Exhibit 10.1

Subject to Competitive Bid Process

MEDICAL-SURGICAL DISTRIBUTION AGREEMENT

Between

NOVATION, LLC

And

OWENS & MINOR DISTRIBUTION, INC.

 

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NOVATION, LLC

MEDICAL-SURGICAL DISTRIBUTION AGREEMENT

THIS MEDICAL-SURGICAL DISTRIBUTION AGREEMENT (this “Agreement”) is made and
entered effective the 1st day of September, 2006 (the “Effective Date”), by and
between NOVATION LLC, a Texas limited liability company (“Novation”) and Owens &
Minor Distribution, Inc., a Virginia corporation (“Distributor” or “Authorized
Distributor” (AD)). Novation and Distributor are sometimes referred to herein
individually as a “Party” and collectively as the “Parties.”

WHEREAS, Novation is engaged in providing purchasing opportunities with respect
to high quality products and services to clients and/or health care providers
(each a “Member” and collectively, the “Members”) entitled to participate in
Novation’s programs through their membership or other participatory status in
VHA Inc. (“VHA”), University Health System Consortium (“UHC”), and HealthCare
Purchasing Partners International, LLC (“HPPI”) (each, a “Client,” and
collectively, the “Clients”);

WHEREAS, a list of Members is maintained by Novation in an electronic database
(the “Novation Database”);

WHEREAS, Distributor is engaged in the business of providing distribution
services (as described in Exhibit 1) including the purchasing and reselling of
(i) products for which Novation has contracted with a Supplier (as defined
herein) to provide to Members at a set price (“Contract Products”),
(ii) products which display the NOVAPLUS® trademark (“Private Label Products”);
(iii) all other products and services that may be distributed and provided to
Members (“Non-Contract Products”) (Contract Products, Private Label Products,
and Non-Contract Products are referred to herein collectively as
“Medical-Surgical Products”); and (iv) the repair and maintenance of certain
Medical-Surgical equipment (“Capital Services”);

WHEREAS, Distributors are defined as full-line medical-surgical distributors
that provide proof that they locally stock and distribute the top 20 HPIS
categories and their subcategories. The list of HPIS Top 20 Categories is
attached hereto as Exhibit 2;

WHEREAS, in response to Novation’s Invitation to Bid, Distributor submitted a
written offer (“Bid”) to Novation to make certain distribution services, as
described in this Agreement, available to Members; and

WHEREAS, Novation wishes to accept Distributor’s Bid upon the terms and
conditions set forth herein.

 

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NOW, THEREFORE, in consideration of the mutual covenants and conditions
hereinafter expressed, Novation and Distributor agree as follows:

 

1. Exclusive Agent; Limited Liability.

A. In entering into this Agreement, Novation is acting as the exclusive agent
for each of the Clients and certain of each Client’s subsidiaries and
affiliates, respectively (and not collectively). Novation and the Clients and
their subsidiaries and affiliates shall not be responsible or liable for the
actions or inactions of any Member, including but not limited to the breach of
any purchasing commitment. In addition, none of the Clients shall be responsible
or liable for the obligations of another Client or its subsidiaries or
affiliates or for the obligations of Novation or Distributor under this
Agreement.

B. Member Access to Agreement. This agreement is for primary medical-surgical
distribution of products and services. However, Distributor shall not restrict
any Member’s ability to purchase or lease any of the Products from or through
Distributor pursuant to this Agreement based on such Member’s group purchasing
organization designation. Members shall declare by submitting a signed
Authorized Distributor Selection Form and Participating Member Distribution
Service Pricing Calculation Form whereby authorizing Distributor to access
Novation contracts and pricing on their behalf. Authorized Distributor will
report such sales to Novation and applicable manufacturers and will pay fees to
Novation on contract sales.

C. Due to the diverse nature of the membership of VHA, UHC, and HPPI, members
may chose to access this program at different levels of participation. For those
members that do not participate 100% in this program, Novation and the
distributor will together provide an opportunity for access to contract products
and pricing.

D. Authorized Distributor must be able to administer multiple Group Purchasing
Organization (GPO) pricing and reporting on behalf of single VHA, UHC or HPPI
member.

 

2. Contract Award

A. Letter of Award. By executing this Agreement, which includes, without
limitation, the Letter of Award attached hereto as Exhibit A (“Award Letter”),
Novation has accepted Distributor’s Bid. For the Initial Term and any Renewal
Terms (as defined herein), Distributor shall provide distribution services
(“Services”) with respect to the service, purchasing and reselling of
Medical-Surgical Products to Members. For purposes of this Agreement, the
Services shall include, without limitation, selling, marketing, ordering,
paying, order receiving, billing/invoicing, handling, storing, receiving, taking
inventory, transporting, delivering, collecting funds, cash application, cash
management, receivables management, payables management, administering
Novation’s Medical-Surgical portfolio of contract prices, handling Member and
other inquiries, providing Member service, handling recalls and market
withdrawals, and providing for returns permitted by law and the services
described on Exhibit B attached hereto. Novation acknowledges that, in making
its award to Distributor, Novation has materially relied on all representations,
warranties and agreements made by Distributor as part of its Bid and that all
such representations, warranties and agreements are incorporated by reference
into this Agreement.

 

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Novation and Authorized Distributor therefore agree that Authorized Distributor
will make the Services available to the Participating Members (identified in
Exhibit C) for the pricing set forth in Exhibit D attached hereto (“Distribution
Services Pricing”) as of the effective date (“Effective Date”) in the Award
Letter in accordance with the terms of this Agreement, for the term (“Term”),
Paragraph 3. Section A.; provided, however, that Novation’s award of this
Agreement to Authorized Distributor will not constitute a commitment by any
person to obtain Services from, or purchase any of the Products through,
Authorized Distributor. Authorized Distributor will not impose any purchasing
commitment on any Member as a condition to the Member’s purchases of any
Services pursuant to this Agreement.

B. Purchasing Commitments. Novation’s award of this Agreement to Distributor
shall not constitute a commitment by any Member (or other person) to obtain
Services from, or purchase any of the Medical-Surgical Products through
Distributor. Distributor shall not impose any commitment on any Member to
purchase any specific quantity (other than the smallest available unit) or
combination of Medical-Surgical Products, or impose any other purchasing
commitment, as a condition to the Member’s purchase of any Services under this
Agreement.

C. Product Supply – Authorized Distributor/Novation Product Portfolio. Novation
reserves the right during the term of this Agreement to engage Distributors in
the product contract process. Novation may identify specific products or product
categories and request a bid for price and other terms. If awarded, Distributor
will be considered a Novation contracted supplier for these products and/or
product categories. Novation may request additional value in consideration for
these Novation contracted product or product categories.

 

3. Term and Termination

A. Term. This Agreement shall have an initial term of five (5) years, beginning
on the Effective Date (the “Initial Term”). In Novation’s sole discretion, the
Initial Term may be renewed for up to two (2) additional one-year terms (each, a
“Renewal Term”) upon the mutual written agreement of the Parties. The Initial
Term and any Renewal Terms are referred to collectively herein as the “Term.”

B. Termination. Except as otherwise specifically provided herein, either Party
may terminate this Agreement at any time for any reason by delivering not less
than ninety (90) days’ prior written notice thereof to the other Party. In
addition, either Party may terminate this Agreement immediately by delivering
written notice thereof to the other Party upon the occurrence of either of the
following events:

(1) The other Party breaches this Agreement and does not cure this breach within
thirty (30) days of receiving notice of such breach; provided, however, that no
cure period shall be permitted for Distributor’s breach of its financial
obligations hereunder or breach of any Legal Requirement (as defined herein); or

 

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(2) The other Party becomes bankrupt or insolvent, makes an unauthorized
assignment, goes into liquidation, has proceedings initiated against it for the
purpose of seeking a receiving order or winding up order, or applies to the
courts for protection from its creditors.

C. Non-Payment or Insolvency of a Member. In the event that a Member fails to
pay Distributor for Medical-Surgical Products, becomes bankrupt or insolvent,
makes an assignment for the benefit of creditors or goes into liquidation, or if
proceedings are initiated for the purpose of having a receiving order or winding
up order made against a Member, or if a Member applies to the courts for
protection from its creditors, then this Agreement will not terminate, but
Distributor will have the right, upon prior written notice to Novation and the
Member, to discontinue the provision of Services to that Member.

D. Optional Contracting Arrangements. Any Optional Contracting Arrangement
relating solely to traditional medical/surgical distribution services should
have as its termination date the same or earlier date than the termination date
of this Agreement as described in Paragraph 3, Section A; provided however that
such agreements may provide for renewal or continuation in the event Distributor
continues as an authorized distributor after such date through a new or
replacement agreement with Novation.

4. Supplier Agreements. Novation and/or the Clients have entered into and from
time to time will enter into, agreements (“Supplier Agreements”) with certain
suppliers (“Suppliers”) who agree to sell Contract Products and/or Private Label
Products to Members either directly or through distributors. Novation shall
provide Distributor with a listing of Contract Products and Private Label
Products and their respective prices awarded in Supplier Agreements (“Supplier
Agreement Data”), either by hard copy or electronically, at Novation’s option.
Novation shall use reasonable efforts to provide Supplier Agreement Data to
Distributor within a reasonable amount of time prior to the effective date of
each Supplier Agreement. In the event that a Distributor is unable to conduct
business with a Novation Supplier, Distributor will notify Novation immediately
and use commercially reasonable efforts to resolve all issues within thirty
(30) days.

5. Supplier Agreement Data Maintenance. Distributor shall load all new or
changed Supplier Agreement Data into Distributor’s computer system such that
Members shall be properly invoiced within (i) thirty (30) days following
Distributor’s receipt of changes to the entire portfolio of Supplier Agreements
from Novation and Suppliers, (ii) three (3) business days following
Distributor’s receipt of routine changes or additions to the Supplier Agreement
Data, and (iii) one (1) day following Distributor’s receipt of urgent changes or
additions to the Supplier Agreement Data. Distributor shall cooperate with
Novation to ensure the smooth transition of large portfolio changes. Cooperation
includes timely loading of new contracts, timely loading of new products to
Distributor’s product catalog, and moving inventory demand from equivalent
products purchased by Members to the newly awarded Contract or Private Label
Product. For purposes of auditing, Distributor shall submit to Novation upon
request, but not more frequently than twice per year, Novation’s full portfolio
product and contract price information. Required information and report format
will be communicated to Distributor. In all cases, Distributor shall use its
best efforts to promptly activate Novation’s contract pricing in Distributor’s
databases.

 

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6. Member Markup

A. In General. Distributors shall invoice Members for purchases of
Medical-Surgical Products (Contract Products are defined in Exhibit E) at Cost
as defined in Exhibit F attached hereto plus the applicable percentage markup
(“Member Markup”) determined based on certain criteria applicable to each Member
as referenced in Exhibits D and D-1; additionally, the criteria includes,
without limitation, payment terms (“Member Payment Terms”) as defined in Exhibit
D-5 hereto and may include activity-based pricing alternatives.

B. Notification of Changes in Pricing Terms. Distributor will notify all
Participating Members and Novation at least forty-five (45) days prior to any
change in pricing terms where the Distributor received a minimum of sixty
(60) day advance price/contract change notification for all Novation Suppliers
and all other manufacturers. Otherwise, Distributor will provide Participating
Members and Novation at least fifteen (15) day advance price/contract change
notification for all Novation Suppliers and all other manufacturers from the
date the Distributor receives any change in pricing terms. For purposes of the
foregoing notification requirements, a change in pricing terms will mean any
change that affects the delivered price to the Participating Member, including
without limitation, changes in Distribution Fees if permitted or required by
this Agreement, Prices as defined in Paragraph 6. Section A., Costs as defined
in Exhibit F, list prices, discounts or pricing tiers, schedules or any matters
set forth in Exhibit I attached hereto. Such notice will be provided in such
format and in such detail as may be required by Novation from time to time, and
will include at a minimum, sufficient information to determine line item pricing
of the Products for all affected Participating Members

 

7. Price Protection. Distributor agrees to keep firm, the distribution pricing
in Exhibit D of this Agreement for the Initial Term of the Agreement and any
subsequent Renewal Terms. Notwithstanding the foregoing, in the event that
during the term of this Agreement there are any significant increases in
Distributor’s cost of doing business that are not within Distributor’s
reasonable control (including, but not limited to, increases in fuel/energy
prices, interest rates, labor rates, etc.), Novation and Distributor agree in
good faith to negotiate revised terms under this Agreement to reasonably assist
Distributor in managing these cost increases.

 

8. Product Supply

A. Distribution Centers. Distributor may have multiple warehouses in different
geographic locations (each, a “Distribution Center” or “DC”) and shall assign
each Member who purchases Medical-Surgical Products and Services from
Distributor to a primary DC. This assignment must be reported quarterly in
accordance with Exhibit G.

B. Storage. Authorized Distributor will warehouse at the locations listed in
Exhibit G attached hereto (“Distribution Centers”) at its own cost such
quantities of Products, including such quantities of Private Label Products, as
Distributor reasonably determines, based on historical usage or data provided by
Participating Members, is necessary to satisfy the anticipated requirements of
all Participating Members served by each Distribution Center. Under normal
circumstances, the Distribution Center in closest geographical proximity to the
Participating Member will serve that Participating Member. Distributor will
notify Novation and affected Participating Members at least 30 days in advance
of any change in the geographical location of a Distribution Center.

 

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C. Product Stocking. Distributor agrees to stock Products in accordance with
Exhibit H attached hereto.

D. Notice of Physical Inventory. Distributor will give Novation and
Participating Members notice of Distributor’s intent to perform a physical
inventory in accordance with Exhibit I attached hereto.

E. Discontinuation of Contract Products or Private Label Products. Distributor
shall not discontinue any Contract Product or Private Label Product except in
accordance with Exhibit H.

F. Scheduled Deliveries. Distributor agrees to deliver Products ordered by
Participating Members, FOB Participating Member freight prepaid and absorb, and
in accordance with Exhibit K attached hereto unless otherwise requested by
Participating Member, and will direct its invoices to the Participating Members
in accordance with this Agreement and Exhibit J attached hereto. Supplier agrees
to ship FOB destination/bill third party via the carrier of the relevant
Member’s choice when Products are shipped directly to that Member and the Member
is absorbing the charges for transporting the Products. In that event, Supplier
has agreed to enter the Member purchase order number in the customer reference
field of the carrier bill of lading.

Distributor will make whatever arrangements are reasonably necessary with the
Participating Members to implement the terms of this Agreement; provided,
however, Distributor will not impose any purchasing commitment on any
Participating Member as a condition to the Participating Member’s purchase of
any Services or Products pursuant to this Agreement. Distributor shall provide
each Member with a mutually agreed upon order delivery time that meets that
Member’s needs. Distributor shall communicate to the Member in a timely manner
any changes to the delivery time or delays. Distributor shall make scheduled
deliveries using Distributor’s own transportation vehicles or contracted third
party couriers or common carriers. Distributor shall provide adequate security
for the transport of controlled substances. Distributor shall deliver
temperature-sensitive products in insulated containers capable of maintaining
the appropriate temperature during transport.

G. Order Transmission Deadlines. Distributor’s order transmission deadlines for
Members shall be no earlier than 1:00 p.m. (local time) Monday through Friday
for next day scheduled product delivery.

H. Emergency Deliveries. If an emergency delivery is attributed to the fault of
the distributor, there will be no charge for the emergency delivery. If the
member has special needs or is the contributing factor for the emergency
delivery, the member will pay for the delivery. In the case of emergency
deliveries, Distributor shall notify Member of such anticipated costs before
accepting the emergency delivery request and, with Member’s advance permission,
Distributor will charge Member for delivery. Will-call orders picked up by a
Member during normal daytime business hours shall not be considered “emergency
deliveries”.

I. Product Fill Rates. Distributor agrees to provide product fill rates to
Participating Members in accordance with Exhibit L attached hereto.

 

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J. Product Compliance, Quality

(1) Product Compliance. Distributor hereby represents and warrants to Novation,
the Clients and the Members as follows, which representations and warranties
shall survive the expiration or earlier termination of this Agreement:

(a) The Medical-Surgical Products shall be distributed, sold and priced by
Distributor in compliance with applicable federal, state and local laws; and

(b) As of the date of delivery to a Member, no Medical-Surgical Products
manufactured or private labeled by Distributor shall be misbranded within the
meaning of the federal Food, Drug and Cosmetic Act, as amended, nor shall any
such Medical-Surgical Products violate or cause a violation of any applicable
law, ordinance, rule, regulation or order

(2) Product Condition. Unless otherwise agreed upon by a Member, all
Medical-Surgical Products shall be new. Medical-Surgical Products that are
demonstrators, used, obsolete, or seconds, or which have been discontinued, are
unacceptable unless the Member accepts delivery after receiving notice from
Distributor of the condition of the Medical-Surgical Products.

(3) Product Shelf Life. Distributor shall use reasonable efforts to provide
Medical-Surgical Products with at least six (6) months dating. Distributor shall
use its best efforts to provide Medical-Surgical Products with the longest
possible shelf life and the latest possible expiration dates.

K. Force Majeure. Notwithstanding anything in this Agreement to the contrary,
Distributor shall be excused from the performance of its obligations under this
Agreement if, and for so long as, and only to the extent that, the
non-performance of such obligations occurs by reason of any act of God,
including but not limited to fire, flood, storm, earthquake, or natural
disaster, or by reason of war or national emergency or other reasons beyond the
control of Distributor (“Force Majeure”), provided that Distributor shall have
used its reasonable best efforts to minimize the effects of the Force Majeure
and resume performance. If such Force Majeure occurs unabated for a period of
thirty (30) days or longer, Novation may terminate this Agreement upon five
(5) days’ prior written notice to Distributor. In addition, Distributor hereby
agrees to use its reasonable best efforts to deliver Medical-Surgical Products
to Members despite labor disputes, including delivering across picket lines and
delivering to alternate delivery points.

 

9. Ordering

A. Computer Software. In addition to complying with the information requirements
set forth in Paragraph 13. below, Authorized Distributor agrees to have and
maintain during the Term all computer-based systems described in Exhibit M
attached hereto through which Participating Members may place orders in
accordance with Paragraph 8. Section B. below and receive confirmation in
accordance with Exhibit N.

B. Purchase Orders. Distributor shall accept Member orders, order supplements
and order modifications on purchase orders delivered to Distributor via
facsimile, telephone, or hard copy,

 

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through the preferred method of electronic order transmission using EDI or
Distributor-provided technology as described in Paragraph 8., or through such
other electronic method acceptable to Distributor. Distributor’s ordering
technology shall accommodate a Member’s alphanumeric purchase order number.

C. Product Substitution. Distributor shall have no unilateral right to
substitute other products for any Contracted Medical-Surgical Product ordered by
Members. Member may design and control a list of products for automatic
substitution and Distributor shall administer such list. Member shall have sole
decision-making authority for the logic of, and products covered in, Members
automatic substitution programs. At Member’s direction, Distributor shall
promptly add or remove products from any automatic substitution program.

D. Order Confirmation and Failure to Supply

(1) Confirmation. Distributor will make available confirmation of orders from
Participating Members electronically in accordance with Paragraph 8. Section A.
above within the time period specified in Exhibit M, subject to the last
sentence of this Section. The confirmation will include: (i) a description of
Products, unit price, quantity ordered, and quantity to be shipped; (ii) the
dollar amount of the total order; (iii) the applicable identification codes such
as purchase order numbers and cost center designations if the Participating
Member requests such information; and (iv) such other information as specified
in Exhibit N attached hereto. If the Participating Member is not capable of
receiving the computer transmission, Authorized Distributor will provide
confirmation via purchase order print back at its own expense via facsimile. For
all orders, Participating Member shall receive the complete confirmation within
two (2) hours after the receipt of the order by Distributor during normal
business hours.

(2) Failure To Supply. Subject to the terms of this Agreement, in the event of
Distributor’s material failure to perform in accordance with the terms of this
Agreement, the Member may purchase products and service equivalent to the
Medical-Surgical Products from other sources and Distributor will be responsible
to reimburse the Member for all reasonable costs in excess of the Award Prices.
If during the term of Agreement, a Participating Member requests a change of
Distributor, refer to Exhibit O.

10. Delivery and Invoicing

On and after the Effective Date, Distributor agrees to deliver Products ordered
by Participating Members FOB Participating Member freight prepaid and in
accordance with Exhibit J attached hereto unless otherwise requested by
Participating Member, and will direct its invoices to the Participating Members
in accordance with this Agreement and Exhibit K attached hereto. Distributor
will make whatever arrangements are reasonably necessary with the Participating
Members to implement the terms of this Agreement; provided, however, Distributor
will not impose any purchasing commitment on any Participating Member as a
condition to the Participating Member’s purchase of any Services or Products
pursuant to this Agreement.

A. Invoice Information. All invoices shall include, at a minimum, the following
information: invoice date, list of all products ordered, quantity ordered,
quantity shipped, product description

 

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including Supplier number, Distributor’s product number, price per product, each
product’s extended price for quantity shipped, total price for the order,
Member’s purchase order number, Distributor invoice number or other applicable
tracking number, and the payment terms for the shipped order.

