<PAGE>
As filed with the Securities and Exchange Commission on March 26, 1999
Registration No. 333-71743
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
ProVantage Health Services, Inc.
(Exact name of Registrant as specified in its charter)
--------------
54-1508848
Delaware 8099 (I.R.S. Employer
(tate or other jurisdiction S (Primary Standard Identification No.)
of incorporation or Industrial
organization) 13555 Bishops Court, Suite 201
Classification Code
Number)
Brookfield, Wisconsin 53005
(414) 784-4600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
--------------
Jeffrey A. Jones
President and Chief Executive Officer
ProVantage Health Services, Inc.
13555 Bishops Court, Suite 201
Brookfield, Wisconsin 53005
(414) 784-4600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
Randall J. Erickson Donald J. Murray
Godfrey & Kahn, S.C. Dewey Ballantine LLP
780 N. Water Street 1301 Avenue of the Americas
Milwaukee, Wisconsin 53202 New York, New York 10019
(414) 273-3500 (212) 259-8000
--------------
Approximate date of commencement of proposed sale to the public: As soon as
is practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities to be registered registered(1) per share(3) offering price(3) fee(4)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.................. 6,095,000 $18.00 $109,710,000 $30,500
Preferred Stock Purchase Rights............... (2) (2) (2) (2)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes shares subject to sale pursuant to the underwriters' over-
allotment option.
(2) One Preferred Stock Purchase Right is attached to and issued with each
share of Common Stock. The value of the Preferred Stock Purchase Right is
reflected in the Common Stock.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(4) A registration fee of $27,800 was paid with the initial filing of the
Registrant's Registration Statement on Form S-1 on February 4, 1999. The
difference between the revised registration fee and the fee already paid,
$2,700, is being paid with this filing.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus Dated March 25, 1999
Prospectus
5,300,000 Shares
[Logo of ProVantage--"ProVantage The Healthcare Knowledge Company"--Appears
Here]
Common Stock
-----------
This is ProVantage Health Services, Inc.'s initial public offering of
common stock.
We currently expect the public offering price to be between $16.00 and
$18.00 per share. Currently, no public market exists for the common stock. We
have applied to have the common stock included for listing on the New York
Stock Exchange under the symbol "PHS."
Prior to this offering, ShopKo Stores, Inc., our parent company, owned all
of the common stock. Following this offering, ShopKo will beneficially own
70.3% of the common stock and will continue to control ProVantage.
Investing in the common stock involves risks which are described in the
"Risk Factors" section beginning on page 7.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price.................................... $ $
Underwriting Discount.................................... $ $
Proceeds, before expenses, to ProVantage................. $ $
</TABLE>
The underwriters may also purchase from ShopKo up to an additional 795,000
shares of common stock at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover over-
allotments. We will not receive any proceeds from the sale of the additional
shares by ShopKo.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
-----------
Merrill Lynch & Co.
Bear, Stearns & Co. Inc.
William Blair & Company
Lehman Brothers
-----------
The date of this prospectus is , 1999.
<PAGE>
ProVantage Health Services
Our goal is to be the leading third-party supplier of
products and services designed to optimize the quality
and minimize the cost of healthcare services.
Health
Benefit HBM
Management Healthcare
HIT Information
Technology
Cycle of
Healthcare
Knowledge
ATI
Advanced Therapeutic
Intervention
[LOGO OF PROVANTAGE]
ProVantage(R), RationalMed(R), Bravell Claims Management(R),
ProVQuery(TM), PharMark(R), DOCFormulary(R) and ProVMed(R) are trademarks or
servicemarks of ProVantage or ProVantage's subsidiaries. ShopKo(R) is a
trademark and a servicemark of ShopKo Stores, Inc. All other trademarks,
servicemarks and trade names referred to in this prospectus are the property of
their respective owners.
<PAGE>
Health Benefit Management
Patients Health Plan
Sponsors
Information Quality Care Reduced Fees
Costs
[LOGO OF PROVANTAGE]
Information Reimbursement Information Market Share
Rebates
Pharmacies Pharmaceutical
Manufacturers
[LOGO OF PROVANTAGE]
The integration of two interlocking rings symbolizes ProVantage's
differentiation in the healthcare industry...one ring represents Health
Benefit Management, the other represents Health Information Technology. The
intersection illustrates our ability to integrate medical diagnosis and medical
claims information with pharmaceutical data and then analyze it with our 7,800
rules. Our products are designed to optimize the quality and minimize the cost
of healthcare services.
