 4.4 Shareholder Protection Rights Agreement, dated as of April 20, 1998, between the Company and Continental Stock Transfer & Trust Company, as Rights Agent. (10) 4.4a Amendment to Shareholder Protection Rights Agreement, dated as of June 21, 2000, between the Company and Continental Stock Transfer & Trust Company as Rights Agent. (12) 33 4.4b Amendment to Shareholder Protection Rights Agreement, dated as of April 12, 2002, between the Company and First Union National Bank, as Successor Rights Agent. (20) 10.1 Incentive Stock Option Plan, dated as of May 14, 1986. (1) 10.2 Amended and Restated Directors Stock Plan. (5) 10.3 Amended and Restated 1994 Long-Term Incentive Plan. (5) 10.4 Amended and Restated 1994 Long-Term Stock Plan. (5) 10.5 1994 Employee Stock Purchase Plan. (4) 10.6 1994 Amended Incentive Stock Option Plan. (1) 10.7 1999 Long-term Incentive Plan. (11) 10.8 Distributorship Agreement between Abbott Laboratories and the Company (Portions omitted pursuant to a request for confidential treatment - Separately filed with the SEC). (2) 10.9 Amended and Restated Employee Stock Ownership and Savings Plan. 10.9a Seventh Amendment to the Employee Stock Ownership and Savings Plan. 10.10 Agreement and Plan of Merger, dated as of December 14, 1997, by and among the Company, PSS Merger Corp. and Gulf South Medical Supply, Inc. (8) 10.11 Credit Agreement, dated as of May 24, 2001, by and among the Company, each of the Company's subsidiaries therein named, the Lenders from time to time party thereto, Bank of America, N.A., as Agent, and Banc of America Securities LLC, as Arranger. (14) 10.11a Amendment No. 1 to Credit Agreement, dated as of June 28, 2001, by and among the Company, each of the Company's subsidiaries therein named, the Lenders from time to time party thereto, Bank of America, N.A., as Agent, and Banc of America Securities LLC, as Arranger. (16) 10.12 Employment Agreement, dated as of March 4, 1998, by and between the Company and David A. Smith. (15) 10.12a Amendment to Employment Agreement, dated as of April 17, 2000, by and between the Company and David A. Smith. (15) 10.13 Employment Agreement, dated as of April 1, 1998, by and between the Company and John F. Sasen, Sr. (15) 10.13a Amendment to Employment Agreement, dated as of April 17, 2000, by and between the Company and John F. Sasen, Sr. (15) 10.14 Consulting Agreement, dated as of June 13, 2002, by and between the Company and Douglas J. Harper. (17) 10.15 Employment Agreement, dated as of April 1, 1998, by and between the Company and Gary A. Corless. (17) 10.15a Amendment to Employment Agreement, dated as of April 17, 2000, by and between the Company and Gary A. Corless. (17) 34 10.16 Employment Agreement, dated as of April 1, 1998, by and between the Company and Kevin P. English. (17) 10.16a Amendment to Employment Agreement, dated as of April 17, 2000, by and between the Company and Kevin P. English. (17) 10.17 Employment Agreement, dated as of January 7, 2002, by and between the Company and David M. Bronson. (19) 10.18 Severance Agreement, dated as of October 11, 2000, by and between the Company and Frederick E. Dell. (15) 10.19 Severance Agreement, dated as of February 1, 2001, by and between the Company and Kirk A. Zambetti. (15) 10.20 Severance Agreement, dated as of March 21, 2001, by and between the Company and Patrick C. Kelly. (15) 21 List of Subsidiaries of the Company. (20) (1) Incorporated by Reference to the Company's Registration Statement on Form S-1, Registration No. 33-76580. (2) Incorporated by Reference to the Company's Annual Report on Form 10-K for the year ended March 30, 1995. (3) Incorporated by Reference to the Company's Registration Statement on Form S-3, Registration No. 33-97524. (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 Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. (6) Not used. (7) Incorporated by Reference to the Company's Registration Statement on Form S-4, Registration No. 333-39679. (8) Incorporated by Reference from Annex A to the Company's Registration Statement on Form S-4, Registration No. 333-44323. (9) Incorporated by Reference to the Company's Current Report on Form 8-K, filed April 8, 1998. (10) Incorporated by Reference to the Company's Current Report on Form 8-K, filed April 22, 1998. (11) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. (12) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (13) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 29, 2000. (14) Incorporated by Reference to the Company's Current Report on Form 8-K, filed June 5, 2001. (15) Incorporated by Reference to the Company's Annual Report on Form 10-K for the year ended March 30, 2001. (16) Incorporated by Reference to the Company's Current Report on Form 8-K, filed July 3, 2001. (17) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 2001. (18) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 2001. (19) Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 28, 2001. (20) Incorporated by Reference to the Company's Annual Report on Form 10-K for the year ended March 29, 2002.
35 (b)Reports on Form 8-K: No reports on Form 8-K were filed during the three months ended June 28, 2002. 36 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 August 12, 2002. PSS WORLD MEDICAL, INC By: /s/ David M. Bronson ----------------------------------- David M. Bronson Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) 37 EXHIBIT INDEX Exhibit 10.9 Amended and Restated Employee Stock Ownership and Savings Plan. 10.9a Seventh Amendment to the Employee Stock Ownership and Savings Plan. 10.14 Consulting Agreement, dated as of June 13, 2002, by and between the Company and Douglas J. Harper. 38 EX-10 3 plan_document.txt WARD, ROVELL & VAN EEPOEL, P.A. TAMPA, FL AMENDMENT AND RESTATEMENT OF THE PSS WORLD MEDICAL, INC. SAVINGS PLAN Effective as of April 1, 2002 AMENDMENT AND RESTATEMENT OF THE PSS WORLD MEDICAL, INC. SAVINGS PLAN Table of Contents
Page ARTICLE I Definitions...............................................................................I-1 ARTICLE II Amendment and Restatement of the Plan....................................................II-9 ARTICLE III Purpose of the Plan and the Trust.......................................................III-9 ARTICLE IV Plan Administrator.......................................................................IV-9 ARTICLE V Eligibility and Participation.............................................................V-9 ARTICLE VI Contributions to the Trust...............................................................VI-9 ARTICLE VII Participants' Accounts..................................................................VII-9 ARTICLE VIII Benefits Under the Plan................................................................VIII-9 ARTICLE IX Payments of Benefits.....................................................................IX-9 ARTICLE X Preretirement Withdrawals.................................................................X-9 ARTICLE XI Directed Investments.....................................................................XI-9 ARTICLE XII Trust Fund..............................................................................XII-9 ARTICLE XIII Expenses of Administration of the Plan and the Trust Fund.............................................................................XIII-9 ARTICLE XIV Amendment and Termination...............................................................XIV-9 ARTICLE XV Miscellaneous............................................................................XV-9
AMENDMENT AND RESTATEMENT OF THE PSS WORLD MEDICAL, INC. SAVINGS PLAN This Amendment and Restatement of the PSS World Medical, Inc. Savings Plan (formerly known as the PSS World Medical, Inc. Employee Stock Ownership and Savings Plan) is made and entered into effective for all purposes as of April 1, 2002, except as otherwise set forth herein, by PSS World Medical, Inc. (the "Company"). W I T N E S S E T H: WHEREAS, the Company has previously adopted the PSS World Medical, Inc. Employee Stock Ownership and Savings Plan, which has been amended from time to time (as amended, the "Plan"); and WHEREAS, the Company is authorized and empowered to amend the Plan; and WHEREAS, the Company deems it advisable and in the best interests of the Participants to amend the Plan to provide for Participant directed investment of all Accounts and to convert the Plan from an employee stock ownership plan to a profit sharing plan. NOW, THEREFORE, the Plan is hereby amended and restated in its entirety to read as follows: ARTICLE I Definitions 1.1 "Account" or "Accounts" shall mean, as required by the context, the entire amount held from time to time for the benefit of any one Participant, or a portion thereof attributable to a Participant's Elective Contributions Account, Employer Contributions Account, Matching Contributions Account, Qualified Matching Contributions Account, Qualified Non-Elective Contributions Account, and/or Rollover/Merger Account. 1.2 "Actual Contribution Percentage" shall mean, with respect to a group of Participants for the Plan Year, the average of the Actual Contribution Ratios (calculated separately for each member of the group) of each Participant who is a member of such group. 1.3 "Actual Contribution Ratio" shall mean the ratio of the amount of Matching Contributions (including any Elective Contributions, Qualified Matching Contributions, and Non-Elective Contributions that may be treated as matching contributions in accordance with Treasury Regulation Section 1.401(m)-1(b)(5)) made on behalf of a Participant for a Plan Year to the Participant's Compensation for the Plan Year. I-1 1.4 "Actual Deferral Percentage" shall mean, with respect to a group of Participants for the Plan Year, the average of the Actual Deferral Ratios (calculated separately for each member of the group) of each Participant who is a member of such group. 1.5 "Actual Deferral Ratio" shall mean the ratio of the amount of Elective Contributions (including Elective Contributions by Highly Compensated Employees in excess of the limitation set forth in section 6.1(b)(1) to the extent required by Treasury Regulation Section 1.402(g)-1(e)(1)(ii), and any Qualified Matching Contributions and Non-Elective Contributions treated as Elective Contributions made on behalf of a Participant for a Plan Year to the Participant's Compensation for the Plan Year. 1.6"Additional Elective Deferral Contributions" shall mean a contribution pursuant to section 6.2 by an Employer on behalf of a Participant. 1.7 "Administrator" shall mean the Plan Administrator. 1.8 "Affiliate" shall mean, with respect to an Employer, any corporation other than such Employer that is a member of a controlled group of corporations, within the meaning of Section 414(b) of the Code, of which such Employer is a member; all other trades or businesses (whether or not incorporated) under common control, within the meaning of Section 414(c) of the Code, with such Employer; any service organization other than such Employer that is a member of an affiliated service group, within the meaning of Section 414(m) of the Code, of which such Employer is a member; and any other organization that is required to be aggregated with such Employer under Section 414(o) of the Code. For purposes of determining the limitations on Annual Additions, the special rules of Section 415(h) of the Code shall apply. 1.9 "Agreement and Declaration of Trust" shall mean the agreement providing for the Trust Fund or Funds, as entered into between the Company and the Trustee and as the agreement may be amended from time to time. 1.10 "Annual Additions" shall mean, with respect to a Limitation Year, the sum of: (a) the amount of the contributions made by the Employers (including elective contributions other than amounts distributed as "excess deferrals" in accordance with Treasury Regulation Section 1.402(g)-1(e)(2) or (3)) and allocated to the Participant under any defined contribution plan maintained by an Employer or an Affiliate; provided, however, that Additional Elective Deferral Contributions (and any other contribution subject to Section 414(v) of the Code and made to any defined contribution plan maintained by an Employer or an Affiliate) shall not be taken into account; I-2 (b) the amount of the Employee's contributions (other than Rollover Contributions, if any) to any contributory defined contribution plan maintained by an Employer or an Affiliate; (c) any forfeitures separately allocated to the Participant under any defined contribution plan maintained by an Employer or an Affiliate; and (d) if the Participant is a Key Employee, to the extent required by law, any contributions allocated to any individual account on behalf of such Participant under Section 401(h) or Section 419A(d) of the Code. 1.11 "Board of Directors" and "Board" shall mean the board of directors of the Company or, when required by the context, the board of directors of an Employer other than the Company. 1.12 "Break in Service" shall mean a 12-month Plan Year in which an Employee has 500 or fewer Hours of Service, and it shall be deemed to occur on the last day of any such Plan Year. For any Plan Year of less than 12 months, a "Break in Service" shall be credited to an Employee who has 500 or fewer Hours of Service during the 12-month period beginning on the first day of such short Plan Year. 1.13 "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor statute. Reference to a specific section of the Code shall include a reference to any successor provision. 1.14 "Company" shall mean PSS World Medical, Inc. and its successors. 1.15 "Company Stock Fund" shall mean the trust fund established under the Agreement and Declaration of Trust between the Company and the Trustee from which the amounts of supplementary compensation provided by the Plan and invested primarily in common stock of the Company are to be paid or are to be funded. 1.16 "Compensation" (a) The term "Compensation" shall mean the regular salaries and wages, overtime pay, bonuses, commissions and other amounts paid by an Employer and taxable to the Employee, as well as elective contributions made on behalf of the Employee to this Plan pursuant to Section 401(k) of the Code, elective contributions made on behalf of the Employee to any cafeteria plan maintained by an Employer pursuant to Section 125 of the Code, and, effective for Plan Years beginning on or after January 1, 2001, elective amounts on behalf of the Employee that are not includable in his gross income by reason of Section 132(f)(4) of the Code. The term "Compensation" shall not include third party disability payments, tax deferred stock options, deductible relocation expense payments, credits or benefits under this Plan, any amount contributed to any pension, employee welfare, life insurance or health insurance plan or arrangement (other than elective contributions to this Plan and any cafeteria plan), or any other tax-favored fringe benefits. I-3 (b) For purposes of determining a Participant's Actual Deferral Ratios and Actual Contribution Ratios, an Employer may limit the period for which Compensation is taken into account to that portion of the Plan Year in which the Employee was a Participant so long as this limit is applied uniformly to all eligible Employees under the Plan for the Plan Year. (c) The annual Compensation of each Participant taken into account in determining allocations for any Plan Year beginning after December 31, 2001, shall not exceed $200,000.00, as adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code. Annual Compensation means Compensation during the Plan Year or such other consecutive 12-month period over which Compensation is otherwise determined under the Plan. The cost-of-living adjustment in effect for a calendar year applies to annual Compensation for the determination period that begins with or within such calendar year. 1.17 "Direct Rollover" shall mean a payment of an Eligible Rollover Distribution by the Plan to an Eligible Retirement Plan specified by the Distributee. 1.18 "Distributee" shall mean (a) a Participant, or former Participant, who is entitled to benefits payable as a result of his retirement, disability or other severance from employment as provided in Article VIII, (b) a Participant's, or former Participant's, surviving Eligible Spouse who is entitled to death benefits payable pursuant to section 8.4, and (c) a Participant's, or former Participant's, spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, entitled to benefits payable as provided by section 15.2(b). 1.19 "Early Retirement Date" shall mean the first date on which a Participant has reached the age of 55 years and completed ten Years of Service. 1.20 "Earnings" attributable to any Pooled Investment Fund (other than any pooled Employer Securities Accounts or Other Investments Accounts) shall mean, with respect to a Valuation Period, the aggregate of the unrealized appreciation or depreciation accruing to the Pooled Investment Fund during such a period; and the income earned or the loss sustained by the Pooled Investment Fund during such period, whether from investments or from the sale or exchange of assets. I-4 The Earnings attributable to a separate portion of a Segregated Investment Fund (other than any segregated Employer Securities Accounts or Other Investments Accounts) credited to a Participant's Account for any Valuation Period shall be determined by multiplying the number of shares of the Segregated Investment Fund credited to the Participant's Account by the difference between the value of each share for the current Valuation Date and the value of each share as of the most recent preceding Valuation Date. The Earnings attributable to any portion of the Company Stock Fund credited to any Other Investments Accounts shall mean, with respect to a Valuation Period, (i) cash dividends received on shares of Employer Securities and (ii) the aggregate of the unrealized appreciation or depreciation occurring in the value of, and that portion of the income earned or the loss sustained by, the Other Investments Account during such period. 1.21 "Effective Date" of this Amendment and Restatement shall mean April 1, 2002, except as otherwise set forth herein. 1.22 "Elective Contribution" shall mean a contribution pursuant to section 6.1 by an Employer on behalf of a Participant. 1.23 "Elective Contributions Account" shall mean an account established pursuant to section 7.2 with respect to contributions made to this Plan under salary reduction agreements pursuant to section 6.1. A Participant's Elective Contributions Account shall include Additional Elective Deferral Contributions made to this Plan pursuant to section 6.2. In addition, a Participant's Elective Contribution Account shall include amounts previously credited (a) as salary reduction contributions to the 401(k) Plan (and earnings attributable thereto) on behalf of the Participant prior to the merger of the 401(k) Plan with this Plan effective October 1, 1993, (b) to the Participant's "Employer Contributions Account" in this Plan as of December 31, 1995, under the terms of this Plan in effect as of such date, (c) to the Participant's "ESOP Elective Contributions Account" in this Plan under the terms of this Plan as in effect as of July 31, 1999, (d) to the Participant's "401(k) Elective Contributions Account" in this Plan under the terms of this Plan as in effect as of July 31, 1999, (e) to the Participant's "Elective Contributions Account" in the PSS ESOP as of the date of its merger with this Plan, (f) as salary reduction contributions (and earnings attributable thereto) credited to the "Merger Accounts" attributable to the Participant in this Plan under the terms of this Plan as in effect as of July 31, 1999, I-5 (g) as salary reduction contributions (and earnings attributable thereto) on behalf of the Participant to the PSS/Taylor Plan prior to the merger of the PSS/Taylor Plan with this Plan effective April 21, 2000, (h) as salary deferral contributions (and earnings attributable thereto) on behalf of the Participant to the National Med Supply Plan prior to the merger of the National Med Supply Plan with this Plan effective August 1, 2001, and (i) to the Participant's "Elective Contributions Account" in this Plan under the terms of this Plan as in effect immediately before this Amendment and Restatement. 1.24 "Eligibility Date" shall mean the first day of each Plan Year and the first day of each calendar month within the Plan Year. 1.25 "Eligible Retirement Plan" shall mean an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, an annuity contract described in Section 403(b) of the Code, a qualified trust described in Section 401(a) of the Code, or an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan, that, in each case, accepts a Distributee's Eligible Rollover Distribution. 1.26 "Eligible Rollover Distribution" shall mean any distribution of all or any portion of the balance to the credit of a Distributee, other than: (a) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made (1) for the life (or life expectancy) of the Distributee, or the joint lives (or life expectancies) of the Distributee and the Distributee's designated beneficiary, or (2) for a specified period of ten years or more; (b) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and (c) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and (d) any hardship withdrawal. I-6 Notwithstanding the preceding provisions of this section, an Eligible Rollover Distribution shall not include one or more distributions during a Plan Year with respect to a Participant if the aggregate amount distributed during the Plan Year is less than $200 (adjusted under such regulations as may be issued from time to time by the Secretary of the Treasury). 1.27 "Eligible Spouse" shall mean a Participant's husband or wife. 1.28 "Employee" (a) The term "Employee" shall mean any person employed by an Employer or an Affiliate other than: (1) a member of a collective bargaining unit if retirement benefits were a subject of good faith bargaining between such unit and an Employer, and (2) a nonresident alien who does not receive earned income from sources within the United States. (b) The term "Employee" shall also include any leased employee of the Employer; provided, however, that contributions or benefits provided by the leasing organization that are attributable to services performed for such Employer shall be treated as provided by such Employer. The preceding sentence shall not apply to any leased employee if: (1) leased employees do not constitute more than twenty percent (20%) of the Employer's Non-Highly Compensated Employees (as determined without regard to this section 1.28(b), and (2) such leased employee is covered by a money purchase pension plan providing: (A) a nonintegrated employer contribution rate of at least 10% of compensation (as defined in Section 414(n) of the Code), (B) immediate participation, and (C) full and immediate vesting. (c) The term "leased employee," as used in this section, means any person (other than an employee of the Employer) who, pursuant to an agreement between the Employer and any other person ("leasing organization"), has performed services for the Employer (or for the Employer and one or more Affiliates) on a substantially full time basis for a period of at least one year and the individual's services are performed under the primary direction or control of such Employer. I-7 1.29 "Employer" shall mean the Company, Diagnostic Imaging, Inc., Gulf South Medical Supply, Inc., PSS Service, Inc., WorldMed, Inc., Physician Sales & Service Limited Partnership, Physician Sales & Service, Inc., and any other subsidiary, related corporation, or other entity that adopts this Plan with the consent of the Company. 1.30 "Employer Discretionary Contribution" shall mean a contribution in cash or Employer Securities pursuant to section 6.4 by an Employer on behalf of a Participant. 1.31 "Employer Contributions Account" shall mean an account established pursuant to section 7.2 with respect to contributions made as Employer Discretionary Contributions pursuant to section 6.4. A Participant's Employer Contributions Account shall include amounts previously credited (a) to the Participant's "ESOP Matching Contributions Account" in this Plan under the terms of the Plan in effect immediately before August 1, 1999, (b) to the Participant's "ESOP Employer Contributions Account" in this Plan under the terms of the Plan in effect immediately before August 1, 1999, and (c) to the Participant's "Employer Contributions Account" in the Plan immediately before this Amendment and Restatement. 1.32 "Employer Securities" shall mean common stock, any other type of stock or any marketable obligation (as defined in Section 407(e) of ERISA) issued by the Company or any Affiliate of the Company. 1.33 "Employer Securities Account" shall mean a subaccount that may be established pursuant to section 7.2 with respect to amounts invested in common stock of the Company held within the Company Stock Fund. 1.34 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. References to a specific section of ERISA shall include references to any successor provisions. 1.35 "Fair Market Value" shall mean, for purposes of the valuation of Employer Securities, the closing price (or, if there is no closing price, then the closing bid price) of such Employer Securities as reported on the Composite Tape, or if not reported thereon, then such price as reported in the trading reports of the principal securities exchange in the United States on which such Employer Securities are listed, or if the Employer Securities are not listed on a securities exchange in the United States, the mean between the dealer closing "bid" and "ask" prices on the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ), I-8 or NASDAQ's successor, or if not reported on NASDAQ, the fair market value of the securities as determined in good faith and based on all relevant factors; provided, however, that the Fair Market Value of Employer Securities not readily tradable on an established securities market shall be determined by an independent appraiser pursuant to Section 401(a)(28)(C) of the Code. 1.36 "401(k) Plan" shall mean the Physician Sales & Service, Inc. 401(k) Plan, as established and maintained by the Employers prior to its merger into this Plan effective as of October 1, 1993. 1.37 "Fund" shall mean an investment fund established pursuant to Article XI. 1.38 "Hardship" shall mean an immediate and heavy financial need of the Participant for which a distribution from the Participant's Rollover/Merger Account and Elective Contributions Account is necessary to satisfy such need, as described in section 10.1. 