B. Electronic Invoicing. At no additional charge to Member, Members may elect to
be invoiced electronically by Distributor using a standard EDI format or a
customized format mutually acceptable to Member and Distributor.

C. Taxes. Taxes or fees levied by federal, state, county or other municipalities
in which a Member is located, based upon sales to that Member, may be passed on
to the Member by including that tax or fee in the charge for the taxable
product. If this method of line item billing is not possible, then the tax or
fee may be billed to the Member at the end of the invoice, based upon the taxes
due. Upon request, Distributor shall provide the Member with a copy of the
applicable statute, regulation, pronouncement or other authority on which
Distributor is relying with respect to any federal, state, county or municipal
tax issue raised. Notwithstanding the foregoing, to the extent that a Member is
a tax-exempt corporation pursuant to Section 501(c)(3) of the Internal Revenue
Code of the United States, as amended, and under applicable laws of the Member’s
state, and such Member has provided to Distributor valid, current exemption
certificates or other documents necessary to claim exemption from any such
taxes, Distributor shall take all reasonable action required to cause such
Member’s purchase of Medical-Surgical Products hereunder to be treated as a
tax-exempt transaction with respect to the applicable taxes from which the
Member claims exemption.

D. Drop Shipment Invoice Services. Drop Shipments are defined as products
shipped from the Supplier directly to the Member but invoiced to Distributor for
the purpose of billing the Member. Upon request of the Member and with
permission of the Supplier, Distributor shall provide the service of invoicing
drop shipped products. Drop Shipments shall be invoiced at [*], and no
additional fees will apply to the Member for this service. In the event
Distributor elects to no longer carry a Medical-Surgical Product in a
Distribution Center or if a Distribution Center is out of stock of a
Medical-Surgical Product, Members may elect to request a Drop Shipment from the
Supplier. In these circumstances, Distributor shall without exception invoice
these Drop Shipments at [*]. All Drop Shipments invoiced by the Distributor
shall be added to the Member’s total purchase volume for the purposes of
slotting the Member in the Member Markup Matrix.

E. Invoice Corrections

(1) Overcharges. Distributor shall thoroughly research Member-reported price
overcharges and respond to such Member with findings within five (5) business
days of receipt of the request (which overcharges shall be reported within 30
days of the invoice date). If the Member was overcharged for a Contract or
Private Label Product, Distributor

shall promptly either credit the Member for the difference or credit the entire
original purchase and re-invoice at the correct contract price (“Billing
Correction”).

 

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* [This confidential information has been omitted and filed separately with the
Commission.]

 

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(2) Global Correction for Overcharges. In the event that Distributor discovers a
price overcharge on a Contract Product or a Private Label Product, Distributor
shall implement the Billing Corrections nationally for ALL overcharged Members.
This process shall be automatic and shall not be dependent on each Member
requesting the correction. Distributor shall formalize this policy in writing
and provide a copy of the policy to Novation, and upon request, to Members.

 

11. Additional Requirements

A. Return of Medical-Surgical Products. Any Member, in addition to and not in
limitation of any other rights and remedies, shall have the right to return
Medical-Surgical Products to Distributor in accordance with the terms set forth
in Exhibit P hereto.

B. Notice of Temporary Service Interruptions. Distributor shall give Novation
and Members notice of Distributor’s intent to perform a physical inventory or
any other Distributor scheduled or anticipated activity that may negatively
impact delivery times or customer service capabilities.

C. Disaster Response Plan. Distributor shall assist Members in developing a plan
of action for delivery of Medical-Surgical Products in the event of a Force
Majeure or community emergency in the geographical area of a Member. Exhibit Q
hereto details Distributor’s disaster response plan, which shall be reviewed
annually by Novation and Distributor and amended as required.

D. Authorized Distributor will comply with the additional requirements set forth
in Exhibit R attached hereto.

 

12. Distributor Sales Representatives and Customer Service

A. Distributor Sales Representatives. Distributor shall assign a sales
representative to serve as each Member’s primary liaison to Distributor.
Distributor’s sales representatives shall provide on-site Member staff training
with respect to Distributor’s technology and programs, optimal purchasing and
inventory management methodology, and timely follow up and effective problem
solving in response to Member requests. In addition to normally scheduled sales
calls, Distributor’s sales representatives shall schedule and conduct twice
yearly business reviews with Member’s Medical-Surgical management and purchasing
staff and shall make reasonable efforts to invite and include in those business
review meetings the Client’s local field representative. Distributor shall
consult with each Member to identify the Member’s policies relating to access to
facilities and personnel. Distributor shall comply with such policies and shall
establish a specific timetable for sales calls by sales representatives to
satisfy the needs of the Member.

B. Member Customer Service. Distributor shall provide telephone customer service
to promptly respond to Member’s routine questions and issues during normal
business hours. Distributor shall adequately train its telephone customer
service agents in Distributor’s operations, purchasing, price verification
research, and inventory supply research policies and procedures.

C. Distributor’s National Accounts Manager. Distributor shall assign a National
Account Manager (“NAM”) to serve as Novation’s primary liaison to Distributor.
The NAM shall serve as

 

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Novation’s point person for resolving Member problems that have been escalated
to Novation and for providing timely follow-up and effective problem solving in
response to Novation requests. The NAM shall be available for on-site visits to
Novation’s office and shall conduct quarterly business review meetings with
Novation staff. The NAM shall oversee the implementation of this Agreement,
including Distributor’s compliance with its material obligations as set forth
herein.

D. Novation’s National Accounts Customer Service Liaison. Distributor shall
provide a customer service liaison to Novation to promptly research and respond
to Novation’s questions, issues, and ad-hoc report requests. Such liaison shall
have expert knowledge of Distributor’s operations and have prior experience
supporting customers similar to Novation.

13. Reports and Other Information Requirements. Within ten (10) days after the
end of each full and partial month during the Term (“Reporting Month”), Supplier
will submit to Novation a report in form and content reasonably satisfactory to
Novation (“Net Sales Report”) and any other information during the time period
required as set forth in the Information Requirements Guidebook in Exhibit S.
Such Guidebook may be found at the Novation website at www.novationco.com.

A. Reports to Participating Members. Distributor will provide Participating
Members with monthly reports in accordance with the requirements set forth in
Exhibit T attached hereto.

B. Purchase Data Confidentiality. Distributor hereby agrees that in the event
that such member purchase data is provided to any third party organization in
willful violation of this paragraph 13. Section B., Novation has the right to
immediately terminate this Agreement by delivering written notice in addition to
any other remedies that it may be entitled to by law. In the event of an
inadvertent disclosure of information by distributor of information in violation
of this paragraph 13. Section B., Novation may terminate this agreement only
after following the notice and cure procedures for termination set forth in
paragraph 3. B (1) of this agreement.

 

14. Fees

A. Calculation. Distributor will pay to Novation, as the authorized collection
agent for each of the Clients and certain of each Client’s subsidiaries and
affiliates, respectively (and not collectively), Fees belonging to any of the
Clients or certain of their subsidiaries or affiliates equal to the Agreed
Percentage of the greater of the aggregate Prices or aggregate Cost (as defined
in Exhibit F) associated with all purchases (net of returns) of the Products by
the Participating Members, whether under the pricing and other terms of this
Agreement or under the terms of any other purchasing or pricing arrangements
that may exist between the Participating Members and Distributor. The Agreed
Percentage is defined in Exhibit U attached hereto. If based on aggregate
Prices, the Fees will be calculated without any deduction for uncollected
accounts.

B. Payment. If Distributor elects to pay Administrative Fees via hard copy
check, the Administrative Fees shall be due no later than the tenth day of each
month. On or before that day, Distributor shall remit to Novation the monthly
Administrative Fees for the prior month’s purchases. If Distributor elects to
pay Administrative Fees via Electronic Funds Transfer (“EFT”), then the
Administrative Fees shall be due no later than the tenth day of each month. On
or before that day, Distributor shall remit to Novation the monthly
Administrative Fees for the prior month’s purchases.

 

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(1) Administrative Fee hard copy checks must be made payable to Novation, LLC
and sent to:

If Sent By First Class Mail:

Novation, LLC

75 Remittance Dr., Suite 1420

Chicago, IL 60675-1420

If Sent Via Courier (e.g., Federal Express, United Parcel Service, Messenger):

The Northern Trust Company

350 North Orleans Street

Receipt & Dispatch 8th Floor

Chicago, IL 60654

Attn: Novation, LLC, Lockbox Number 1420

Telephone No. (312) 444-3576

On the air bill please remember to list the bank’s telephone number, as
recipient at this location. Distributor should also include its telephone number
as the sender.

All Fee payments must be made payable to Novation, LLC, regardless of whether
they are sent first-class mail or by courier. Under no circumstances should
checks be made payable to The Northern Trust Company.

(2) Account information for Administrative Fee wire transfers is as follows:

 

Bank Name:    The Northern Trust Company, Chicago, IL Bank Address:   

75 Remittance Drive

Chicago, IL 60675

Routing No:    Account Name:    NOVATION, LLC Account Number:   

C. Payment Penalties. If payment of Administrative Fees is not received on the
date such Administrative Fees are due, any amounts past due shall be subject to
a late charge in the amount of the lesser of one and one-half percent
(1.5%) interest per month or the maximum rate allowed by law. In the event that
Novation and/or Distributor discovers that certain sales of Contract Products
and/or Non-Contract Products were not properly reported to Novation in
accordance with this Agreement, Distributor shall pay the Administrative Fees
related to those sales within fifteen (15) days of discovering the error in
reporting.

 

15. Optional Contracting Arrangements.

A. The following language will clarify how distributors should respond to
Requests for Proposal or off-matrix deals:

Dealing with RFP’s or off Matrix situations:

 

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1) Med-Surg Distribution Agreement is for the following:

 

  a) Brand Neutral Distribution Services

 

  i. Base Bulk – Pick, Pack and Ship

 

  ii. JIT – Pick, Pack and Ship

 

  iii. LUM – Pick, Pack and Ship

 

  iv. Warehouse Management Type Programs

 

  b) If AD receives either formal or informal request from a Member or group of
Members the following process applies:

 

  i. The Med-Surg Agreement is for Brand Neutral Distribution Services

 

  ii. No AD has the unilateral right to modify any terms of this Agreement

 

  iii. Novation will have the right to approve any modification to this
Agreement

 

  iv. This applies but not limited to the following:

 

  1. RFP’s

 

  2. Local Negotiation or contracting

 

  3. Additional non-bid services outside of this Agreement such as:

 

  a) Combining Med-Surg Distribution Agreement with RX Distribution

 

  b) Combining Med-Surg Distribution Agreement with Products in particular self
manufactured, private label or marketing focused products

 

  c) Combining Med-Surg Distribution Agreement with any other services or
products not-bid and/or awarded through the Med-Surg Distribution Agreement

B. Distributor may contract directly with each Member for the Services included
in this Agreement (each, an “Optional Contracting Arrangement”); provided,
however, that Distributor shall give prior written notice to Novation of the
request for such optional contracting arrangement. Any Optional Contracting
Arrangement relating solely to traditional medical/surgical distribution
services should have as its termination date the same or earlier date than the
termination date of this Agreement as described in Paragraph 3, Section A;
provided however that such agreements may provide for renewal or continuation in
the event Distributor continues as an authorized distributor after such date
through a new or replacement agreement with Novation. In connection with
Medical-Surgical Products purchased through such Optional Contracting
Arrangements, Distributor shall comply with the reporting requirements set forth
in Paragraph 13., and shall pay the Administrative Fees defined in Paragraph
14., in consideration of Novation’s contribution to and support for such
Optional Contracting Arrangements. These Optional Contracting Arrangements will
be managed in accordance to the terms and conditions of this Agreement to
include minimally the reporting, fee, etc. Programs that do not bring additional
value to Participating Members, or that are not market competitive as defined in
this Agreement, or that disadvantage Novation contracts, NOVAPLUS or the
Client’s Standardization products or programs are not permitted under this
Agreement.

 

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16. Market Competitive Member Markup and Terms

A. Member Markup and Member Fees. Distributor shall lower [*], including,
without limitation, Emergency Delivery and Return Goods fees, as necessary to
[*] among similarly situated purchasers (as mutually agreed upon between
Distributor and Novation). These changes must be documented through the Schedule
2 process and approved by Novation prior to implementation.

B. Non-Price Terms. Distributor shall improve non-price terms, such as quality,
technology or other non-price financial value, as necessary to [*].

C. Defining Market Competitiveness. For purposes of this Paragraph 16, Novation
and Distributor shall determine whether certain purchasers are similarly
situated based on all relevant factors, including but not limited to such
purchaser’s purchase amount, number of deliveries per week, payment terms, class
of trade, number of delivery locations and other criteria.

D. Response Duration. If, at any time during the Term, Novation receives
information from any source that indicates that Distributor’s Member Markup,
other fees charged to Members, and/or non-price terms are not market
competitive, Novation may provide written notice of such information to
Distributor, and Distributor shall, within ten (10) business days of receipt of
such notice, advise Novation in writing of all adjustments to the [*].

16. Minority, Women or Veteran Owned Business Enterprises. Novation may be
required by law, regulation and/or internal policy to do business with certain
minority, women or veteran owned businesses (“MWVBEs”). Distributor shall assist
Novation in meeting these requirements by complying with all reasonable Novation
policies and programs with respect to such businesses. Novation, in its
discretion, may make and award and/or negotiate another agreement with a MWVBE
in addition to any sole- or multi-source award.

17. E-Commerce Business. Certain Members have chosen to utilize the services of
the Marketplace@Novation™ through Novation’s authorized e-commerce provider. To
assist Novation in helping Members utilize Marketplace@Novation™, Distributor
shall use its reasonable efforts to contract with such e-commerce provider to
provide Member purchase history, and agrees to sign, prior to issuance of any
Award Letter, the Novation E-Commerce Agreement attached hereto as Exhibit V and
support Novation’s programs with respect to e-commerce.

18. Information to Members. Within thirty (30) days following the Effective
Date, Novation, in conjunction with the Clients, shall deliver a summary of this
Agreement to each Member. Such information may be furnished, as appropriate,
through the use of direct mail and/or electronic mail, contact by the Clients’
field representatives, and regional and national meetings and conferences. As
appropriate, Novation, in conjunction with the Clients, will involve Distributor
in these activities by inviting Distributor to participate in meetings and other
activities with Members. At the request of Distributor from time to time, and in
Novation’s sole discretion, Novation also shall deliver to each Member
reasonable and appropriate amounts and types of materials supplied by
Distributor to Novation, which relate to Distributor’s Services and the purchase
of Medical-Surgical Products.

 

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* [This confidential information has been omitted and filed separately with the
Commission.]

 

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A. Marketing Services. Novation, in conjunction with the Clients, will market
the distribution arrangements covered by this Agreement to the Members. Such
promotional services may include, as appropriate, the use of direct mail,
contact by the Client’s field service delivery team, member support services,
and regional and national meetings and conferences. As appropriate, Novation, in
conjunction with the Clients, may involve Distributor in these promotional
activities by inviting Authorized Distributor to participate in meetings and
other reasonable networking activities with Members.

 

19. Compliance With Law and Government Program Participation

A. Compliance With Law. Each Party represents and warrants that to the best of
its knowledge, after due inquiry, it is, and for the Term shall be, in
compliance with all federal and state statutes, laws, ordinances and regulations
that are material to the operation of its business and the conduct of its
affairs (“Legal Requirements”), including, but not limited to, Legal
Requirements pertaining to the safety of the Medical-Surgical Products and
Services, occupational health and safety, environmental protection,
nondiscrimination, antitrust, health care regulatory and equal employment
opportunity.

B. Notification of Claims. During the Term, Distributor shall promptly notify
Novation of any lawsuits, claims, administrative actions or other proceedings
asserted or commenced against it that assert, in whole or in part, that
Distributor is in noncompliance with any Legal Requirement.

C. Government Program Participation. Each Party represents and warrants that it
is not (1) excluded from participating in any “Federal health care program” as
that phrase is defined in 42 U.S.C. § 1320a-7b(f) (“Excluded”), or (2) debarred,
suspended, declared ineligible, or voluntarily excluded by any Federal
department or agency (collectively, “Debarred”). In the event that a Party,
during the Term of this Agreement, is Excluded or Debarred, that Party (the
“Excluded Party”) shall notify the other Party (the “Non-Excluded Party”) in
writing within three (3) days after such event. Upon the occurrence of such
event, whether or not notice is given to the Non-Excluded Party, the
Non-Excluded Party may terminate this Agreement immediately upon written notice
to the Excluded Party.

20. Damages. Novation and Distributor agree that Novation and/or the
Participating Members would suffer damages if Distributor fails to perform
certain of its obligations under this Agreement. Novation and Distributor
further agree that the damages suffered by Novation and/or the Participating
Members by reason of any such failure by Distributor is uncertain, and they
therefore agree that the schedule of damages set forth in Exhibit W attached
hereto constitutes a reasonable estimation of such damages and were determined
according to the principles of just compensation. Novation’s and/or a
Participating Member’s right to recover damages in accordance with this Section
is in addition to any other rights and remedies Novation, the Clients or the
Participating Members may have by reason of Distributor’s failure to perform its
obligations under this Agreement.

 

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22. Insurance

A. Policy Requirements. Distributor will maintain and keep in force during the
Term product liability, general public liability and property damage insurance
against any insurable claim or claims, which might or could arise regarding
Services provided or Products sold by Authorized Distributor. Such insurance
will contain a minimum combined single limit of liability for bodily injury and
property damage in the amounts of not less than $2,000,000 per occurrence and
$10,000,000 in the aggregate; will name Novation, the Clients, and the
Participating Members, as their interests may appear, as additional insureds.
Distributor will provide to Novation in its Bid and thereafter within fifteen
(15) days after Novation’s request, an insurance certificate indicating the
foregoing coverage, issued by an insurance company licensed to do business in
the relevant states and signed by an authorized agent.

B. Self-Insurance. Notwithstanding anything to the contrary in Paragraph 22.
Section A. above, Distributor may maintain a self-insurance program for all or
any part of the foregoing liability risks, provided that such self-insurance
complies with the requirements set forth in Paragraph 20. Section A. above.

C. Amendments, Notices and Endorsements. Distributor will not amend, in any
material respect that affects the interests of Novation, the Clients or the
Members, or terminate said insurance or self-insurance program except after
providing thirty (30) days’ prior written notice to Novation. In the event that
Distributor amends said liability insurance or self-insurance program in
accordance with this Paragraph 22., Distributor shall provide Novation with
copies of all notices and endorsements as soon as practicable after Distributor
receives or gives them.

23. Release and Indemnity. DISTRIBUTOR SHALL RELEASE, INDEMNIFY, HOLD HARMLESS,
AND, IF REQUESTED, DEFEND NOVATION, THE CLIENTS AND THE MEMBERS, AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, REGENTS, AGENTS, AFFILIATES AND EMPLOYEES
(COLLECTIVELY, THE “INDEMNITEES”), FROM AND AGAINST ANY CLAIMS, LIABILITIES,
DAMAGES, ACTIONS, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS’ FEES, EXPERT FEES AND COURT COSTS) OF ANY KIND OR NATURE, WHETHER AT
LAW OR IN EQUITY, ARISING FROM OR CAUSED IN ANY PART BY (1) THE BREACH OF ANY
REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT OF DISTRIBUTOR CONTAINED IN THIS
AGREEMENT OR IN THE BID; OR (2) THE CONDITION OF ANY PRODUCT CAUSED BY THE
NEGLIGENT ACTIONS OR OMISSIONS OF DISTRIBUTOR, INCLUDING, WITHOUT LIMITATION,
IMPROPER STORAGE OF ANY PRODUCT. SUCH INDEMNIFICATION, HOLD HARMLESS AND RIGHT
TO DEFENSE WILL NOT BE APPLICABLE TO THE EXTENT THE CLAIM, LIABILITY, DAMAGE,
ACTION, COST OR EXPENSE ARISES AS A RESULT OF AN ACT OR FAILURE TO ACT OF
INDEMNITEES. THIS SECTION AND THE OBLIGATIONS CONTAINED HEREIN SHALL SURVIVE THE
EXPIRATION OR EARLIER TERMINATION OF THIS AGREEMENT. THE REMEDIES SET FORTH IN
THIS SECTION ARE IN ADDITION TO AND NOT A LIMITATION ON ANY OTHER RIGHTS OR
REMEDIES THAT MAY BE AVAILABLE AGAINST DISTRIBUTOR.

 

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24. Books and Records. Distributor shall keep, maintain and preserve complete,
current and accurate books, records and accounts of the transactions
contemplated by this Agreement and such additional books, records and accounts
as are necessary to establish and verify Distributor’s compliance with this
Agreement. All such books, records and accounts will be available for inspection
and audit by Novation representatives at any time during the Term and for two
(2) years thereafter, but only during reasonable business hours and upon
reasonable notice and provided that audits may not be conducted on items that
are 24 or more months beyond the last manufacturer report to Novation. Novation
agrees that its routine audits will not be conducted more frequently than once
in any consecutive twelve (12) month period, subject to Novation’s right to
conduct special audits whenever it reasonably deems it to be necessary. The
exercise by Novation of the right to audit Distributor’s books and records is
without prejudice to any other or additional rights or remedies of either Party.