<TABLE>
<CAPTION>
Health Benefit Management Clinical Services
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRY . Increased pharmaceutical utilization . Need for clinical programs to:
TRENDS . Significant hospital costs induced - Combat rising healthcare costs
by inappropriate drug therapies - Improve patient treatments
. Payors struggling to control costs
- ---------------------------------------------------------------------------------------------------
PROVANTAGE . Prescription and Vision Benefit . Advanced Therapeutic Intervention
PRODUCTS Management . Drug Utilization Review
. National Pharmacy and Optical Retail . Disease Management Programs:
Networks - Clinically based
. Mail Order Pharmacy - Quantitatively measured
. Formulary Management
- ---------------------------------------------------------------------------------------------------
PROVANTAGE . Self-insured Employers . Self-insured Employers
MARKETS . Insurance Companies . Insurance Companies
. HMOs . HMOs
. Third-Party Administrators . Third-Party Administrators
. State Governments and Agencies . State and Federal Governments and Agencies
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Health Information Technology
Sales & Plan Member & Pharmacy, Medical,
Design Data Provider Data & Laboratory Data
Data Warehouse
ProVantage Products
ProVMed ProVQuery
ProVCOR RationalMed
pager voice mail
e-mail internet
mail fax
Clients
<TABLE>
<CAPTION>
Decision Support Healthcare Outcomes Research
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRY . Need for integrated clinical information . Need for integrated clinical information
TRENDS . Growing importance of accurately . Importance of patient confidentiality
measured healthcare outcomes . Need to determine appropriate drug therapies
- ---------------------------------------------------------------------------------------------------------
PROVANTAGE . Internet-accessible decision support . Healthcare outcomes assessment software
PRODUCTS based on our database: providing access to healthcare database with
. One of the largest integrated healthcare medical and drug data for 13 million people
information data warehouses of its kind
. Healthcare outcomes measurement tools
- ---------------------------------------------------------------------------------------------------------
PROVANTAGE . Pharmaceutical Manufacturers . Health Care Providers
MARKETS . Self-insured Employers . State and Federal Governments and Agencies
. Insurance Companies . Pharmaceutical Manufacturers
. HMOs
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 16
The Reorganization....................................................... 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Historical Consolidated Financial Data.......................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 29
Management............................................................... 43
Relationship With ShopKo................................................. 51
Certain Transactions..................................................... 53
Principal and Selling Stockholder........................................ 55
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 59
Underwriting............................................................. 61
Legal Matters............................................................ 63
Experts.................................................................. 63
Where You Can Find More Information...................................... 64
Index To Consolidated Financial Statements............................... 65
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
<PAGE>
PROSPECTUS SUMMARY
Unless otherwise indicated, information in this prospectus:
l assumes no exercise of the underwriters' option to purchase from
ShopKo up to 795,000 additional shares of common stock to cover
over-allotments, if any, and
l gives effect to a corporate reorganization of ProVantage which will
be completed prior to completion of the offering. See "The
Reorganization."
ProVantage has adopted a convention of referring to a fiscal year by the
year in which the fiscal year begins. For example, the fiscal year which began
on February 1, 1998 and ended on January 30, 1999 is referred to as "fiscal
1998." Unless the context requires otherwise, all references to "ProVantage,"
"we" or "our" refers to ProVantage Health Services, Inc. and its subsidiaries.
ShopKo holds its ProVantage common stock indirectly through a wholly-owned
subsidiary. All references to "ShopKo" in this prospectus include this wholly-
owned subsidiary.
Our Company
We are a leading health benefit management company providing pharmacy
benefit management and health information technology products and services to
our customers. Our goal is to be the leading third-party supplier of products
and services designed to optimize the quality and minimize the cost of
healthcare services. As of January 1999, we provided services to over 3,500
customers, including pharmacy benefit management services covering
approximately 4.5 million individuals and vision benefit management services
covering approximately 500,000 individuals. In addition, our licensed products,
which are designed to improve the quality of healthcare, are being used by our
clients in programs covering over 13 million people. Our customers include
healthcare payors, self-funded employers, third party health plan
administrators, state and federal agencies and pharmaceutical manufacturers.
Pharmacy benefit management companies address the pressing need of health
plan sponsors to manage costs and to better understand the effect of
pharmaceutical utilization on their membership. Our traditional pharmacy
benefit management products and services include plan design, administration of
a network of over 50,000 retail pharmacies, electronic point-of-sale claims
processing, mail pharmacy services, formulary administration/management,
physician profiling and clinical services. In addition, our products go beyond
commonly available pharmacy benefit management offerings to include clinical
services and information-based products which are used to track medical
treatment and results. These services give our customers the ability to assess
the safety and effectiveness of healthcare practices and to identify the most
effective treatments, potentially lowering overall costs.