1.39 "Highly Compensated Employee" (a) The term "Highly Compensated Employee" shall mean any Employee: (1) who was a 5% owner of an Employer or an Affiliate during the Plan Year or the immediately preceding Plan Year; or; (2) whose Section 415 Compensation was more than $80,000 (adjusted under such regulations as may be issued by the Secretary of the Treasury) for the immediately preceding Plan Year, and who was a member of the "top paid group" for such preceding Year. As used herein, "top paid group" shall mean all Employees who are in the top 20% of the Employer's or an Affiliate's work force (without regard to employees excludable pursuant to Section 414(q) of the Code) on the basis of Section 415 Compensation paid during the year. (b) The term "Highly Compensated Employee" shall also mean any former Employee who separated from service (or was deemed to have separated from service) prior to the Plan Year, performs no service for an Employer during the Plan Year, and was an actively employed Highly Compensated Employee in the separation year or any Plan Year ending on or after the date the Employee attained age 55. 1.40 "Hour of Service" (a) The term "Hour of Service" shall mean (1) an hour for which an Employee is paid, or entitled to payment, for the performance of duties for an Employer or an Affiliate; I-9 (2) an hour for which an Employee is paid, or entitled to payment, by an Employer or an Affiliate on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), lay-off, jury duty, military duty or leave of absence. Notwithstanding the preceding, (A) no more than 501 Hours of Service shall be credited under this section 1.40(a)(2) to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single Plan Year); (B) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed shall not be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workmen's compensation, or unemployment compensation or disability insurance laws; and (C) an hour shall not be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee; and (3) an hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by an Employer or an Affiliate; provided, that the same Hour of Service shall not be credited both under section 1.40(a)(1) or section 1.40(a)(2), as the case may be, and under this section 1.40(a)(3). Crediting of an Hour of Service for back pay awarded or agreed to with respect to periods described in section 1.40(a)(2) shall be subject to the limitations set forth in that section. The definition set forth in this section 1.40(a) is subject to the special rules contained in Department of Labor Regulations Sections 2530.200b-2(b) and (c), and any regulations amending or superseding such sections, which special rules are hereby incorporated in the definition of "Hour of Service" by this reference. (b) Each Employee who is not required to maintain records of his actual Hours of Service during any month shall be credited with 190 Hours of Service for such month if he would be credited with at least one Hour of Service during such month under section 1.40(a). (c) (1) Notwithstanding the other provisions of this "Hour of Service" definition, in the case of an Employee who is absent from work for any period by reason of her pregnancy, by reason of the birth of a child of the Employee, by reason of the placement of a child with the I-10 Employee in connection with the adoption of such child by the Employee or for purposes of caring for such child for a reasonable period beginning immediately following such birth or placement, the Employee shall be treated as having those Hours of Service described in section 1.40(c)(2). (2) The Hours of Service to be credited to an Employee under the provisions of section 1.40(c)(1) are the Hours of Service that otherwise would normally have been credited to such Employee but for the absence in question or, in any case in which the Plan is unable to determine such hours, eight Hours of Service per day of such absence; provided, however, that the total number of hours treated as Hours of Service under this section 1.40(c) by reason of any such pregnancy or placement shall not exceed 501 hours. (3) The hours treated as Hours of Service under this section 1.40(c) shall be credited only in the Plan Year in which the absence from work begins, if the crediting is necessary to prevent a Break in Service in such Plan Year or, in any other case, in the immediately following Plan Year. (4) Credit shall be given for Hours of Service under this section 1.40(c) solely for purposes of determining whether a Break in Service has occurred for participation or vesting purposes; credit shall not be given hereunder for any other purposes (including, without limitation, benefit accrual). (5) Notwithstanding any other provision of this section 1.40(c), no credit shall be given under this section 1.40(c) unless the Employee in question furnishes to the Administrator such timely information as the Administrator may reasonably require to establish that the absence from work is for reasons referred to in section 1.40(c)(1) and the number of days for which there was such an absence. 1.41 "Key Employee" shall mean any employee or former employee (including any deceased employee) who, at any time during the Plan Year that includes the determination date, was an officer of an Employer or an Affiliate having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2001), a 5-percent owner of an Employer or an Affiliate, or a 1-percent owner of an Employer or an Affiliate having annual compensation of more than $150,000. For this purpose, compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder. I-11 1.42 "Leave of Absence" shall mean the time granted to an Employee for vacation, sick leave, temporary layoff or other purposes, all as authorized in accordance with uniform rules adopted by his Employer from time to time. Leave of Absence shall also include the time that an Employee serves in the armed forces of the United States of America during a period of national emergency or as a result of the operation of a compulsory military service law of the United States of America, and during any period after his discharge from such armed forces in which his employment rights are guaranteed by law. 1.43 "Limitation Year" shall mean the Plan Year. 1.44 "Matching Contribution" shall mean a contribution pursuant to section 6.3(a)(2) by an Employer on behalf of a Participant. 1.45 "Matching Contributions Account" shall mean an account established pursuant to section 7.2 with respect to Matching Contributions made pursuant to section 6.3(a)(2), and shall include amounts previously credited to the Participant's "Non-ESOP Matching Contribution Account" in this Plan under the terms of this Plan as in effect immediately before this Amendment and Restatement. 1.46 "Matching Contributions Allocation Period" shall mean the three-month period ending each March 31, June 30, September 30 and December 31 for Plan Years beginning on or after April 1, 2001, or such other periods as may be selected by the Company. 1.47 "National Med Supply Plan" shall mean the National Med Supply Company 401(k) Savings Plan, as maintained by Gulf South Medical Supply Company, Inc. prior to its merger into this Plan effective as of August 1, 2001. 1.48 "Non-Elective Contribution" shall mean a contribution pursuant to section 6.5 by an Employer on behalf of a Participant. 1.49 "Non-Highly Compensated Employee" shall mean, with respect to any Plan Year, an Employee who is not a Highly Compensated Employee. 1.50 "Non-Key Employee" shall mean, with respect to any Plan Year, an Employee or former Employee who is not a Key Employee (including any such Employee who formerly was a Key Employee). 1.51 "Normal Retirement Date" shall mean the date on which a Participant attains the age of 65 years. 1.52 "Other Investments Account" shall mean a subaccount established pursuant to section 7.2 with respect to amounts invested in assets other than common stock of the Company held within the Company Stock Fund. 1.53 "Participant" shall mean any eligible Employee of an Employer who has become a Participant under the Plan and shall include any former employee of an Employer who became a Participant under the Plan and (1) who still has a balance in an Account under the Plan or (2) is entitled to an allocation of a contribution pursuant to section 7.5(b). I-12 1.54 "Plan" shall mean the PSS World Medical, Inc. Savings Plan as herein set forth, as it may be amended from time to time. 1.55 "Plan Administrator" shall mean the Company. 1.56 "Plan Year" shall mean the 12-month period ending on March 31st of each year. 1.57 "Pooled Investment Fund" shall mean a Fund established under Article XI, the combined assets of which shall consist of the common investments of all Participants selecting the Fund. 1.58 "PSS ESOP" shall mean the PSS World Medical, Inc. Employee Stock Ownership Plan (formerly known as the TriStar Imaging Systems, Inc. Employee Stock Ownership and Savings Plan), as maintained by the Employers prior to its merger into this Plan effective as of August 1, 1999. 1.59 "PSS/Taylor Plan" shall mean the PSS/Taylor Medical Profit Sharing 401(k) Plan, as maintained by the Employers prior to its merger into this Plan effective as of April 21, 2000. 1.60 "Qualified Matching Contribution" shall mean a Matching Contribution pursuant to section 6.3(a)(1) by an Employer on behalf of a Participant. 1.61 "Qualified Matching Contributions Account" shall mean an account established pursuant to section 7.2 with respect to Qualified Matching Contributions made pursuant to sections 6.3(a)(1). A Participant's Qualified Matching Contributions Account shall also include amounts previously credited to the Participant's "Post-1998 ESOP Matching Contribution Account" in this Plan under the terms of this Plan as in effect immediately before this Amendment and Restatement. 1.62 "Qualified Non-Elective Contributions Account" shall mean an account established pursuant to section 7.2 with respect to Non-Elective Contributions made pursuant to section 6.5 (and its predecessor provisions). 1.63 "Rollover Contribution" shall mean a contribution pursuant to section 6.9 by an Employer on behalf of an Employee. 1.64 "Rollover/Merger Account" shall mean an account established pursuant to section 7.2 with respect to qualified Rollover Contributions made pursuant to section 6.9. A Participant's Rollover/Merger Account shall also be credited with amounts previously credited to the "Rollover/Merger Account" in this Plan under the terms of this Plan as in effect immediately before this Amendment and Restatement, including amounts previously credited to, I-13 (a) the Brown's Medical Supply Co. Retirement Savings Plan and the Y-Laboratories & Supplies, Inc. 401(k) Retirement Plan prior to the merger of the Brown's Medical Supply Co. Retirement Savings Plan and the Y-Laboratories & Supplies, Inc. 401(k) Retirement Plan with this Plan effective as of January 1, 1997 and October 1, 1997, respectively (other than salary reduction contributions and adjustments attributable thereto), (b) the PSS ESOP prior to its merger with this Plan as of August 1, 1999 (other than amounts attributable to the "Elective Contribution Account" and the "ESOP Contribution Account" in the PSS ESOP), (c) the PSS/Taylor Plan prior to its merger with this Plan as of April 21, 2000 (other than salary reduction contributions and adjustments thereto), and (d) the National Med Supply Plan prior to its merger with this Plan as of August 1, 2001 or as soon thereafter as practicable (other than salary deferral contributions and adjustments thereto). 1.65 "Section 415 Compensation" shall mean: (a) Wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer to the extent that the amounts are includible in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Section 1.62-2(c) of the Income Tax Regulations), and (1) any elective deferral (as defined in Section 402(g)(3) of the Code), (2) any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includible in the gross income of the Employee by reason of Section 125 or 457 of the Code, and (3) effective for Plan Years beginning on and after January 1, 2001, elective amounts that are not includable in the gross income of the Employee by reason on Section 132(f)(4) of the Code. (b) Section 415 Compensation shall exclude the following: I-14 (1) Employer contributions (except as set forth in section 1.65(a) above) to a plan of deferred compensation which are not includible in the Employee's gross income for the taxable year in which contributed, or Employer contributions (except as set forth in section 1.65(a) above) under a simplified employee pension or any distributions from a plan of deferred compensation; provided, however, that any amounts received by an Employee pursuant to an unfunded non-qualified plan are permitted to be considered as Section 415 Compensation in the year the amounts are includible in the gross income of the Employee; (2) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; and (3) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option. 1.66 "Segregated Investment Fund" shall mean a Fund established under Article XI, in which the assets of each Participant selecting the Fund shall be separately invested, and for which the earnings attributable to such assets shall be separately accounted. 1.67 "Top Heavy Plan" shall mean this Plan if the aggregate account balances (not including Additional Elective Deferral Contributions to this Plan, any other contributions subject to Section 414(v) of the Code, and voluntary rollover contributions made by any Participant from an unrelated plan) of the Key Employees and their beneficiaries for such Plan Year exceed 60% of the aggregate account balances (not including voluntary rollover contributions made by any Participant from an unrelated plan) for all Participants and their beneficiaries. Such values shall be determined for any Plan Year as of the last day of the immediately preceding Plan Year. The account balances on any determination date shall include the aggregate distributions made with respect to Participants during the one-year period ending on the determination date (or, in the case of a distribution made for a reason other than separation form service, death or disability, the "one-year period" shall be replaced with a "five-year period"). For the purposes of this definition, the aggregate account balances for any Plan Year shall include the account balances and accrued benefits of all retirement plans qualified under Section 401(a) of the Code with which this Plan is required to be aggregated to meet the requirements of Section 416(g)(2) of the Code (including terminated plans that would have been required to be aggregated with this Plan) and all plans of an Employer or an Affiliate in which a Key Employee participates; and such term may include (at the discretion of the Plan Administrator) any other retirement plan qualified under Section 401(a) of the Code that is maintained by an Employer or an Affiliate, provided the resulting aggregation group satisfies the requirements of Sections 401(a) and 410 of the Code. All calculations shall be on the basis of actuarial assumptions that are specified by the Plan Administrator and applied on a uniform basis to all plans in the applicable aggregation group. The account balance of any Participant shall not be taken into account if he has not performed any service for an Employer during the one-year period ending on the determination date. I-15 1.68 "Trust" shall mean the trust established by the Agreement and Declaration of Trust. 1.69 "Trustee" shall mean The Chase Manhattan Bank or any successor individual, individuals or corporation designated as trustee under the Agreement and Declaration of Trust. 1.70 "Trust Fund" or "Trust Funds" shall mean the trust fund established under the Agreement and Declaration of Trust between the Company and the Trustee from which the amounts of supplementary compensation provided for by the Plan are to be paid or are to be funded. 1.71 "Valuation Date" shall mean the last day of each Plan Year, or such other dates as may be selected by the Plan Administrator. In the event that the Plan Administrator designates each business day as a Valuation Date, the term "business day" shall mean a day on which the New York Stock Exchange and the home office of any third-party administrator that contracts with the Plan Administrator to provide services to the Plan are open for business. 1.72 "Valuation Period" shall mean the period beginning with the first day after a Valuation Date and ending with the next Valuation Date. 1.73 "Year of Service" (a) The term "Year of Service" shall mean a Plan Year during which an Employee completes 1,000 or more Hours of Service. (b) For purposes of Article VIII and section 14.1(e), an Employee's "Years of Service" shall not include the following: (1) any Year of Service prior to a Break in Service, but only prior to such time as the Participant has completed a Year of Service after such Break in Service; and (2) any Year of Service prior to a Break in Service if the Participant had no vested interest in the balance of his Employer Contributions Account at the time of such Break in Service and if the number of consecutive years in which a Break in Service occurred equaled or exceeded the greater of five or the number of Years of Service completed by the Employee prior thereto (not including any Years of Service not required to be taken into consideration under the Plan as then in effect as a result of any prior Break in Service); provided, however, that for these purposes, any Break in Service resulting from a Leave of Absence shall not be counted but shall be disregarded. I-16 (c) For each Employee who was employed by Gulf South Medical Supply, Inc. (or was employed by any subsidiary of Gulf South Medical Supply, Inc.) on March 26, 1998, such Employee's "Years of Service" shall include, for all purposes of the Plan, service with Gulf South Medical Supply, Inc. and each of its subsidiaries. I-17 II-1 ARTICLE II Amendment and Restatement of the Plan The PSS World Medical, Inc. Employee Stock Ownership and Savings Plan is hereby amended and restated, in its entirety, in accordance with the terms hereof, effective April 1, 2002. Effective on such date, the Plan shall cease to be an Employee Stock Ownership Plan, and shall be known as the "PSS World Medical, Inc. Savings Plan." II-1 III-1 ARTICLE III Purpose of the Plan and the Trust 3.1 Exclusive Benefit. This Plan is created for the sole purpose of providing benefits to the Participants and enabling them to share in the growth of their Employer. Except as otherwise provided herein and as otherwise permitted by law, in no event shall any part of the principal or income of the Trust be paid to or reinvested in any Employer or be used for or diverted to any purpose whatsoever other than for the exclusive benefit of the Participants and their beneficiaries. 3.2 Return of Contributions. Notwithstanding the foregoing provisions of section 3.1, any contribution made by an Employer to this Plan by a mistake of fact may be returned to the Employer within one year after the payment of the contribution; and any contribution made by an Employer that is conditioned upon the deductibility of the contribution under Section 404 of the Code (each contribution shall be presumed to be so conditioned unless the Employer specifies otherwise) may be returned to the Employer if the deduction is disallowed and the contribution is returned (to the extent disallowed) within one year after the disallowance of the deduction. 3.3 Participants' Rights. The establishment of this Plan shall not be considered as giving any Employee, or any other person, any legal or equitable right against any Employer, any Affiliate, the Plan Administrator, the Trustee, or the principal or the income of the Trust, except to the extent otherwise provided by law. The establishment of this Plan shall not be considered as giving any Employee, or any other person, the right to be retained in the employ of any Employer or any Affiliate. 3.4 Qualified Plan. This Plan and the Trust are intended to qualify under the Code as a tax-free employees' plan and trust, and as a cash or deferred arrangement subject to Section 401(k) of the Code with respect to Elective Contributions. The provisions of this Plan and the Trust should be interpreted accordingly. III-1 IV-3 ARTICLE IV Plan Administrator 4.1 Administration of the Plan. The Plan Administrator shall control and manage the operation and administration of the Plan, except with respect to investments. The Administrator shall have no duty with respect to the investments to be made of the funds in the Trust except as may be expressly assigned to it by the terms of the Agreement and Declaration of Trust. 4.2 Powers and Duties. The Administrator shall have complete control over the administration of the Plan herein embodied, with all powers necessary to enable it to carry out its duties in that respect. Not in limitation, but in amplification of the foregoing, the Administrator shall have the power and discretion to interpret or construe this Plan and to determine all questions that may arise as to the status and rights of the Participants and others hereunder. 4.3 Direction of Trustee. It shall be the duty of the Administrator to direct the Trustee with regard to the allocation and the distribution of the benefits to the Participants and others hereunder. 4.4 Summary Plan Description. The Administrator shall prepare or cause to be prepared a Summary Plan Description (if required by law) and such periodic and annual reports as are required by law. 4.5 Disclosure. At least once each year, the Administrator shall furnish to each Participant a statement containing the value of his interest in the Trust Fund and such other information as may be required by law. 4.6 Conflict in Terms. The Administrator shall notify each Employee, in writing, as to the existence of the Plan and Trust and the basic provisions thereof. In the event of any conflict between the terms of this Plan and Trust as set forth in this Plan and in the Agreement and Declaration of Trust and as set forth in any explanatory booklet or other description, this Plan and the Agreement and Declaration of Trust shall control. 4.7 Nondiscrimination. The Administrator shall not take any action or direct the Trustee to take any action whatsoever that would result in unfairly benefiting one Participant or group of Participants at the expense of another or in improperly discriminating between Participants similarly situated or in the application of different rules to substantially similar sets of facts. 4.8 Records. The Administrator shall keep a complete record of all its proceedings as such Administrator and all data necessary for the administration of the Plan. All of the foregoing records and data shall be located at the principal office of the Administrator. IV-1 4.9 Final Authority. Except to the extent otherwise required by law, the decision of the Administrator in matters within its jurisdiction shall be final, binding and conclusive upon each Employer and each Employee, member and beneficiary and every other interested or concerned person or party. 