 

25. Confidential Information.

A. Nondisclosure. Distributor agrees that it shall:

(1) keep strictly confidential and hold in trust all Confidential Information,
as defined in Paragraph 25. Section B. below, of Novation, the Clients, the
Suppliers, and the Members;

(2) not use the Confidential Information for any purpose other than the
performance of its obligations under this Agreement, without the prior written
consent of Novation or the Member, as applicable;

(3) not disclose the Confidential Information to any third party (unless
required by law) without the prior written consent of Novation or the Member, as
applicable; and

(4) not later than thirty (30) days after the expiration or earlier termination
of this Agreement, return to Novation, the Client, the Supplier, or the Member,
as the case may be, the Confidential Information.

; provided that the provision by O&M of usage, sales or purchase data to
manufacturers, GPOs to which the Member belongs and to data collection entities
(provided that the Member is not identified) shall not be considered a breach
hereof. In addition, nothing in this provision is intended to prohibit either
party (including any employee, representative or agent of such party) from
disclosing the tax treatment and tax structure of the transactions contemplated
hereunder or materials of any kind (including opinions or other tax analyses)
provided to such party relating to such tax treatment and structure.

B. Definition. “Confidential Information”, as used in Paragraph 25. Section A.
above, shall consist of the terms of this Agreement, and all information
relating to the prices and usage of the Medical-Surgical Products (including all
information contained in the reports produced by Distributor pursuant to
Paragraph 14 above) and all documents and other materials of Novation, the
Clients and the Members containing information relating to the programs of
Novation, the Clients or the Members of a proprietary or sensitive nature not
readily available through sources in the public domain. In no event shall
Distributor provide to any person any information relating to the prices it
charges the Members for Medical-Surgical Products ordered pursuant to this
Agreement without Novation’s prior written consent.

 

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C. Remedies. The Parties acknowledge that, in the event of a violation of any
restrictions set forth in Paragraph 25. Section A. above, or in the event such a
violation is likely to occur, Novation shall be entitled to preliminary and
permanent injunctive relief without having to prove actual damages or immediate
or irreparable harm or post a bond. Notwithstanding the foregoing, if the
restrictions contained herein are judged unreasonable by any court of competent
jurisdiction, the Parties agree to the reformation of such restrictions by the
court to limits which may reasonably grant Novation the maximum protection
permitted by applicable law in such circumstances, and Distributor will not
assert that such restrictions should be eliminated in their entirety by such
court.

D. HIPAA. To the extent that Distributor is or becomes subject to, directly or
indirectly, the privacy and security rules promulgated pursuant to the Health
Insurance Portability and Accountability Act of 1996 (“HIPAA”), codified at 45
C.F.R. Parts 160 and 164, and/or other relevant administrative simplification
rules promulgated pursuant to HIPAA, then Distributor shall comply with such
rules and, upon Novation’s request, shall agree to amend this Agreement
accordingly and/or enter into any additional agreement between or among
Distributor, Novation, any Supplier and/or any Member, as appropriate.

E. Use of Names, Etc. Distributor agrees that it shall not use in any way in its
promotional, informational or marketing activities or materials the names,
trademarks, logos, symbols or a description of the business or activities of
Novation or any Client or Member without in each instance obtaining the prior
written consent of the person owning the rights thereto.

 

26. Miscellaneous.

A. Third Party Beneficiary. All Clients and Members are intended third party
beneficiaries of this Agreement.

B. Choice of Law. This Agreement shall be governed by and construed in
accordance with the internal substantive laws of the State of Texas and the
Texas courts shall have jurisdiction over all matters relating to this
Agreement; provided, however, that the terms of any Optional Contracting
Arrangement between a Member and Distributor shall be governed by and construed
in accordance with the choice of law and venue provisions set forth in that
Arrangement.

C. No Assignment. This Agreement may not be assigned in whole or in part by
either Party without the prior written consent of the other Party; provided,
however, that Novation may assign its rights and obligations to any affiliate of
Novation. Any assignment of all or any part of this Agreement by either Party
shall not relieve that Party of the responsibility for performing its
obligations hereunder to the extent that such obligations are not satisfied in
full by the assignee. This Agreement shall be binding upon and inure to the
benefit of the Parties’ respective successors and assigns.

D. Notices. Except as otherwise expressly provided herein, all notices or other
communications required or permitted under this Agreement shall be in writing
and shall be deemed sufficient when mailed by United States mail, or delivered
in person to the Party to which it is to be given, at the address of such Party
set forth below, or to such other address as the Party shall have furnished in
writing in accordance with the provisions of this Section:

 

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If to Distributor:

Owens & Minor Distribution, Inc.

Attention: General Counsel

9120 Lockwood Boulevard

Mechanicsville, VA 23116

If to Novation:

Novation, LLC

Attn: General Counsel

125 East John Carpenter Freeway

Irving, TX 75062-2324

E. Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law.
However, in the event that any provision of this Agreement becomes prohibited or
invalid under applicable law, or is otherwise held unenforceable, then such
provision, upon the mutual agreement of the Parties, shall be modified to
reflect the Parties’ intent, consistent with applicable law. The Parties shall
work together in good faith in an effort to agree on an appropriate modification
within a commercially reasonable period of time. Absent such agreement, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or the remaining provisions
of this Agreement.

F. Independent Contractors. It is expressly understood and agreed that Novation
and Distributor shall at all times be independent contractors of one another. It
is expressly understood and agreed by the Parties that nothing contained in this
Agreement shall be construed to create a joint venture, partnership, association
or like relationship between the Parties with respect to the subject matter
hereof. In no event shall either Party be liable for the debts or obligations of
the other Party.

G. Entire Agreement. This Agreement, together with the exhibits listed below,
shall constitute the entire agreement between Novation and Distributor. This
Agreement, together with the exhibits listed below and each Member’s purchase
order shall constitute the entire agreement between each Member and Distributor.
In the event of any inconsistency between this Agreement and a Member’s purchase
order, the terms of this Agreement shall control. No other terms and conditions
in any document, acceptance, or acknowledgment shall be effective or binding
unless expressly agreed to in writing. The following exhibits are incorporated
by reference in this Agreement:

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed by their
duly authorized officers as of the day and year first above written.

 

NOVATION, LLC     OWENS &MINOR DISTRIBUTION, INC. By:  

/s/ Mark M. McKenna

    By:  

/s/ Marshall Simpson

Name:   Mark M. McKenna     Name:   Marshall Simpson Title:   President    
Title:   Group Vice President East Date:       Date:  

 

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List of Exhibits

 

Exhibit 1    Agreement Purpose Exhibit 2    HPIS Top 20 Product Categories
Exhibit A    Award Letter Exhibit B    Distribution Services Exhibit C   
Participating Members Exhibit D    Distribution Services Pricing Exhibit E   
Contract Products including NOVAPLUS Products, Novation Standardization Products
and Partnership Portfolio Products Exhibit F    Definition of “Cost” Exhibit G
   Distribution Centers Exhibit H    Product Stocking Exhibit I    Physical
Inventory Exhibit J    Invoices Exhibit K    Product Delivery Exhibit L   
Product Fill Rates Exhibit M    Computer-Based System Requirements Exhibit N   
Confirmation of Orders Exhibit O    Additional Remedies Exhibit P    Product
Return Exhibit Q    Authorized Distributor Disaster Plan Exhibit R    Additional
Requirements Exhibit S    Medical-Surgical Authorized Distributor Reporting
Guidelines Exhibit T    Reports to Participating Members Exhibit U   
Distribution Fees Exhibit V    Novation E-Commerce Agreement Exhibit W   
Service Damage Exhibit X    Schedule 2 Price Changes

 

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Exhibit 1

Agreement Purpose

This Agreement is for providing brand-neutral distribution services based on
Members needs. Each awarded distributor is a full-line Medical-Surgical
distributor that offers the following services:

 

  1) Order entry

 

  2) Sourcing

 

  3) EDI

 

  4) Stocking of traditional medical-surgical stock and non-stock products

 

  5) Stocking the Novation contract portfolio

 

  6) Stocking Non-contract traditional medical-surgical products based on
Members needs

 

  7) NOVAPLUS product stocking

 

  8) Stocking minimally the Top 10 HPIS product categories

 

  9) Stocking the Novation Product Portfolio

 

  10) Warehousing

 

  11) Contract Administration

 

  12) Invoicing

 

  13) Pick, Pack and Ship / Multiple Deliveries

 

  14) Logistics Services:

 

  a) Bulk to the dock

 

  b) JIT

 

  c) LUM Picked by Department Delivered to the Dock

 

  d) LUM Picked by Department Delivered to the Department

 

  e) LUM Picked by Department Put Stock Away

 

  f) Affix Patient Labels

 

  g) Bar Codes

 

  h) Stockless

 

  15) Customized Services for the following:

 

  a) Invoices

 

  b) Packing Slip

 

  c) Combined Packing Slip and Invoice

 

  d) Custom Pallet Architecture Basic/expanded

 

  16) Reporting:

 

  a) Novation Contracts

 

  b) NOVAPLUS

 

  c) Non-contract purchases

 

  d) Service Levels

 

  17) Handling of Return Goods

 

  18) Non-Acute services for Owned, Managed or Leased facilities

This agreement has not been awarded for any other type of services that may be
offered from a distributor such as, leveraging of self-manufactured, private
label or marketing program products such as BVP, Focus, or other preferred
supplier programs, to reduce the cost of distribution. Additionally this
agreement is based on separating the cost of product from the cost of services.
By doing so Novation ensures the Members that they will have the lowest total
cost for distribution services. Over the past several years

 

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there has been an increase in distributors “pushing” their self manufactured,
private label and market program products and selling them at “net pricing”. Net
pricing masks the true cost of distribution services from the true cost of the
product.

Distributors have also been adding services that are not related to traditional
distribution services for which this Agreement was awarded. These services cover
areas including but not limited to the combining of Med-Surg distribution with
pharmaceutical wholesaling or other unrelated distribution services, combining
Med-Surg distribution with the acquisition of equipment, “guaranteed savings
programs”, and information data mining services to list some. None of these
additional services were awarded under this Agreement. If a member is interested
in these non-awarded services from one of the awarded Medical-Surgical
Distributors, the parties should contract directly for such services. Lastly,
the awarded Medical-Surgical Distributors cannot unilaterally modify any terms
of this Agreement, if they do so the awarded Medical-Surgical Distributor may
not have the right to administer the Novation Contract and NOVAPLUS product
portfolios and/or continue to serve as a Novation Authorized Distributor.

 

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Exhibit 2

HPIS Top 20 Product Categories

 

Major
Class

  

Major Class Description

  

Sub
Class

  

Interim Description

510    Kits, Packs & Trays-Custom    20    Admission KP&T-CUS       30   
Amniocentesis KP&T-CUS [15-274]       40    Anesthesia KP&T-CUS       50   
Angiographic/Cath Lab KP&T-CUS [90-584]       60    Aspiration Procedure
KP&T-CUS [17-716]       70    Baby Care KP&T-CUS [10-243]       80    Basic
Surgical Procedure KP&T-CUS [17-168]       90    Biopsy KP&T-CUS       100   
Burn KP&T-CUS [10-516]       105    Cardio/Vascular Catheter KP&T-CUS [15-564]
      110    Cardiology/Vascular Procedure KP&T-CUS [91-316]       120   
Circumcision KP&T-CUS [90-238]       130    Cystoscopy KP&T-CUS [90-242]      
145    Dental/Oral KP&T-CUS [93-107]       150    Dressing Change KP&T-CUS      
160    ENT Procedure KP&T-CUS [90-243]       180    Gastric Analysis KP&T-CUS
[90-232]       190    Gastrointestinal Procedure KP&T-CUS [91-317]       195   
Heart/Lung KP&T-CUS [90-240]       200    Hernia KP&T-CUS [91-398]       210   
Incision and Drainage KP&T-CUS [12-108]       220    Irrigation KP&T-CUS
[90-233]       223    IV Start KP&T-CUS [12-161]       225    Laceration/Wound
Closure KP&T-CUS [91-397]       230    Laparoscopic Endoscopy KP&T-CUS [90-245]
      240    Laparoscopy KP&T-CUS [90-244]       250    Laparotomy KP&T-CUS
[90-246]       260    Lithotomy KP&T-CUS [90-247]       270    Lumbar Puncture
KP&T-CUS [12-404]       280    Maternity KP&T-CUS [12-463]       290    Medicine
KP&T-CUS [12-507]       300    Neurological KP&T-CUS [90-250]       310   
Obstetrics/Gynecology KP&T-CUS       320    Ophthalmic KP&T-CUS [91-312]      
330    Orthopedic KP&T-CUS       337    Personal Protection KP&T-CUS [17-232]   
   338    PIC Catheter KP&T-CUS [91-606]       340    Plastic Surgery KP&T-CUS
[91-313]

 

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Major
Class

  

Major Class Description

  

Sub
Class

  

Interim Description

510    Kits, Packs & Trays-Custom    350    Podiatry KP&T-CUS [91-314]       360
   Prep KP&T-CUS [13-097]       370    Radiology KP&T-CUS [92-106]       380   
Respiratory KP&T-CUS [91-587]       390    Sampling KP&T-CUS       400    Staple
Remover KP&T-CUS [16-787]       410    Suction KP&T-CUS [13-846]       415   
Suture KP&T-CUS [13-892]       420    Suture Removal KP&T-CUS [13-894]       430
   Tracheostomy Care KP&T-CUS [14-090]       440    Tracheotomy KP&T-CUS
[14-099]       443    Transplantation KP&T-CUS [91-404]       445    Trauma
KP&T-CUS [91-106]       470    Urine Collection KP&T-CUS [90-235]       480   
Urological Procedure KP&T-CUS [91-311]       485    Wound Care KP&T-CUS [91-287]
      490    Wound Drainage KP&T-CUS [16-521]       500    Other Kits, Packs &
Trays-CUS [90-236] 580    Parenteral    10    Administration Sets: Parenteral   
   12    Connectors & Adapters, Parenteral [91-808]       20    Infusors,
Ambulatory [16-491]       30    Intermittent Devices [91-672]       40   
Intravenous Administration Devices       50    Intravenous Catheters       70   
Pheresis Sets [16-811]       76    Pumps, Pain Management [92-119]       90   
Other Parenteral Supplies [92-126] 750    Wound Staples & Endosurgery    10   
Endosurgical Accessories       20    Instruments: Wound Staples & Endosurgery   
   30    Occluding Clips, Implantable: Wound Staples       40    Stapling, Skin:
Wound Staples & Endosurgery       50    Stapling, Internal [90-743]       60   
Other Staples & Endosurgery [90-759] 450    Gloves    10    Autopsy Gloves
[11-880]       20    Cleanroom Gloves [92-117]       30    Cryogenic Gloves
[17-966]       40    Cut Resistant Gloves [90-175]       50    Dispensers, Glove
[91-120]       60    Examination/Treatment Gloves       70    Finger Cots
[11-719]

 

26 of 95

--------------------------------------------------------------------------------

Major
Class

  

Major Class Description

  

Sub
Class

  

Interim Description

450    Gloves    80    Procedure/High Risk Gloves       90    Surgical Gloves   
   100    Utility Gloves [11-885]       110    Other Gloves [15-222] 760   
Woven & Nonwoven Goods    10    Apparel, Patient       20    Apparel, Staff:
Woven & Nonwoven       30    Bedding: Woven & Nonwoven       40    Covers: Woven
& Nonwoven       60    Drapes/Sheets, Nonbedding: Woven & Nonwoven       100   
Stockinettes [10-669]       110    Surgical: Woven & Nonwoven       120   
Towelling: Woven & Nonwoven       130    Other Woven & Nonwoven Goods 530   
Needles & Syringes    10    Needles       20    Syringes       30    Syringes
with Needles       40    Other Needles & Syringes/Accessories 755    Wound
Sutures    10    Endosuture: Wound Sutures       20    Sutures Needled -
Absorbable: Wound Sutures       30    Sutures Needled - Nonabsorbable       40
   Sutures Nonneedled - Absorbable       50    Sutures Nonneedled -
Nonabsorbable       60    Other Suture Wound Closure       70    Unclassified -
Wound Sutures [XX-755] 680    Respiratory    10    Air Cleaners/Purifiers
[16-629]       15    Connectors Needless, Parenteral [92-100]       20   
Airways, Respiratory       30    Anesthesia Unit CO2 Absorbants [17-509]      
40    Apnea Monitors [12-575]       50    Atomizers, Respiratory [10-226]      
60    Breathing Bags & Circuits, Respiratory       70    Bronchial, Tubes
[15-322]       80    Calibrators, Spirometer/Pneumotachometer [17-250]       90
   Cannulae, Nasal Oxygen [12-700]       100    Catheters, Transtracheal Oxygen
[17-940]       110    CPAP, Respiratory       130    Drainage Systems,
Respiratory [90-579]       140    Esophageal Stethoscopes, Respiratory [93-010]
      150    Esophageal Stethoscopes w/Temp Probe [93-011]

 

27 of 95

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Major
Class

  

Major Class Description

  

Sub
Class

  

Interim Description

680    Respiratory    160    Humidifiers, Respiratory       170    Inhalers,
Aerosol [12-128]       180    Masks, Respiratory       190    Nebulizer,
Respiratory       210    Oxygen Concentrators, Respiratory [12-873]       220   
Percussors, Respiratory [12-986]       230    Resuscitation, Respiratory      
240    Solutions, Nonmedicated: Respiratory       250    Spirometers,
Respiratory       270    Suction Devices       275    Tents [14-002]       280
   Tracheal Tubes       290    Tracheostomy: Respiratory       300    Traps:
Respiratory [15-608]       310    Tubing: Respiratory       320    Ventilators,
Respiratory       330    Other Respiratory 310    Adhesives, Bandages, Dressings
& Sponges    10    Adhesives: Adhesives, Bandages, Dressings & Sponges       20
   Bandages       30    Dressings: Adhesives, Bandages, Dressing & Sponges      
40    Sponges: Adhesives, Bandages, Dressings & Sponges       50    Other
Bandages, Dressings & Sponges 500    Incontinence Products    10    Clamps,
Incontinence [12-109]       20    Briefs: Incontinence       30    Diapers:
Incontinence       40    Fecal Control Units, Incontinence [17-505]       50   
Kits, Incontinence [91-644]       60    Pants/Pads: Incontinence       70   
Undergarments, Incontinence [90-230]       80    Underwear, Protective,
Incontinence [92-109]       90    Underpad, Body Fluids/Incontinence       100
   Other Incontinence Products 694    Skin Care Products    10    Clinical Care
Products: Skin Care       20    Personal Care: Skin Care       30    Other Skin
Care Products [92-140] 400    Electromedical    20    Cables/Leads,
Electromedical       40    Defibrillators       50    Electroanalgesic Units,
TENS [13-782]       60    Electrocardiographs

 

28 of 95

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Major
Class

  

Major Class Description

  

Sub
Class

  

Interim Description

400    Electromedical    70    Electrodes: Electromedical       80    Holter   
   90    Oximeters       100    Pouches, Telemetry, Electromedical [16-898]   
   110    Physiologic Monitoring Systems (12-636)       120    Sensors,
Electromedical [13-536]       130    Stimulator       140    Stress Exercise ECG
Systems [17-723]       150    Other Electromedical 590    Patient Care Products,
Medical    10    Alarms, Patient Care Products, Medical       20    Antiembolic
Devices: Patient Care Products, Medical       30    Bags: Patient Care Products,
Medical       40    Diabetic Supplies (Misc) [91-910]       50    Droppers:
Patient Care Products, Medical       55    Ear Irrigation       60    Enema:
Patient Care Products, Medical       70    Identification: Patient Care
Products, Medical       80    Magnetic Therapy [12-415]       90    Penile
Vacuum Devices [17-744]       100    Pressure Relief Products       120   
Thermometer/Supplies: Patient Care, Medical       130    Thermometers,
Electronic 710    Surgical Instruments & Devices    5    Adenotomes: Surgical
Instruments [10-025]       10    Amniotomes: Surgical Instruments [10-089]      
15    Anchors, Endoscopic [91-908]       20    Applicators, Surgical [91-274]   
   25    Approximators [90-636]       30    Aspirators: Surgical Instruments   
   35    Awls: Surgical Instruments [15-275]       40    Balloons, Nasal:
Surgical Instruments [12-699]       45    Biopsy Gun: Surgical Instruments
[17-848]       50    Bite Blocks: Surgical Instruments [10-405]       60   
Blades: Surgical Instruments       80    Bougies: Surgical Instruments       100
   Burs: Surgical Instruments       110    Calipers, Surgical Instruments
[10-546]       120    Cannulae: Surgical Instruments       130    Chisels:
Surgical Instruments       140    Clamps: Surgical Instruments       150   
Clip, Appliers [10-894]       160    Clips: Surgical Instruments

 

29 of 95

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Major
Class

  

Major Class Description

  

Sub
Class

  