Our Industry
Prescription drug costs represent the fastest growing component of
healthcare costs according to an industry publication. Pharmaceutical sales in
the United States are expected to increase at a compound annual growth rate of
14.5% and to reach approximately $173 billion in the year 2002. The major
factors contributing to this trend include:
. a substantial increase in the number of major new product launches due to
a shorter FDA approval cycle,
. premium prices for new or branded products,
. increased expenditures for new drug development,
. an aging population, and
. increased demand driven by direct-to-consumer advertising.
4
<PAGE>
Health benefit providers, such as insurance companies, HMOs and self-
funded employers, are searching for ways to better understand and control their
drug costs. Pharmacy benefit management companies help health benefit providers
provide a cost effective drug benefit and better understand the impact of
pharmaceutical use.
Our Strategy
Our goal is to be the leading third-party supplier of products and
services designed to optimize the quality and minimize the cost of healthcare
services. To accomplish this goal, we intend to:
. continue to grow our pharmacy benefit management operations and expand
our client base by increasing the number of people to whom we provide
services,
. leverage our information-based clinical expertise to develop and enhance
products and services that help manage healthcare treatment and results,
and
. selectively pursue acquisitions or alliances through which we can
realize additional scale benefits in our pharmacy benefit management
offerings or augment our advanced clinical and health information
technology capabilities.
Our Address
Our principal executive offices are located at 13555 Bishops Court, Suite
201, Brookfield, Wisconsin 53005. Our telephone number is (414) 784-4600, and
our web site is www.provantageinc.com.
The Offering
<TABLE>
<S> <C>
Common stock being offered....... 5,300,000 shares
Common stock outstanding after
the offering.................... 17,850,000 shares, excluding approximately 650,000
shares subject to options to be granted as of the
closing of the offering under our stock incentive
plan at an exercise price equal to the offering
price.
Use of Proceeds.................. We will retain $20 million of the net proceeds of
the offering. We intend to use these net proceeds
for working capital, capital expenditures, and other
general corporate purposes. The balance of the net
proceeds of the offering will be paid to ShopKo as
payment on a demand promissory note held by ShopKo
in the principal amount of $115 million. This note
will be issued prior to the offering as a dividend
to return a portion of ShopKo's equity investment in
ProVantage. Any balance remaining on the note will
be contributed to ProVantage by ShopKo as a capital
contribution. In this case that means that ShopKo
will forgive the debt represented by the balance of
the note without receiving any common stock or other
consideration in return. We will not receive any
proceeds from the exercise of the underwriters'
over-allotment option.
Proposed New York Stock Exchange
Symbol.......................... PHS
Control by ShopKo................ ProVantage is currently a wholly-owned subsidiary of
ShopKo. After the offering, ShopKo will beneficially
own approximately 70.3% of the common stock and will
continue to control the business and affairs of
ProVantage. If the underwriters' over-allotment
option is exercised in full, ShopKo will
beneficially own approximately 65.9% of the common
stock.
</TABLE>
5
<PAGE>
For all periods presented below, ProVantage was a wholly-owned subsidiary
of ShopKo. See Note A of the Notes to Consolidated Financial Statements.
The pro forma basic net earnings per share of common stock are computed
by dividing net earnings by 19,314,706 which represents the total number of
shares of common stock outstanding after the reorganization of ProVantage's
corporate structure, plus 6,764,706 shares of common stock which, when
multiplied by an assumed offering price of $17.00 per share, would be
sufficient to repay the demand promissory note to be issued to ShopKo prior to
the offering.
The number of shares used in the computation of supplemental basic net
earnings per share of common stock is the number of shares of common stock to
be outstanding upon completion of the offering.
The pro forma balance sheet data gives pro forma effect to the corporate
reorganization of ProVantage which will be completed prior to the completion of
the offering. The pro forma balance sheet data also gives effect to a stock
split effected through a stock dividend, converting the existing 10,100 shares
of outstanding common stock into 12,550,000 shares of common stock. In
addition, the pro forma balance sheet data includes the demand promissory note
held by ShopKo in the principal amount of $115 million. See "Dividend Policy."
The pro forma as adjusted balance sheet data gives effect to the sale of the
shares of common stock and the application of the proceeds as described in "Use
of Proceeds."