4.10 Claims. (a) Claims for benefits under the Plan may be made by a Participant or a beneficiary of a Participant on forms supplied by the Plan Administrator. Written notice of the disposition of a claim shall be furnished to the claimant by the Administrator within ninety (90) days after the application is filed with the Administrator, unless special circumstances require an extension of time for processing, in which event action shall be taken as soon as possible, but not later than one hundred eighty (180) days after the application is filed with the Administrator; and, in the event that no action has been taken within such ninety (90) or one hundred eighty (180) day period, the claim shall be deemed to be denied for the purposes of section 4.10(b). In the event that the claim is denied, the denial shall be written in a manner calculated to be understood by the claimant and shall include the specific reasons for the denial, specific references to pertinent Plan provisions on which the denial is based, a description of the material information, if any, necessary for the claimant to perfect the claim, an explanation of why such material information is necessary and an explanation of the claim review procedure. (b) If a claim is denied (either in the form of a written denial or by the failure of the Plan Administrator, within the required time period, to notify the claimant of the action taken), a claimant or his duly authorized representative shall have sixty (60) days after the receipt of such denial to petition the Plan Administrator in writing for a full and fair review of the denial, during which time the claimant or his duly authorized representative shall have the right to review pertinent documents and to submit issues and comments in writing. The Plan Administrator shall promptly review the claim and shall make a decision not later than sixty (60) days after receipt of the request for review, unless special circumstances require an extension of time for processing, in which event a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after the receipt of the request for review. If such an extension is required because of special circumstances, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. The decision of the review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, with specific references to the Plan provisions on which the decision is based. IV-2 4.11 Appointment of Advisors. The Administrator may appoint such accountants, counsel (who may be counsel for an Employer), specialists and other persons that it deems necessary and desirable in connection with the administration of this Plan. The Administrator, by action of its Board of Directors, may designate one or more of its employees to perform the duties required of the Administrator hereunder. IV-3 ARTICLE V Eligibility and Participation 5.1 Current Participants. Any Employee who was a Participant in this Plan on the Effective Date of this Amendment and Restatement shall remain as a Participant in the Plan. 5.2 Eligibility and Participation. (a) Thereafter, any Employee of an Employer shall be eligible to become a Participant in the Plan upon completing six (6) months of employment following his employment commencement date. Any such eligible Employee shall enter the Plan as a Participant, if he is still an Employee of an Employer, on the first Eligibility Date concurring therewith or occurring thereafter. An Employee who has completed six (6) months of employment prior to becoming an Employee of an Employer shall enter the Plan as a Participant on the date he becomes an Employee of an Employer (or, if later, on the first Eligibility Date following the completion of his eligibility requirements). For purposes of computing an Employee's six month eligibility period for this section 5.2, (1) each Employee who commences employment on the first day of a month shall complete six months of employment if he remains employed until the last day of the fifth month following the month of his date of employment commencement; and (2) each Employee who commences employment on the 30th or 31st day of a month shall complete six months of employment if he remains employed until the last day of the sixth month following the month of the date of his employment commencement. (b) For each Employee previously employed by a business acquired by an Employer on or after October 1, 1993 (directly or through the Employer's purchase of all or substantially all of the assets of the business), the months of employment taken into account, for purposes of the six (6) month eligibility requirement set forth in section 5.2(a), shall include service with the Employee's predecessor employer if: (1) the Employee was employed by the business on the date it was acquired by the Employer; and (2) (A) for acquisitions occurring before January 1, 1999, the Employee's predecessor employer employed not less than thirty (30) employees on the date it was acquired by the Employer, and (B) for acquisitions occurring on or after January 1, 1999, the Employee's predecessor employer employed not less than twenty (20) employees on the date it was acquired by the Employer. V-1 5.3 Former Employees. An Employee who ceases to be a Participant and who subsequently reenters the employ of an Employer shall be eligible again to become a Participant on the date of his reemployment. V-2 ARTICLE VI Contributions to the Trust 6.1 Participants' Elective Contributions. (a) Effective January 18, 2002, each Employer shall contribute to the Trust, on behalf of each Participant, an Elective Contribution as a specified percentage of the Participant's Compensation in a salary reduction agreement (if any) between the Participant and such Employer under which the Participant elects, pursuant to the terms of this Plan, to reduce the Compensation otherwise payable to him by an amount allocable to his Elective Contributions Account; provided, however, that each Participant who has elected prior to January 18, 2002 to reduce the Compensation otherwise payable to him by a specified dollar amount and who does not affirmatively elect to have a specific percentage of his Compensation contributed to the Plan as an Elective Contribution, shall be deemed to have elected to defer one (1) percent of his Compensation to the Plan as an Elective Contribution. (b) No Participant shall be permitted to have Elective Contributions made under this Plan in excess of the lesser of the dollar limitation established by Section 402(g) of the Code (and subject to cost-of-living adjustments as required by Section 402(g)(4) of the Code) in effect for any calendar year, or 85% of the Participant's Compensation for the Plan Year. The minimum contribution made on behalf of a Participant electing to make an Elective Contribution pursuant to this section 6.1 for any Plan Year shall be 1% of his Compensation. (c) (1) If a Participant's Elective Contributions made pursuant to section 6.1(a), together with any elective contributions by the Participant to any other plans of his Employer or an Affiliate intended to qualify under Sections 401(k) or 403(b) of the Code, exceed the dollar limitation established by Section 402(g) of the Code (and subject to cost-of-living adjustments as required by Section 402(g)(4) of the Code) for any calendar year, the Administrator, upon notification from the Participant or his Employer, shall refund to such Participant the portion of such excess that is attributable to contributions made pursuant to section 6.1(a), increased by the earnings thereon for such calendar year (such earnings shall be determined by the Plan Administrator, as of the last day of the calendar year preceding the date the refund is made, in a manner consistent with the provisions of section 7.5(a) and Treasury Regulation Section 1.402(g)-1(e)(5) (or any successor regulatory provision)) and reduced by any excess Elective Contributions, and earnings, for the Plan Year beginning with or within the calendar year that have been previously distributed to the Participant in accordance with the provisions of section 6.1(h). Any such refund shall be made on or before April 15 of the calendar year following the calendar year in which the excess Elective Contributions are made. VI-1 (2) If a Participant's Elective Contributions made pursuant to section 6.1(a), together with any elective contributions by the Participant to any other plans intended to qualify under Sections 401(k), 403(b), 408(k) or 457 of the Code, exceed the dollar limitation established by Section 402(g) of the Code (and subject to cost-of-living adjustments as required by Section 402(g)(4) of the Code) for any calendar year (after the application of section 6.1(c)(1)), the Administrator may refund to such Participant, at the Participant's request, the portion of such excess that is attributable to contributions made pursuant to section 6.1(a) increased by the earnings thereon for such calendar year (determined as provided in section 6.1(c)(1)) and reduced by any excess Elective Contributions, and earnings, for the Plan Year beginning with or within the calendar year that have been previously distributed to the Participant in accordance with the provisions of section 6.1(h). Any such refund shall be made on or before April 15 of the calendar year following the calendar year in which the excess Elective Contributions are made. (3) Excess Elective Contributions, and earnings, shall be determined for purposes of sections 6.1(b), 6.1(c)(1) and 6.1(c)(2) after taking into account any previous refunds to the Participant of excess Elective Contributions, and earnings, for the Plan Year ending with or within the calendar year made in accordance with the provisions of section 6.1(h). (d) Any salary reduction agreement with respect to Elective Contributions shall be executed (or otherwise communicated to the Plan Administrator in a manner selected by the Administrator) and in effect prior to the date selected by the Administrator for the first pay period to which it applies. Any such agreement may be revised by the Participant monthly with the approval of, and as of such date as determined by, the Administrator (or as of any additional dates selected by the Administrator), for pay periods beginning after the date such revision is executed and made effective. The Plan Administrator shall not accept any salary reduction agreement with respect to (or to the extent applicable to) bonuses payable to the Participant. (e) The Administrator shall have the right to require any Participant to reduce his Elective Contributions under any such agreements, or to refuse deferral of all or part of the amount set forth in such agreements, if necessary to comply with the requirements of this Plan and the Code. (f) A Participant may suspend further Elective Contributions to the Plan at any time, provided the request for such suspension is received by the Plan Administrator prior to the date selected by the Administrator for the first pay period to which such VI-2 suspension applies. Any Participant who suspends further contributions relating to periodic pay may reinstate such contributions by providing written notice to the Plan Administrator (or other communication in a manner selected by the Administrator) for any month thereafter (and as of the date within such month as determined by the Administrator). Any such notice shall be delivered within the time period designated by the Plan Administrator. (g) In the event that a Participant receives a withdrawal of his Elective Contributions pursuant to section 10.1, the Participant shall not be permitted to make any further Elective Contributions pursuant to section 6.1(a) for a period of 6 months following the date of such withdrawal. After the completion of the 6-month period, the Participant may reinstate Elective Contributions in accordance with the provisions of section 6.1(f). Additionally, a Participant who receives a hardship withdrawal on or after January 1, 2001, shall not have the amount of his Elective Contributions made in the calendar year following the calendar year in which he received the hardship withdrawal reduced by the amount of Elective Contributions made in the calendar year in which he received the hardship withdrawal. (h) (1) In the event that the Elective Contributions of Highly Compensated Employees exceed the limitations set forth in section 6.7, the aggregate excess Elective Contributions (plus the earnings thereon for the Plan Year to which the excess contributions relate), determined as set forth in section 6.1(h)(2) below, shall be distributed to the Highly Compensated Employees as provided in section 6.1(h)(3) below on or before the 15th day of the third month after the close of the Plan Year to which the excess contributions relate. Notwithstanding the preceding sentence, the Plan Administrator may delay the distribution of any excess Elective Contributions (plus the earnings thereon for the Plan Year to which the excess contributions relate) attributable to an Employer beyond the 15th day of the third month of such Plan Year, if the Employer consents to such delay and the Administrator refunds all such excess amounts not later than 12 months after the close of the Plan Year to which the excess contributions relate. (2) For purposes of section 6.1(h)(1), the amount of the aggregate excess Elective Contributions for the Plan Year shall be equal to the sum of the amounts of such excess contributions attributable to each Highly Compensated Employee for the Plan Year. (A) In order to determine the amount of the excess Elective Contributions attributable to each Highly Compensated Employee, the Plan Administrator shall first reduce the Actual Deferral Ratio of the Highly Compensated Employee with the highest Actual Deferral Ratio for the Plan Year to the extent required to: VI-3 (i) enable the arrangement to satisfy the limitations set forth in section 6.7, or (ii) cause such Highly Compensated Employee's Actual Deferral Ratio to equal the Actual Deferral Ratio of the Highly Compensated Employee with the next highest Actual Deferral Ratio. Then, if necessary, the Plan Administrator shall reduce the Actual Deferral Ratios of the Highly Compensated Employees with the next highest Actual Deferral Ratio for the Plan Year (including the Actual Deferral Ratio(s) of the Highly Compensated Employee(s) whose Actual Deferral Ratio the Plan Administrator already has reduced) to the extent required to comply with section 6.1(h)(2)(A)(i) or 6.1(h)(2)(A)(ii). This process shall then be repeated until the Actual Deferral Percentage for the Highly Compensated Employees satisfies the limitations set forth in section 6.7. (B) The amount of the excess Elective Contributions that are attributable to each Highly Compensated Employee shall equal the remainder of (i) the total Elective Contributions (and any Non-Elective Contributions treated as Elective Contributions on behalf of the Participant (determined prior to the application of this section 6.1(h)(2)), minus (ii) the amount determined by multiplying the Participant's Actual Deferral Ratio (determined after application of section 6.1(h)(2)(A)) by his Compensation used in determining such ratio. (3) In order to determine the dollar amount of the excess Elective Contributions distributable to each Highly Compensated Employee pursuant to section 6.1(h)(1), the Plan Administrator shall first reduce the Elective Contributions of the Highly Compensated Employee(s) with the highest dollar amount of Elective Contributions for the Plan Year by a dollar amount equal to the lesser of (A) the aggregate excess Elective Contributions determined under section 6.1(h)(2), or VI-4 (B) the dollar amount necessary to reduce such Highly Compensated Employee's Elective Contributions to a dollar amount that is equal to the dollar amount of Elective Contributions of the Highly Compensated Employee with the next highest dollar amount of such Elective Contributions. Then, if necessary, the Plan Administrator shall reduce the Elective Contributions of the Highly Compensated Employees with the next highest dollar amount of such Elective Contributions for the Plan Year (including the Highly Compensated Employee(s) whose Elective Contributions the Plan Administrator already has reduced) to the extent required to comply with section 6.1(h)(2). This process shall then be repeated until the aggregate excess Elective Contributions and determined under section 6.1(h)(2) or 6.1(h)(3)(B) have been eliminated. The reduced amounts shall be distributed in accordance with section 6.1(h)(1) to the Highly Compensated Employees to whom the reductions are attributable under this section 6.1(h)(3). For purposes of this section 6.1(h)(3), Elective Contributions shall include amounts treated as elective contributions. (4) The amount of excess Elective Contributions that may be distributed under this section 6.1(h) with respect to a Participant for a Plan Year shall be reduced by any excess deferrals previously distributed to such Participant under section 6.1(c) for the Participant's taxable year ending with or within such Plan Year. (5) The Plan Administrator may use any reasonable method for computing the income allocable to excess contributions, provided that the method does not violate Section 401(a)(4) of the Code, is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to Participants' Accounts. 6.2 Additional Elective Deferral Contributions. Effective January 1, 2002, each Employer shall contribute to the Trust, on behalf of each eligible Participant, an Additional Elective Deferral Contribution as specified in a salary reduction agreement (if any) between the Participant and such Employer under which the Participant elects, pursuant to the terms of this Plan, to reduce the Compensation otherwise payable to him by an Additional Elective Deferral Contribution amount allocable to his Elective Contributions Account. No Participant shall be permitted to have an Additional Elective Deferral Contribution made under this Plan for any Plan Year unless he will have attained age 50 before the close of the Plan Year and he has taken all actions necessary to maximize the Elective Contributions allocable to his Elective Contributions Account for the Plan Year pursuant to section 6.1. No Participant shall be permitted to have Additional Elective Deferral Contributions made under this Plan in excess of the lesser of VI-5 (a) the applicable dollar amount, as defined in Sections 414(v)(2)(B)(i) and 414(v)(2)(C) of the Code; (b) the excess (if any) of (i) the Participant's Compensation for the calendar year, over (ii) the Elective Contributions made on behalf of the Participant for the calendar year pursuant to section 6.1; and (c) the excess (if any) of (i) 85% of the Participant's Compensation for the Plan Year, over (ii) the Elective Contributions made on behalf of the Participant for such Plan Year pursuant to section 6.1. Each Participant's Additional Elective Deferral Contribution shall be made in accordance with, and subject to the limitations of, Section 414(v) of the Code. Unless otherwise required by Section 414(v) of the Code, such Additional Elective Deferral Contribution shall not be taken into account for purposes of the provisions of this Plan implementing the requirements of Sections 401(a)(4), 401(k)(3), 401(k)(12), 402(g), 410(b), 415, or 416 of the Code, as applicable, by reason of making such contributions. Additional Elective Deferral Contributions shall not be taken into account for purposes of computing Qualified Matching Contributions and/or Matching Contributions. 6.3 Matching Contributions and Qualified Matching Contributions. (a) (1) (A) Each Employer, at the discretion of the Board of Directors of the Company, may contribute to the Trust a Qualified Matching Contribution in cash or Employer Securities on behalf of each eligible Participant (as determined pursuant to section 6.3(b)) for whom an Elective Contribution is made to the Plan for the Matching Contributions Allocation Period. The amount of the Qualified Matching Contribution made pursuant to this Section 6.3(a)(1), if any, shall be determined by the Board of Directors for the Company. The amount allocable to a Participant eligible to share in the Qualified Matching Contribution under this section 6.3(a)(1) for the Matching Contributions Allocation Period shall be (i) the amount that shall bear the same ratio to the total of such contribution for the Matching Contributions Allocation Period (ii) as the Participant's Recognized Elective Contribution for the Matching Contributions Allocation Period bears to the aggregate Recognized Elective Contributions of all Participants employed by the Employers who are eligible to share in the contribution for such Matching Contributions Allocation Period. VI-6 (B) In the event that Qualified Matching Contributions are made pursuant to this section 6.3(a)(1) for Matching Contributions Allocation Periods other than annual contribution periods during the Plan Year and the Participant's aggregate Elective Contributions for the Plan Year would have entitled the Participant to greater aggregate Qualified Matching Contributions under an annual Matching Contribution Allocation Period than were made on behalf of the Participant for the Plan Year under the Matching Contribution Allocation Periods selected by the Board of Directors (or otherwise required by the Plan), then, for the final Matching Contribution Allocation Period during the Plan Year, the Participant's Employer, at the discretion of the Board of Directors of the Company, may contribute to the Trust on behalf of the Participant an additional Qualified Matching Contribution, the amount of which (when added to the Participant's Qualified Matching Contribution for the final Matching Contribution Allocation Period during the Plan Year) shall cause the Participant's aggregate Qualified Matching Contributions for the Plan Year to equal a percentage of his Recognized Elective Contributions for the Plan Year that is equal to the percentage of Recognized Elective Contributions for the final Matching Contribution Allocation Period for the Plan Year that the Company elected to make on behalf of each eligible Participant for whom an Elective Contribution is made to the Plan for the final Matching Contributions Allocation Period. (2) (A) Each Employer, at the discretion of the Board of Directors of the Company, may contribute to the Trust a Matching Contribution in cash or Employer Securities on behalf of each eligible Participant (as determined pursuant to section 6.3(b)) for whom an Elective Contribution is made to the Plan for the Matching Contributions Allocation Period. The amount of the Matching Contribution made pursuant to this section 6.3(a)(2), if any, shall be determined by the Board of Directors of the Company. The amount allocable to a Participant eligible to share in the Matching Contribution for the Matching Contributions Allocation Period shall be (i) the amount that shall bear the same ratio to the total of such contribution for the Matching Contributions Allocation Period (ii) as the Participant's Recognized Elective Contribution for such Matching Contributions Allocation Period bears to the aggregate Recognized Elective Contributions of all Participants employed by such Employer who are eligible to share in the contribution for such Matching Contributions Allocation Period. (B) In the event that Matching Contributions are made pursuant to this section 6.3(a)(2) for Matching Contributions Allocation Periods other than annual contribution periods during the Plan Year and the Participant's aggregate Elective Contributions for the Plan Year would have entitled the Participant to greater aggregate Matching Contributions under an annual Matching Contribution Allocation Period than were made on behalf of the Participant for the Plan Year under the Matching Contribution Allocation Periods selected by the Board of Directors (or otherwise required by the Plan), then, for the final Matching Contribution Allocation Period during the Plan Year, the Participant's Employer, at the discretion of the Board of Directors of the Company, may contribute to the Trust on behalf of the Participant an additional Matching Contribution, the amount of which (when added to the Participant's Matching Contribution for the final Matching Contribution Allocation Period during the Plan Year) shall cause the Participant's aggregate Matching Contributions for the Plan Year to equal a percentage of his Recognized Elective Contributions for the Plan Year that is equal to the percentage of Recognized Elective Contributions for the final Matching Contribution Allocation Period for the Plan Year that the Company elected to make on behalf of each eligible Participant for whom an Elective Contribution is made to the Plan for the final Matching Contributions Allocation Period. (3) For purposes of sections 6.3(a)(1) and 6.3(a)(2), a Participant's Recognized Elective Contribution for each Plan Year or Matching Contributions Allocation Period (as the case may be) shall be equal to (A) the aggregate amount of his Elective Contribution made to the Plan pursuant to section 6.1(a) (after consideration of the refund requirements of sections 6.1(c) and 6.1(h)), (B) reduced by any portion of his Elective Contribution in excess of a specified percentage of each Participant's Compensation and/or a specified maximum dollar amount, as determined by the Board of Directors of the Company for the Matching Contributions Allocation Period and applied consistently to each Participant. VI-7 (b) (1) Except as otherwise provided in this section 6.3(b), a Participant shall be eligible to share in the Qualified Matching Contributions, described in section 6.3(a)(1), for a Matching Contributions Allocation Period if he is employed by his Employer on the last day of such Matching Contributions Allocation Period (or if his employment is terminated by his retirement, disability [as defined in section 8.2(b)] or death). (2) Except as otherwise provided in this section 6.3(b), a Participant shall be eligible to share in the Matching Contributions, described in section 6.3(a)(2), for a Matching Contributions Allocation Period if he is employed by his Employer on the last day of such Matching Contributions Allocation Period (or if his employment is terminated by his retirement, disability [as defined in section 8.2(b)] or other death). (3) In the event that the eligibility requirements set forth in section 6.3(b)(1) or (2) would cause this Plan to fail to meet the coverage requirements of this section 6.3(b)(3) for any Matching Contributions Allocation Period, a Participant shall also be entitled to share in the Qualified Matching Contribution pursuant to section 6.3(a)(1) or the Matching Contribution pursuant to section 6.3(a)(2) if he meets the requirements of section 6.3(b)(4). In order to meet the coverage requirements of this section 6.3(b)(3) for the Plan Year, the Plan's "ratio percentage" for the Matching Contributions Allocation Period shall be at least seventy percent (70%). For purposes of this section 6.3(b)(3), the Plan's "ratio percentage" shall mean the percentage (rounded to the nearest hundredth of a percentage point) determined by dividing the percentage of the Non-Highly Compensated Employees who benefit under the Plan by the percentage of the Highly Compensated Employees who benefit under the Plan. The percentage of the Non-Highly Compensated Employees who benefit under the Plan shall be determined by dividing the number of Non-Highly Compensated Employees who are Participants in the Plan and are entitled to share in Qualified Matching Contributions pursuant to section 6.3(a)(1) or Matching Contributions pursuant to section 6.3(a)(2) under the Plan by the total number of Non-Highly Compensated Employees who have met the eligibility and participation requirements of Article V. The percentage of the Highly Compensated Employees who benefit under the Plan shall be determined by dividing the number of Highly Compensated Employees who are Participants in the Plan and are entitled to share in Qualified Matching Contributions or Matching Contributions under the Plan by the total number of Highly Compensated Employees who have met the eligibility and participation requirements of Article V. The Plan's "ratio percentage" shall be determined as of the last day of the Matching Contributions Allocation Period taking into account all Employees who were Employees on any day during the Matching Contributions Allocation Period. VI-8 (4) If this Plan would otherwise fail to meet the coverage requirements of section 6.3(b)(3) for a Matching Contributions Allocation Period a Participant shall be entitled to share in the Qualified Matching Contributions section 6.3(a) or Matching Contributions pursuant to this section 6.3(b)(4) if: (A) he is a Non-Highly Compensated Employee; and (B) the allocation of a Qualified Matching Contribution or Matching Contribution to the Participant is required by this section 6.3(b)(4)(B). The number of Participants entitled to an allocation required by this section 6.3(b)(4)(B) (the "Required Number of Participants"), when added to the Non-Highly Compensated Employees who are eligible to receive an allocation pursuant to the provisions of section 6.3(b)(1) and (2), shall be equal to the minimum number of Non-Highly Compensated Employees who are required to be eligible for an Qualified Matching Contribution or Matching Contribution from the Plan during the Matching Contributions Allocation Period in order to meet the minimum coverage requirements of section 6.3(b)(3). An allocation is required by this section 6.3(b)(4)(B) if a Participant is among the Required Number of Participants paid the lowest Compensation by their Employers for the Matching Contributions Allocation Period (determined without regard to those Participants who are entitled to an allocation pursuant to section 6.3(b)(1) and (2) above). If two or more Participants would otherwise be determined to have been paid the same amount of Compensation by their Employers for the Matching Contributions Allocation Period, then the Participant who was first credited with an Hour of Service for his Employer or any Affiliate thereof shall be deemed to be paid the lowest Compensation of such two or more Participants and the Participant who was next credited with an Hour of Service for his Employer or any Affiliate thereof shall be deemed to be paid the next lowest Compensation and the process shall be repeated until the Plan Administrator has determined the Participants who are among the Required Number of Participants paid the lowest Compensation by their Employers for the Matching Contributions Allocation Period. (c) Except as noted in section 6.3(d), any Qualified Matching Contribution or Matching Contribution made by an Employer on account of an Elective Contribution that has been refunded pursuant to the terms of the