Interim Description

710    Surgical Instruments & Devices    170    Conformers, Ophthalmic [16-065]
      180    Counters: Surgical Instruments       190    Crimpers: Surgical
Instruments [16-463]       200    Cryosurgery: Surgical Instruments       210   
Curets: Surgical Instruments       220    Cutters: Surgical Instruments      
225    Cystomes: Surgical Instruments [16-002]       228    Cystotome: Surgical
Instruments [11-113]       229    Depressors Orbital [16-465]       230   
Dermatomes: Surgical Instruments [11-179]       240    Dilators: Surgical
Instruments       250    Dissectors: Surgical Instruments [90-653]       260   
Drains: Surgical Instruments       270    Drills: Surgical Instruments       280
   Elevators: Surgical Instruments       285    Enucleators: Surgical
Instruments [11-587]       290    Excavators: Surgical Instruments [11-617]   
   300    Extractors: Surgical Instruments       310    Files, Bone [11-702]   
   320    Forceps: Surgical Instruments       325    Gags: Surgical Instruments
[11-822]       330    Gouges: Surgical Instruments [11-895]       340    Guides:
Surgical Instruments       350    Hammers: Surgical Instruments       360   
Head Mirrors: Surgical Instruments [11-960]       370    Headlights: Surgical
Instruments [11-963]       380    Hemostatic Media: Surgical Instruments
[17-944]       390    Hooks: Surgical Instruments       395    Kerotomes:
Surgical Instruments [12-222]       410    Knives: Surgical Instruments      
420    Ligators: Surgical Instruments [12-332]       430    Loops: Surgical
Instruments       440    Loupes: Surgical Instruments [15-652]       450   
Magnifiers: Surgical Instruments [15-653]       460    Mallets: Surgical
Instruments       470    Markers: Surgical Instruments       480    Mirrors:
Surgical Instruments       490    Nail Splitter: Surgical Instruments [91-133]
      500    Nippers: Surgical Instruments       510    Obturators: Surgical
Instruments [12-789]       520    Occluders: Surgical Instruments       530   
Osteotomes: Surgical Instruments       540    Papillotomes: Surgical Instruments
[15-625]

 

30 of 95

--------------------------------------------------------------------------------

Major
Class

  

Major Class Description

  

Sub
Class

  

Interim Description

710    Surgical Instruments & Devices    550    Perforators: Surgical
Instruments [12-989]       560    Picks: Surgical Instruments       570    Pins:
Surgical Instruments       580    Pinwheels: Surgical Instruments [13-043]      
585    Plates: Surgical Instruments       590    Probes: Surgical Instruments   
   600    Punches: Surgical Instruments       610    Rasps: Surgical Instruments
      620    Razors, Skin Prep: Surgical Instruments [16-580]       623   
Reamers, Orthopedic: Surgical Instruments [13-297]       625    Retainers,
Visceral: Surgical Instruments [13-371]       630    Retractors: Surgical
instruments       640    Retrieval Baskets: Surgical Instruments       645   
Rings Intracorneal: Surgical Instruments [18-103]       650    Rongeurs:
Surgical Instruments       652    Rotators Ophthalmic: Surgical Instruments
[15-173]       653    Routers, Bone Cutting [13-425]       655    Saws: Surgical
Instruments [90-671]       660    Scissors: Surgical Instruments       680   
Scoops: Surgical Instruments [13-508]       682    Screws: Surgical Instruments
      685    Searchers: Surgical Instruments [13-532]       687    Separators:
Surgical Instruments [90-673]       690    Snares: Surgical Instruments      
700    Sounds: Surgical Instruments       710    Spatulas [13-645]       720   
Specula: Surgical Instruments       730    Spreaders: Surgical Instruments      
740    Spuds, Eye: Surgical Instruments [16-025]       750    Staples, Bone
[16-103]       760    Strippers: Surgical Instruments [13-823]       770   
Stylets: Surgical Instruments       780    Suction Devices: Surgical Instruments
[93-044]       790    Tamper, Orthopedic: Surgical Instruments [91-866]      
810    Tenacula: Surgical Instruments [13-996]       820    Tongs, Surgical
Instruments [14-062]       830    Tonsillectomes: Surgical Instruments [14-070]
      840    Trephines: Surgical Instruments [14-146]       850    Trocars:
Surgical Instruments       860    Tunnelers: Surgical Instruments [16-985]      
870    Tweezers: Surgical Instruments [14-257]       900    Valvulotomes:
Surgical Instruments [14-339]       910    Wires: Surgical Instruments

 

31 of 95

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Major
Class

  

Major Class Description

  

Sub
Class

  

Interim Description

710    Surgical Instruments & Devices    920    Other Surgical Instruments &
Devices 511    Kits, Packs & Trays Standard    10    Admission KP&T-ST       20
   Amniocentesis KP&T-ST [91-684]       30    Anesthesia KP&T-ST       40   
Angiographic/Cath Lab KP&T-ST [91-692]       60    Aspiration Procedure KP&T-ST
[91-696]       80    Baby Care KP&T-ST [91-697]       90    Basic Surgical
Procedure KP&T-ST [91-764]       100    Biopsy KP&T-ST       110    Burn KP&T-ST
[91-704]       120    Cardio/Vascular Catheter KP&T-ST [91-705]       130   
Cardiology/Vascular Procedure KP&T-ST [91-708]       140    Circumcision KP&T-ST
[91-710]       150    Cystoscopy KP&T-ST [91-711]       160    Dental/Oral
KP&T-ST [93-108]       170    Dressing Change KP&T-ST       180    ENT Procedure
KP&T-ST [91-717]       200    Heart/Lung KP&T-ST [91-725]       210    Incision
and Drainage KP&T-ST [91-727]       220    Irrigation KP&T-ST [91-728]       230
   IV Start KP&T-ST [91-729]       240    Laceration/Wound Closure KP&T-STD
[91-732]       250    Laparoscopic Endoscopy KP&T-ST [91-735]       260   
Laparoscopy KP&T-ST [91-733]       270    Laparotomy KP&T-ST [91-737]       280
   Lithotomy KP&T-ST [91-739]       290    Lumbar Puncture KP&T-ST [91-741]   
   300    Maternity KP&T-ST [91-742]       310    Medicine KP&T-ST [91-744]   
   320    Neurological KP&T-ST [91-746]       330    Obstetrics/Gynecology
KP&T-ST       340    Ophthalmic KP&T-ST [91-756]       350    Orthopedic KP&T-
STD       370    Personal Protection KP&T-ST [91-760]       390    Prep KP&T-ST
[91-680]       395    Radiology KP&T-ST [92-107]       400    Respiratory KP&T -
ST [92-104]       410    Sampling KP&T-ST       430    Staple Remover KP&T-ST
[91-769]       440    Suction KP&T-ST [91-771]       460    Suture Removal
KP&T-ST [91-770]       470    Tracheostomy Care KP&T-ST [91-773]

 

32 of 95

--------------------------------------------------------------------------------

Major
Class

  

Major Class Description

  

Sub
Class

  

Interim Description

511    Kits, Packs & Trays Standard    480    Tracheotomy KP&T-ST [91-774]      
490    Urine Collection KP&T-ST [91-777]       500    Urological KP&T STD
[91-913]       510    Wound Care KP&T-ST [91-731] 700    Sterilization Supplies
& Products    10    Container Systems, Sterilization       30    Pouches,
Sterilization [93-127]       40    Process Indicators, Sterilization       50   
Sterilants: Sterilization       60    Sterilizing Units: Sterilization       65
   Ultrasonic Instrument Cleaning Systems, [14-263]       70    Wraps,
Sterilization       80    Other Sterilization Supplies 440    Enteral Feeding &
Medical Nutritionals    10    Enteral Feeding       20    Enteral Tube Feeding
Formulae       30    Medical Nutritionals/Supplements 512    Kits, Packs &
Trays-Systems    10    Admission KP&T-SYS       20    Anesthesia KP&T-SYS      
30    Angiographic/Cath Lab KP&T-SYS [91-693]       50    Baby Care KP&T-SYS
[91-933]       60    Basic Surgical Procedure KP&T-SYS [91-765]       70   
Biopsy KP&T-SYS       80    Burn KP&T-SYS [91-934]       90    Cardio/Vascular
Catheter KP&T-SYS [91-706]       100    Cardiology/Vascular Procedure KP&T-SYS
[91-709]       110    Circumcision KP&T System [91-916]       120    Cystoscopy
KP&T-SYS [91-712]       130    Dental/Oral KP&T-SYS [93-109]       140   
Dressing Change KP&T-SYS       150    ENT Procedure KP&T-SYS [91-718]       170
   Gastric Analysis KP&T-SYS [91-722]       180    Gastrointestinal Procedure
KP&T-SYS [91-723]       200    Hernia KP&T-SYS [91-724]       210    IV Start
KP&T-SYS [91-730]       220    Laparoscopic Endoscopy KP&T-SYS [91-736]      
230    Laparoscopy KP&T-SYS [91-734]       240    Laparotomy KP&T-SYS [91-738]
      250    Lithotomy KP&T-SYS [91-740]       260    Maternity KP&T-SYS
[91-743]       270    Medicine KP&T-SYS [91-745]       280    Neurological
KP&T-SYS [91-747]

 

33 of 95

--------------------------------------------------------------------------------

Major
Class

  

Major Class Description

  

Sub
Class

  

Interim Description

512    Kits, Packs & Trays-Systems    290    Obstetrics/Gynecology KP&T-SYS   
   300    Ophthalmic KP&T-SYS [91-757]       310    Orthopedic KP&T-SYS      
320    Plastic Surgery KP&T-SYS [91-762]       330    Podiatry KP&T-SYS [91-763]
      340    Prep KP&T-SYS [91-938]       355    Radiology KP&T-SYS [92-108]   
   360    Respiratory KP&T-SYS [91-766]       370    Suction KP&T-SYS [91-939]
      380    Tracheotomy KP&T-SYS [91-940]       390    Transplantation KP&T-SYS
[91-775]       400    Trauma KP&T-SYS [91-776]       410    Urological KP&T-SYS
[91-778]       420    Wound Care KP&T-SYS [91-935]       430    Other Kits,
Packs & Trays-SYS [91-780] 740    Wound Care    10    Alginates: Wound Care
[90-697]       20    Burn Dressings: Wound Care [11-322]       40    Cleansers:
Wound Care [90-699]       50    Collagen: Wound Care [91-546]       60   
Composites: Wound Care [90-701]       70    Compression Therapy       80   
Contact Layers: Wound Care [90-700]       90    Foams: Wound Care [11-323]      
100    Hydrocolloids: Wound Care [90-703]       110    Hydrogels, Wound Care   
   120    Impregnated, Wound Care [90-705]       125    Irrigation, Wound Care
      130    Pastes/Powders/Beads/Granules, Wound Care [90-706]       140   
Pressure Bandages, Wound Care[10-284]       150    Silver/Active Dressings:
Wound Care [93-038]       160    Skin Substrates: Wound Care [91-547]       170
   Transparent Film Dressings: Wound Care [17-428]       180    Other Wound Care
697    Solutions/Nutritional    10    PreMixed Solutions       20    Other
Solutions

--------------------------------------------------------------------------------

* Any changes to the HPIS Top 20 Categories shall be made only after providing
at least 30 days notice of such changes to Authorized Distributor and the
Participating Members and no such changes shall result in the HPIS Top 20
Categories constituting a lower percentage of the Novation total buy than the
initial HPIS Top 20 Categories listed above constitute.

 

34 of 95

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Exhibit A

Award Letter

[Will be provided by Novation at the time of Award]

 

35 of 95

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Exhibit B

Distribution Services

1. Services Available from Authorized Distributor. All services listed in this
Exhibit shall be provided to Participating Members for the cost-plus pricing
applicable from the Distribution Volume Matrix in Exhibit D. Exhibit D provides
a Distribution Volume Matrix, which determines a Participating Member’s
Distribution Price for the services provided by its Authorized Distributor.
Participating Members may elect to have Distribution Pricing for services billed
separately or included in the Price of the product. Authorized Distributor shall
offer additional services in accordance with Exhibit D-1. Otherwise, pricing for
additional services will be determined in accordance with Exhibit D-1. The
“Price” of the product is determined by the definition of Cost as set forth in
this Agreement, Exhibit F, adjusted to reflect all credits, discounts, rebates,
returns, allowances and other adjustments granted by the Authorized Distributor
plus Cost multiplied by the applicable Distribution Service Pricing from Exhibit
D. Volume to determine the Distribution Service Pricing will be determined by
the actual three-month purchase history of the Participating Member from the
Authorized Distributor as identified in Exhibit X. Volume will be recalculated
on a semiannual basis and, at the Participating Member’s election, the
Distribution Pricing will be adjusted or the Participating Member will receive a
credit in an amount equal to the actual Distribution Service Pricing and the
billed Distribution Service Pricing for the next six (6) month period. There
will be no retroactive credit due Participating Member for the period being
reviewed.

2. Other Services Available from Authorized Distributor. The services listed in
this Exhibit shall be available from Authorized Distributor at an additional
charge to the Participating Member in accordance with Exhibit D-1.

A. JIT Program. Authorized Distributor shall offer Just-in-Time (“JIT”) delivery
services upon request. JIT services shall include frequent deliveries in cases
or boxes; whatever is Vendor’s standard unit of packaging. Pricing for JIT
services are outlined in Exhibit D

B. Stockless/LUM (Lowest Unit of Measure). Authorized Distributor shall offer
stockless/LUM services upon request. At a minimum, such services shall include
the ability to provide: frequent delivery to meet agreed upon stocking levels,
delivery in the lowest unit of measure, pick and pack by area of use and
delivery to area of use and put stock away. Stockless/LUM services shall be
provided with a fill or kill calculation with an approved substitution list as
provided by the Participating Member. Pricing for stockless services are
outlined in Exhibit D-1.

C. Emergency Deliveries. Authorized Distributor shall have emergency delivery
services available twenty-four (24) hours a day, seven (7) days a week.
Authorized Distributor may charge [*] for providing product by emergency
deliveries.

 

--------------------------------------------------------------------------------

* [This confidential information has been omitted and filed separately with the
Commission.]

 

36 of 95

--------------------------------------------------------------------------------

D. Bar Coding. Authorized Distributor shall provide Bar Coding labels to
Participating Members upon request. Authorized Distributor may charge [*] in
providing bar coding labels.

E. Other Services. Exhibit D-1 details certain listed Authorized Distributor
services available and the charge structure, if any associated with those
services. Authorized Distributor and each Participating Member may negotiate
additional services as requested by the Participating Member.

F. Selection and Change of Additional Services. Participating Members shall
identify additional services selected in accordance with Exhibit D-1, and
Participating Members may change additional services selected in accordance with
Exhibit D-1 at any time during the term of the Agreement by notifying Authorized
Distributor and Novation.

G. Customized Packing Slips and Invoices. Authorized Distributor shall provide
customized packing slips and invoices consistent with Participating Member
requirements in accordance with Exhibit D-1.

H. Customized Pallet Design. Authorized Distributor shall assist in pallet
design and arrangement and shall deliver goods in accordance with such pallet
design upon request of Participating Members as defined in Exhibit D-1.

3. Authorized Distributor Representative. Each Authorized Distributor will
provide each Participating Member assigned to them with an Authorized
Distributor Representative. Authorized Distributor Representative will be
responsible for the following activities at each assigned Participating Member:

A. Visit on at least monthly basis or at the frequency reasonably requested by
the Participating Member

B. Address and be empowered to solve the following:

 

  •   Fill Rate Issues

 

  •   Invoice Accuracy

 

  •   Pricing issues

 

  •   Product stocking issues

 

  •   Scheduling issues

 

  •   DSO issues (Accounts Payable / Receivable issues)

 

  •   EOE issues

 

  •   EDI issues

 

  •   Contract / data file accuracy

 

  •   Delivery issues

 

  •   Review of backorder report

 

  •   Review of product return statues

 

  •   Monthly dollar per line ordered average issues

C. Review all sales data

 

--------------------------------------------------------------------------------

* [This confidential information has been omitted and filed separately with the
Commission.]

 

37 of 95

--------------------------------------------------------------------------------

D. Review product usage and “A” Items list

E. Assist with and suggest pre-approved substitute products for “A” Items

F. Assist with customized distribution solutions in accordance with Exhibit D-4

G. Logistical needs of the HCO

H. Product acquisition mix

I. Maximizing the value of the incentives offered under Exhibit D

J. Support HCO’s initiatives for achieving the lowest total delivered cost of
product and services

4. Customer Service Representative. Authorized Distributor shall provide a
customer service representative during the hours specified in Exhibit B,
Section 6. The customer service representative should be familiar with the
Participating Member’s account and shall, at a minimum, be able to assist
Participating Members with

A. Order placement and status of pending orders

B. Status and resolution of backorders

C. Status of all pertinent account information, including DSO

D. Suggested substitutions for backordered products.

E. Resolution of delivery issues

F. Expediting orders

G. Notification of potential backorders.

H. Participating Members usage of electronic order entry

5. Quarterly Business Review. Once each calendar quarter, Authorized Distributor
shall meet with Participating Member to discuss, at a minimum, the following
issues:

A. Review prior quarter’s sales by:

 

  (1) Contract

 

  (2) NOVAPLUS

 

  (3) Non-Contract

 

  (4) MWVBE Contract Sales

 

  (5) MWVBE Non-contract Sales

 

  (6) Standardization Program

 

  (7) HPIS Top Categories

 

  (8) Low Velocity Manufacturer and SKUs

B. Review prior quarter’s activity for:

 

  (1) EOE

 

  (2) EDI: (Exhibit M)

 

  (3) DSO

 

  (4) Monthly Line Average Dollar Amount

 

38 of 95

--------------------------------------------------------------------------------

C. Review prior quarter’s service levels:

 

  (1) Fill Rates:

 

  (a) “A” Items

 

  (b) Overall Fill Rate

 

  (2) Invoice Accuracy

 

  (3) Pricing Errors

 

  (4) Return Goods

 

  (5) Product usage and stocking levels for “A” Items

 

  (6) Delivery issues, i.e. pallet configuration

D. Opportunity for Standardization and Utilization

E. The Client’s Standardization Program Products and Manufacturer Utilization

Authorized Distributor shall notify the Novation Account Manager of a scheduled
quarterly business review at least 30-days prior to the review. Authorized
Distributor shall maintain a record of when each quarterly business review was
conducted at each Participating Member and such record shall be readily
available for Novation review upon request.

6. Hours of Operation. Authorized Distributor shall staff the Distribution
Center customer service function each business day continuously from at least
8:00 a.m. through 4:30 p.m., local time. In case of an emergency, Participating
Members can call the Distribution Center. Authorized Distributor will provide a
list of emergency telephone numbers at the Distribution Center for after-hours
contact.

7. Information Services Representative. Authorized Distributor shall provide
each Participating Member with an Information Services Representative. Such
representative shall be able to assist Participating Members with resolution of
EDI issues.

 

39 of 95

--------------------------------------------------------------------------------

Exhibit C

Participating Members

To be provided by Novation upon bid award.

 

40 of 95

--------------------------------------------------------------------------------

Exhibit D

Distribution Volume Matrix

Exhibit D - Distribution Fees

(VHA/UHC/HPPI members selecting Novation as their primary gpo with Owens & Minor
as their primary distributor)

 

Monthly Volume   

Weekly

Deliveries

  

Gross Fee for

Distribution

Services

 

Line Average

Incentive

 

If HPIS top

10

categories

are

purchased

from O&M

 

Net Fee for

Distribution

Services

  0       $ 7,500    1    [*]   [*]   [*]   [*]   [*] $ 7,501    -    $ 25,000
   1    [*]   [*]   [*]   [*]   [*] $ 25,001    -    $ 75,000    2    [*]   [*]
  [*]   [*]   [*] $ 75,001    -    $ 150,000    2    [*]   [*]   [*]   [*]   [*]
$ 150,001    -    $ 250,000    2    [*]   [*]   [*]   [*]   [*] $ 250,001    -
   $ 400,000    2    [*]   [*]   [*]   [*]   [*] $ 400,001    -    $ 600,000   
3    [*]   [*]   [*]   [*]   [*] $ 600,001    -    $ 800,000    4    [*]   [*]  
[*]   [*]   [*] $ 800,001    -    $ 1,100,000    4    [*]   [*]   [*]   [*]  
[*] $ 1,100,001    -    $ 1,500,000    4    [*]   [*]   [*]   [*]   [*] $
1,500,001    -    $ 2,000,000    5    [*]   [*]   [*]   [*]   [*]   above      
$ 2,000,000    5    [*]   [*]   [*]   [*]   [*]

Qualifiers: Base Bulk - Delivery to Dock in Manufacturer’s Case Shipment

Initial Monthly Volume is determined by previous quarter’s actual purchases and
reviewed semiannually thereafter

If HCO does not maintain [*] EOE, the HCO will incur a cost of [*] on their base
mark-up

EOE is calculated by dividing the lines ordered initially electronically by the
total lines ordered and shall be measured each calendar quarter.

Line incentive is calculated by dividing the total monthly dollar volume by the
total number of lines ordered for the month, reviewed semiannually

Above pricing shall be used for all acute care facilities and stand-alone
ambulatory surgery centers that choose O&M as primary distributor

Above pricing shall be used for traditional med/surg products.

To qualify for the HPIS incentive, the individual facility must buy [*] of the
category from O&M.

See Exhibit 1 for the ranking order of the top 10 HPIS categories.

DSO is an add on based on past quarter’s activity and reviewed semiannually
thereafter.

 

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* [This confidential information has been omitted and filed separately with the
Commission.]

 

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Exhibit D-1

Distribution Services Pricing

Additional Distribution Service Pricing Menu and Definitions

(VHA/UHC/HPPI members selecting Novation as their Contracting GPO)

Owens & Minor

 

Distribution Services

 

Distribution Service Fee

1) Customized Invoices

  [*]

2) Customized Packing Slip

  [*]

3) Combined Packing Slip and Invoice

  [*]

4) Custom Pallet Architecture – Basic

  [*]

5) Custom Pallet Architecture – Expanded

  [*]

6) Add Delivery

 

$0-250,000                [*]

$250,000 - $500,000 [*]

Over $500,000          [*]

7) Bulk Picked By Department Delivered to Dock

 

(1) 1-3                       [*]

(2) 4-10                     [*]

(3) 11-15                   [*]

(4) Over 16               [*]

8) Bulk Break to Manufacturer Next Packing Unit (if not usually broken down)

  [*]

9) LUM Picked by Department Delivered to Dock*

  [*]

10) LUM Picked by Department Delivered to Department*

  [*]

11) LUM Picked by Department Put Stock Away*

  [*]

12) Affix Patient Label

  [*]

13) Bar Codes

  [*]

14) Miscellaneous

a. Emergency Deliveries

b. Other Miscellaneous Charges—deliveries over 250 miles

 

Activity-Based Pricing (CostTrack)

 

 

[*]

Available to facilities interested in activity-based management (ABM)

All Distribution Service Fees are additive to the effected activity.

 

--------------------------------------------------------------------------------

* Distribution Service Fees # 9, 10 & 11 are compounded (additive).

 

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Definition of all Distribution Services on Exhibit D-1 is with this Schedule.

 

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* [This confidential information has been omitted and filed separately with the
Commission.]

 

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SERVICE DEFINITIONS

1. Centralized Billing:

A health-care system is considered to have centralized billing if all material
products and services fees associated with each entity (i.e., HCO) of the system
are applied to one “bill-to” number and all invoice activity conducted by the
supporting Authorized Distributor is forwarded to one central accounting address
location. Additionally, payments are forwarded to the Authorized Distributor in
a manner that may reflect individual sub “bill-to” (HCO) purchase activity, but
can be processed against the one system wide “bill-to” number.

2. Centralized Ordering:

A health-care system is considered to have centralized ordering if all product
activity for each member HCO in the system is ultimately consolidated through,
as is often the case, one information system collection point. This action
occurs before any individual facility purchase activity is forwarded to the
Authorized Distributor in the form of a purchase order. Although ordering
activity at the individual HCOs may take place on various MIS systems, all
purchase activity is funneled into one primary system prior to being released to
the Authorized Distributor.

3. Centralized Delivery Point:

A Participating Member is deemed to have one centralized delivery point if all
products on any given delivery are dropped off at one physical location.

4. Customized Invoice:

An invoice is considered to be customized by the Authorized Distributor when the
creation of the invoice requires the Authorized Distributor to perform actions
other than what is considered standard operating procedure (SOP) in the
generation, delivery and/or processing of the original invoice. An invoice is
also considered to be customized when any additional documentation that is not
part of the Authorized Distributor’s SOP requirement must be created to
accompany the invoice for delivery to the HCO or health-care system.
Traditionally, one standard purchase order received from the customer will
automatically create one standard invoice. Additionally, any customization
required may necessitate an information system change/enhancement on the part of
the Authorized Distributor. Any changes to Authorized Distributor’s SOP during
the term of this Agreement must be approved by Novation.

5. Customized Packing Slip:

A packing slip is considered to be customized by the Authorized Distributor when
the creation of the packing slip requires the Authorized Distributor to perform
actions other than what is considered standard operating procedure (SOP) in the
generation and/or delivery of the packing slip created from an original purchase
order. A packing slip is also considered to be customized when any additional
documentation that is not part of the Authorized Distributor’s SOP requirement
must be created to accompany the packing slip for delivery to the HCO or
health-care system. Traditionally, one standard purchase order received from the
customer will automatically create one standard packing slip. Any changes to
Authorized Distributor’s SOP during the term of this Agreement must be approved
by Novation.

 

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6. Customized Packing Slip and Invoice:

Combination of 4 and 5 above.

7. Extra Deliveries:

Participating Members’ deliveries are included in their base cost-plus price
based on Exhibit D. All additional deliveries are added to the base cost-plus
price and priced according to the Service Fee Menu.

8. Bulk Picked by Department, Delivered to Dock:

Participating Members segment their orders by their departments, but the product
remains in the original manufacturer’s case pack or normal Authorized
Distributor shipping quantity and is delivered to the organization’s dock.

9. LUM Picked by Department, Delivered to Dock:

Same as bulk definition, but the product is broken into lowest unit of measure
from the manufacturer’s original case pack.

10. LUM Picked by Department, Delivered to Department:

Same as 9), but the Participating Member’s Authorized Distributor delivers the
LUM product directly to the VHA OR UHC organization’s department area.

11. LUM Picked by Department, Put Stock Away:

Same as 8), but the Participating Member’s Authorized Distributor delivers the
LUM product directly to the Participating Members’ department area and actually
puts the product away.

12. Affix Patient Charge Labels:

Covers the cost of the label and the labor to affix the patient charge label to
the product.

13. Bar-Coded Shelf Labels:

Authorized Distributor creates the bar-coded shelf label and provides them to
the Participating Member for use in central stores, warehouses and departments.

14. Emergency Delivery:

Any delivery after normal business hours, or a delivery that requires special
attention such as use of a courier service, etc.

15. Line Incentive:

Monthly dollar average of lines ordered. Participating Member will be eligible
for incentive if for the previous quarter the lines ordered average the amount
indicated on Exhibit D.

16. Custom Pallet Architecture-Basic:

 

  •   Items separated on pallet by purchase order

 

  •   items arranged in purchase order input sequence

 

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17. Custom Pallet Architecture-Expanded:

 

  •   items palletized in reverse storeroom location

 

  •   separate pallet for non-stock items

 

  •   separate pallet for stock items

 

  •   pallet clearly marked with description and internal routing information

The following services are provided free of charge and are not included in
custom pallet architecture:

 

  •   box/case labels facing out on pallet

 

  •   shrink-wrapped pallets

 

  •   pallets arranged to meet health-care organization weight and/or dimension
requirements

18. JIT (Just In Time) Inventory Program

 

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Exhibit D-2

Non-Acute Distribution Services Pricing

Price Matrix-Owens & Minor

Physician Participants

 

     Monthly Volume    Monthly Volume    Monthly Volume    $0 - $2,000   
$2,001- $8,000    $8,000+

Cost Plus

   [*]    [*]    [*]

NOTES:

 

•   Matrix applies to owned/controlled non-acute facilities credentialed into
VHA, UHC and HPPI membership.

 

•   To avoid two costs in the Health Care Organization information system, the
difference in cost-plus between an acute care slot and non-acute slot can be
applied as a service charge to all non-acute.

 

•   Delivery one shipment per week.

 

•   Above pricing shall be used for traditional med/surg products.

Home Care - Long-Term Care

 

    

Monthly Volume

   Monthly Volume    Monthly Volume    Monthly Volume    $0-9,999   
$10,000-24,999    $25,000-39,999    $40,000+

Cost Plus

   [*]    [*]    [*]    [*]

NOTES:

 

•   Monthly purchase volumes will be combined for all sites utilizing a central
ordering, billing, selling and shipping point.

 

•   Two deliveries per week.

 

•   Matrix applies to owned/controlled non-acute facilities credentialed into
VHA, UHC or HPPI memberships (Other Health Care Provider).

 

•   To avoid two costs in the HCO information system, the difference in
cost-plus between an acute care slot and care continuum slot can be applied as a
service charge to all care continuum sales.

 

•   Above pricing shall be used for traditional med/surg products.

 

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* [This confidential information has been omitted and filed separately with the
Commission.]

 

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Exhibit D-3

Definition and Pricing of Systems & Networks

Participating Members shall be deemed to be part of a system or network if they
meet either of the following criteria:

 

1. Are listed in VHA or UHC membership as part of a system or network under one
“parent” member AND are owned, managed, controlled, or leased by “parent” member

 

2. Have joined together with other Participating Members in local or regional
effort to reduce supply chain costs through standardization. Examples of this
might include consolidated logistics centers, local integrated delivery systems
(LIDS) or “Pods”. Eligibility under this criterion will be determined by
Novation.

Pricing for systems / networks will be determined as below:

 

A. The following system and network price scenario is for acute-care-only
systems and networks. Systems cannot add their other health-care provider sites=
volume into the pricing equation.

 

  1. If Participating Members form a system / network, and the Participating
Members provide one centralized ordering process and one centralized billing
process, the Participating Members may combine their dollar volume and be
slotted according to its actual combined volume.

Pricing will be determined by using Exhibit D, Distribution Fees Matrix.
Additional services will be applied according to Exhibit D-1, Additional
Distribution Service Fee Menu and Definitions.

 

  2. If Participating Members form a system / network and do not meet the above
criteria, the Participating Members’ distribution fees shall be determined by
the dollar volume of the largest Participating Member (defined as single
ship-to) of the system / network.

Pricing will be determined by using Exhibit D, Distribution Fees Matrix.
Additional services will be applied according to Exhibit D-1, Additional
Distribution Service Fee Menu and Definitions. In cases where the fees for
additional service are volume dependant, the fee will be determined using the
individual facility’s volume.

 

  3. The number of deliveries for each Participating Member of a system /
network shall be determined according to the individual volume of the
Participating Member. The number of deliveries will be determined using Exhibit
D, Distribution Fees Matrix.

 

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B. The following are definitions of the criteria necessary for accessing
integrated delivery system pricing for acute and non-acute sites.

 

  1. If Participating Members form a system/network, utilize one Authorized
Distributor for the entire system/network and provide one centralized ordering
process and one centralized billing process, the Participating Members may
combine their dollar volume (acute and non-acute) and be slotted according to
its actual combined volume.

Pricing will be determined by using Exhibit D, Distribution Fees Matrix.
Additional services for all sites of care will be applied according to Exhibit
D-1, Additional Distribution Service Fee Menu and Definitions. In cases where
the fees for additional service are volume dependant, the fee will be determined
using the individual facility’s volume.

 

  2. If Participating Members form a system / network and do not meet the above
criteria, the Participating Members’ distribution fees for each class of trade
shall be determined by the dollar volume of the largest Participating Member of
the system / network in each class of trade. Participating Members must use one
Authorized Distributor for entire system/network, or one Authorized Distributor
for all acute care sites and one Authorized Distributor for non-acute care
sites, to utilize this pricing option.

Pricing will be determined by using Exhibit D, Distribution Fees Matrix.
Additional services for all sites of care will be applied according to Exhibit
D-1, Additional Distribution Service Fee Menu and Definitions, with the
exception of deliveries to the non-acute sites of care, where the actual cost of
delivery will be applied.

 

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Exhibit D-4

Payment Terms

(No Exceptions)

Each Participating Member shall select from the following payment options and
all credits or additions shall be included in the Total Distribution Service
Fee. Authorized Distributor accepts the prepayment terms and credits as
outlined. Authorized Distributor shall accept and offer credit for twice per
month payments as outlined.

 

15-day prepay:   [*] credit 30-day prepay:   [*] credit Standard terms:   [*]
purchases due [*] of same month   [*] purchases due [*] of following month Net
30 days:   Add [*] Net 45 days:   Add [*] Net 60 days:   Add [*] Over 60 days:  
Add additional [*] for each 15 days beyond 60 days

Prepayment Calculation

Prepayment under the Novation Medical-Surgical authorized distribution program
provides the member an incentive to lower their distribution cost by prepaying
the expense on their monthly purchases. The prepayment balance that must be kept
on deposit at the distributor must not fall below the dollar amount of the
average cycle (bi-weekly, monthly, etc.) of purchases for the period that the
member wants to prepay. For a 15-day prepay, the member must keep funds in a
prepayment status equal to 15 days of business.

For example, if a member’s average monthly purchases equal $100,000 per month,
then the average 15 day prepay is calculated as:

$100,000/30 = $3,333.33 X 15 days = $49,999.95

 

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* [This confidential information has been omitted and filed separately with the
Commission.]

 

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All invoice terms run from the date of invoice. Credit for prepay shall be no
more than the percent of the amount on deposit with Authorized Distributor, not
the percent of the total monthly/quarterly purchases. This means that the amount
on prepay must keep current with their monthly purchase volume. If the Member
was doing $100,000 a month when they first put a deposit for prepay and now they
are doing $150,000 a month, the prepay deposit must be increased to:

$150,000/30 = $5,000 X 15 days = $75,000

Taxes, where applicable, will be added to the invoice price of products.

No Participating Member can be put on credit hold by their Authorized
Distributor without the Authorized Distributor notifying the Participating
Member and Novation in writing fifteen (15) days prior to credit hold. Novation
and the Authorized Distributor will work collectively to remedy the issue with
the Participating Member prior to loss of credit privileges. If credit
privileges are rescinded to the Participating Member, then the Participating
Member is entitled to continue to purchase their products and services from the
Authorized Distributor on a C.O.D. basis; provided payments are being made to
reduce any past due balances.

The Days Sales Outstanding (DSO) for a Participating Member is equal to the
receivable balance of the Participating Member divided by the Average Daily
Sales of the Participating Member:

DSO = Receivables / Average Daily Sales

Average Daily Sales (ADS) of a Participating Member is calculated as the
Quarterly Sales of the Participating Member divided by 90 days.

ADS = Quarterly Sales / 90

Therefore, DSO is calculated as

DSO = Receivables / (Quarterly Sales / 90)

DSO is reviewed quarterly, and all adjustments to the Base Distribution Service
Fee will be made only on a periodic or semiannual basis. The DSO will be
reviewed each quarter and the Participating Member and Novation will be advised
if out of compliance. If out of compliance, the Participating Member will have
the following quarter to become compliant or the Base Distribution Service Fee
will be adjusted for the slower payments. The DSO calculation will exclude any
disputed portions of invoices noted by the Participating Member as a
discrepancy. No Participating Members will be charged a higher cost-plus for DSO
due to invoices that are in dispute (provided that undisputed portions of the
invoices are paid within terms). All invoice disputes need to be reported by
Participating Member to the Authorized Distributor within thirty (30) business
days of receipt of the invoice. Disputed items of which Participating Member
notified Authorized Distributor are in dispute are not subject to late fees or
penalties during the resolution of the dispute (provided that undisputed
portions of the invoices are paid within terms). At resolution of dispute, late
fees or penalties applicable may be applied if Participating Member was not
justified in disputing item(s) on invoice.

 

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A service charge may be added by the Authorized Distributor to the Participating
Member’s monthly outstanding balance of the lesser of 1.5% (18% annually) or the
maximum legally allowable rate by local law, on all invoices not paid within the
agreed-upon payment terms.

 

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Exhibit D-5

Non-Traditional Products

Authorized Distributor may choose to distribute the following non-traditional
products or products of non-traditional vendors to members, which list may be
expanded or contracted upon mutual agreement upon 30 days notice.

A handling charge of no more than [*] may be added to acquisition cost.

 

Housekeeping Supplies

Can liners (Novation contracted supplier exempt)

Bleach

Detergents

Cleaners

Disinfectants

Gloves

Cleansers

Towels

Mops

Brooms

Soaps

Brushes

Sanitizers

Degreasers

Safety eye wear

Buffer pads

Waste receptacles

Floor stripper

Carts: laundry

Carts: linen

Carts: platform

 

Paper Products

Bags

Napkins

Plates

Cups

Towels

Toilet Paper

  

Food Service

Mugs

Carafes

H2O

Knifes & forks

Film wraps

Containers & lids

Foam cups

Coffee & tea

Cocoa

Juice

Soft drinks

 

Office Supplies

Labels

Forms

Envelopes

Copy paper

Booklets

 

Miscellaneous

Tampons

Pacifiers

TV speaker pillows

Room humidifiers

Denture cleaner

Lint pick-up rollers

Car seats

Baby diaper change stations

Instant print films

                                                                                
   Products of Vendors Listed on Attached Exhibit D-5A (other than Novation
medical/surgical Contracted Products of these vendors}   

*[This confidential information has been omitted and filed separately with the
Commission.]

 

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Supp No.  

Supplier Name

0060   ACORN PAPER & SUPPLY CO., INC. 0201   AMT DataSou 0321   AMERIPRINT 0338
  AMES COLOR FILES 0453   NESTLE WATER NORTH AMERICA INC (BR 0585  
BEECHLER-WATERS COMMERCIAL PRINTER 0693   BEAUMONT PRODUCTS INC 0759   BETRAS
PLASTICS INC. 0908   BRAWNER PAPER CO. 0988   BRIGGS CORP 0993  
BRISSMAN-KENNEDY 1008   DOUG BROWN & ASSOCIATES 1071   BUNZL, INC. 1158  
CALTECH INDUSTRIES, INC. 1292   GRACO CHILDREN S PRODUCTS 1474   COCA COLA
BOTTLING COMPANY 1506   COLONIAL BAG 1507   COLONIAL PAPER COMPANY INC 1566  
COMMUNITY CLEAN 1634   HP PRODUCTS/CONTINENTAL PAPER & SU 1690   DOREL JUVENILE
GROUP INC (COSCO) 1772   CYMBION LLC 1818   DART CONTAINER CORP 1823   CORPORATE
EXPRESS 1828   CORPORATE EXPRESS IMAGING & COMPUT 1937   DIAMOND PAPER CO LTD
1938   Dial 1959   XPEDX 2033   HYGEIA PAPER CO DC 37 ONLY HUP 2104   EASTERN
BAG (DC71 ONLY) 2117   Highland Computer Forms 2125   ECOLAB PROFESSIONAL
PRODUCTS JANIT 2281   FLEXSOL PACKAGING CORP. 2307   EVENFLO COMPANY, INC. 2328
  EXPRESS PHYSICIANS (BR 37 ONLY) 2519   FRESH BREW GROUP USA LLC 2535   FT.
JAMES CORP./GEORGIA PACIFIC 2708   GERBER PRODUCTS CO. 3080   EVERCARE COMPANY
(HELMAC) 3129   HILLYARD FLOOR CARE SUPPLY 3338   KELLY DAWN SYSTEMS, INC. 3359
  XPEDX 3475   JONES & COMPANY 3476   JOHNSON DIVERSEY RESTRICTED TO HPG 3642  
Kimberly Clark Professional 3706   KOALA KARE PRODUCTS 3726   U.S. FOOD SERVICE
3727   U.S. FOOD SERVICE 3728   Krames/Staywell

 

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3849   LAGASSE INC 3955   JANPAK/LIND PAPER COMPANY DALLAS 4088   PREMIUM WATERS
INC 4152   MARCAL PAPER 4506   MINNESOTA MINING 3M COMMERCIAL 4705   NEW ENGLAND
COFFEE COMPANY 4721   NOGG CHEMICAL 4721   Nog Chemical 4854   OSCEOLA SUPPLY
(DC30 & 59 ONLY) 4908   Fortune Illinois 4913   PAPER CORP 5098   PIEDMONT
GRAPHICS, INC. 5127   PLAYTEX PRODUCTS INC 5155   POLAROID CORPORATION 5201   R
& B PRODUCTS INC 5237   Pritchett & Hull 5248   TIME MED LABELING 5358   REILY
FOODS COMPANY INC. 5563   RUBBERMAID COMMERCIAL 5605   SAN DIEGO FORMS 5614  
SASSY INC. 5732   A.D.SCHINNER CO. 5830   SIGMA INTERNATIONAL 5901   Service
Paper Company 5921   SOLO CUP COMPANY 5931   Southland Envelope 5943   SOUTH
TEXAS FORMS & DIST BR49 ONLY 5948   SOUTHWEST DATACOM SYSTEMS INC. 6004  
STANDARD REGISTER 6102   SULTAN MEDICAL 6126   TYCO / SUNBELT MANUFACTURING INC
6130   SUNBEAM HOUSEHOLD PRODUCTS 6173   NOBEL/SYSCO 6204   HALLSMITH-SYSCO FOOD
SERVICES 71O 6218   TAB PRODUCTS CO (DC 52 & 65 ONLY) 6298   STRAUB CORP (DC 77
ONLY) 6468   UNISOURCE 6482   STANDARD REGISTER 6488   UNISOURCE 6490  
UNISOURCE 6515   VIKING ELECTRIC SUPPLY 6757   WAXIE SANITARY SUPPLY 6839  
WEXFORD LABS,INC. 6843   WHIRLEY INDUSTRIES, INC. 6892   ENTERPRISE GROUP 6950  
X-O CORPORATION 6965   WY EAST MEDICAL CORPORATION 6995   XPEDX

 

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Exhibit E

All Contract Products to be provided by Novation upon bid award. This will
include all NOVAPLUS Products, all Novation Standardization Program Products and
all other products covered by Novation agreements.