Plan shall be forfeited. Unless otherwise required by section 8.3(d)(3) such forfeiture (together with any additional unallocated forfeitures) shall be used to first reduce Matching Contributions, and then, to the extent available, to reduce Qualified Matching Contributions. VI-9 (d) In the event that the Matching Contributions (together with Qualified Matching Contributions treated as matching contributions) of Highly Compensated Employees exceed the limitations of section 6.7: (1) The non-vested portion of such aggregate excess Matching Contributions (including earnings thereon for the Plan Year to which the excess contributions relate), if any, determined as set forth in section 6.3(d)(3) and (4) below, shall be forfeited and used or reallocated in a manner consistent with the requirements of section 6.3(c). (2) The aggregate excess Qualified Matching Contributions and the vested portion of the aggregate excess Matching Contributions (including, in each case, earnings thereon for the Plan Year to which the excess contributions relate), if any, determined as set forth in section 6.3(d)(3), shall be distributed to the Highly Compensated Employees as provided in section 6.3(d)(4) on or before the 15th day of the third month after the close of the Plan Year to which the Qualified Matching Contributions and Matching Contributions relate. Notwithstanding the preceding sentence, the Plan Administrator may delay the distribution of any excess Qualified Matching Contributions and Matching Contributions, (plus the earnings thereon for the Plan Year to which the excess contributions relate) attributable to an Employer beyond the 15th day of the third month of such Plan Year, if the Employer consents to such delay and the Administrator refunds all such excess amounts not later than 12 months after the close of the Plan Year to which the excess contributions relate. (3) For purposes of sections 6.3(d)(1) and (2), the amount of the aggregate excess Qualified Matching Contributions and Matching Contributions for the Plan Year shall be equal to the sum of the amounts of such excess contributions attributable to each Highly Compensated Employee for the Plan Year. (A) In order to determine the amount of the excess Qualified Matching Contributions and Matching Contributions attributable to each Highly Compensated Employee, the Plan Administrator shall first reduce the Actual Contribution Ratio of the Highly Compensated Employee with the highest Actual Contribution Ratio for the Plan Year to the extent required to: (i) enable the arrangement to satisfy the limitations set forth in section 6.7 or VI-10 (ii) cause such Highly Compensated Employee's Actual Contribution Ratio to equal the Actual Contribution Ratio of the Highly Compensated Employee with the next highest Actual Contribution Ratio. Then, if necessary, the Plan Administrator shall reduce the Actual Contribution Ratios of the Highly Compensated Employees with the next highest Actual Contribution Ratio for the Plan Year (including the Actual Contribution Ratio(s) of the Highly Compensated Employee(s) whose Actual Contribution Ratio the Plan Administrator already has reduced) to the extent required to comply with section 6.3(d)(3)(A)(i) or 6.3(d)(3)(A)(ii). This process shall then be repeated until the Actual Contribution Percentage for the Highly Compensated Employees satisfies the limitations set forth in section 6.7. (B) The amount of the excess Qualified Matching Contributions and Matching Contributions attributable to each Highly Compensated Employee shall equal the remainder of (i) the total Qualified Matching Contributions and Matching Contributions, (and Non-Elective Contributions treated as Matching Contributions) on behalf of the Participant (determined prior to the application of this section 6.3(d)(3)), minus (ii) the amount determined by multiplying the Participant's Actual Contribution Ratio (determined after application of section 6.3(d)(3)(A)) by his Compensation used in determining such ratio. (C) In determining the amount of the excess Qualified Matching Contributions and Matching Contributions, Actual Contribution Ratios shall be rounded to the nearest one-hundredth of one percent of the Employee's Compensation. In no case shall the amount of such excess with respect to any Highly Compensated Employee exceed the amount of Qualified Matching Contributions and Matching Contributions on behalf of such Highly Compensated Employee for such Plan Year. (4) In order to determine the dollar amount of the excess Qualified Matching Contributions and Matching Contributions forfeitable with respect to, and distributable to, each Highly Compensated Employee pursuant to sections 6.3(d)(1) and (2), the Plan Administrator shall first reduce the Qualified Matching Contributions and Matching Contributions of the Highly Compensated Employee(s) with the highest dollar amount of Qualified Matching Contributions and Matching Contributions for the Plan Year by a dollar amount equal to the lesser of VI-11 (A) the aggregate excess Qualified Matching Contributions and Matching Contributions, determined under section 6.3(d)(3), or (B) the dollar amount necessary to reduce such Highly Compensated Employee's Qualified Matching Contributions and Matching Contributions, to a dollar amount that is equal to the dollar amount of Qualified Matching Contributions and Matching Contributions of the Highly Compensated Employee with the next highest dollar amount of Qualified Matching Contributions and Matching Contributions. Then, if necessary, the Plan Administrator shall reduce the Qualified Matching Contributions and Matching Contributions of the Highly Compensated Employees with the next highest dollar amount of Qualified Matching Contributions and Matching Contributions for the Plan Year (including the Highly Compensated Employee(s) whose Qualified Matching Contributions and Matching Contributions the Plan Administrator already has reduced) to the extent required to comply with sections 6.3(d)(4)(A) or 6.3(d)(4)(B). This process shall then be repeated until the aggregate excess Qualified Matching Contributions and Matching Contributions determined under section 6.3(d)(3) have been eliminated. The reduced amounts to be determined for each Highly Compensated Employee shall first be deemed to be Qualified Matching Contributions and then be deemed to be Matching Contributions. The reduced amounts shall be forfeited and/or distributed in accordance with sections 6.3(d)(1) and (2) to the Highly Compensated Employees to whom the reductions are attributable under this section 6.3(d)(4). For purposes of this subparagraph, Qualified Matching Contributions and Matching Contributions shall include amounts treated as Matching Contributions. (5) The Plan Administrator may use any reasonable method for computing the income allocable to excess contributions, provided that the method does not violate Section 401(a)(4) of the Code, is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to Participants' Accounts. 6.4 Employer Discretionary Contributions. An Employer may make Employer Discretionary Contributions in the form of cash or Employer Securities to the Employer Contributions Accounts of Participants who are employed by their Employer on the last day of the Plan Year (or whose employment is terminated by retirement, disability [as defined in section 8.2(b)] or death). The amount, if any, to be contributed to the Trust by an Employer as an Employer Discretionary Contribution for each Plan Year shall be determined by the Board of Directors of the Company. VI-12 6.5 Non-Elective Contributions. An Employer, at the discretion of the Board of Directors of the Company, may make Non-Elective Contributions in the form of cash or Employer Securities to the Qualified Non-Elective Contributions Accounts of eligible Participants, as described in section 7.4(b)(7). 6.6 Limitations on Contributions and Forfeitures. It is the present intention of each Employer to make recurring and substantial contributions to the Trust for each Plan Year, but in no event shall such contribution for any corresponding taxable year of an Employer exceed the maximum amount deductible from the Employer's income for such taxable year under Section 404(a) of the Code. If the Employers are not treated as separate lines of business under Section 414(r) of the Code, the discretionary contributions made by each Employer, including any amounts forfeited and allocated as such contributions, shall be allocated among Participants without regard to each Participant's employment relationship with a particular Employer, as required by section 7.4(b) (but subject to any other applicable requirements, as set forth herein). 6.7 Limitations on Elective Contributions, Qualified Matching Contributions and Matching Contributions. The amounts contributed as Elective Contributions, Qualified Matching Contributions, and Matching Contributions shall be limited as follows: (a) The Actual Deferral Percentage for the group of eligible Highly Compensated Employees for the Plan Year shall bear a relationship to the Actual Deferral Percentage for all other eligible Employees for the current Plan Year which meets either of the following tests: (1) The Actual Deferral Percentage for the group of eligible Highly Compensated Employees for a Plan Year shall not exceed the Actual Deferral Percentage for the group of all other eligible Employees multiplied by 1.25, or (2) The excess of the Actual Deferral Percentage for the group of eligible Highly Compensated Employees for a Plan Year over the Actual Deferral Percentage for the group of all other eligible Employees shall not exceed two (2) percentage points (or such lesser amount as may be required by the Secretary of the Treasury, through regulations or otherwise); and the Actual Deferral Percentage for the group of eligible Highly Compensated Employees shall not exceed the Actual Deferral Percentage for the group of all other eligible Employees, multiplied by 2.0 (or such lesser amount as may be required by the Secretary of the Treasury, through regulations or otherwise). (b) The Actual Contribution Percentage for the group of eligible Highly Compensated Employees for the Plan Year shall bear a relationship to the Actual Contribution Percentage for all other eligible Employees for the current Plan Year which meets either of the following tests: VI-13 (1) The Actual Contribution Percentage for the group of eligible Highly Compensated Employees for a Plan Year shall not exceed the Actual Contribution Percentage for the group of all other eligible Employees multiplied by 1.25, or (2) The excess of the Actual Contribution Percentage for the group of eligible Highly Compensated Employees for a Plan Year over the Actual Contribution Percentage for the group of all other eligible Employees shall not exceed two (2) percentage points (or such lesser amount as may be required by the Secretary of the Treasury, through regulations or otherwise); and the Actual Contribution Percentage for the group of eligible Highly Compensated Employees shall not exceed the Actual Deferral Percentage for the group of all other eligible Employees, multiplied by 2.0 (or such lesser amount as may be required by the Secretary of the Treasury, through regulations or otherwise). (c) The Actual Deferral Percentages and the Actual Contribution Percentages for the group of Highly Compensated Employees and for the group of all other eligible Employees, computed in accordance with sections 6.7(a) and 6.7(b) for purposes of limiting contributions in sections 6.1 and 6.3, may be separately determined, and applied, for the Employees within each group of Employees that may be separately tested in accordance with applicable Treasury Regulations. (d) For purposes of this section 6.7, if two or more plans of an Employer to which elective salary reduction contributions, voluntary contributions or matching contributions are made are elected by the Employer to be treated as one Plan for purposes of Section 410(b)(6) of the Code, such plans shall be treated as a single plan for purposes of determining the Actual Deferral Percentage and the Actual Contribution Percentage. For purposes of determining the Actual Deferral Percentages and the Actual Contribution Percentages for the group of Highly Compensated Employees and the group of all other eligible Employees, all Employees of the respective group who are directly or indirectly eligible to receive allocations of elective contributions and/or matching contributions under the Plan for any portion of the Plan Year, and all Employees of the respective group who elect not to enter into salary reduction agreements pursuant to section 6.1 or whose eligibility to enter into salary reduction agreements has been suspended or otherwise limited because of an election not to participate, a withdrawal, a loan, or a restriction on Annual Additions as set forth in section 7.5, shall be included. For purposes of determining the Actual Deferral Ratio and the Actual Contribution Ratio for a Highly Compensated Employee, all cash or deferred arrangements in which the Employee is eligible to receive allocations of elective contributions and/or matching contributions shall be taken into account, unless otherwise required by Treasury Regulation Sections 1.401(k)-1(g)(1)(ii)(B) and 1.401(m)-1(f)(1)(ii)(B). VI-14 (e) Initial Plan Year: In the case of the first Plan Year of the Plan (and any other Plan Year which may properly be subject to Section 401(k)(3)(E) and/or 401(m)(3) of the Code), the amount taken into account as the Actual Deferral Percentage and the Actual Contribution Percentage for the group of eligible Employees who are not Highly Compensated Employees for the preceding Plan Year shall be: (1) 3%; or (2) if elected by the Company under this section 6.7(f), the Actual Deferral Percentage and the Actual Contribution Percentage for the group of eligible Employees who are not Highly Compensated Employees for such first Plan Year. 6.8 Form and Timing of Contributions. Contributions due from an Employer for any Plan Year shall be made in cash or Employer Securities. Such payments may be made by a contributing Employer at any time, but payment of Qualified Matching Contributions, Matching Contributions, and Non-Elective Contributions for any Plan Year shall be completed on or before the time prescribed by law, including extensions thereof, for filing such Employer's federal income tax return for its taxable year with which or within which such Plan Year ends. Payment of any Elective Contribution shall be made not later than the earliest date on which such contribution can reasonably be segregated from the Employer's general assets (and, if earlier, not later than the 15th business day of the month following the month in which it is withheld from a Participant's pay). 6.9 Rollover Contributions. Each Employee at any time during a Plan Year, with the consent of the Plan Administrator and in such manner as prescribed by the Plan Administrator, may pay or cause to be paid to a Trustee a rollover contribution (as defined in the applicable sections of the Code, except that for this purpose "rollover contribution" shall be deemed to include both a direct payment from an Employee and a direct transfer from a trustee of another qualified plan in which the Employee is or was a participant). Effective January 1, 2002, the Plan will accept Participant rollover contributions and direct rollovers of distributions made after December 31, 2001, only from a qualified plan described in Section 401(a) of the Code, excluding after-tax employee contributions. 6.10 No Duty to Inquire. The Trustees shall have no right or duty to inquire into the amount of any contribution made by an Employer or any Participant or the method used in determining the amount of any such contribution, or to collect the same, but each Trustee shall be accountable only for funds actually received by it. ARTICLE VII Participants' Accounts 7.1 Common Fund. Except as otherwise provided in this Plan or in the Agreement and Declarations of Trust, the assets of each Trust (or, to the extent provided in Article XI, the assets of each Fund) shall constitute a common fund in which each Participant (or each Participant who has directed that a portion of his Account be invested in such Fund) shall have an undivided interest. 7.2 Establishment of Accounts. (a) The Plan Administrator shall establish and maintain with respect to each Participant four Accounts, designated as the Participant's Elective Contributions Account, Employer Contributions Account, Qualified Matching Contributions Account, and Matching Contributions Account. For each Participant who is credited with a portion of any Non-Elective Contribution made pursuant to section 6.5 (or who previously has been credited with a portion of any qualified non-elective contribution made pursuant to the predecessor provisions of this Plan), the Plan Administrator shall establish and maintain a Qualified Non-Elective Contributions Account. For each Participant credited with a Rollover Contribution made pursuant to section 6.9 or credited with amounts attributable to merged plans as described in section 7.2(g), the Plan Administrator shall establish and maintain a Rollover/Merger Account. Each Participant's Accounts shall, collectively, reflect the Participant's interest in the Trust Fund. (b) Each Participant's Elective Contributions Account shall include Elective Contributions pursuant to section 6.1 and adjustments thereto. A Participant's Elective Contributions Account shall also include amounts previously attributable to the Participant's "Elective Contributions Account" in this Plan as of the Effective Date of this Amendment and Restatement, including: (1) salary reduction contributions to the 401(k) Plan (and earnings attributable thereto) on behalf of a Participant prior to the merger of the 401(k) Plan with this Plan effective October 1, 1993, (2) the Participant's "Employer Contributions Account" in this Plan as of December 31, 1995, under the terms of this Plan in effect as of such date, (3) the Participant's "ESOP Elective Contributions Account" in this Plan as of August 1, 1999, (4) the Participant's "401(k) Elective Contributions Account" in this Plan as of August 1, 1999, VII-1 (5) the Participant's "Elective Contributions Account" in the PSS ESOP as of the date of its merger with this Plan, (6) salary reduction contributions (and earnings attributable thereto) on behalf of the Participant to the PSS/Taylor Plan prior to the merger of the PSS/Taylor Plan with this Plan effective April 21, 2000, (7) salary deferral contributions (and earnings attributable thereto) on behalf of Participants to the National Med Supply Plan prior to the merger of the National Med Supply Plan with this Plan effective August 1, 2001, and (8) the Participant's "Supplemental ESOP Matching Contributions" in this Plan prior to the Effective Date of this Amendment and Restatement. (c) Each Participant's Employer Contributions Account shall include amounts contributed pursuant to section 6.4 and adjustments thereto. A Participant's Employer Contributions Account shall also include amounts previously attributable to the Participant's "Employer Contribution Account" in this Plan as of the Effective Date of this Amendment and Restatement, including: (1) the Participant's "ESOP Matching Contributions Account" in this Plan as of August 1, 1999, and (2) the Participant's "ESOP Employer Contributions Account" in this Plan as of August 1, 1999. (d) Each Participant's Qualified Matching Contributions Account shall include Qualified Matching Contributions made pursuant to section 6.3(a)(1), and adjustments thereto. A Participant's Qualified Matching Contributions Account shall also include amounts previously attributable to the Participant's "ESOP Contribution Account" (including "ESOP Matching Contributions" allocated after October 23, 1998) in the PSS ESOP as of the date of its merger with this Plan, and other amounts in the Participant's "Post-1998 ESOP Matching Contributions Account" in this Plan as of the Effective Date of this Amendment and Restatement. (e) Each Participant's Rollover/Merger Account shall include Rollover Contributions made pursuant to section 6.9 and reallocated pursuant to section 10.3. A Participant's Rollover/Merger Account shall also include amounts previously attributable to the Participant's "Rollover/Merger Account" as of the Effective Date of this Amendment and Restatement, including: (1) the Brown's Medical Supply Co. Retirement Savings Plan and the Y-Laboratories & Supplies, Inc. 401(k) Retirement Plan prior to the merger of the Brown's Medical Supply Co. Retirement Savings Plan and the Y-Laboratories & Supplies, Inc. 401(k) Retirement Plan with this Plan effective as of January 1, 1997 and October 1, 1997, respectively, VII-2 (2) the PSS ESOP prior to its merger with this Plan as of August 1, 1999 (other than amounts attributable to the "Elective Contribution Account" and the "ESOP Contribution Account" in the PSS ESOP), (3) the PSS/Taylor Plan prior to its merger with this Plan as of April 21, 2000 (other than salary reduction contributions and adjustments thereto), and (4) the National Med Supply Plan prior to its merger with this Plan as of August 1, 2001 (other than salary deferral contributions and adjustments thereto). The Plan Administrator may establish separate sub-accounts within the Rollover/Merger Account as needed. The Plan Administrator may establish and maintain additional sub-accounts from time to time to provide for amounts credited to Participants and transferred from other tax-qualified retirement plans merged with this Plan upon the authorization and direction of the Board of Directors. (f) Each Participant's Matching Contributions Account shall include Matching Contributions made pursuant to section 6.3(a)(2), and adjustments thereto, made for Matching Contributions Allocation Periods beginning after March 31, 2001. (g) For each Participant who is credited with a portion of any Non-Elective Contribution made pursuant to section 6.5 (or who previously has been credited with a portion of any qualified non-elective contribution made pursuant to the predecessor provisions of this Plan), the Plan Administrator shall establish and maintain a Qualified Non-Elective Contributions Account. Notwithstanding any other provision of this Plan, any qualified non-elective contribution made pursuant to the predecessor provisions of this Plan shall be credited as provided by this section 7.2(g) without regard to the account to which such amount may have been previously credited. (h) The Plan Administrator may establish and maintain with respect to each Participant's Accounts invested in Employer Securities, an Employer Securities Account and an Other Investments Account that may further reflect the Participant's interest in the Company Stock Fund attributable to such Accounts. (i) The Plan Administrator may establish such additional Accounts as are necessary to reflect a Participant's interest in the Trust Fund. VII-3 7.3 Interests of Participants. The interest of a Participant in the Trust Fund shall be the vested balance remaining from time to time in his Accounts after making the adjustments required in section 7.4. 