Partnership Portfolio

Distributor must ensure that all partnership portfolio product pricing will
remain firm for 3 years. (Distributor will need to work with their manufacturers
of choice to make this happen). Partnership portfolio products are listed on the
attached Exhibit E-1.

 

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Exhibit F

“Definition of “Cost”

(No Exceptions)

1. Cost is applied as the net distributor cost of any product without
subtraction for cash discounts allowed by Vendors for prompt payment or other
fees and incentives and prior to the addition of any distribution service fees,
Authorized Distributor’s out-of-pocket expense in obtaining the product,
including actual inbound freight charges not paid or credited by manufacturer
and actually paid by Authorized Distributor not reflected on invoices from
manufacturers, distributors or others

2. The Definition of “Cost” in reference to:

A. Novation Contract Products: the net distributor cost is the amount provided
in the applicable Purchasing Agreement as the price to be billed to the
Participating Members.

B. Non-Contract Products under a Purchasing Agreement: the net distributor cost
is the amount provided in the applicable Purchasing Agreement as the price to be
billed to the Participating Members.

 

  (1) All Other GPO applicable Purchasing Agreements

 

  (2) Locally Negotiated Purchasing Agreement between Participating Member and
Manufacturer

 

  (3) Locally Negotiated Purchasing Agreement between Participating Member and
Distributor

C. Other Non-contract Products: the net distributor cost is the true acquisition
cost or actual transfer cost to the Authorized Distributor to purchase products
that are distributed to the Participating Members which are not covered by any
of the above definitions.

3. In the event a Vendor determines to decrease or eliminate a discount, fee or
incentive offered to Authorized Distributor or to assess an additional fee or
surcharge (each a “Terms Change”). Authorized Distributor will notify Novation
and the parties will work together in an attempt to dissuade the applicable
Vendor from implementing such Terms Change. However in the event Authorized
Distributor and Novation are unsuccessful in these efforts and the applicable
Vendor implements the Terms Change; Authorized Distributor, upon mutual
agreement with Novation on how any adjustment would be handled, may adjust such
Vendor’s Cost to offset the Terms Change. Any Cost adjustment made prior to the
date of this Agreement based on previous Vendor Terms Changes shall continue in
effect.

 

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4. For all Vertically Integrated Distributor/Supplier (“VIDS”), the following
language will apply.

Notwithstanding the above, for VIDS (Vertically Integrated Distributor/Supplier)
manufactured products, private label products, supplier marketing programs
(i.e., BVP/Focus products, other preferred supplier programs) and products for
which VIDS has exclusive distribution rights, other than Contracted Products.
Cost is equal to the quotient of the price quoted by VIDS to the Members divided
by (1+ the Designated Member’s current Matrix slotting).

VIDS and Novation agree that the following VIDS self-manufactured products may
be available for purchase by any AD upon the request of any Member for
distribution through such AD, providing the AD meets the standard terms and
conditions that VIDS has in place for the distribution of VIDS self-manufactured
products.

(List all contracts Novation currently has with specific VIDS).

The terms under which the ADs must purchase these products will commensurate
with pricing, payment terms, shipping, returns, rebates and order entry terms
standard in the industry for such transactions.

 

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Exhibit G

Distribution Centers

The following information will be required for each active distribution center
and any changes to existing distribution center listing in an electronic format.
This information should also be provided on each schedule 1 & 2 submitted for
processing.

Distribution Center (DC)

DC identification code

DC Address

DC City

DC State

DC Zip

The following information should be provided quarterly for each Distribution
Center.

VHA/UHC Member’s MID #

VHA/UHC Member’s LIC#

VHA/UHC Member’s Address

VHA/UHC Member’s City

VHA/UHC Member’s State

VHA/UHC Member’s Zip

 

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Exhibit H

Product Stocking

Authorized Distributor shall have the following stocking responsibilities with
respect to Contract Products, NOVAPLUS® Products and Non-contract Products:

Authorized Distributor will maintain sufficient stock of Contract Products,
NOVAPLUS® Products and Non-contract Products to support Participating Members at
the service level set forth in this Agreement.

Authorized Distributor stocking requirements are as follows:

1. Authorized Distributor must stock locally all Contract Products and NOVAPLUS®
Products.

2. Authorized Distributor must stock locally all “A” items (“A” items are
products that are ordered at least two (2) times per month by a Participating
Member and have sales per annum of at least $1,000 per Participating Member.)

3. If Participating Member chooses not to have product stocked locally and
product is not stocked locally by Authorized Distributor, the Participating
Member can either access these products directly from the manufacturer through
the Authorized Distributor and pay all additional charges (i.e., in-bound
transportation, drop shipping, etc.) or have Authorized Distributor ship from
another location and Participating Member will pay transportation charges.

4. Upon request of a Participating Member to add items to stock, Authorized
Distributor will add traditional medical/surgical items to stock from any vendor
which meets industry standards of good manufacturing practices as well as
Authorized Distributor’s minimum legal requirements and has credit worthiness
comparable to other vendors with which the Authorized Distributor does business,
where the Participating Member’s usage meets the demand levels described in
Exhibit H Section 2. Within thirty (30) days, or industry standard lead-time, of
receipt of usage data, Authorized Distributor will have the items in stock and
advise the requesting Participating Member that the items are available at the
Distribution Center. Authorized Distributor may refuse to stock a Non-contract
Product.

5. Authorized Distributor will not remove from stock at the Distribution Center
any product being purchased by a Participating Member unless Authorized
Distributor no longer distributes the product. Authorized Distributor will
review its stock on an appropriate basis to identify those products that have
generated sales of less than two (2) transactions per month. Authorized
Distributor will contact any Participating Member who was purchasing these
products within the last ninety (90) calendar days to ascertain continuing need.
If no need is expressed, Authorized Distributor will give written notice to
applicable Participating Members of Authorized Distributor’s intent to remove
the items from stock. If a Participating Member provides Authorized Distributor,
within ten (10) business days after such notice, with the Participating Member
usage estimates at least two (2) transactions per month, Authorized Distributor
will maintain the items in stock. If Authorized Distributor does not receive
usage data, Authorized Distributor may discontinue the items.

 

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6. From time to time, Novation may advise Authorized Distributor that specified
Contract Products are to be stocked by Authorized Distributor exclusively for
Participating Members. Authorized Distributor shall use its best efforts to
restrict delivery of such specified Contract Products to Participating Members,
provided Authorized Distributor shall be free to enter into agreements with any
Vendor for distribution of any products, including products which may be
Contract Products under this Agreement. The Participating Members shall be
obligated to purchase from Authorized Distributor any custom, specialty or
exclusive items that Authorized Distributor procures or otherwise allocates for
such Members and which are not purchased within 90 days of such procurement or
allocation.

7. If a Vendor advises Authorized Distributor that specific Contract Products or
Non-contract Products will be available in reduced quantities or will be
allocated, and that, therefore, Authorized Distributor may not be able to honor
all requests for such products, Authorized Distributor will allocate, based on
past purchasing history of the Participating Members, a portion of such products
to Participating Members and shall advise Novation and the Participating Members
of the quantity of products so allocated. Authorized Distributor agrees that
Participating Members shall receive [*] in the event of limited product
availability.

8. Stocking of NOVAPLUS® Products: Authorized Distributor agrees to stock such
amount of NOVAPLUS® Products as Authorized Distributor reasonably determines is
necessary to satisfy the usage requirements of the Participating Members. All
NOVAPLUS® Products that have a minimum of two (2) transactions per month will be
identified in Authorized Distributor inventory as such and be subject to
appropriate inventory by Authorized Distributor. Authorized Distributor will use
its best efforts to market and promote NOVAPLUS® Products when such Products
meet the needs of a Participating Member.

9. In the event that a distributor is unable to conduct business with a Novation
contracted supplier, distributor will notify Novation immediately and use
commercially reasonable efforts to resolve all issues within thirty (30) days.

 

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* [This confidential information has been omitted and filed separately with the
Commission.]

 

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Exhibit I

Physical Inventory

Authorized Distributor will give Novation and the Participating Members not less
than forty-five (45) days prior written notice of Authorized Distributor’s
intent to perform a physical inventory at the Distribution Center. Authorized
Distributor will accept saleable returns up to ten (10) days prior to such
inventory and, thereafter, Authorized Distributor will continue to authorize
returns, except such returns will be held at the Participating Member until the
first business day after completion of the physical inventory.

 

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Exhibit J

Invoices

1. Participating Members may select from the four options listed below for the
invoice format in presenting Distribution Volume Matrix from Exhibit D and
Additional Distribution Services Pricing from Exhibit D-1, if any.

A. Option 1 – Distribution Volume Matrix Pricing from Exhibit D and additional
services selected from Exhibit D-1 by the Participating Member, if any, shall be
added to Product Cost and billed as a total Product Price.

B. Option 2 – Distribution Volume Matrix Pricing from Exhibit D shall be added
to Product Cost and billed as a total Product Price, and any additional service
selected from Exhibit D-1 shall be billed as a separate line item, or on a
separate monthly invoice, at Participating Member’s option.

C. Option 3 – Distribution Volume Matrix Pricing from Exhibit D and the charges
for additional services selected from Exhibit D-1, if any, shall each be billed
as a separate line item, provided that Authorized Distributor and the
Participating Member are able to resolve any sales tax or similar tax issues
prescribed by this invoice option.

D. Option 4 – Distribution Volume Matrix Pricing from Exhibit D and the charges
for additional services selected from Exhibit D-1, if any, shall be billed as a
separate line item, or on a separate monthly invoice, provided that Authorized
Distributor and the Participating Member are able to resolve any sales tax or
similar tax issues prescribed by this invoice option.

Participating Member is obligated to use for at least one (1) year the invoice
option selected in accordance with Schedule 2. To initiate an invoice format
change, Participating Member must submit a revised Schedule 2, Participating
Member Distribution Pricing Calculation Form to Novation Distribution Services
and Authorized Distributor.

2. Invoice Reconciliation: Authorized Distributor is required to provide all
documentation necessary to resolve disputed invoices to Participating Member
within 30 days of notification by Participating Member that an invoice is in
dispute.

 

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Exhibit K

Product Delivery

Each Participating Member will be entitled to the appropriate number of
deliveries as determined by the Base Distribution Service Fee Matrix and
excluding the following holidays: New Year’s Day, Memorial Day, July 4th, Labor
Day, Thanksgiving and Christmas. Holiday exclusions shall be locally negotiated
with just-in-time (JIT) hospitals. Each Participating Member may elect to
receive fewer than the number of deliveries available for their volume or buy
additional deliveries at their option. The cost of additional deliveries is
determined in accordance with Exhibit D-1. In addition, deliveries of greater
than 250 miles (one-way), will be charged an additional fee equal to actual
freight incurred. Authorized Distributor may provide additional deliveries to
Participating Members at no additional cost if doing so would result in
increased efficiency or lower costs for the Authorized Distributor and
Participating Member agrees to accept said additional deliveries. “Delivery” is
the physical delivery to each location specified by the Participating Member of
the products covered by all orders received by Authorized Distributor prior to
the standard order cut-off times.

The delivery of back ordered items (including items delivered through Backorder
Relay) does not constitute an additional delivery; however, Authorized
Distributor shall notify the affected Participating Member as soon as possible
after Authorized Distributor can reasonably anticipate that a delivery will be
made after the scheduled delivery time (“Delivery Time”). Such notification
shall include the anticipated date and time of delivery of the late shipment
(“Revised Delivery Time”) and the reason for the delay.

In order to minimize the frequency and length of delays, Authorized Distributor
shall establish a secondary delivery system, which shall be used in the event
that the primary delivery method is unavailable.

 

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Exhibit L

Product Fill Rates

Authorized Distributor shall maintain for each Participating Member an
unadjusted Fill Rate for all “A” Items of [*]. “A” Items are defined as those
items that are stock items and are ordered by the Participating Member at least
two (2) times every thirty (30) days. Authorized Distributor shall maintain an
unadjusted fill rate for all items ordered (overall fill rate) of [*].

The Fill Rate is determined on an average monthly basis by completed line items
filled divided by line items ordered, first truck. The Fill Rate calculation
excludes Large Order Quantities (orders greater than [*] of previous three month
average unit volume).

Authorized Distributor shall maintain a [*] Fill Rate for all items ordered on a
low unit of measure (LUM), just in time (JIT) basis.

Authorized Distributor and each Participating Member will agree within sixty
(60) days of implementation of this Agreement to the Participating Member’s “A”
Items list. Authorized Distributor shall review the “A” Items list with
Participating Member no less than quarterly and shall, at Participating Member’s
request, review such list with Participating Member on a monthly basis.
Participating Member will approve the first “A” Items list by signing the
appropriate documents. Authorized Distributor shall not delete any item from the
“A” Items list without prior written consent of Participating Member. Novation
will take into consideration a manufacturer’s backorder impact if Authorized
Distributor is unable to meet the [*] unadjusted fill rates on “A” Items or [*]
unadjusted on all items if manufacturer’s backorder is of such nature that
Authorized Distributor under reasonable circumstances cannot meet the fill rate
obligation defined in this Exhibit.

 

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* [This confidential information has been omitted and filed separately with the
Commission.]

 

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Exhibit M

Computer-Based System Requirements

Authorized Distributor shall, at its own expense, make available a software
application capable of computer-to-computer on-line transmission (the
“Application”) with each Participating Member, Novation Contract Manufacturers
and Novation. The Application will use ANSI X12 EDI where possible. Where EDI is
not possible, Novation and Authorized Distributor must agree in writing to a
proprietary implementation of data transmission. Authorized Distributor shall
use the Application for the term of this Agreement. Authorized Distributor
represents that it has a computerized Automatic Product Substitution system. The
use of Automatic Product Substitutions will be done for individual line item
products upon the request of a Participating Member.

Authorized Distributor shall be fully capable of supporting the following
electronic data interchange (EDI) transaction sets in ANSI X 12 format:

To/From Manufacturer:

 

850 Purchase Order   Purchase Order to Supplier 855 PO Acknowledgment   Purchase
Order Acknowledgment (w/i 2 hrs) 810 Invoice   Supplier Invoice to Authorized
Distributor 844 Rebate   Authorized Distributor Rebate Claim to Supplier 867
Sales Tracing/Rebate   Distributor Sales to End Users for submission of rebate
claims and marketing information 832 Price Catalog*   Supplier price catalog to
distributor 845 Electronic Contract Notification   Supplier contract
notification to distributor 856 Advance Shipment Notification   Supplier
notification of shipment contents before delivery to distributor 867/849*/810
Link Net Billing   Distributor is invoiced at best distributor cost less the
rebate amount 867/852/855/861(CRP)   Continuous Replenishment Planning (CRP) of
distributor inventory 820 Electronic Fund Transfer   Electronic Fund Transfer

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* Owens & Minor will work with Novation to develop the 832 and 849 transaction
sets.

To/From the HCO:

 

850   Purchase Order 855   PO Acknowledgment 810   Invoice 820   Electronic
Funds Transfer 832   Price Catalog 856   Advance Shipment Notification

To Novation:

 

867 Sales Tracing/Rebate   Distribution Sales to End Users for submission of
rebate claims and marketing information

 

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Exhibit N

Confirmation of Orders

Order confirmations must identify items that take exception to the Participating
Members’ purchase orders. Exceptions should include, but not be limited to;
price discrepancies, unit of measure, backorders or SKU variation and any other
deviation from Participating Members’ purchase orders. Such exceptions shall be
consistent with the remainder of this Agreement, including, but not limited to,
Paragraph 27, Section B.

 

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Exhibit O

Additional Remedies

1. Change of Authorized Distributors. If, during the term of the Agreement, a
Participating Member requests a change of Authorized Distributors, the following
steps should be followed:

A. Indicate the reason — service or strategic — for the requested change.

B. Provide the necessary details regarding the request. If the requested change
is service-related, indicate in the service area that your current Authorized
Distributor may not be performing satisfactorily. If the request is strategic,
please provide the details in the space provided.

C. Fax the completed Schedule 4 form to Novation. Novation will review the
request. If the request is being made for service reasons, the current
Authorized Distributor will have 30 days to address and remedy the situation.
After 30 days, the organization has three options:

(1) Agree to the reassignment of the current Authorized Distributor, provided
the Authorized Distributor has satisfactorily addressed the service issue.

(2) Give additional time to the current Authorized Distributor to resolve the
problem, provided the Authorized Distributor is making significant progress
toward a complete remedy.

(3) Finalize the request for a change of Authorized Distributors. If this option
is chosen, the Participating Member notifies Novation. The Client’s Account
Manager document in writing and lead all activities related to the transition
from the incumbent to the new Authorized Distributor.

 

  •   If the request is being made for strategic reasons, Novation will review
the details and, after consultation with the current Authorized Distributor,
make a decision on the request within 30 days. If it is denied, the
Participating Member will remain assigned to its current Authorized Distributor.
If the request is approved, your Account Manager will manage the transition
process.

 

  •   If the request is finalized, the Participating Member, the current
Authorized Distributor and the new Authorized Distributor facilitated by the
Client’s Account Manager, will develop a written transition plan and begin the
change process.

2. Transition Process:

A. Novation will notify the Participating Member that its request to change
Authorized Distributors has been approved.

 

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B. The Participating Member indicates the new Authorized Distributor it is
requesting. The new Authorized Distributor must be selected from the list of
distributors authorized to serve that organization’s market area

C. The Participating Member and new Authorized Distributor shall agree on the
new level of services and its cost.

D. The Participating Member, current Authorized Distributor, new Authorized
Distributor and local Account Manager meet, agree, and document a transition
plan that will allow the new Authorized Distributor to build inventory, change
its system and plan to implement the changes necessary to serve as the
Participating Member’s distributor. The time period should be 45-90 days unless
all parties agree to an alternate time period. The plan also should allow the
current Authorized Distributor to scale down its inventory allocated for that
Participating Member

During the transition process, the current Authorized Distributor will maintain
the Participating Member’s current level of services and pricing. The
Participating Member also will receive full credit for all purchases from both
Authorized Distributors during the transition.

At the conclusion of the transition process, the Participating Member, its
current Authorized Distributor, its new Authorized Distributor and Account
Manager will meet to close the process. The process should include satisfactory
reduction of the current Authorized Distributor’s inventory for the health care
organization. The Participating Member is responsible for purchasing all
inventory that the current Authorized Distributor specifically ordered for that
organization.

3. Loading of Supplier Agreements: The new Authorized Distributor shall load
Novation Supplier Agreements as described in Paragraph 4 of the Agreement.
Failure to do so will subject Authorized Distributor to the administrative
damages outlined in Paragraph 21 and Exhibit W of the Agreement.

 

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Exhibit O-1

AD Transition Plan Template

 

Name of Facility:

  
_______________________________________________________________________________

Facility Address:

  
_______________________________________________________________________________

Director of Materials Management:

  
_______________________________________________________________________________

Phone Number:

  
_______________________________________________________________________________

Present AD:

  
_______________________________________________________________________________

Branch:

  
_______________________________________________________________________________

Branch Contact:

  
_______________________________________________________________________________

Phone Number

  
_______________________________________________________________________________

New AD:

  
_______________________________________________________________________________

Branch:

  
_______________________________________________________________________________

Branch Contact:

  
_______________________________________________________________________________

Phone Number

  
_______________________________________________________________________________

Transition Start Date:

  
_______________________________________________________________________________

Transition End Date:

  
_______________________________________________________________________________

Transition period should be mutually agreed upon by HCO, current and new
Authorized Distributors. This period typically ranges from 45 to 90 days. During
this period, Novation authorizes dual distribution and Distribution Services
will notify contract manufacturers to provide contract pricing to both
Authorized Distributors. At the end of the transition period, only the new
Authorized Distributors will be extended contract pricing.

Other Considerations:

Account Manager should work with all three parties to ensure that the existing
Authorized Distributors has time to reduce inventory and the new Authorized
Distributors has time to bring items into stock for the HCO. Be especially
careful of items specific to the HCO (such as custom packs). Make sure the
present Authorized Distributors presents a list of products specific to the HCO
that must be purchased by the HCO prior to the end of transition. This list
should be developed early in the process and should be signed by the HCO,
present Authorized Distributors and account manager. Transition plan may include
details of when specific product lines are to be transitioned, this detail
however, is not necessary to Novation Distribution Services.