7.4 Adjustments to Accounts. Subject to the provisions of section 7.5, the Accounts of a Participant shall be adjusted from time to time as follows: (a) Each Participant's Accounts shall be credited with appreciation or depreciation, and earnings or losses, as follows: (1) As of each Valuation Date, the portions of each Participant's Accounts credited to Employer Securities Accounts shall be credited with any stock dividends (as well as the aggregate unrealized appreciation or depreciation, if Employer Securities Accounts are not accounted for in shares) for the Valuation Period ending with such current Valuation Date that are received on (or attributable to) shares of Employer Securities allocated to the Participant's Employer Securities Accounts. (2) As of each Valuation Date, the portions of the Participant's Accounts credited to Other Investments Accounts shall be credited or charged, as the case may be, with the share of the Earnings for the Valuation Period ending with such current Valuation Date. Each Participant's share of the Earnings of his Other Investments Accounts for any Valuation Period shall be determined by the Plan Administrator on a weighted average basis, so that each Participant with a balance in such Other Investments Accounts shall receive a pro rata share of the Earnings of such Other Investments Accounts, taking into account the period of time that each dollar invested in such Other Investments Accounts has been so invested. (3) To the extent not otherwise provided for in the preceding provisions of this section 7.4(a), the portions of the Participant's Accounts credited to Employer Securities Accounts and Other Investments Accounts shall be further credited and charged with (i) the proceeds of any short-term interim investments that may be made by the Trustee during periods prior to purchase dates for the acquisition of Employer Securities by a Trustee, and (ii) direct or indirect purchases of the Employer Securities with assets other than Employer Securities, and purchases of assets other than the Employer Securities in connection with the sale of Employer Securities. VII-4 (4) As of each Valuation Date, any portion of the Participant's Accounts that is invested in a Pooled Investment Fund established under section 11.2 (other than a Company Stock Fund) shall be credited or charged, as the case may be, with a share of the Earnings of such Pooled Investment Fund for the Valuation Period ending with such current Valuation Date. Each Participant's share of the Earnings of a Pooled Investment Fund for any Valuation Period shall be determined by the Plan Administrator on a weighted average basis, so that each Participant with a balance in such Pooled Investment Fund shall receive a pro rata share of the Earnings of such Pooled Investment Fund, taking into account the period of time that each dollar invested in such Pooled Investment Fund has been so invested. (5) As of each Valuation Date, the portion of the Participant's Accounts that is invested in each Segregated Investment Fund established under section 11.2 (other than a Company Stock Fund) shall be credited or charged, as the case may be, with the Earnings attributable to the Participant's investment in such Segregated Investment Fund for the Valuation Period ending with such current Valuation Date. (b) As of each Valuation Date, each Participant's Accounts shall be credited with his share of the contributions to the Plan, and shall be further adjusted, as follows: (1) The Elective Contributions Account of a Participant shall be credited with any Elective Contributions made by his Employer on his behalf and not previously credited to the Participant. (2) The Elective Contributions Account of an eligible Participant shall be credited with any Additional Elective Deferral Contributions made by his Employer on his behalf and not previously credited to the Participant. (3) The Qualified Matching Contributions Account of a Participant shall be credited with any Qualified Matching Contributions with respect to a Matching Contributions Allocation Period made by the Employers on his behalf. (4) The Matching Contributions Account of an eligible Participant, as determined by section 6.3(b), shall be credited with any Matching Contributions made by the Employers on his behalf with respect to a Matching Contributions Allocation Period and not previously credited to the Participant. (5) (A) The Employer Contributions Account of an eligible Participant shall be credited with his share of the Employer Discretionary Contribution, if any, made by the Employers and not previously credited to the Participant. The amount allocable to a Participant entitled to a share of the contribution for the Plan Year shall be the amount that shall bear the same ratio to the total of such contribution as the Participant's Compensation for such Plan Year bears to the aggregate of the Compensation of all Participants for the Plan Year who are entitled to share in the Employer Discretionary Contribution for such Plan Year. The Participant shall be entitled to share in the Employer Discretionary Contribution if he meets the requirements of section 6.4. VII-5 (B) For each Plan Year in which this Plan is a Top Heavy Plan, a Participant who is employed by an Employer on the last day of such Plan Year and who is a Non-Key Employee for such Plan Year shall be entitled to share in an Employer Discretionary Contribution to the extent such allocation does not exceed at least three percent (3%) of his Section 415 Compensation (or, if less, the highest percentage of such Section 415 Compensation allocated to a Key Employee's Accounts hereunder (other than any amount allocated as an Additional Elective Deferral Contribution or to a Rollover/Merger Account), as well as his employer contribution accounts under any other defined contribution plan maintained by such Employer or an Affiliate, including any elective contribution to any plan subject to Code Section 401(k)), regardless of whether the preceding requirements of section 6.4 and this section 7.4(b)(5) have been met for such Participant. Notwithstanding the foregoing, Matching Contributions allocated to a Participant entitled to a contribution allocation pursuant to this section 7.4(b)(5)(B) shall be taken into account for purposes of satisfying the minimum contribution requirements of this section 7.4(b)(5)(B) and Section 416(c)(2) of the Code. The preceding sentence shall apply with respect to Matching Contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Matching Contributions that are used to satisfy the minimum contribution requirements of Section 416(c)(2) of the Code shall be treated as Matching Contributions for purposes of the Actual Contribution Percentage test requirements of sections 6.3 and 6.7 and the requirements of Section 401(m) of the Code. (6) The Qualified Non-Elective Contributions Account of an eligible Participant shall be credited with his share of the Non-Elective Contribution, if any, made by the Employers pursuant to section 6.5 and not previously credited to the Participant as provided by this section 7.4(b)(6). The amount of any Non-Elective Contribution shall be credited, to the extent available, first to the Participant who is a Non-Highly Compensated Employee and whose Compensation for the Plan Year is the lowest of all Participants in an amount that does not exceed the limitations on Annual Additions described in section 7.5 after taking into consideration all other contributions allocable to the Participant pursuant to section 7.4(b). If any Non-Elective Contribution remains to be credited to Participants, then such Non-Elective Contribution shall next be credited, to the extent available, to the Participant who is the Non-Highly Compensated Employee whose Compensation for the Plan Year is the second lowest of all Participants in the same manner as the first level of crediting and such crediting process shall continue until all of the Non-Elective Contribution is credited. In no event shall a Participant who is a Highly Compensated Employee be eligible to be credited with any portion of any Non-Elective Contribution. VII-6 (7) The Rollover/Merger Account of an Employee shall be credited with the Rollover Contributions, if any, made by the Employee pursuant to section 6.9 and not previously credited to the Employee. (c) As of each Valuation Date, each Account of a Participant shall be charged with the amount of any distribution made to, or withdrawal made by, the Participant or his beneficiary from such Account during the Valuation Period ending with such Valuation Date. (d) The Trust Funds, each Fund, and the assets thereof shall be valued at their fair market value as of each Valuation Date. Employer Securities shall be accounted for as provided in Treasury Regulation Section 1.402(a)-1(b)(2)(ii), or any successor regulation or statute. The Plan Administrator may adopt such additional accounting procedures as are necessary to accurately reflect each Participant's interests in the Trust Fund or in any Fund. Such accounting procedures shall include any procedures necessary to appropriately reflect any earnings and losses that may result from delays that may occur in completing scheduled transactions. All such procedures shall be applied in a consistent, nondiscriminatory manner. (e) If the Plan Administrator determines in making any valuation, allocation or adjustments to any Participant's Account under the provisions of the Plan that the strict application of the provisions of the Plan will not produce equitable and nondiscriminatory allocation among the Participants' Accounts, it may modify any procedures specified in the Plan for purposes of achieving an equal and nondiscriminatory allocation in accordance with the general concepts and purposes of the Plan; provided, however, that any such modification shall not be inconsistent with the provisions of Section 401(a)(4) of the Code. 7.5 Limitation on Allocation of Contributions. (a) The Annual Additions that may be contributed or allocated to a Participant's Account under the Plan and under any other defined contribution plans maintained by an Employer or an Affiliate for any Limitation Year shall not exceed the lesser of (1) $40,000 (or, if greater, the dollar limitation established by the Secretary of the Treasury pursuant to Section 415(d)(1) of the Code), or (2) 100% of the Participant's Section 415 Compensation for such Limitation Year. The compensation limit set forth in section 7.5(a)(2) above shall not apply to any contribution for medical benefits after separation from service (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code), which is otherwise treated as an Annual Addition. VII-7 (b) In the event that the Annual Additions, under the normal administration of the Plan, would otherwise exceed the limits set forth above for any Participant, or in the event that any Participant participates in both a defined benefit plan and a defined contribution plan maintained by any Employer or any Affiliate and the aggregate annual additions to and projected benefits under all of such plans, under the normal administration of such plans, would otherwise exceed the limits provided by law, then the Plan Administrator shall take such actions, applied in a uniform and nondiscriminatory manner, as will keep the annual additions and projected benefits for such Participant from exceeding the applicable limits provided by law. Excess Annual Additions shall be disposed of as provided in section 7.5(c). Adjustments shall be made to this Plan, if necessary to comply with such limits, before any adjustments may be made to any other Plan. (c) If as a result of the allocation of forfeitures, a reasonable error in estimating a Participant's Section 415 Compensation or other circumstances permitted under Section 415 of the Code, the Annual Additions attributable to Employer contributions for a particular Participant (including elective, matching and voluntary contributions) would cause the limitations set forth in this section 7.5 to be exceeded, the excess amount shall be deemed first to consist of the Participant's Elective Contributions in excess of any amount subject to a Qualified Matching Contribution and/or a Matching Contribution (pursuant to section 6.3(a)(1) and/or 6.3(a)(2)) for the Plan Year, which excess shall be returned to the Participant. The remaining excess then shall be deemed to consist of Elective Contributions and corresponding Matching Contributions and then, if any remaining excess, shall be deemed to consist of Elective Contributions and corresponding Qualified Matching Contributions, in which case the excess elective contributions shall be returned to such Participant and the corresponding Matching Contributions and Qualified Matching Contributions shall be held and allocated in the manner described below. Any remaining excess shall be deemed to consist of Employer Discretionary Contributions and shall be held and allocated as described below. Any excess amount attributable to Matching Contributions, Qualified Matching Contributions and Employer Discretionary Contributions shall be held unallocated in a suspense account for the Limitation Year, used to reduce Matching Contributions on behalf of such Participant for the next Limitation Year, and allocated to such Participant in lieu of such reduced contribution as of the end of the next Limitation Year under the terms of section 7.4(b). Any such allocations shall be treated as Annual Additions to the Account of the Participant in the Limitation Year that they are allocated in lieu of such reduced contributions. In the event that the Participant terminates his participation in this Plan before all of the amounts in a suspense account are allocated to his Account, then such excess amounts shall be retained in such suspense account, to be reallocated to other Participants as of the end of the next Limitation Year and any succeeding Limitation Years until all amounts in the suspense account are exhausted. VII-8 ARTICLE VIII Benefits Under the Plan 8.1 Retirement Benefit. (a) A Participant shall be entitled to retire from the employ of his Employer upon such Participant's Normal Retirement Date. Until a Participant actually retires from the employ of his Employer, no retirement benefits shall be payable to him, and he shall continue to be treated in all respects as a Participant; provided, however, that a Participant who is a 5% owner of the Company (or any Affiliate) and who attains age 70 1/2 shall begin receiving payment of his retirement benefit no later than the April 1 after the end of the calendar year in which he attains age 70 1/2. In addition, upon giving thirty (30) days written notice, a Participant may take an early retirement commencing on or after the occurrence of such Participant's Early Retirement Date. (b) Upon the retirement of a Participant as provided in section 8.1(a) and subject to adjustment as provided in section 9.4(b), such Participant shall be entitled to a retirement benefit in an amount equal to 100% of the balance in his Accounts as of the Valuation Date immediately preceding or concurring with his benefit commencement date, plus the amount of any contributions allocated subsequent to such Valuation Date. 8.2 Disability Benefit. (a) In the event a Participant's employment with his Employer is terminated by reason of his total and permanent disability and subject to adjustment as provided in section 9.4(b), such Participant shall be entitled to a disability benefit in an amount equal to 100% of the balance in his Accounts as of the Valuation Date immediately preceding or concurring with the date of the severance of his employment, plus the amount of any contributions allocated subsequent to such Valuation Date. (b) Total and permanent disability shall mean the total incapacity of a Participant to perform the usual duties of his employment with his Employer and will be deemed to have occurred only when certified by a physician who is acceptable to the Plan Administrator and only if such proof is received by the Administrator within sixty (60) days after the date of the termination of such Participant's employment. 8.3 Severance from Employment Benefit. VIII-1 (a) In the event a Participant's employment with his Employer is severed for reasons other than retirement, total and permanent disability or death, and subject to adjustment as provided in section 9.4(b), such Participant shall be entitled to a severance from employment benefit in an amount equal to his vested interest in the balance in his Accounts as of the Valuation Date immediately preceding or concurring with the date of the severance of his employment, plus his vested interest in the amount of any contributions allocated subsequent to such Valuation Date. This section shall apply for distributions after December 31, 2001, regardless of when the severance from employment occurred. (b) (1) The vested interest in the Employer Contributions Account and the Matching Contributions Account of each Participant shall be a percentage of the balance of each such Account as of the applicable Valuation Date, based upon such Participant's Years of Service as of the date of the severance of his employment, as follows: Years of Service Non-Forfeitable Percentage Less than 2 Years of Service 0% 2 years, but less than 3 years 20% 3 years, but less than 4 years 40% 4 years, but less than 5 years 60% 5 years, but less than 6 years 80% 6 years or more 100% (2) Notwithstanding the foregoing, a Participant shall be 100% vested in his Employer Contributions Account and his Matching Contributions Account upon attaining his Normal or Early Retirement Date. A Participant's vested interest in his Elective Contributions Account, Qualified Matching Contributions Account, Qualified Non-Elective Contributions Account, and Rollover/Merger Account shall be 100% regardless of the number of his Years of Service. (c) (1) If the termination of employment results in five consecutive Breaks in Service, then upon the occurrence of such five consecutive Breaks in Service, the nonvested interest of the Participant in his Employer Contributions Account and his Matching Contributions Account as of the Valuation Date immediately preceding or concurring with the date of his completion of five consecutive Breaks in Service shall be deemed to be forfeited and such forfeited amount shall be reallocated, pursuant to the provisions of sections 8.3(d)(3) and 6.3(c) at the end of the Plan Year concurring with the date the fifth such consecutive Break in Service occurs. If the Participant is later reemployed by an Employer or an Affiliate, the unforfeited balance, if any, in his Employer Contributions Account and his Matching Contributions Account that has not been distributed to such Participant shall be set aside in a separate account, and such Participant's Years of Service after any five consecutive Breaks in Service resulting from such termination of employment shall not be taken into account for the purpose of determining the vested interest of such Participant in the balance of his Employer Contributions Account that accrued before such five consecutive Breaks in Service. If interests in more than one class of Employer Securities have been so allocated to such Participant's Accounts, the Participant shall forfeit the same proportion of each such class. VIII-2 (2) Notwithstanding any other provision of this section 8.3, if a Participant is reemployed by an Employer or an Affiliate and, as a result, no five consecutive Breaks in Service occur, the Participant shall not be entitled to any severance from employment benefit as a result of such termination of employment; provided, however, that nothing contained herein shall require or permit the Participant to return or otherwise have restored to his Employer Contributions Account and his Matching Contributions Account any funds distributed to him prior to his reemployment and the determination that no five consecutive Breaks in Service would occur. (3) If a Participant is less than 100% vested in his Employer Contributions Account and his Matching Contributions Account and he receives all or a part of his severance from employment benefit, then, if the Participant resumes employment with an Employer or an Affiliate before the occurrence of five consecutive Breaks in Service, until such time as there is a fifth consecutive Break in Service, the Participant's vested portion of the balance in his Employer Contributions Account and his Matching Contributions Account at any time shall be equal to an amount ("X") determined by the formula X = P(AB + D) - D, where "P" is the vested percentage of the Participant at such time, "AB" is the balance in the Participant's Employer Contributions Account or his Matching Contributions Account, as applicable, at such time and "D" is the amount distributed as a severance from employment benefit. (d) (1) Notwithstanding any other provision of this section 8.3, if at any time a Participant is less than 100% vested in his Employer Contributions Account and his Matching Contributions Account, and, as a result of his severance from employment, he receives his entire vested severance from employment benefit pursuant to the provisions of Article IX, and the distribution of such benefit is made not later than the close of the fifth Plan Year following the Plan Year in which such termination occurs (or such longer period as may be permitted by the Secretary of the Treasury, through regulations or otherwise), then upon the occurrence of such distribution, the nonvested interest of the Participant in his Employer Contributions Account and his Matching Contributions Account shall be deemed to be forfeited and such forfeited amount shall be reallocated, pursuant to the provisions of sections 8.3(d)(3) and 6.3(c) at the end of the Plan Year immediately following or concurring with the date such distribution occurs. VIII-3 (2) If a Participant is not vested as to any portion of his Employer Contributions Account and his Matching Contributions Account, he will be deemed to have received a distribution immediately following his severance from employment. Upon the occurrence of such deemed distribution, the nonvested interest of the Participant in his Employer Contributions Account and his Matching Contributions Account shall be deemed to be forfeited and such forfeited amount shall be reallocated, pursuant to the provisions of sections 8.3(d)(3) and 6.3(c), at the end of the Plan Year immediately following or concurring with the date such distribution occurs. (3) If a Participant whose interest is forfeited under this section 8.3(d) is reemployed by an Employer or an Affiliate prior to the occurrence of five consecutive Breaks in Service commencing after his distribution, then such Participant shall have the right to repay to the Trust, before the date that is the earlier of (1) five years after the Participant's resumption of employment, or (2) the close of a period of five consecutive Breaks in Service, the full amount of the severance from employment benefit previously distributed to him. If the Participant elects to repay such amount to the Trust within the time periods prescribed herein, or if a nonvested Participant whose interest was forfeited under this section 8.3(d) is reemployed by an Employer or an Affiliate prior to the occurrence of five consecutive Breaks in Service, the nonvested interest of the Participant previously forfeited pursuant to the provisions of this section 8.3(d) shall be restored to the Employer Contributions Account and the Matching Contributions Account of the Participant, such restoration to be made from forfeitures of nonvested interests and, if necessary, by contributions of his Employer, so that the aggregate of the amounts repaid by the Participant and restored by the Employer shall not be less than the Employer Contributions Account balance and the Matching Contributions Account balance of the Participant at the time of forfeiture unadjusted by any subsequent gains or losses. 8.4 Death Benefit. (a) In the event of the death of a Participant while he is employed by an Employer and subject to adjustment as provided in section 9.4(b), his beneficiary shall be entitled to a death benefit in an amount equal to 100% of the balance in his Accounts as of the Valuation Date immediately preceding or concurring with the date of his death plus the amount of any contributions allocated subsequent to such Valuation Date. VIII-4 (b) Subject to the provisions of section 8.4(c), at any time and from time to time, each Participant shall have the unrestricted right to designate a beneficiary to receive his death benefit and to revoke any such designation. Each designation or revocation shall be evidenced by written instrument filed with the Plan Administrator, signed by the Participant and bearing the signatures of at least two persons as witnesses to his signature. In the event that a Participant has not designated a beneficiary or beneficiaries, or if for any reason such designation shall be legally ineffective, or if such beneficiary or beneficiaries shall predecease the Participant, then the Participant's surviving Eligible Spouse, and if none, his issue, per stirpes, and if none, the personal representative of the estate of such Participant shall be deemed to be the beneficiary designated to receive such death benefit, or if no personal representative is appointed for the estate of such Participant, then his next of kin under the statute of descent and distribution of the State of such Participant's domicile at the date of his death shall be deemed to be the beneficiary or beneficiaries to receive such death benefit. (c) Notwithstanding the foregoing, if the Participant is married as of the date of his death, the Participant's surviving Eligible Spouse shall be deemed to be his designated beneficiary and shall receive the full amount of the death benefit attributable to the Participant unless the spouse consents or has consented to the Participant's designation of another beneficiary. Any such consent to the designation of another beneficiary must acknowledge the effect of the consent, must be witnessed by a Plan representative or by a notary public and shall be effective only with respect to that spouse. A spouse's consent may be either a restricted consent (which may not be changed as to the beneficiary or (except as otherwise permitted by law) form of payment unless the spouse consents to such change in the manner described herein) or a blanket consent (which acknowledges that the spouse has the right to limit consent only to a specific beneficiary or a specific form of payment, and that the spouse voluntarily elects to relinquish one or both of such rights). Notwithstanding the preceding provisions of this section 8.4(c), a Participant shall not be required to obtain spousal consent to his designation of another beneficiary if the Participant is legally separated or the Participant has been abandoned, and the Participant provides the Administrator with a court order to such effect, or the spouse cannot be located. VIII-5 ARTICLE IX Payments of Benefits 9.1 Time for Distribution of Benefits. (a) Except as otherwise provided under this Article IX, the amount of the benefit to which a Participant is entitled under section 8.1, 8.2, 8.3 or 8.4 shall be paid to him or applied for his benefit or, in the case of a death benefit, shall be paid to or applied for the benefit of said Participant's beneficiary or beneficiaries, as described within section 9.2 beginning as soon as practicable following the Valuation Date coincident with or next following the Participant's retirement, disability, death, or other severance from employment, as the case may be. (b) (1) Any distribution paid to a Participant (or, in the case of a death benefit, to his beneficiary or beneficiaries) pursuant to section 9.1(a) shall commence not later than the earlier of: (A) the 60th day after the last day of the Plan Year in which the Participant's employment is terminated or, if later, in which occurs the Participant's Normal Retirement Date; or (B) solely for each Participant who is a 5% owner of the Company or an Affiliate, April 1 of the year immediately following the calendar year in which he reaches age 70 1/2. (2) Notwithstanding the foregoing, no distribution shall be made of any Participant's benefit payable pursuant to section 8.1, 8.2 or 8.3 prior to his Normal Retirement Date unless the value of his vested Accounts do not exceed $5,000, or unless the Participant consents to the distribution. For each Participant who severs employment after December 31, 2001, the portion of the Participant's Rollover/Merger Account that is attributable to his Rollover Contributions shall be excluded for purposes of determining whether the value of his vested Accounts exceed $5,000. The Plan Administrator shall provide each Participant entitled to a distribution of more than $5,000 with a written notice of his rights, which shall include an explanation of the alternative dates for distribution of benefits. The Participant may elect to exercise such rights, no less than 30 days and no more than 90 days before the first date upon which distribution of the Participant's vested Account balances may be made; provided, however, that such distribution may be made less than 30 days after the exercise of such rights if (A) the Plan Administrator informs the Participant of his right to such thirty to ninety day period, and IX-1 (B) the Participant, after receiving such notice from the Plan Administrator, affirmatively elects a distribution in less than 30 days. In the event that a Participant does not consent to a distribution of a benefit in excess of $5,000 to which he is entitled under section 8.1, 8.2 or 8.3, the amount of his benefit shall be paid to the Participant in such subsequent Plan Year as the Participant shall, at any time, select, but not later than sixty (60) days after the last day of the Plan Year in which the Participant reaches his Normal Retirement Date. 9.2 Form of Payment. (a) The benefits payable under sections 8.1, 8.2, 8.3 and 8.4 shall be paid to the Participant (or, if applicable, his beneficiary or beneficiaries), to the extent possible, in cash or in units of Employer Securities (except that no fractional shares shall be issued and the value of any fractional shares to which a Participant would otherwise be entitled shall be paid in cash), as elected by the Participant (or his beneficiary or beneficiaries). If the Participant elects to receive all or any portion of the vested balance in his Accounts in units of Employer Securities, then, during the sixty (60) day period immediately preceding the proposed distribution date of the benefit which the Participant is entitled to receive under the Plan, the Trustee, to the extent possible, shall apply (net of any brokerage commissions) such portion of the Participant's Accounts to the purchase of the maximum number of whole units of Employer Securities at their then Fair Market Value, which units shall be allocated to the Participant's Employer Securities Accounts. If the Trustee is unable to apply any elected portion of the balance of such Accounts to the purchase of whole units of Employer Securities within the said sixty (60) day period, such elected portion shall be paid in cash. (b) Notwithstanding the provisions of section 9.2(a), if the amount to which any Participant is entitled under Article VIII is less than $5,000, the Plan Administrator, in accordance with a uniform and nondiscriminatory policy, may pay such amount to the Participant or his beneficiary in the form of cash rather than Employer Securities unless the Participant or his beneficiary demands that such amount be distributed in the form of Employer Securities; provided, however, that prior to distributing any such amount in cash, the Participant's right to demand a distribution in the form of Employer Securities instead of cash shall have been communicated to the Participant or his beneficiary in writing by the Plan Administrator. 9.3 Manner of Payment. (a) Benefits payable under sections 8.1, 8.2, 8.3 and 8.4 shall be paid in a single lump sum payment. IX-2 (b) Each payment shall satisfy the incidental death benefit requirements and all other applicable provisions of Section 401(a)(9) of the Code, the regulations issued thereunder (including Prop. Reg. Section 1.401(a)(9)-2), and such other rules thereunder as may be prescribed by the Commissioner. 9.4 Liquidation of Investments and Periodic Adjustments. (a) Notwithstanding any other provision of this Plan, whenever a Participant is entitled to a distribution or withdrawal from the Plan pursuant to Article IX or X, the Plan Administrator and the Trustee shall be entitled to liquidate all, or any portion, of the investments attributable to the Participant's Accounts at any time during the five business days preceding the date upon which the distribution or withdrawal is scheduled to occur in order to facilitate the payment of benefits. In the event that the Plan Administrator and the Trustee elect to liquidate investments in order to facilitate a distribution or withdrawal, the liquidated funds may be placed in a money market fund or similar investment fund (or, when reasonable, may be held in cash, without liability for interest thereon). The Plan Administrator may adopt such accounting procedures as are necessary to accurately reflect the Participant's interest in such liquidated funds. (b) Except as otherwise provided in section 9.4(a), to the extent the balance of a Participant's Accounts has not been distributed and remains in the Plan, the value of such remaining balance shall be subject to adjustment from time to time pursuant to the provisions of Article VII. 9.5 Direct Rollover Distributions. Notwithstanding any provision of the plan to the contrary, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have all or any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. In the event that a Distributee elects to have only a portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan, the portion must not be less than $500 (adjusted under such regulations as may be issued from time to time by the Secretary of the Treasury). 9.6 Put Options. (a) The provisions of this section 9.6 relate to all Employer Securities purchased with the proceeds of an exempt loan pursuant to Treasury Regulation Section 53.4975-7(b) and held as assets of the Trust. Except to the extent hereinafter provided in this section 9.6, except as provided in section 9.7, or except as otherwise required by applicable law, no such Employer Securities may be subject to a put, call or other option, or buy-sell or similar arrangement while held by and when distributed from the Plan. IX-3 (b) If any Employer Securities subject to this section 9.6, when distributed to or for the benefit of a Participant, are not then listed on a national securities exchange registered under section 6 of the Securities Exchange Act of 1934 (the "1934 Act") or are not then quoted on a system sponsored by a national securities association registered under section 15A(b) of the 1934 Act, or, if so listed or quoted, are then subject to a trading limitation (a restriction under any federal or state securities law, any regulation thereunder or any permissible agreement affecting such Employer Securities, that makes such Employer Securities not as freely tradable as Employer Securities not subject to such restriction), then the Participant, the Participant's beneficiary or beneficiaries, the persons to whom such shares are transferred by gift from the Participant, or any person to whom such Employer Securities pass by reason of the death of the Participant or a beneficiary of the Participant, as the case may be, shall be granted an option to put any of the units of such Employer Securities to the Company. The put option shall provide that, for a period of fifteen (15) months after such shares are distributed, the Participant, the Participant's beneficiary or beneficiaries, the persons to whom such shares are transferred by gift from the Participant, or any person to whom such Employer Securities pass by reason of the death of the Participant or a beneficiary of the Participant, as the case may be, shall have the right to have the Company purchase such units at their Fair Market Value on the date the put option is exercised. Any such put option shall be exercised by the holder notifying the Company in writing that the put option is being exercised; the date of exercise shall be the date the Company receives such written notice. Payment of the purchase price shall be made by the Company, at the election of the Company, either in cash within 30 days after the date of exercise or by an installment purchase. Any installment purchase must provide for adequate security, a reasonable interest rate and a payment schedule providing for cumulative payments at any time not less than the payments that would be made if made in substantially equal annual installments beginning within 30 days and ending not more than five years (which may be extended to a date no later than the earlier of ten years after the date of exercise or the date the proceeds of the loan used by the Plan to acquire the securities in question are entirely repaid) after the date the put option is exercised. (c) The following special rules shall apply to any put option granted with respect to any Employer Securities subject to this section 9.6: (1) At the time that any such put option is exercised, the Plan shall have an option to assume the rights and obligations of the Company under the put option. IX-4 (2) If it is known at the time that a loan is made to the Plan to enable it to purchase Employer Securities that federal or state law will be violated by the Company honoring the put option provided in this section 9.6, the holder of any such put option shall have the right to put such Employer Securities to a third party that has substantial net worth at the time the loan is made and whose net worth is reasonably expected to remain substantial, the identity of such third party to be selected by the Plan Administrator. (3) If any such Employer Securities are publicly traded without restriction when distributed, but cease to be so traded within 15 months after distribution, the Company shall notify each holder of such Employer Securities, in writing, on or before the tenth day after the date such Employer Securities cease to be so traded, that for the remainder of the 15-month period, such Employer Securities are subject to a put option. Such notice shall also inform the holder of the terms of such put option (which terms shall be consistent with the provisions of this section 9.6). If such notice is given after the tenth day after the date such Employer Securities cease to be so traded, the duration of the put option shall be extended by the number of days between such tenth day and the date on which notice is actually given. (4) The period during which a put option is exercisable shall not include any time when a distributee is unable to exercise it because the party bound by the put option is prohibited from honoring it by applicable federal or state law. (d) Except as otherwise permitted by law, the provisions of this section 9.6 are not terminable for any reason, including as a result of the repayment of any loan used to acquire Employer Securities or by the cessation of the Plan as an employer stock ownership plan. 9.7 Location of Participant or Beneficiary Unknown. In the event that all, or any portion, of the distribution payable to a Participant or his beneficiary hereunder shall, at the expiration of two (2) years after it shall become payable, remain unpaid solely by reason of the inability of the Administrator to ascertain the whereabouts of such Participant or his beneficiary despite the reasonable effort of the Administrator to locate such Participant or his beneficiary, the amount so distributable may, at the discretion of the Administrator, be treated as a forfeiture and used as provided by section 6.3(c). In the event a Participant or beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored. Notwithstanding the foregoing provisions of this section, the Administrator shall comply with the mandatory direct rollover distribution requirements of Section 401(a)(31)(B) of the Code at all times after the provisions of such Section are required to be effective under applicable federal law. In the event that Section 401(a)(31)(B) of the Code is considered, by the Internal Revenue Service, as setting forth permissive guidelines for distributions on behalf of missing Participants and beneficiaries, the Plan Administrator may, at its discretion, elect to make direct rollover distributions in accordance with Section 401(a)(31)(B) of the Code. IX-5 X-2 ARTICLE X Preretirement Withdrawals 10.1 Hardship Withdrawals. (a) A Participant will be eligible to receive a withdrawal of any amounts credited to his Elective Contributions Account and his Rollover/Merger Account on account of Hardship. Notwithstanding the foregoing, any withdrawal pursuant to this Section 10.1 shall not include amounts credited at any time to the Participant (in this Plan or any plan merged with this Plan) as (1) earnings attributable to Elective Contributions, or (2) Non-elective Contributions and earnings attributable thereto. If a Participant incurs a Hardship, such Participant may apply to the Administrator for the withdrawal of a portion of his Elective Contributions Account and Rollover/Merger Account not in excess of the amount of such Hardship. The Administrator shall determine whether an immediate and heavy financial need exists and the amount necessary to meet the need (which amount may include the amount necessary to pay income taxes and penalties reasonably anticipated to result from the withdrawal), or the lesser amount, if any, to be distributed to such Participant, in a uniform and nondiscriminatory manner. If the Administrator approves a Hardship withdrawal, it shall direct the Trustee to distribute such amount to such Participant first from any amounts credited to his Rollover/Merger Account and then from his Elective Contributions Account (subject, in each case, to the restrictions set forth hereinabove). No Hardship Withdrawal shall be permitted in an amount less than $1,000. (b) An immediate and heavy financial need shall be deemed to include (1) expenses of medical care (as defined in Section 213(d) of the Code) incurred by the Participant or his spouse or other dependents (as defined in Section 152 of the Code) or necessary for such persons to obtain such medical care, (2) payments (other than mortgage payments) directly related to the purchase of the Participant's principal residence, (3) payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant or his spouse, children or other dependents, (4) payments necessary to prevent the eviction of the Participant from his principal residence or the foreclosure on the mortgage of such residence, and X-1 (5) such other events as may be prescribed by the Commissioner of the Internal Revenue Service in revenue rulings, notices and other documents of general applicability. (c) A financial need shall not fail to qualify as immediate and heavy merely because such need was reasonably foreseeable or voluntarily incurred by the Participant. (d) A distribution pursuant to this section 10.1 will be deemed necessary to satisfy the financial need of a Participant if (1) the distribution is not in excess of the amount of the immediate and heavy financial need of the Employee (including any amount necessary to pay income taxes and penalties reasonably anticipated to result from the distribution); (2) the Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by an Employer; (3) the Participant's Elective Contributions to the Plan or any other qualified or nonqualified plans of deferred compensation maintained by an Employer are suspended and he is not permitted to make further Elective Contributions until the expiration of 6 months from the date of such withdrawal; and (4) the Participant is not permitted to make Elective Contributions to the Plan or any other plan maintained by an Employer for the Participant's taxable year immediately following the taxable year of the Hardship distribution in excess of the applicable limit under Section 402(g) of the Code for such next taxable year less the amount of such Participant's elective contributions for the taxable year of the hardship distribution. (e) Any Participant who withdraws an amount pursuant to section 10.1(a) shall be subject to the limitations of section 6.1(g). 10.2 Withdrawals After Age 59 1/2. Upon reaching age 59 1/2, a Participant may apply to the Administrator for the withdrawal of all or a portion of his vested Accounts. The Administrator shall establish uniform and nondiscriminatory rules and procedures regarding the distribution of benefits pursuant to this section. The Administrator shall direct the Trustee to distribute to a Participant who has applied for such a withdrawal the amount requested from his Accounts. Amounts withdrawn from the Participant's Accounts shall be paid to the Participant in the form and manner provided in sections 9.2 and 9.3. X-2 ARTICLE XI Directed Investments 11.1 Participant Directed Investments. Each Participant shall direct the Trustee to invest his Accounts as provided by sections 11.1 through 11.6. Each Participant, whose Accounts were partially invested, prior to April 1, 2002, at the direction of the "company stock fund trustee" (as defined by the terms of this Plan prior to this Amendment and Restatement) may elect on or after the Effective Date to invest all or any portion of his Accounts previously invested in the Company Stock Fund at the direction of the "company stock fund trustee" in any investment set forth in section 11.2 of the Plan. Until a Participant so elects on or after the Effective Date, he shall be deemed to have elected that his Accounts previously invested in the Company Stock Fund by the "company stock fund trustee" shall remain invested as they were invested prior to the Effective Date. 11.2 Investment Funds. Each Participant may invest his Accounts in one or more of the following investment funds: (a) A "Money Market Fund," which may consist of a portfolio invested in commercial paper, U.S. Government or federal agency obligations, short-term corporate obligations, bank certificates of deposit, savings accounts, guaranteed investment-type contracts, fixed rate annuity contracts (provided, however, that no such annuity contract shall be deemed to permit any Participant to receive any benefit under this Plan in the form of a life annuity), and/or comparable investments, as deemed appropriate by the Plan Administrator, designed to provide maximum protection of capital with a conservative rate of return; (b) A "Bond Fund," which may consist of a portfolio invested primarily in governmental and corporate bonds, notes and bills, fixed rate annuity contracts (provided, however, that no such annuity contract shall be deemed to permit any Participant to receive any benefit under this Plan in the form of a life annuity), mortgages, savings accounts and/or comparable investments, as deemed appropriate by the Plan Administrator, designed to provide for a moderate rate of return based primarily upon interest income; (c) A "Balanced Fund," which may consist of a portfolio invested primarily in common and preferred stocks, governmental and corporate bonds and such other securities or investment opportunities, as deemed appropriate by the Plan Administrator, designed to provide for a balanced return based upon appreciation of stocks and income derived from interest and dividends; (d) A "Value Fund," which may consist of a portfolio invested in common and preferred stocks (and other securities or investment opportunities) believed to be trading at significant discounts to their perceived economic value, as deemed appropriate by the Plan Administrator, providing for long-term capital appreciation; XI-1 (e) A "Growth Fund," which may consist of a portfolio invested primarily in common stocks and such other securities or investment opportunities, as deemed appropriate by the Plan Administrator, providing primarily for long-term capital appreciation; (f) An "Aggressive Growth Fund," which may consist of a portfolio invested primarily in common stocks of small and medium-sized companies and such other securities or investment opportunities, as deemed appropriate by the Plan Administrator, providing for long-term capital appreciation; (g) A "Stock Market Index Fund", which may consist of a portfolio designed to obtain investment returns substantially similar to the return of the Standard and Poors 500 Composite Stock Price Index; (h) A "Global Fund" which may consist of a portfolio invested primarily in common stocks of foreign and domestic corporations, as deemed appropriate by the Plan Administrator, providing primarily for long-term capital appreciation; (i) A "Company Stock Fund," which shall consist of a portfolio invested in Employer Securities (except for cash or cash equivalents pending distribution or investment and a short-term investment component which may be retained in the discretion of the Trustee to provide liquidity for such fund); and (j) Such additional, or alternative, investment funds as may be made available by the Plan Administrator from time to time. The Plan Administrator may provide such Funds through mutual funds, investment contracts, or other appropriate investment vehicles. 11.3 Election Procedures. Each Participant's elections described in section 11.1 shall be made upon his commencement of participation in the Plan in accordance with the Agreements and Declarations of Trust or by any contract entered into by the Trustees or the Plan Administrator with an investment manager appointed to manage all or any portion of the assets of the Plan. (a) A Participant shall designate the percentage of his Accounts to be allocated to any Fund. The Administrator shall establish the minimum percentage that each Participant may select to be allocated to any Fund selected by the Participant. (b) A Participant may revise his election effective as of such dates as may be selected by the Plan Administrator from time to time (which shall be effective not less than quarterly). The Participant's revised election shall be effective for contributions made to the Plan after the effective date of such revision, and may be effective for the investment of balances previously allocated and remaining credited to a Participant's Accounts. XI-2 (c) The Trustees shall make requested investments on behalf of each Participant within a reasonable period after the receipt of directions from the Administrator or the Participant. Whenever a Participant requests a transfer of any portion of his Accounts from one Fund to another, the Trustee shall be permitted to delay the purchase of the new Fund until it receives the proceeds attributable to the sale of the prior Fund. 11.4 Failure to Designate. If a Participant does not specifically designate the initial investments for all of his Accounts, the Administrator shall not accept his initial salary reduction agreement. Except as set forth in section 11.1, in the event that a Participant is credited with Accounts prior to providing the Trustees with directions for the investment of his Accounts, such Accounts shall be invested in the Balanced Fund. 11.5 Uniform Procedures. The Administrator shall establish uniform procedures regarding Participant investment directions, which procedures shall be communicated to all Participants. The Plan Administrator, at its sole discretion, may prohibit, or otherwise restrict, investment of Account balances in the Company Stock Fund by any officer, director or 10% shareholder of the Company, or any other Participant who is required to file reports under Section 16(b) of the Securities Exchange Act of 1934, in order to prevent a violation of federal law or an undue administrative burden upon the Plan Administrator. 11.6 Designated Section 404(c) Plan. (a) This Plan is designated as an "ERISA Section 404(c) Plan" providing Participants (and beneficiaries) with the opportunity to exercise control over the investment of assets held in their Accounts and to select, from a broad range of investment funds, the manner in which some or all of the assets in their Accounts are invested. The investment funds shall be selected and offered by the Company, as the designated plan fiduciary, in accordance with Section 404(c) of ERISA and the regulations thereunder. (b) Information relating to the purchase, holding or sale of interests in the Company Stock Fund by Participants, as well as the voting and/or tender of Employer Securities, shall be maintained on a confidential basis by the director of personnel for the Company at all times. The director of personnel for the Company shall be the fiduciary responsible for maintaining all participant information with respect to investments in, and the voting and tender of, the Company Stock Fund. The director of personnel shall maintain confidential information with respect to participants' investments in the Company Stock Fund in a manner that will prevent officers, directors and employees of the Company from obtaining access to the information unless they have been specifically authorized to receive the information in connection with their responsibilities with respect to the administration of the plan. The director of personnel also shall be responsible for the periodic review and revision of confidentiality procedures for the Plan. XI-3 (c) In the event the fiduciary designated in section 11.6(b) above determines that the direct or indirect exercise of shareholder rights by any Participant who has invested in the Company Stock Fund may be subject to undue employer influence, the fiduciary shall appoint one or more independent fiduciaries (who are not affiliated with any Employer) to carry out such activities with respect to the Company Stock Fund as may be required to eliminate such undue employer influence. 11.7 Loans. No new Participant loans will be permitted from the Plan. For loans made to Participants in the PSS ESOP prior to October 23, 1998, the provisions of the PSS ESOP, as set forth prior to its merger with this Plan, shall be in effect. XI-4 XII-2 ARTICLE XII Trust Funds 12.1 Trust Fund. The Trust Fund shall be held by The Chase Manhattan Bank, as Trustee, or by a successor trustee or trustees, for use in accordance with the Plan under the Agreement and Declaration of Trust. The Agreement and Declaration of Trust may from time to time be amended in the manner therein provided. Similarly, the Trustee may be changed from time to time in the manner provided in the Agreement and Declaration of Trust. 12.2 Separate Funds. The Trustee may maintain a primary trust fund (which shall include assets attributable to Funds other than the Company Stock Fund) and a Company Stock Fund. 12.3 Voting. Unless otherwise required by the Agreement and Declaration of Trust, any voting and other rights with respect to units of Employer Securities held as part of, or otherwise attributable to, each Participant's Accounts, within the Company Stock Fund shall be exercised as follows: (a) If the Employer has a publicly traded security, as defined in Labor Reg. ss. 2550.404(c)-1(d)(2)(ii)(E)(4)(iii), any voting and other rights with respect to units of Employer Securities (including fractional shares) allocated to any Participant's Employer Securities Account shall be exercised by the Trustee in accordance with instructions received from such Participant. (b) In connection with the exercise of the rights set forth in section 12.5(a), the Trustee shall notify each Participant at least thirty (30) days prior to the date upon which such rights are to be exercised; provided, however, that the Trustee shall not be under any obligation to notify the Participants sooner than it receives such information as security holders of record. In the event the notice received by the Trustee makes it impossible for the Trustee to comply with such thirty (30) day notice requirement, the Trustee shall notify the Participants regarding the exercise of such rights as soon as practicable. The notification shall include all information distributed to the security holders of record by the Employer regarding the exercise of such rights. The Trustee shall be entitled to exercise such rights on the units of Employer Securities allocated to a Participant's Employer Securities Account only to the extent that it receives direction from such Participant, and if it does not receive direction, it shall not exercise any rights. 