 

Signatures Required:

 
_______________________________________________________________________________

HCO Director of Materials:

 
_______________________________________________________________________________

Present Authorized Distributors Representative:

 
_______________________________________________________________________________

New Authorized Distributors Representative:

 
_______________________________________________________________________________

Account Manager:

 
_______________________________________________________________________________

Date:

 
_______________________________________________________________________________

 

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Exhibit O-2

Novation Medical-Surgical Distribution

Transition Implementation Process Checklist

***NOTE: For use after Schedules 1, 2 and 4 have been received by Novation
Medical-Surgical Distribution (45 days before effective start date)

 

    

Timeline

  

Name

MEMBER      

q      Notify current distributor of approved change and contact Novation
Service Delivery representative for assistance

     

q      Attend initial meeting with all parties

     

q      With current distributor:

     

q      Review list of custom/committed inventory (purchase to depletion)

     

q      Review inventory levels to ensure continuation of service during
transition period

     

q      Review outstanding A/P and ensure a plan is in place to address all
issues

     

q      With new distributor:

     

q      Provide and review list of custom/committed inventory and provide monthly
usage on items to be stocked

     

q      Provide copies of LOP/LOC and list of local/generic contracts (include
Novation Service Delivery)

     

q      Discuss operational needs (i.e.: logistics, delivery schedules,
tradition, bulk, lowest unit of measure)

     

q      Schedule IS conversion “go live” date

     

q      Determine, if any, what supplies will be transferred from current to new
distributor

     

q      Attend final meeting with all parties

      CURRENT DISTRIBUTOR      

q      Attend initial meeting with all parties

     

q      With Member:

     

q      Provide and review list of custom/committed inventory currently stocked
(to be purchased to depletion-include supplier, supplier catalog number, unit of
issue, quantity on hand)

     

q      Establish an “end date” for orders, deliveries, and other services

     

 

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q      Review inventory levels to ensure continuation of service during
transition period

     

q      Work on outstanding A/R, provide documentation as needed

     

q      If needed, provide 12-month usage report by supplier, stock number and
unit of measure for member

     

q      Attend final meeting with all parties

      NEW DISTRIBUTOR      

q      Attend initial meeting with all parties

     

q      With Member:

     

q      Review list of custom/committed inventory and inventoried usage items to
be stocked

     

q      Purchase and bring into stock all items to be stocked for member

     

q      Get copies of all LOC/LOPs needed to load contract pricing

     

q      Secure and load contract pricing

     

q      Discuss operational needs (i.e.: logistics, delivery schedules,
tradition, bulk, lowest unit of measure)

     

q      Schedule IS conversion “go live” date

     

q      Establish a “start date” for ordering and delivery

     

q      Enlist the help of Novation Medical-Surgical Distribution team as needed

     

q      Attend final meeting with all parties

      SERVICE DELIVERY      

q      Schedule and/or facilitate initial meeting with all parties: determine
transition period (start/stop dates)

     

q      Help to facilitate the acquisition of contract pricing to include
securing LOP/LOCs. Coordinating with distributors and manufactures as needed

     

q      Monitor activities, as needed, during transition period

     

q      Communicate all outstanding issues to appropriate parties to include
distributors, product managers and member

     

q      Schedule and/or facilitate final meeting with all parties

     

q      If Service Issue

     

q      Complete Schedules 1, 2 and 4. Send to Novation Medical-Surgical
Distribution

     

q      Member discusses service issues with current distributor. Set time line
to correct problems.

     

q      At end of 30 days:

     

•        If problem corrected, document.

     

•        Member may choose to extend resolution period.

     

•        If problem not solved, member may select new distributor.

     

 

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q      If member selects new distributor, complete Transition implementation
Process checklist

     

q      If member selects new distributor, complete Transition Implementation
Process Checklist

     

q      If Strategic Issue:

     

q      Complete Schedules 1, 2 and 4 and send to Novation Medical-Surgical
Distribution.

     

 

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Exhibit P

Returned Goods Policy

 

1. Merchandise will be acceptable for return if it meets all of the following
criteria:

A. The merchandise is returned with prior written authorization from Authorized
Distributor.

B. The merchandise is in compliance with the manufacturer’s Return Goods Policy.

C. The merchandise was originally sold by Authorized Distributor.

D. The merchandise was not ordered on a “Special Order” or “Custom Product”
basis.

E. The merchandise is in its original manufacturer packaging and is re-salable.

F. The merchandise is in at least Authorized Distributor’s minimum unit of sale.

G. If the merchandise is a non-stock item, the manufacturer has provided
Authorized Distributor with authorization to return.

H. The merchandise is listed in a current Authorized Distributor or manufacturer
price list or price list supplement.

I. If the merchandise is a drug/pharmaceutical, within the limitations of the
Prescription Drug Marketing Act and its regulations.

 

2. Vendor Product Recalls

A. Authorized Distributor shall follow Vendor policy for returns in the event of
a product(s) recall. Authorized Distributor will provide a copy of the Vendor’s
policy regarding the recall, if requested.

B. Authorized Distributor will supply, upon request the following:

(1) A current list of Vendor addresses for the purpose of obtaining return goods
authorization from the Vendor

(2) The names and telephone numbers of the Vendor representatives able to
authorize the return of product

(3) A list of Vendors who levy a restocking charge on returned product(s) and
the amount of that charge

 

3. Credit for returned merchandise will be issued as follows:

A. Merchandise Delivered in Error or in Soiled or Damaged Condition

Merchandise shipped in error due to Authorized Distributor picking error, over /
short shipments and products damaged en route on Authorized Distributor trucks
must be inspected and reported to the Authorized Distributor within 3 days in
order to receive 100% credit

 

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B. Other Merchandise (except Drugs/Pharmaceuticals)

Stock and Non-Stock Merchandise

(1) Merchandise returned within 30 days of the invoice date – 100% credit to the
customer less a [*] restocking charge (whichever is greater), and any
manufacturers’ service, restocking and freight charges incurred. At its sole
discretion, Authorized Distributor can waive restocking fees.

(2) Merchandise returned after 30 days but before 90 days of the invoice date –
100% credit to the customer less a [*] restocking charge (whichever is greater),
and any manufacturers’ service, restocking and freight charges. At its sole
discretion, Authorized Distributor can waive restocking fees.

(3) Merchandise returned after 90 days of the invoice date – 100% credit to the
customer less a [*] restocking charge (whichever is greater), and any
manufacturers’ service, restocking and freight charges.

C. Drugs/Pharmaceuticals

Drugs/Pharmaceuticals must be returned within 7 days of the invoice date.

*[This confidential information has been omitted and filed separately with the
Commission.]

 

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Exhibit Q

Authorized Distributor Disaster Plan

Authorized Distributor to provide to Novation and Participating Members upon
request.

 

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Exhibit R

Additional Requirements

1. Sale of Non-contract Products. Upon request by a Participating Member,
Authorized Distributor may offer to sell and, if any such offer is accepted, to
sell Non-contract Products to the Participating Members. Participating Members
may offer to buy, and if such offer is accepted, may buy Non-contract Products
from Authorized Distributor. In the event such offers, sales or purchases are
made, such offers, sales or purchases shall be processed by Authorized
Distributor in conformity with the provisions of this Agreement.

2. Backorder Relay. If Authorized Distributor fails to have an “A” Item on hand
at a Distribution Center when the “A” Item is available at an Alternate
Distribution Center, Authorized Distributor shall, upon request of a
Participating Member on agreed upon terms, be able to deliver the “A” Item
directly to the ordering Participating Member by way of the Distribution Center
or from the Alternate Distribution Center (“Backorder Relay”), whichever is
fastest. Contract and Non-contract products to be delivered via Back Order Relay
shall be delivered on the next scheduled delivery after the first delivery
following initial order placement. Backorder Relay is required only for “A”
Items. Authorized Distributor shall use Backorder Relay upon customer request
whenever an “A” Item is unavailable at a Distribution Center, regardless of the
cause of such unavailability (for example, even if such unavailability is caused
by Vendor’s backorder); provided that, unless the item is unavailable due to
Authorized Distributor error or if Customer has exceeded [*] of normal monthly
usage, it shall be used at customer’s expense. Authorized Distributor will
notify Participating Members by automatic order entry print back, customer
service, sales representative or other reasonable means of a true backorder at
the Distribution Center. Participating Members, at their option, will select a
desired means of resolution that may include product substitution, maintaining
backorder or order item cancellation. Each Participating Member will also have
the option to select a reasonable method of delivery to meet the individual
institution’s service requirements. Participating Members shall not be
responsible for any delivery charges where such Backorder was due to error of
Authorized Distributor.

3. Backorder Notification Process. Authorized Distributor shall notify
Participating Members or make information available as soon as it becomes aware
that one or more of the Participating Member’s “A” Items is or will be on
backorder pursuant to this Agreement or otherwise will be unavailable for
shipment to Participating Member.

4. Novation Quarterly Business Review. Authorized Distributor corporate staff
shall meet no less frequently than once each calendar quarter with Novation to
discuss Authorized Distributor’s performance under this Agreement. This
quarterly business review will also be used to establish performance targets and
goals and to review progress towards such targets and goals.

*[This confidential information has been omitted and filed separately with the
Commission.]

 

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5. Ongoing Management of Manufacturer Standards of Performance. Authorized
Distributor shall provide NOVATION quarterly upon request its standard supplier
scorecard on its top 100 suppliers.

6. Ongoing Management of Authorized Distributor Performance Standards. Within 60
days of execution of the Award Letter, each Authorized Distributor will receive
annual performance standards measures. At each periodic (quarterly) review and
within 60 days of the anniversary date, the Authorized Distributor will be
notified of whether they will continue as an awarded supplier.

The standards will be as follows but not limited to:

 

  1) contract penetration—Novation Contract Sales as a % of Total Sales
(improvement goals will be assigned to Authorized Distributors annually

 

  2) fill rate compliance

 

  3) compliance to price change notification

 

  4) compliance to staying on matrix

 

  5) compliance to informing Novation of pending optional contracting
arrangements

 

  6) general adherence to the terms and conditions of this agreement

Drop Shipments. If a Vendor ships Contract Products or Non contract Products
directly to a Participating Member (a “drop shipment”) and the Vendor bills
through the Authorized Distributor, such transaction will be subject to the
terms of this Agreement. Use of Drop Shipments will be at the discretion of the
Participating Member.

Authorized Distributor may pass through to the Participating Member any service
charges levied by Vendor on Authorized Distributor for drop shipments.
Authorized Distributor will notify Participating Member of any such service
charges at time of order. Any drop shipments requested by a Participating Member
that are not the result of Authorized Distributor error shall be charged an
additional fee of [*].

7. Support of the Client’s Standardization Programs: Authorized Distributor will
provide support for the Client’s Standardization Program(s) to include, but not
be limited to:

A. Appropriate product stocking

B. Training and education of Authorized Distributor’s sales force

C. Identification of committed program products in the Authorized Distributors
product database and on price catalogs to Participating Members

D. Working with Novation and contract manufacturers to maximize the value of
these programs to the Participating Members

*[This confidential information has been omitted and filed separately with the
Commission.]

 

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The Client’s Standardization Programs reward members based upon their
participation and ensure lower prices, enhanced patronage dividends, and
improved operational and staffing efficiencies. The Client’s Standardization
Programs are optional for VHA and UHC members and include, but may not be
limited to, The Client’s Standardization Program. The Client’s Standardization
Program represents $1.6 billion in annual purchases and is an incentive-and-
performance-based program with a proven approach to reducing costs. It rewards
members that achieve full compliance in designated product categories with best
contract pricing, financial incentives and the potential for increased
cooperative returns. Most importantly, it is the platform for additional cost
reduction through standardization and utilization.

9. Other Reporting Requirements

A. Vendor Reports: Authorized Distributor agrees to deliver all manufacturer
tracing and rebate reports for Contract Products no later than ten (10) days
after the end of the month in which the sales reported took place. Upon request
of a NOVAPLUS® contract manufacturer, Authorized Distributor agrees to provide
sales tracings at no charge for all NOVAPLUS products. Such tracings shall be in
hardcopy or electronic format at the request of the NOVAPLUS contract
manufacturer.

B. Annual Reports: Authorized Distributor will supply to Novation upon request,
but at least annually, copies of Authorized Distributor’s annual audited
financial reports. Such reports shall include, at a minimum, an income
statement, balance sheet, statement of equity, statement of cash flows, all
footnotes and such other information as Novation may reasonably request.

C. Authorized Distributor Representation Compensation: Authorized Distributor
will supply to Novation upon request, at least annually no later than April 1, a
general summary of Authorized Distributor’s sales representation compensation
program.

 

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Exhibit S

Medical-Surgical Authorized Distributor Reporting Guidelines

See attached Novation Information Requirements Guidebook for Medical/Surgical
Authorized Distributors, certain terms of which Novation and the Authorized
Distributor have mutually agreed upon.

 

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Exhibit T

Reports to Participating Members

Quarterly Business Review. Once each calendar quarter, Authorized Distributor
shall meet with Participating Member to discuss, at a minimum, the reports
referenced below.

Authorized Distributor will make reports available in a usable electronic format
to each Participating Member by the 15th day of the month following the month’s
activities. Members may elect not to receive certain reports and will notify the
Authorized Distributor. Examples of such reports are as follows:

 

•   Velocity report (by volume and vendor) listing dollar amount and unit volume
for each and all products purchased

 

•   Sales of each and all products purchased broken down as follows:

 

•   Contract

 

•   NOVAPLUS®

 

•   Novation Standardization Programs

 

•   Non-contract

 

•   EOE %

 

•   EDI activity for 810 and 832

 

•   DSO performance

 

•   Number of deliveries

 

•   Additional distribution services performed and the fees charged for these
services

 

•   Service level report (by account, total hospital and by vendor). Must
specify:

 

•   “A” item fill rate – unadjusted

 

•   Overall fill rate – unadjusted

 

•   Suggested Order Quantity / Economic Order Quantity report

 

•   Service level report (manufacturer to distributor, by vendor)

 

•   Contract/Price Change/ /Expiration report (Participating Member specific
report on all their contract/pricing/tier/expiration activity for the next
thirty (30) days.

 

•   Summary reports for systems or networks

 

•   Other reports available or special reports requested by the Participating
Members (which may involve additional charges).

 

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Exhibit U

Fees

 

Sales Category

   Agreed Percentage*      VHA/UHC   HPPI   Alternate
GPO

Contract Product Sales and custom product

   [*]   [*]   [*]

Non-Contract Sales, including non-contracted private label and self-manufactured
products

   [*]   [*]   [*]

Authorized Distributor/Novation Product Portfolio Sales

   [*]   [*]   [*]

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* These fees shall not apply where [*] currently exist or are negotiated in the
future.

1. For all Contract Products listed under Exhibit E and all custom Products,
Authorized Distributor will pay [*] administrative fee on total Novation
Contract and custom Product sales.

2. For all Non-Contract Products not included under Exhibit E and non-custom,
Authorized Distributor will pay an administrative fee of [*] on total
Non-Contract Product and non-custom Product sales.

3. For all Authorized Distribution/Novation Partnership Portfolio Sales (Exhibit
E), Authorized Distributor will pay an administrative fee of [*] on these
product portfolio sales. As additional Partnership Portfolio products are added
to Exhibit E-1, the parties will mutually agree on the fees that will be payable
on those additional products.

4. For all non-acute sites of care priced under Exhibit D-2, Authorized
Distributor will pay an administrative fee of [*] on total Product sales (in
lieu of 1, 2 and 3 above).

5. [*] shall be payable to Novation on Product sales if the Authorized
Distributor is required to pay a fee on such sales to another GPO under the
terms of Authorized Distributor’s agreement with such other GPO; provided that
Authorized Distributor agrees, for VHA and UHC members, to discuss with Novation
those situations where Authorized Distributor would be obligated to pay an
administrative fee on Novation Contract Product sales to a non-Novation primary
GPO and mutually determine [*].

6. Novation represents to Authorized Distributor that the foregoing fees are
consistent with and no higher than the lowest fees paid by any other Novation
authorized distributor.

 

* [This confidential information has been omitted and filed separately with the
Commission.]

 

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Exhibit V

[Will replace with O&M current or revised E-Commerce Agreement]

Novation E-Commerce Agreement

This mailto: Novation E-Commerce Agreement (“Agreement”) is entered into
effective                      (“Effective Date”) between
                                        , a                      corporation
having its principal place of business at
                                                  (“Supplier”) and, Novation,
LLC, a Delaware limited liability company having its principal place of business
at 125 East John Carpenter Freeway, Irving, Texas 75062 (“Novation”). Novation
is a contracting agent that develops and delivers supply chain management
agreements, programs and services on behalf of VHA Inc. (“VHA”), University
HealthSystem Consortium (“UHC”) and their patrons.

Certain Members have chosen to utilize the services of Marketplace@NovationTM
through Novation’s relationship with Neoforma, Inc. to transact business
associated with this Agreement with Supplier. To assist Novation in helping
Members meet those needs, Supplier agrees to participate in Marketplace@Novation
and utilize certain Marketplace@Novation services by entering into this
Agreement with Novation.

Novation and Supplier therefore agree as follows:

1. DEFINITIONS

1.1 “Affiliate” means a person or entity controlled by or under common control
with another person or entity.

1.2 “Content” means any text, graphics, logos, button icons, images, audio
clips, video clips, HTML code, java programs and other material displayed at
Marketplace@Novation, but excluding Supply Chain Data.

1.3 “Contract Portfolio” means a catalog of Products for which Novation has
contracted with Supplier for the benefit of the members of VHA and UHC and the
associated healthcare organizations of HPPI. For purposes of clarification, a
Product is purchased through a Contract Portfolio if the Product is included in
the contract between Novation and Supplier and is sold to a VHA or UHC member,
regardless of whether such sale is pursuant to a separate contract between
Supplier and the member and except when the Member notifies Novation that the
Product has been purchased pursuant to the terms of another GPO’s contract.

1.4 “EDI Standards” means the standard format for Electronic Data Interchange
(EDI) generally accepted and used in North America, as may change from time to
time.

1.5 “Information” means (i) any and all information and data collected,
developed, and/or stored by Marketplace@Novation relating to Members, (ii) any
and all information and data relating to use of or transactions at
Marketplace@Novation by Members and (iii) any and all Member Transaction
Information collected, developed, and/or stored by Marketplace@Novation.

1.6 “Marketplace@Novation” means the e-commerce marketplaces created
specifically for and accessible only to the members of VHA and UHC and the
associated healthcare organizations of HPPI.

1.7 “Member Transaction Information” means information delivered or received
between Supplier and a Member through Marketplace@Novation or Supply Chain Data
delivered to Marketplace@Novation.

 

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1.8 “Members” means at any date those members of VHA and UHC and the associated
healthcare organizations of HPPI entitled to use the Marketplace@Novation
pursuant to a Marketplace@Novation participation agreement.

1.9 “NeoFormat” means the format in which Product Data is to be sent to
Marketplace@Novation.

1.10 “Non-Contract Products” means any Product offered by Supplier other than
through a Contract Portfolio. For purposes of clarification, a Product may be
offered by Supplier both as a Non-Contract Product and through one or more
Contract Portfolios, but will be considered a Non-Contract Product when the
Member notifies Novation that the Product has been purchased pursuant to the
terms of another group purchasing organization’s contract.

1.11 “Products” means all equipment, products, supplies and services,
information and content provided by Supplier and available for purchase, rental
or lease by Members at Marketplace@Novation or through the Services.

1.12 “Product Data” means information describing the manufacturer and
distributor product numbers, features, functions and pricing of Supplier’s
Products, including images, specifications, shipping weight, shipping
dimensions, associated products, maintenance and warranty information,
equivalent products and other information, to be offered at Marketplace@Novation
or through the Services.

1.13 “Services” means those services provided by Novation, which are listed and
described below and mutually agreed to be provided to Supplier by Novation and
Supplier. Novation shall provide the following services to Supplier at no
charge:

Product Catalog and Contract Viewing

Novation shall publish Product Data and Contract Portfolio information to
Members in product catalog and contract viewing modules.

A.

 

Functionality

    

Criteria

Product Catalog

 

Product Data shall include the information required to complete a transaction,
including but not limited to: Product name, Product description, manufacturer
number, UOM, price. Marketplace@Novation must receive this data from Supplier in
Neoformat. Supplier may include the following additional content: Hyperlinks,
images, broader product descriptions and other rich content

     Contract Portfolio Product Data

Contract Viewing

 

Any Novation Supplier Agreement between Supplier and Novation shall be displayed
to VHA and UHC members through the Contract Viewing module within the Contract
Management Solution

     Novation Contract

1.14 “Supply Chain Data” means the following data for any purchase made by a
Member from Supplier through any means: Supplier identification, buyer
identification, buyer

 

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account number, GPO (e.g., Novation) contract identifier, invoice number,
invoice date, purchase order number, Supplier product number, product
description, manufacturer, manufacturer part number, quantity, unit of measure,
unit price, taxes, freight, price adjustments, and total cost, in electronic
form in accordance with EDI Standards or such other standards as mutually agreed
to by the parties.

2. SERVICES

Subject to the terms and conditions of this Agreement and supplier’s prompt
response to providing product catalog content, Novation shall use commercially
reasonable efforts to make available to Supplier the Services within sixty
(60) days of the Effective Date. Supplier shall negotiate in good faith with
Neoforma, Inc. for the purchase of additional supply chain solutions, including
Neoforma securing data rights from supplier in connection with services offered.

1. OWNERSHIP AND LICENSE

3.1 Novation. Novation owns and will continue to own the compilation or “look
and feel” of all Content as it appears on Marketplace@Novation (“Content
Compilation”), subject to Section 3.4. Any reproduction, transmission or display
of the Content Compilation by any Supplier or any third party is strictly
prohibited.

3.2 For the term of this Agreement, Novation grants Supplier permission to
access and use the Services in accordance with the terms of this Agreement.

3.3 Supplier. For the term of this Agreement, Supplier grants a non-exclusive
license to Novation, with a right to sublicense to Novation’s Affiliates,
including Neoforma Inc., to use, copy, modify, display, perform and create
derivative works of Supplier’s Product Data solely for the purpose of
digitizing, categorizing and formatting such information for placement at
Marketplace@Novation and for the purpose of enabling Members to participate in
Marketplace@Novation, in accordance with the terms of this Agreement.

3.4 Each party owns and shall retain all right, title to and interest in its
names, logos, trademarks, service marks, trade dress, copyrights and proprietary
technology, including, without limitation, those names, logos, trademarks,
service marks, trade dress, copyrights and proprietary technology currently used
or which may be developed and/or used by it in the future (“Marks”). Novation
and its Affiliates are authorized to use Supplier’s Marks as necessary to
provide the Services under this Agreement. To the extent that Novation modifies
Product Data or other Content provided by Supplier pursuant to this Agreement,
Supplier hereby acknowledges that Novation will be the copyright owner of the
derivative works that it creates pursuant to and subject to the license granted
in Section 3.3 (whether in graphical, narrative or any other form), and subject
in all respects to Supplier ownership of the underlying information and to the
copyright of third parties.

 

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2. SUPPLIER DATA

4.1 Supplier is solely responsible for all Product Data and any other Content it
supplies to Novation for inclusion at Marketplace@Novation, including
maintenance of such Product Data and Content. Novation will not be responsible
for the accuracy or legality of information provided by Supplier for publication
at Marketplace@Novation or through the Services, and Novation may at any time at
its sole discretion, remove such information from Marketplace@Novation if
Novation reasonably believes that the information may cause liability for it.
Product Data must not (a) infringe any third party rights, including, but not
limited to intellectual property, publicity or privacy, (b) be defamatory, trade
libelous, threatening or harassing nor (c) be obscene, indecent or contain
pornography.

4.2 Supplier may make its Product Data available to Novation for listing at
Marketplace@Novation provided that Supplier provides the Product Data for all
Products in the manner and format set forth in the NeoFormat specifications.
Novation may digitize, categorize and format the Product Data and post such
Product Data at Marketplace@Novation in accordance with Novation’s standard
practices for digitization, categorization and formatting of Product Data.

4.3 The Product Data provided by Supplier shall include the manufacturer and
distributor Product numbers, manufacturer, extended units of measure, Product
descriptions and the specific terms and conditions of Supplier’s sale of
Products to Members, subject to the terms and conditions of any contract between
Supplier and a Member or Novation with respect to any Product (“Supplier Terms
and Conditions”). Novation does not set, approve, control or endorse the
Supplier Terms and Conditions.

4.4 If at any time during the term of this Agreement and any renewals or
extensions thereof, distributed sales of Supplier’s Products changes and
Supplier now ships direct, either through Marketplace@Novation or through other
means, Supplier shall upon request from Novation and within ninety (90) days of
such request, provide Novation with its Supply Chain Data on a daily basis or at
least as often as provided to Members (in electronic form or otherwise) but in
no event less than on a monthly basis. Novation may use Supply Chain Data only
in accordance with the Marketplace@Novation Data Confidentiality and Privacy
Statement (“Privacy Policy”), a current copy of which shall be provided to
Supplier upon request and posted at http://novation.neoforma.com.

4.5 Supplier shall update Product Data from time to time and at least quarterly
in accordance with Novation’s then current policies and procedures for accessing
and updating Product Data. Supplier shall update Product Data, including pricing
information, hospital-specific pricing information for Non-Contract Products,
Product identifications, Product numbers, extended units of measure, names and
descriptions, and the Supplier Terms and Conditions, as required to ensure that
at all times such Product Data is accurate, including removal of any
discontinued or recalled Products.

4.6 Novation will not be responsible for the fulfillment of or payments for
orders for Products. Supplier acknowledges that a Member makes an offer for a
Product through

 

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Marketplace@Novation when it places an order for such Product. Supplier shall
respond to an order for a Product directed to it by a Member through
Marketplace@Novation within one (1) business day of placement of such order by
either accepting or rejecting such order. Supplier shall have the right, in its
sole discretion, to accept or reject any order. Supplier acknowledges that all
orders made by Members for Products and accepted by Supplier will be accepted
based on prices (if listed) and Product Data (including any posted terms and
conditions relating to purchase of such Products) as they appear at
Marketplace@Novation at the time of such order. Notwithstanding the foregoing,
nothing in this Section 4.6 will affect the Supplier’s rights and obligations
vis-à-vis the party placing the order.

4.7 Novation will not be responsible for ensuring that a sale to a Member is
authorized and in compliance with laws and that a Member has complied with any
licensing or other governmental requirements or for fulfillment, billing or
collections to Members. If Supplier sells Products directly through
Marketplace@Novation, (i) Supplier shall provide credential and licensure
verification, fulfillment, billing and collections to Members who have purchased
from Marketplace@Novation; (ii) Supplier shall have the final authority to
refuse to ship Products when it believes, in its sole discretion, that the party
placing the order does not have the necessary license or other government
required permission or authority to receive the Product ordered or that such
sale is otherwise not to an authorized Member or not in compliance with
applicable laws; (iii) Supplier shall communicate to any such party the reasons
for a refusal to ship an ordered Product; and (iv) Supplier shall be responsible
for all customer support after the point when an order is made by a Member and
transmitted from Novation to Supplier. Notwithstanding the foregoing, nothing in
this Section 4.7 will affect the Supplier’s rights and obligations vis-à-vis the
party placing the order.

4.8 Novation may use Information to facilitate transactions conducted through
Marketplace@Novation, to allow access to and fulfill contractual obligations to
Novation and Members, to conduct its business as outlined in the Privacy Policy,
and to create and sell aggregated reports on Marketplace@Novation activities,
provided that such reports do not contain data that has been combined or
compiled in such a way that an individual, either by name or by other
designation, can be identified.

5. SYSTEM INTEGRITY

5.1 Supplier and Novation shall use then current industry standard state of the
art ant-virus software and procedures to prevent any software routine or any
other device including but not limited to any viruses, Trojan horses, worms,
time bombs, or cancelbots, from interfering or attempting to interfere with the
proper working of Marketplace@Novation.

6. CONFIDENTIALITY

6.1 Except as expressly set forth in the Privacy Policy, Novation and Supplier
shall regard and preserve as confidential all information related to the
business of each other disclosed pursuant to this Agreement. This
confidentiality obligation does not apply to (a) information that is publicly
known prior to the disclosure or becomes publicly known through no wrongful act
of the receiving party; (b) information that was in lawful possession of the
receiving party prior to

 

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disclosure and was not received as a result of any breach of confidentiality;
(c) information that was independently developed by the receiving party outside
the scope of this Agreement; (d) information which the receiving party is
required to disclose pursuant to a court order or regulatory agency request; or
(e) the existence, but not the terms or conditions, of this Agreement. In the
event of a request for disclosure pursuant to subsection (d), immediate notice
of such request shall be provided by the party receiving the request to the
party whose information is subject to the request to provide an opportunity to
oppose such request for disclosure. Notwithstanding the foregoing and except as
otherwise limited, Novation shall be entitled to share (1) with its Affiliates
any and all Information and (2) Information, except pricing Information,
regarding the sale of Products distributed but not manufactured by Supplier to
Members with the manufacturer of such Product if such manufacturer is a party to
a Marketplace@Novation Supplier Agreement.

7. REPRESENTATIONS AND WARRANTIES

7.1 Novation represents and warrants that (i) it has all rights, titles,
licenses, permissions and approvals necessary to perform its obligations under
this Agreement and to grant to Supplier all licenses and rights granted
hereunder, and that such licenses do not and will not infringe or otherwise
violate any copyright, trade secret, trademark, patent or other proprietary
right of any third party, (ii) that it has and will maintain the capability to
provide the Services and to create and host Marketplace@Novation during the term
of this Agreement, and (iii) it has complied and shall continue to comply with
all applicable legislation, laws, statutes, ordinances, rules and regulations
regarding Marketplace@Novation and the Services.

7.2 Supplier represents and warrants that (i) it has full power and authority to
sell the Products to be sold by it at Marketplace@Novation and will not offer
for sale counterfeit or stolen items, (ii) it is the sole owner or is a valid
licensee of all Content provided by or on behalf of Supplier for inclusion at
Marketplace@Novation and has secured all necessary licenses, consents and
authorizations with respect to use of such Content and all elements thereof to
the full extent contemplated herein, (iii) no part of any Content provided by or
on behalf of Supplier for inclusion at Marketplace@Novation violates or
infringes upon the patent rights, copyrights, trade secrets, trademarks or other
proprietary rights of any person or entity or constitutes defamation, invasion
of privacy or the violation of the rights of any person or entity, and (iv) it
has complied and shall continue to comply with all applicable legislation, laws,
statutes, ordinances, rules and regulations regarding the Products and their
sale or transfer, and its actions in relation to Marketplace@Novation and the
Services.

7.3 EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN, NOVATION SUPPLIES
MARKETPLACE@NOVATION AND THE SERVICES “AS IS” AND WITHOUT ANY WARRANTY OR
CONDITION, EXPRESS OR IMPLIED. NOVATION SPECIFICALLY DISCLAIMS ANY AND ALL
IMPLIED WARRANTIES OF TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
AND WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE.
NOVATION ALSO DOES NOT GUARANTEE CONTINUOUS, UNINTERRUPTED ACCESS TO
MARKETPLACE@NOVATION AND THE SERVICES, AND OPERATION OF THE MARKETPLACE@NOVATION
MAY BE INTERFERED WITH

 

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BY NUMEROUS FACTORS OUTSIDE OF NOVATION’S CONTROL. USE OF MARKETPLACE@NOVATION
AND SALE OF PRODUCTS TO MEMBERS IS AT SUPPLIER’S RISK. BY USING THE SERVICES AND
MARKETPLACE@NOVATION, SUPPLIER REPRESENTS AND WARRANTS THAT IT CAN FORM LEGALLY
BINDING CONTRACTS UNDER APPLICABLE LAW. FURTHERMORE, SUPPLIER REPRESENTS AND
WARRANTS THAT THE INDIVIDUAL EXECUTING THIS AGREEMENT HAS AUTHORITY TO BIND
SUPPLIER AS SELLER AND THAT BY DOING SO IS NOT BREACHING OR IN CONFLICT WITH
ANOTHER AGREEMENT OR OBLIGATION.

8. INDEMNIFICATION

8.1 Subject to Section 8.3, Novation shall defend and/or handle at its own
expense any third party claims or actions, arising from (i) any actual or
alleged infringement of a copyright, trade secret, trademark, patent or other
proprietary right of a third party arising out of Supplier’s use of
Marketplace@Novation and the Services as permitted under this Agreement, and
(ii) any breach by Novation of any of its representations or obligations set
forth in this Agreement, and shall indemnify and hold harmless Supplier and its
respective officers and directors from and against any loss, liability, cost or
expense (including reasonable attorney’s fees) resulting from any such claim or
action, and its settlement or compromise.

8.2 Subject to Section 8.3, Supplier shall defend, and/or handle at its own
expense, any third-party claims or actions, arising from (i) any breach by
Supplier of any of its representations or obligations set forth in this
Agreement (ii) any misrepresentation or omission in any Content provided by or
on behalf of Supplier in connection with the Services or at
Marketplace@Novation, (iii) any claims brought by a third party, having a basis
in contract or tort, in law or in equity, relating to any Products listed or
sold by Supplier through Marketplace@Novation or otherwise relating to
Supplier’s use of Marketplace@Novation or the Services, and shall indemnify and
hold harmless Novation, its Affiliates, and their respective officers and
directors from and against any loss, liability, cost or expense (including
reasonable attorneys’ fees) resulting from any such claim or action, and its
settlement or compromise.

8.3 The party seeking indemnification under subsection 8.1 or 8.2, as the case
may be (“Indemnified Party”), shall give prompt written notice to the other
party (“Indemnifying Party”). In addition, the Indemnified Party shall allow the
Indemnifying Party solely to direct the defense and settlement of any such
claim, with counsel of the Indemnifying Party’s choosing, and shall provide the
Indemnifying Party, at the Indemnifying Party’s expense, with information and
assistance that is reasonably necessary for the defense and settlement of the
claim. The Indemnified Party reserves the right to retain counsel, at the
Indemnified Party’s sole expense, to participate in the defense of any such
claim. The Indemnifying Party shall not settle any such claim or alleged claim
without first obtaining the Indemnified Party’s prior written consent, which
consent shall not be unreasonably withheld, if the terms of such settlement
would adversely affect the Indemnified Party’s rights under this Agreement.

8.4 The remedy provided under this Section 8 will be the Supplier’s sole and
exclusive remedies in relation to claims and actions alleging intellectual
property infringement.

 

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9. LIMITATION OF LIABILITY

9.1 WITH THE EXCEPTION OF NOVATION’S OBLIGATIONS UNDER SECTION 8.1 IN NO EVENT
WILL NOVATION BE LIABLE TO SUPPLIER FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL,
SPECIAL OR PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT HERETO OR ITS
TERMINATION, WHETHER LIABILITY IS ASSERTED IN CONTRACT OR IN TORT, (INCLUDING
NEGLIGENCE) AND IRRESPECTIVE OF WHETHER NOVATION HAS BEEN ADVISED OF THE
POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. IN NO EVENT WILL NOVATION’S TOTAL
LIABILITY TO SUPPLIER OR TO ANY THIRD PARTIES UNDER THIS AGREEMENT HERETO EXCEED
ONE THOUSAND DOLLARS.

9.2 NOVATION DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM
MARKETPLACE@NOVATION AND OTHER PORTIONS OF THE INTERNET. ACTIONS OR INACTIONS OF
THIRD PARTIES MAY RESULT IN SITUATIONS IN WHICH SUPPLIER’S CONNECTION TO THE
INTERNET, AND/OR ACCESS TO MARKETPLACE@NOVATION MAY BE IMPAIRED, DISRUPTED OR
DAMAGED. NOVATION CANNOT GUARANTEE THAT SUCH EVENTS WILL NOT OCCUR, AND
ACCORDINGLY DISCLAIMS ANY AND ALL LIABILITY RESULTING FROM OR RELATED TO SUCH
EVENTS.

10. TERM AND TERMINATION

10.1 Term. The Term of this Agreement will commence on the Effective Date and
shall continue for a period of three (3) years. This Agreement will
automatically renew for additional one-year Terms unless written notice of
termination is provided by the terminating party to the non-terminating party
not less than thirty (30) days prior to the expiration of the then-effective
Term. No other terms and conditions will be effective or binding unless
expressly agreed to by the parties in writing.

10.2 Termination. Any party hereto shall have the right to terminate this
Agreement or any Schedule attached hereto in the event of a material breach of
the terms hereof or thereof by another party which is not cured within thirty
(30) calendar days following receipt of written notice specifying the breach. IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written. In addition, this agreement shall terminate automatically in the
event that Supplier has a single Supplier Agreement with Novation for the
provision of its Products to the Members, which has terminated.

10.3 Choice of Law. This Agreement will be governed by and construed in
accordance with the internal substantive laws of the State of Texas and the
Texas courts will have jurisdiction over all matters relating to this Agreement.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

NOVATION, LLC,

a Delaware limited liability company

   

SUPPLIER,

a                      corporation

By:  

 

    By:  

 

Title:  

 

    Title:  

 

Date:  

 

    Date:  

 

 

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Exhibit W

Failure to Perform

1. Failure to maintain a minimum of [*] unadjusted fill rate for “A” items and
[*] unadjusted overall fill rate for each Participating Member or [*] for
Participating Members using JIT. Fill rate is defined as line items filled first
time first delivery/line items ordered. “A” items are stock items that are
ordered by Participating Member at least two times every thirty (30) days.

2. Failure to provide reports to Participating Members

3. Failure to provide documentation to resolve outstanding invoices with thirty
(30) days (damages are paid to Participating Member)

4. Failure to adhere to all other service level terms and conditions of
Agreement

5. The following schedule of performance penalties will apply separately to each
category of failures listed above during each year of this Agreement (penalties
are paid to Participating Members provided they are in compliance with the terms
of this Agreement).

 

1st failure    written warning 2nd failure:    [*] 3rd failure:    [*] 4th
failure:    [*] 5th failure:    [*] 6th & each subsequent failure:    [*]

Authorized Distributor will have 10 working days to respond to written warning
with a written cure plan, which includes a process for resolving the failure to
perform. Determination of the 2nd failure will not occur within 30 days of the
end of the month in which the written warning has been sent by Novation.

*[This confidential information has been omitted and filed separately with the
Commission.]

 

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Exhibit X

Price Changes

1. Distribution Pricing . The distribution pricing as listed in Exhibit D shall
remain firm for the duration of this Agreement.

2. Ongoing Management. Novation shall manage the key elements of the program on
an ongoing basis. Specifically, Novation will conduct semiannual reviews of the
following elements:

A. Each Participating Member’s purchase volume and its effect of the
organization’s distribution pricing.

B. Purchase of HPIS Top 10/20 Categories

C. Each Participating Member’s usage of electronic order entry and eligibility
for the incentive

D. Each Participating Member’s line average incentive and eligibility for the
incentive

E. Each Participating Member’s DSO and the impact upon the organization’s
distribution pricing

F. Each Participating Member’s use of additional services and the associated
pricing being charged

(1) Novation will semiannually review and determine any changes to each
Participating Member’s Schedule 2. Any changes will be sent to both the
Participating Member and Authorized Distributor for review.

(2) If the Participating Member or Authorized Distributor submits no further
changes, the changes initiated by Novation shall go into effect thirty (30) days
after notification by Novation. If the Participating Member or Authorized
Distributor make revisions to the Schedule 2 sent by Novation, and all three
parties accept the revisions, Novation will adjust the Schedule 2 and send to
the Participating Member and Authorized Distributor. These revisions will go
into effect 30 days after the second notification from Novation.

(3) If a Participating Member’s positive performance or behavior changes have
reduced its distribution pricing, the Participating Member has two options
following a semiannual review period:

G. Both the Participating Member and Authorized Distributor can change their
ordering systems to reflect the member’s new distribution pricing.

 

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(1) For Participating Members whose negative behavior has caused their
distribution pricing to rise, both the Participating Member and Authorized
Distributor will change their systems to reflect the new higher fees.

(2) Participating Members may elect to change any additional distribution
services utilized (as per Exhibit D-1) at any time during this Agreement.
Changes in distribution fees (markup) as a result of changes in additional
distribution services utilized will be implemented immediately upon the
implementation of the change in services utilized and will not have to wait for
a semiannual review period. Participating Members requesting such a change shall
notify Authorized Distributor who shall notify Novation of such request.
Novation will revise the Participating Member’s Schedule 2 and send the revised
schedule to the Participating Member and Authorized Distributor.

(3) Authorized Distributor shall not change a member’s distribution pricing
outside of a reslotting period without prior consent from Novation.

(4) Beginning with the last six months of calendar year 2007 and for each 6
months thereafter for the term of this Agreement, Novation shall conduct review
periods according to the following schedule:

 

Activity Period

  

Review Period

  

Revised Pricing Effective

7/1/07 - 9/30/07    10/1/07 - 12/31/07    1/1/08 1/1/08 - 3/31/08    4/1/08 -
6/30/08    7/1/08 7/1/08 - 9/30/08    10/1/08 - 12/31/08    1/1/09 1/1/09 -
3/31/09    4/1/09 - 6/30/09    7/1/09

This schedule will continue throughout the term of this Agreement.

Notwithstanding the foregoing schedule, Novation acknowledges and agrees that it
will review and allow adjustment to mark-up for HPIS category compliance and DSO
on a quarterly basis with any initial adjustments being implemented 2/1/07.

3. Significant Changes in Member’s Behavior. If a Participating Member’s
performance or behavior changes significantly between slotting/review periods
(including but not limited to changes in HPIS category purchases, DSO,
sales/line, overall purchase volume or other cost/margin drivers), Distributor
will notify Novation and Novation will facilitate review with Member and
Distributor on an expedited basis. If behavior warrants, a change in
distribution pricing, Distributor with prior approval from Novation (which shall
not be unreasonably withheld or delayed) will implement revised distribution
pricing.

 

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Exhibit X-1

Initial Implementation

1. Novation will send to each Participating Member a letter indicating the terms
of the Novation Medical Surgical Distribution Agreement that are being
implemented.

2. The letter will include a Novation Medical Surgical Distribution Agreement
Launch Package that will provide the details of the Agreement. Also Included
will be Schedule 1, Participating Member Authorized Distributor Selection Form
and Schedule 2, Participating Member Distribution Service Pricing Calculation
Form.

3. Each Participating Member is to review all of the information provided in
steps 1 and 2 above and completely fill out Schedule 1 and Schedule 2.

4. Each Participating Member will mail or fax back Schedule 1 and Schedule 2 to
Novation Medical Surgical Distribution, 125 East John Carpenter Freeway, Irving
TX 75062-2324 or (972) 581-5926.

All data needs to be received by Novation at least 30-days prior to Agreement
implementation.

 

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