12.4 Dividends. Unless otherwise required by the Agreement and Declaration of Trust, dividends with respect to units of Employer Securities held as part of, or otherwise allocable to, the Participants' Accounts shall be retained by the Trustee within the Company Stock Fund and allocated in the same manner as other income of the Trust Fund. XII-1 ARTICLE XIII Expenses of Administration of the Plan and the Trust Fund The Company shall bear all expenses of implementing this Plan and the Trust. For its services, any corporate trustee shall be entitled to receive reasonable compensation in accordance with its written agreement with the Company, as in effect from time to time. Any individual Trustee shall be entitled to such compensation as shall be arranged between the Company and the Trustee by separate instrument; provided, however, that no person who is already receiving full-time pay from any Employer or any Affiliate shall receive compensation from the Trust Fund (except for the reimbursement of expenses properly and actually incurred). The Company may pay all expenses of the administration of the Trust Fund, including the Trustee's compensation, the compensation of any investment manager, the expense incurred by the Plan Administrator in discharging its duties, all income or other taxes of any kind whatsoever that may be levied or assessed under existing or future laws upon or in respect of the Trust Fund, and any interest that may be payable on money borrowed by the Trustee for the purpose of the Trust and any Employer may pay such expenses as relate to Participants employed by such Employer. Any such payment by the Company or another Employer shall not be deemed a contribution to this Plan. Such expenses shall be paid out of the assets of the Trust Fund unless paid or provided for by the Company or another Employer. Notwithstanding anything contained herein to the contrary, no excise tax or other liability imposed upon the Trustee, the Plan Administrator or any other person for failure to comply with the provisions of any federal law shall be subject to payment or reimbursement from the assets of the Trust. XIII-1 ARTICLE XIV Amendment and Termination 14.1 Restrictions on Amendment and Termination of Plan. It is the present intention of the Company to maintain he Plan set forth herein indefinitely. Nevertheless, the Company specifically reserves to itself the right at any time, and from time to time, to amend or terminate this Plan in whole or in part; provided, however, that no such amendment: (a) shall have the effect of vesting in any Employer, directly or indirectly, any interest, ownership or control in any of the present or subsequent funds held subject to the terms of the Trust; (b) shall cause or permit any property held subject to the terms of the Trust to be diverted to purposes other than the exclusive benefit of the Participants and their beneficiaries or for the administrative expenses of the Plan Administrator and the Trust; (c) shall either directly or indirectly reduce any vested and nonforfeitable interest of, or the vested percentage in effect with respect to, a Participant determined as of the later of the date the amendment is adopted or the date the amendment is effective, except as permitted by law; (d) shall reduce the Accounts of any Participant; (e) shall amend any vesting schedule with respect to any Participant who has at least three Years of Service at the end of the election period described below, except as permitted by law, unless each such Participant shall have the right to elect to have the vesting schedule in effect prior to such amendment apply with respect to him, such election, if any, to be made during the period beginning not later than the date the amendment is adopted and ending no earlier than sixty (60) days after the latest of the date the amendment is adopted, the amendment becomes effective or the Participant is issued written notice of the amendment by his Employer or the Plan Administrator; (f) shall increase the duties or liabilities of the Trustee without its written consent; or (g) shall modify, more than once in any six-month period, any provision of the Plan set forth in Article V, sections 6.1, 6.3, 6.4, 6.5, 7.5(b), and 7.6 that is applicable to any officer, director, 10% owner of any Employer, or any other Participant who is required to file reports under Section 16(a) of the Securities Exchange Act of 1934. XIV-1 14.2 Amendment of Plan. Subject to the limitations stated in section 14.1, the Company shall have the power to amend this Plan in any manner that it deems desirable, and, not in limitation but in amplification of the foregoing, it shall have the right to change or modify the method of allocation of contributions hereunder (except as provided in section 14.1(g)) to change any provision relating to the administration of this Plan and to change any provision relating to the distribution or payment, or both, of any of the assets of the Trust. 14.3 Termination of Plan. Any Employer, in its sole and absolute discretion, may permanently discontinue making contributions under this Plan or may terminate this Plan and the Trust (with respect to all Employers if it is the Company, or with respect to itself alone if it is an Employer other than the Company), completely or partially, at any time without any liability whatsoever for such permanent discontinuance or complete or partial termination. In any of such events, the affected Participants, notwithstanding any other provisions of this Plan, shall have fully vested interests in the amounts credited to their respective Accounts at the time of such complete or partial termination of this Plan and the Trust or permanent discontinuance of contributions. All such vested interests shall be nonforfeitable. 14.4 Discontinuance Procedure. In the event an Employer decides to permanently discontinue making contributions, such decision shall be evidenced by an appropriate resolution of its Board and a certified copy of such resolution shall be delivered to the Plan Administrator and the Trustee. All of the assets in the Trust Fund belonging to the affected Participants on the date of discontinuance specified in such resolutions shall, aside from becoming fully vested as provided in section 14.3, be held, administered and distributed by the Trustee in the manner provided under this Plan. In the event of a permanent discontinuance of contributions without such formal documentation, full vesting of the interests of the affected Participants in the amounts credited to their respective Accounts will occur on the last day of the year in which a substantial contribution is made to the Trust. 14.5 Termination Procedure. (a) In the event an Employer decides to terminate this Plan and the Trust, such decision shall be evidenced by an appropriate resolution of its Board and a certified copy of such resolution shall be delivered to the Plan Administrator and the Trustee. After payment of all expenses and proportional adjustments of individual accounts to reflect such expenses and other changes in the value of the Trust Fund as of the date of termination, each affected Participant (or the beneficiary of any such Participant) shall be entitled to receive, provided that the requirements set forth in section 14.5(b) are met, any amount then credited to his Accounts in a lump sum. (b) In the event this Plan and the Trust are terminated, completely or partially, and with respect to any one Employer or with respect to all Employers, distributions may not be made pursuant to this section 14.5 unless: XIV-2 (1) the Plan has been completely terminated and no successor plan (within the meaning of Section 401(k)(10) of the Code) has been established; (2) the Plan has been partially terminated as a result of the sale or other disposition by an Employer to an unrelated corporation of substantially all of the assets used in a trade or business, in which case distribution may be made to employees who continue employment with the acquiring corporation; or (3) the Plan has been partially terminated as a result of the sale or other disposition by an Employer of its interest in a subsidiary, in which case distribution may be made to employees who continue employment with the subsidiary. (c) At the election of the Participant, the Plan Administrator may transfer the amount of any Participant's distribution under this section 14.5 to the trustee of another qualified plan or the trustee of an individual retirement account or individual retirement annuity instead of distributing such amount to the Participant. Any such election by a Participant shall be in writing and filed with the Plan Administrator. XIV-3 ARTICLE XV Miscellaneous 15.1 Merger or Consolidation. This Plan and the Trust may not be merged or consolidated with, and the assets or liabilities of this Plan and the Trust may not be transferred to, any other plan or trust unless each Participant would receive a benefit immediately after the merger, consolidation or transfer, if the plan and trust then terminated, that is equal to or greater than the benefit the Participant would have received immediately before the merger, consolidation or transfer if this Plan and the Trust had then terminated. 15.2 Alienation. (a) Except as provided in section 15.2(b) no Participant or beneficiary of a Participant shall have any right to assign, transfer, appropriate, encumber, commute, anticipate or otherwise alienate his interest in this Plan or the Trust or any payments to be made thereunder; no benefits, payments, rights or interests of a Participant or beneficiary of a Participant of any kind or nature shall be in any way subject to legal process to levy upon, garnish or attach the same for payment of any claim against the Participant or beneficiary of a Participant; and no Participant or beneficiary of a Participant shall have any right of any kind whatsoever with respect to the Trust, or any estate or interest therein, or with respect to any other property or right, other than the right to receive such distributions as are lawfully made out of the Trust, as and when the same respectively are due and payable under the terms of this Plan and the Trust. (b) Notwithstanding the provisions of section 15.2(a) the Plan Administrator shall direct the Trustee to make payments pursuant to a Qualified Domestic Relations Order as defined in Section 414(p) of the Code. The Plan Administrator shall establish procedures consistent with Section 414(p) of the Code to determine if any order received by the Plan Administrator, or any other fiduciary of the Plan, is a Qualified Domestic Relations Order. Notwithstanding any provision of this Plan to the contrary, if the Qualified Domestic Relations Order so requires, distribution with respect to any Qualified Domestic Relations Order received by the PSS ESOP prior to April 1, 1999, shall be made to an Alternate Payee without regard to the age or employment status of the Participant. Distribution shall be made to an Alternate Payee pursuant to any other Qualified Domestic Relations Order only after compliance with the maximum Participant age, or termination of employment status, provisions of Section 414(p) of the Code. 15.3 USERRA Requirements. Effective December 12, 1994, this Plan shall comply with the requirements of the Uniformed Services Employment and Reemployment Rights Act (USERRA) and Section 414(u) of the Code, including the following: XV-1 (a) An individual reemployed under USERRA shall be treated as not having incurred a Break in Service with Employer by reason of such individual's qualified military service (as defined in Section 414(u) of the Code). (b) Each period of qualified military service served by an individual is, upon reemployment, deemed to constitute service with the Employer for purposes of vesting and the accrual of benefits under the Plan. (c) An individual reemployed under USERRA is entitled to accrued benefits that are contingent on the making of, or derived from, Employee contributions or elective deferrals only to the extent the individual makes payment to the Plan with respect to such contributions or deferrals; provided, however, that no such payment may exceed the amount the individual would have been permitted or required to contribute had the individual remained continuously employed by the Employer throughout the period of qualified military service. Any payment to the Plan under this subsection (c) shall be made during the period beginning with the date of reemployment and whose duration is 3 times the period of the qualified military service (but not greater than 5 years). 15.4 Governing Law. This Plan shall be administered, construed and enforced according to the laws of the State of Florida, except to the extent such laws have been expressly preempted by federal law. 15.5 Action by Employer. Whenever the Company or another Employer under the terms of this Plan is permitted or required to do or perform any act, it shall be done and performed by the Board of Directors of the Company or such other Employer and shall be evidenced by proper resolution of such Board of Directors certified by the Secretary or Assistant Secretary of the Company or such other Employer. 15.6 Alternative Actions. In the event it becomes impossible for the Company, another Employer, the Plan Administrator or the Trustee to perform any act required by this Plan, then the Company, such other Employer, the Plan Administrator or the Trustee, as the case may be, may perform such alternative act that most nearly carries out the intent and purpose of this Plan. 15.7 Gender. Throughout this Plan, and whenever appropriate, the masculine gender shall be deemed to include the feminine and neuter; the singular, the plural; and vice versa. XV-2 IN WITNESS WHEREOF, this Amendment and Restatement has been executed this _____ day of March, 2002, and shall be effective as of the dates set forth hereinabove. PSS WORLD MEDICAL, INC. By: /s/ David D. Klarner ________________________________ (Corporate Seal) Its: Vice President of Treasury "COMPANY" DIAGNOSTIC IMAGING, INC. By: /s/ David D. Klarner ________________________________ (Corporate Seal) Its: Vice President of Treasury GULF SOUTH MEDICAL SUPPLY, INC. By: /s/ David D. Klarner ________________________________ (Corporate Seal) Its: Vice President of Treasury WORLDMED, INC. By: /s/ David D. Klarner ________________________________ (Corporate Seal) Its: Vice President of Treasury XV-3 PHYSICIAN SALES & SERVICE, LP By: /s/ David D. Klarner ________________________________ (Corporate Seal) Its: Vice President of Treasury PHYSICIAN SALES & SERVICE, INC. By: /s/ David D. Klarner ________________________________ (Corporate Seal) Its: Vice President of Treasury XV-4 EX-10 4 seventh_amendment.txt Exhibit 10.9a SEVENTH AMENDMENT TO THE PSS WORLD MEDICAL, INC. EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN This Seventh Amendment to the PSS World Medical, Inc. Employee Stock Ownership and Savings Plan is adopted by PSS World Medical, Inc. (the "Company") and, except as otherwise provided herein, is effective as of January 1, 2002. This amendment shall supersede the provisions of the plan to the extent those provisions are inconsistent with the provisions of this amendment. W I T N E S S E T H: WHEREAS, the Company has previously adopted the PSS World Medical, Inc. Employee Stock Ownership and Savings Plan, which has been amended from time to time (as amended, the "Plan"); and WHEREAS, the Company is authorized and empowered to further amend the Plan; and WHEREAS, the Company has determined that it is advisable and in the best interests of the participants to amend the Plan as good faith compliance with the requirements of EGTRRA for Plan Years beginning on or after December 31, 2001, and to make other desired changes. NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective April 1, 2002, Section 1.13(c) of Article 1 of the Plan is hereby deleted. II. Effective April 1, 2002, Section 1.13(d) of the Plan is hereby redesignated as 1.13(c) and shall read in its entirety as follows: (c) The annual Compensation of each Participant taken into account in determining allocations for any Plan Year beginning after December 31, 2001, shall not exceed $200,000.00, as adjusted for the cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code. Annual Compensation means Compensation during the Plan Year or such other consecutive 12-month period over which Compensation is otherwise determined under the Plan. The cost-of-living adjustment in effect for a calendar year applies to annual Compensation for the determination period that begins with or within such calendar year. III. Section 1.23 of the Plan is hereby amended by adding the following at the end of the existing provision set forth therein: An Eligible Retirement Plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. The definition of Eligible Retirement Plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code. IV. Section 1.24(d) of the Plan is hereby deleted and the following is substituted in lieu thereof: (d) Any hardship distribution or hardship withdrawal. V. Effective April 1, 2002, Section 1.44 is hereby amended to read as follows: "Key Employee" means, for Plan Years beginning on or after April 1, 2002, any Employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the determination date was an officer of the Employer having annual Compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2001), a 5-percent owner of the Employer, or a 1-percent owner of the Employer having annual Compensation of more than $150,000. For this purpose, annual Compensation means Compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder. VI. Effective January 18, 2002, the introductory paragraph of Section 6.1(a) is amended to read as follows: Each Employer shall contribute to the Trust, on behalf of each Participant, an Elective Contribution as specified in a salary reduction agreement (if any) between the Participant and such Employer under which the Participant elects, pursuant to the terms of this Plan, to reduce the compensation otherwise payable to him by an amount allocable to his Elective Contributions Account; provided, however, that each Participant who has elected prior to January 18, 2002 to reduce the compensation otherwise payable to him by a specified dollar amount and who does not affirmatively elect to have a specific percentage of his compensation contributed to the Plan as an Elective Contribution, shall be deemed to have elected to defer one (1) percent of his compensation to the Plan as an Elective Contribution. VII. Effective April 1, 2002, Section 6.1(b) of Article VI of the Plan is hereby amended to read, in its entirety, as follows: (b) No Participant shall be permitted to have Elective Contributions made under this Plan in excess of the lesser of the dollar limitation contained in Section 402(g) of the Code in effect for any calendar year, except to the extent permitted under section XI of this amendment and Section 414(v) of the Code, if applicable, or, for Plan Years beginning on or after April 1, 2002, 85% of the Participant's Compensation for the Plan Year. The minimum contribution made on behalf of a Participant electing to make an Elective Contribution pursuant to this section 6.1 for any Plan Year shall be 1% of his Compensation. VIII. Effective April 1, 2002, Section 6.1(g) of Article VI of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof: (g) In the event that a Participant receives a withdrawal of his Elective Contributions pursuant to section 10.1, such Participant shall not be permitted to make any further Elective Contributions pursuant to section 6.1(a) for a period of 6 months following the date of such withdrawal. After the completion of the 6 month period, the Participant may reinstate Elective Contributions in accordance with the provisions of section 6.1(f). Additionally, Participants who receive a hardship distribution in 2001 or thereafter will no longer have the amount of Elective Contributions they may make in the year following the year in which they received the hardship distribution reduced by the amount of Elective Contributions they made in the year in which they received the hardship distribution. IX. The multiple use test described in Treasury Regulation section 1.401(m)-2 and Section 6.6(c) of the Plan shall not apply for Plan Years beginning after December 31, 2001. X. Effective January 1, 2002, Section 6.8 of Article VI of the Plan is hereby amended by adding the following sentence to the end of existing provision therein: Effective January 1, 2002, the Plan will accept Participant rollover contributions and direct rollovers of distributions made after December 31, 2001, only from a qualified plan described in Section 401(a) of the Code, excluding after-tax employee contributions. XI. Effective January 1, 2002, Article VI of the Plan is hereby amended by adding new section 6.10 to the end thereof: 6.10 Catch-Up Contributions. All Employees who are eligible to make elective deferrals under this Plan and who have attained age 50 before the close of the Plan Year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Section 414(v) of the Code. Such catch-up contributions shall not be taken into account for purposes of the provisions of the Plan implementing the requirements of Section 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416 of the Code, as applicable, by reason of the making of such contributions. Catch-up contributions shall apply to contributions made after December 31, 2001. Catch-up contributions will not be counted in computing Employer Matching Contributions. XII. Effective April 1, 2002, Section 7.7 (a) of Article VII of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof: (a) Except to the extent permitted under section XI of this amendment and Section 414(v) of the Code, if applicable, the Annual Additions that may be contributed or allocated to a Participant's Account under the Plan and under any other defined contribution plans maintained by an Employer or an Affiliate for any Limitation Year shall not exceed the lesser of $40,000 (or, if greater, the dollar limitation established by the Secretary of the Treasury pursuant to Section 415(d)(1) of the Code) or 100% of the Participant's Section 415 Compensation for such Limitation Year. The compensation limit referred to shall not apply to any contribution for medical benefits after separation from service (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code), which is otherwise treated as an Annual Addition. XIII. Effective April 1, 2002, Section 8.3 (b)(1) of Article VIII of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof: The vested interest in the Employer Contributions Account and the Non-ESOP Matching Contributions Account of each Participant shall be a percentage of the balance of each such Account as of the applicable Valuation Date, based upon such Participant's Years of Service as of the date of the severance of his employment, as follows: Years of Service Non-forfeitable percentage Less than 2 Years of Service 0% 2 years, but less than 3 years 20% 3 years, but less than 4 years 40% 4 years, but less than 5 years 60% 5 years, but less than 6 years 80% 6 years or more 100% XIV. 1. Determination of top-heavy status effective April 1, 2002. 1.1 Determination of present values and amounts. This section 1.1 shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of Employees as of the determination date. 1.1.1 Distributions during year ending on the determination date. The present values of accrued benefits and the amounts of account balances of an Employee as of the determination date shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting "5-year period" for "1-year period." 1.1.2 Employees not performing services during year ending on the determination date. The accrued benefits and accounts of any individual who has not performed services for the employer during the 1-year period ending on the determination date shall not be taken into account. 2. Minimum benefits. Matching contributions. Employer Matching Contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code and the Plan. The preceding sentence shall apply with respect to matching contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer Matching Contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Section 401(m) of the Code. XV. Effective January 1, 2002, a Participant's vested interest in the balance of his accounts shall be distributable on account of the Participant's severance from employment. However, such a distribution shall be subject to the other provisions of the Plan regarding distributions, other than provisions that require a separation from service (or severance of service) before such amounts may be distributed. This section shall apply for distributions after December 31, 2001, regardless of when the severance from employment occurred. XVI. Effective January 1, 2002, Section 10.1(d)(3) of Article X of the Plan is hereby amended to read, in its entirety, as follows: The Participant's elective contributions to the Plan or any qualified or nonqualified plans of deferred compensation maintained by an Employer are suspended and he is not permitted to make further elective contributions until the expiration of 6 months from the date of such withdrawal; and XVII. Effective January 1, 2002, the Participant's Rollover Contribution Account shall be excluded in determining the value of the Participant's nonforfeitable account balance for purposes of the Plan's involuntary cash-out rules. The election shall apply with respect to distributions made after December 31, 2001 with respect to Participants who sever employment after December 31, 2001. IN WITNESS WHEREOF, this Seventh Amendment is effective as of the dates set forth hereinabove. PSS WORLD MEDICAL, INC. (Corporate Seal) By: /s/ David D. Klarner _____________________________ Its: Vice President of Treasury EX-10 5 agreement_harper.txt EXHIBIT 10.14 CONSULTING AND RESTRICTIVE COVENANTS AGREEMENT THIS CONSULTING AND RESTRICTIVE COVENANTS AGREEMENT (this "Agreement") is made and entered into this13th day of June, 2002 by and between PSS World Medical, Inc. (the "Company"), and Douglas J. Harper ("Harper"), to be effective as of July 26, 2002 (the "Effective Date"). BACKGROUND Harper currently serves as the President of the Physician Sales & Service division of the Company, pursuant to an Employment Agreement, dated as of April 1, 1998 between the Company and Harper, as amended (the "Employment Agreement"). Prior to Effective Date, Harper will resign from his positions as an officer or employee of the Company and will thereafter provide consulting services to the Company upon the terms and conditions set forth herein. NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Resignations. Harper hereby tenders his resignation as the President of the Physician Sales & Service division of the Company and from any other position he may hold as an employee or officer of the Company, which resignation will be effective as of twelve o'clock noon E.S.T. on the Effective Date. As provided further in this Agreement, Harper will provide consulting services to the Company after the Effective Date. 2. Release of Claims. At the Effective Date, Harper shall execute and deliver to the Company a Release of Claims in substantially the form attached hereto as Exhibit A. 3. Severance Benefits. In accordance with Section 8(e) of the Employment Agreement, the Company shall provide to Harper the following severance benefits: (a) Accrued Payments. At the Effective Date, the Company shall make payments to Harper related to his employment with the Company in the amount of his accrued but unpaid salary and any accrued but unpaid vacation pay. (b) Severance Payment. Upon the expiration of the seven-day revocation period described in Section 2 of the Release of Claims, the Company will pay to Harper a lump sum severance payment of $22,920, which is equal to 30 days' salary. (c) Vested Benefits. Harper shall be entitled to any vested benefits he may have under the employee benefit plans of the Company as are applicable to him on the Effective Date. Such benefits will be in accordance with and subject to the applicable terms and conditions of such plans or agreements. (d) Acknowledgement. The parties acknowledge and agree that the payments and benefits described above may be taxable income, and each hereby covenants to comply with all federal and state income and employment tax requirements, including all reporting and withholding requirements, relating thereto. Harper further acknowledges that the payments and benefits described above are in full satisfaction of the Company's obligations to him under the terms of the Employment Agreement, and the Employment Agreement is hereby terminated and of no further force or effect as of the Effective Date. 4. Consulting Services. Harper shall provide consulting services to the Company as an independent contractor for a period of sixty (60) months beginning on the Effective Date (the "Consulting Period"). Consultant's services shall include, but not necessarily be limited to, providing advice and assistance to the Company in connection with acquisitions and the recruitment of sales representatives for the Physician Sales & Service division of the Company. During the Consulting Period, Harper shall devote such time and attention to his duties hereunder as is reasonably required to provide consulting services satisfactory to the Company pursuant to this Agreement. Notwithstanding the foregoing, the times during which, and the locations at which, Harper shall perform his services hereunder shall be subject to the mutual agreement of Harper and the Company. 5. Compensation for Consulting Services. As compensation for the consulting services to be provided by Harper hereunder, the Company shall pay and provide the following compensation: (a) Consulting Fee. During the Consulting Period, the Company will pay to Harper a consulting fee in the amount of U.S. $100 per hour worked. The Company will report the payment of such amounts for income tax purposes on a Form 1099-Misc. (b) Expenses. The Company shall reimburse Harper for all reasonable expenses incurred by him in connection with the performance of his duties hereunder, provided that Harper shall furnish the Company with a reasonable accounting for such expenses. The reasonableness of such expenses shall be subject to the determination by the Company, in a manner consistent with the Company's normal expense reimbursement policies. (c) Welfare Benefits Coverage. For a twenty-four (24) month period after the Effective Date, the Company, at its expense, shall continue benefits to Harper and/or his family at least equal to those which would have been provided to him in accordance with the welfare plans, programs, practices and policies of the Company in which Harper was participating immediately prior to the Effective Date (including, without limitation, medical, dental, disability, supplemental disability, and life insurance plans and programs); provided, however, that if Harper becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary and supplemental to those provided under such other plan during such applicable period of eligibility. 2 6. Independent Contractor. This Agreement calls for the performance of services by Harper as an independent contractor and Harper will not be considered an employee of the Company for any purpose. Accordingly, it is understood and agreed that Harper (a) has no authority to act for, or bind the Company by contract or otherwise; (b) is not eligible to participate in any employment benefit plan or program available to employees of the Company; (c) will be treated as an independent contractor for purposes of the Federal Insurance Contributions Act, federal income tax withholding, the Employee Retirement Income Security Act, state unemployment or disability insurance laws, or other similar laws; (d) shall work with, and take general direction from, the Chief Executive Officer of the Company; and (e) perform the services required under and pursuant to this Agreement in good faith and with a view toward maintaining and enhancing the reputation and good standing of the Company. 7. Restrictions on Harper's Conduct. (a) General. Harper acknowledges that his rights and benefits under this Agreement are contingent upon his agreement to make and adhere to the provisions of this Section 7. Harper recognizes and agrees that the Company will suffer irreparable harm in the event that Harper violates any of the Restrictive Covenants (as defined below). Harper and the Company understand and agree that the purpose of the provisions of this Section 7 is to protect legitimate business interests of the Company, as more fully described below, and is not intended to impair or infringe upon Harper's right to work, earn a living, or acquire and possess property from the fruits of his labor. Harper and the Company acknowledge and agree that the Restrictive Covenants are not made in connection with Harper's former employment with the Company, but rather are intended to protect the Company's interests during the Consulting Period. Harper hereby acknowledges that the restrictions set forth in this Section 7 are reasonable and that they do not, and will not, unduly impair his ability to earn a living. Therefore, in consideration of (i) Harper's rights and benefits under this Agreement; (ii) in consideration of the monetary compensation provided in Section 7(j); and (iii) in consideration of receiving access to the Confidential Information and Trade Secrets (as defined below), and, subject to the limitations of reasonableness imposed by law, Harper shall be subject to the restrictions set forth in this Section 7. (b) Definitions. The following capitalized terms used in this Section 7 shall have the meanings assigned to them below, which definitions shall apply to both the singular and the plural forms of such terms: "Competitive Position" means any position with a Competitor as a Principal or Representative in which Harper will use or is likely to use any Confidential Information or Trade Secrets, or in which Harper has duties for, provides services to, or otherwise assists such Competitor where such duties, services or assistance involve Competitive Services. 3 "Competitive Services" means any activities engaged in by the Company as of the Effective Date that relate directly to (a) the distribution of medical supplies, equipment or pharmaceuticals to (i) primary care and other office-based physicians, or (ii) nursing homes, extended care facilities, assisted living facilities, or home care or visiting nurse associations or agencies, or (b) the distribution of medical diagnostic imaging supplies, chemicals, equipment and service to the acute care or alternate care market; provided, however, that Competitive Services shall not include (x) the manufacture of medical supplies, equipment or pharmaceuticals or medical diagnostic imaging supplies, chemicals or equipment (collectively "Medical Products"), (y) the provision of e-commerce or internet services with respect to the dissemination of information or services related to the distribution of Medical Products (but which is not the distribution of Medical Products), or (z) the provision of group purchasing, contract pricing or cost analyses for physicians or medical practices. "Competitor" means any Person engaged, wholly or in material part, in Competitive Services. "Confidential Information" means all information regarding the Company, its activities, business or clients that is the subject of reasonable efforts by the Company to maintain its confidentiality and that is not generally disclosed by practice or authority to persons not employed by the Company, but that does not rise to the level of a Trade Secret. "Confidential Information" shall include, but is not limited to, financial plans and data concerning the Company; management planning information; business plans; operational methods; market studies; marketing plans or strategies; product development techniques or plans; customer lists; details of customer contracts; current and anticipated customer requirements; past, current and planned research and development; business acquisition plans; and new personnel acquisition plans. "Confidential Information" shall not include information that has become generally available to the public by the act of one who has the right to disclose such information without violating any right or privilege of the Company. This definition shall not limit any definition of "confidential information" or any equivalent term under state or federal law. "Person" means any individual or any corporation, partnership, joint venture, limited liability company, association or other entity or enterprise. "Principal or Representative" means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant. "Protected Customers" means any Person to whom the Company has sold its products or services or to whom the Company has submitted a written proposal to sell its products or services during the Consulting Period or during the twelve (12) months prior to the Effective Date. "Protected Employees" means employees of the Company who were employed by the Company at any time during the Consulting Period or within six (6) months prior to the Effective Date. "Restricted Period" means the 60-month Consulting Period. 4 "Restricted Territory" with respect to the non-competition covenant in Section 5(d)(iv) hereof means the States of Massachusetts and Florida and each of the other 48 United States. "Restrictive Covenants" means the restrictive covenants contained in Section 7(d) hereof. "Trade Secret" means all information, without regard to form, including, but not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, distribution lists or a list of actual or potential customers, advertisers or suppliers which is not commonly known by or available to the public and which information: (A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Without limiting the foregoing, Trade Secret means any item of confidential information that constitutes a "trade secret(s)" under the common law or statutory law of the State of Florida. (c) Protectable Employer Interests. Harper and the Company acknowledge and agree as follows: (i) that Harper's services on behalf of the Company require special expertise and talent in the provision of Competitive Services; (ii) that Harper will be in a position of trust and responsibility and will have access to a substantial amount of Confidential Information and Trade Secrets belonging to the Company; (iii) that, during the Consulting Period, Harper will develop substantial relationships with prospective and existing customers of the Company; and (iv) that as a consultant to the Company, Harper will be the repository of a substantial portion of the customer goodwill of the Company. (d) Restrictive Covenants. (i) Restriction on Disclosure and Use of Confidential Information and Trade Secrets. Harper understands and agrees that the Confidential Information and Trade Secrets constitute valuable assets of the Company and its affiliated entities, and may not be converted to Harper's own use. Accordingly, Harper hereby agrees that he shall not, directly or indirectly, at any time during the Restricted Period reveal, divulge, or disclose to any Person not expressly authorized by the Company any Confidential Information, and he shall not, directly or indirectly, at any time during the Restricted Period use or make use of any Confidential Information in connection with any business activity other than business of the Company. During the Restricted Period, Harper shall not directly or indirectly transmit or disclose any Trade Secret of the Company to any Person, and shall not make use of any such Trade Secret, directly or indirectly, for himself or for others, without the prior written consent of the Company. Harper and the Company acknowledge and agree that this Section 7 is not intended to, and does not, alter either the Company's rights or Harper's obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. 5 (ii) Nonsolicitation of Protected Employees. Harper understands and agrees that the relationship between the Company and each of its Protected Employees constitutes a valuable asset of the Company and may not be converted through Harper's solicitation to Harper's own use. Accordingly, Harper hereby agrees that during the Restricted Period, Harper will not, directly or indirectly, on his own behalf or as a Principal or Representative of any Person or otherwise, solicit or induce any Protected Employee to terminate his or her employment relationship with the Company or to enter into any relationship of employment, agency or independent contractorship with any other Person. (iii) Restriction on Relationships with Protected Customers. Harper understands and agrees that the relationship between the Company and each of its Protected Customers constitutes a valuable asset of the Company and may not be converted through Harper's solicitation to Harper's own use. Accordingly, Harper hereby agrees that, during the Restricted Period, Harper will not, without the prior written consent of the Company, directly or indirectly, on his own behalf or as a Principal or Representative of any Person, solicit, divert, or attempt to solicit or divert a Protected Customer for the purpose of providing or selling Competitive Services; provided, however, that the prohibition of this covenant shall apply only to Protected Customers with whom Harper had Material Contact on the Company's behalf during the Consulting Period or during the twelve (12) months immediately preceding the Effective Date. For purposes of this Agreement, Harper had "Material Contact" with a Protected Customer if (a) Harper had business dealings with the Protected Customer on the Company's behalf; (b) Harper was responsible for supervising or coordinating the dealings between the Company and the Protected Customer; or (c) Harper obtained Trade Secrets or Confidential Information about the customer as a result of Harper's association with the Company. (iv) Noncompetition with the Company. Harper understands and agrees that he is capable of obtaining gainful, lucrative and desirable employment that does not violate the restrictions contained in this Agreement. Harper hereby agree that, during the Restricted Period, Harper will not, without prior written consent of the Company, directly or indirectly seek or obtain a Competitive Position in the Restricted Territory with a Competitor; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Harper of any securities of the Company or its affiliated entities or not more than five percent (5%) of any class of securities of any corporation having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended. (e) Exceptions from Disclosure Restrictions. Anything herein to the contrary notwithstanding, Harper will not be restricted from disclosing or using Confidential Information that: (a) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Harper or his agent; (b) becomes available to Harper in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; (c) was known to Harper on a non-confidential basis and not in contravention of applicable law or a confidentiality or other similar agreement before its disclosure to Harper by the Company or its affiliated entities or one of its or their officers, employees, agents or representatives; or (d) is required to be disclosed by law, court order or other legal process; provided, however, that in the event disclosure is required by law, Harper will provide the Company with prompt notice of such requirement so that the Company may seek an appropriate protective order prior to any such required disclosure by Harper. 6 (f) Reasonableness. The covenants contained in this Section 7 are considered by the parties hereto to be fair, reasonable and necessary for the protection of the legitimate business interests of the Company. (g) Rights and Remedies Upon Breach. In the event Harper breaches, or threatens to commit a breach of, any of the provisions of the Restrictive Covenants, the Company shall have the following rights and remedies, which shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity: (i) the right and remedy to enjoin, preliminarily and permanently, Harper from violating or threatening to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company; and (ii) the right and remedy to require Harper to account for and pay over to the Company all compensation paid to him pursuant to Section (j) of this Agreement as special consideration for the Restrictive Covenants; and (iii) the right and remedy to require Harper to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Harper as the result of any transactions constituting a breach of the Restrictive Covenants. (h) Severability of Covenants. Harper acknowledges and agrees that the Restrictive Covenants are reasonable and valid in time and scope and in all other respects. The covenants set forth in this Agreement shall be considered and construed as separate and independent covenants. If any court determines that any of the Restrictive Covenants, or any part thereof, are invalid or unenforceable, the remainder of the Restrictive Covenants will not thereby be affected and will be given full effect, without regard to the invalid portions. (i) Reformation. Harper and the Company agree that it is their mutual intention that the Restrictive Covenants be enforced in accordance with their terms to the maximum extent possible under applicable law. Harper and the Company further agree that, in the event any court of competent jurisdiction shall find that any provision hereof is not enforceable in accordance with its terms, the court shall reform the Restrictive Covenants such that they will be enforceable to the maximum extent permissible at law. (j) Consideration for the Restrictive Covenants. In special consideration for Executive entering into the Restrictive Covenants, the Company shall pay to Executive the following amounts: 7 (i) $252,080, payable in a lump sum on the Effective Date; (ii) $275,000, payable monthly over twenty-four (24) months after the Effective Date; and (iii) $48,000 payable in a lump sum on February 1, 2004. 8. Representations and Warranties. Harper hereby represents and warrants to the Company that (a) he is not a party to, or otherwise subject to, any covenant not to compete with any person or entity which would interfere with in his consulting duties hereunder, (b) his performance of all the terms of this Agreement and as a consultant to the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by Harper in confidence or in trust prior to his relationship with the Company, and (c) his execution of this Agreement and performance of his obligations hereunder will not violate the terms or conditions of any contract or obligation, written or oral, between Harper and any other person or entity. 9. Miscellaneous. (a) Assignment and Successors. This Agreement is personal to Harper and without the prior written consent of the Company shall not be assignable by Harper otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Harper's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (b) Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver. (c) Severability. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect. (d) Entire Agreement. Except as provided herein, this Agreement contains the entire agreement among the Company and Harper with respect to the subject matter hereof and, from and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, including, without limitation, the Employment Agreement. 8 (e) Choice of Law; Forum Selection. The validity, interpretation and performance of this Agreement shall be governed by and controlled in accordance with the laws of the State of Florida, including said State's choice of law rules. The parties hereto voluntarily submit themselves to the jurisdiction of the state or federal district courts in the State of Florida which shall have exclusive jurisdiction over any case or controversy arising under or in connection with this Agreement, including with respect to an action to remedy any breach of or otherwise to enforce the terms and conditions of this Agreement. (f) Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or three days after mailing if mailed, first class, certified mail (return receipt requested), postage prepaid: To the Company: PSS World Medical, Inc. 4345 Southpoint Boulevard Jacksonville, Florida 32216 Attention: Chief Executive Officer To Harper: Douglas J. Harper Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein. (g) Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to this Agreement. (h) Construction. Each party and his or its counsel have reviewed this Agreement and have been provided the opportunity to revise this Agreement and accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. Instead, the language of all parts of this Agreement shall be construed as a whole, and according to its fair meaning, and not strictly for or against either party. (Signatures on following page) 9 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Consulting Agreement as of the date first above written. PSS WORLD MEDICAL, Inc. By: /s/ David A. Smith _______________________________ David A. Smith Title: President and Chief Executive Officer HARPER: /s/ Douglas J. Harper ________________________ Douglas J. Harper 10 EXHIBIT A Form of Release of Claims This Release ("Release") is granted effective as of the 13th day of June, 2002, by Douglas J. Harper ("Harper") in favor of PSS World Medical, Inc. (the "Company"). This is the Release referred to that certain Consulting and Restrictive Covenants Agreement dated as of ____________, 2002 by and between the Company and Harper (the "Consulting Agreement"). Harper gives this Release in consideration of the Company's promises and covenants as recited in the Consulting Agreement, with respect to which this Release is an integral part. 1. Release of the Company. Harper, for himself, his successors, assigns, attorneys, and all those entitled to assert his rights, now and forever hereby releases and discharges the Company and its respective officers, directors, stockholders, trustees, employees, agents, parent corporations, subsidiaries, affiliates, estates, successors, assigns and attorneys (the "Released Parties"), from any and all claims, actions, causes of action, sums of money due, suits, debts, liens, covenants, contracts, obligations, costs, expenses, damages, judgments, agreements, promises, demands, claims for attorney's fees and costs, or liabilities whatsoever, in law or in equity, which Harper ever had or now has against the Released Parties arising by reason of or in any way connected with any employment relationship which existed between the Company or any of its parents, subsidiaries, affiliates, or predecessors, and Harper. It is understood and agreed that this Release is intended to cover all actions, causes of action, claims or demands for any damage, loss or injury arising from the aforesaid employment relationship, or the termination of that relationship, that Harper has, had or purports to have, from the beginning of time to the date of this Release, whether known or unknown, that now exists related to the aforesaid employment relationship including but not limited to claims for employment discrimination under federal or state law, except as provided in Paragraph 2; claims arising under Title VII of the Civil Rights Act, 42 U.S.C. ss. 2002(e), et seq. or the Americans With Disabilities Act, 42 U.S.C. ss. 12101 et seq.; claims for statutory or common law wrongful discharge, including any claims arising under the Fair Labor Standards Act, 29 U.S.C. ss. 201 et seq.; claims for attorney's fees, expenses and costs; claims for defamation; claims for wages or vacation pay; claims for benefits, including any claims arising under the Employee Retirement Income Security Act, 29 U.S.C. ss. 1001, et seq.; and provided, however, that nothing herein shall release the Company of their obligations to Harper under the Consulting Agreement or any other contractual obligations between the Company or its affiliates and Harper, or any indemnification obligations to Harper under the Company's bylaws, articles of incorporation, Florida law or otherwise. 2. Release of Claims Under Age Discrimination in Employment Act. Without limiting the generality of the foregoing, Harper agrees that by executing this Release, he has released and waived any and all claims he has or may have as of the date of this Release for age discrimination under the Age Discrimination in Employment Act, 29 U.S.C. ss. 621, et seq. It is understood that Harper is advised to consult with an attorney prior to executing this Release; that he in fact has consulted a knowledgeable, competent attorney regarding this Release; that he may, before executing this Release, consider this Release for a period of twenty-one (21) calendar days; and that the consideration he receives for this Release is in addition to amounts to which he was already entitled. It is further understood that this Release is not effective until seven (7) calendar days after the execution of this Release and that Harper may revoke this Release within seven (7) calendar days from the date of execution hereof. Harper agrees that he has carefully read this Release and is signing it voluntarily. Harper acknowledges that he has had twenty one (21) days from receipt of this Release to review it prior to signing or that, if Harper is signing this Release prior to the expiration of such 21-day period, Harper is waiving his right to review the Release for such full 21-day period prior to signing it. Harper has the right to revoke this Release within seven (7) days following the date of its execution by him. However, if Harper revokes this Release within such seven (7) day period, no severance benefit will be payable to him under the Consulting Agreement and he shall return to the Company any such payment received prior to that date. HARPER HAS CAREFULLY READ THIS RELEASE AND ACKNOWLEDGES THAT IT CONSTITUTES A GENERAL RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS AGAINST INTERVU and its affiliates UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT. HARPER ACKNOWLEDGES THAT HE HAS HAD A FULL OPPORTUNITY TO CONSULT WITH AN ATTORNEY OR OTHER ADVISOR OF HIS CHOOSING CONCERNING HIS EXECUTION OF THIS RELEASE AND THAT HE IS SIGNING THIS RELEASE VOLUNTARILY AND WITH THE FULL INTENT OF RELEASING INTERVU and its affiliates FROM ALL SUCH CLAIMS. /s/ Douglas J. Harper ______________________ Douglas J. Harper Date: 6/13/02 ___________ 2 -----END PRIVACY-ENHANCED MESSAGE-----