Summary Historical Consolidated Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Years (52 Weeks) Ended
------------------------------------------------------------------
Feb. 4, 1995 Feb. 3, 1996 Feb. 1, 1997 Jan. 31, 1998 Jan. 30, 1999
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Earnings
Data:
Net sales............... $5,424 $87,155 $330,048 $500,891 $666,154
Costs and expenses:
Cost of sales.......... 4,666 78,250 306,760 463,069 618,308
Selling, general and
administrative
expenses.............. 214 4,836 11,828 19,990 24,910
Depreciation and
amortization
expenses.............. 69 1,170 2,233 4,779 6,776
------ ------- -------- -------- --------
4,949 84,256 320,821 487,838 649,994
Income from operations.. 475 2,899 9,227 13,053 16,160
Interest income......... -- 207 353 364 543
------ ------- -------- -------- --------
Earnings before income
taxes.................. 475 3,106 9,580 13,417 16,703
Provision for income
taxes.................. 220 1,553 4,164 5,883 7,221
------ ------- -------- -------- --------
Net earnings............ $ 255 $ 1,553 $ 5,416 $ 7,534 $ 9,482
====== ======= ======== ======== ========
Pro forma basic net
earnings per share of
common stock........... $ 0.49
Pro forma average shares
outstanding............ 19,315
Supplemental basic net
earnings per share of
common stock........... $ 0.53
Number of shares used in
supplemental
computation............ 17,850
Supplemental Data:
Pharmacy network claims
processed.............. 265 3,667 16,097 24,744 28,809
Mail pharmacy
prescriptions filled... -- 120 264 457 715
</TABLE>
<TABLE>
<CAPTION>
January 30, 1999
----------------------------------
Pro Forma As
Actual Pro Forma Adjusted
--------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash.................... $ 24,680 $ 24,680 $ 44,680
Working capital......... 34,009 (80,991) 54,009
Total assets............ 200,777 200,777 220,777
Total debt.............. 968 115,968 968
Total liabilities....... 87,540 202,540 87,540
Stockholder's equity.... 113,237 (1,763) 133,237
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors before deciding
to purchase shares of our common stock. We have separated the risks into three
categories:
lbusiness risks inherent in our operations and our industry,
lrisks relating to ProVantage's relationship with ShopKo, and
lrisks relating to the offering of common stock.
Business Risks
We compete with formidable companies and our industry is consolidating which
could reduce our profitability
We compete in the health benefit management and health information
technology businesses. These businesses are very competitive. This competitive
environment subjects us to the risk of reduced profitability. Our competitors
include companies which are or are owned by large, profitable and well-
established companies with substantially greater purchasing power and
financial, marketing and other resources than we have. For example, Merck-Medco
Managed Care, LLC is owned by a large pharmaceutical manufacturer. PCS Health
Systems, Inc. is owned by a national drug store chain. A large insurance
company is a major investor in Express Scripts, Inc. We may also experience
competition from other sources in the future, such as Internet-based drug
stores. Furthermore, both businesses are subject to consolidation pressures,
meaning that they are or may be dominated by a few large companies with
significant resources. The health benefit management business is relatively
consolidated, and additional consolidation is likely. Consolidation is leading
to increased competition among a smaller number of large companies.
Over the last several years, the competitive pressures described above
have caused health benefit management companies, including us, to reduce the
prices charged to clients for core services. Additionally, competitive
pressures have caused us and other health benefit management companies to share
with their clients a greater portion of formulary revenues, which are payments
received from pharmaceutical manufacturers in the form of discounts, rebates
and other fees. A significant portion of our earnings are derived from these
formulary revenues.
While our addition of higher-margin clinical services and information
technology products has offset in large part the effects of price reductions
and increased formulary revenue sharing, our gross margin--that is, the
difference between revenues and the cost of services--could be materially and
adversely affected by these competitive pressures. Our gross margins may also
decline as we implement our business strategy of marketing to larger clients,
which typically have greater bargaining power than our traditional clients, and
may require us to sell our services for less than they are currently sold.
Loss of short-term contracts could adversely affect our business
Loss of contracts with a significant number of our clients or network
pharmacies could adversely affect our financial condition. Consistent with
industry practice, many of these contracts are terminable by either party on
relatively short notice. Others are renewable annually on a year-to-year basis,
unless the other party gives notice to us of its intention not to renew the
contract.
We also have contracts, typically with terms of one or two years, with
pharmaceutical manufacturers entitling us to certain discounts, rebates and
other fees. These arrangements are often terminable by either party on
relatively short notice. If several of these contracts are terminated or
materially altered, our business could be materially adversely affected.
7
<PAGE>
We are uncertain whether the market will accept our health information
technology products
We have recently added and continue to develop health information
technology products and services. However, to date these products and services,
such as ProVQuery, ProVMed and ProVCor, have achieved only limited market
acceptance. We have committed in the past, and intend to commit in the future,
substantial financial and management resources to developing and marketing
these products and services. We are relying on our health information
technology products and services to play a significant role in our growth
strategy. In particular, our strategy involves using our health information
technology products and services to distinguish our pharmacy benefit management
services from those of our competitors. Our products and services may fail to
achieve market acceptance or to differentiate our overall product and service
offering from our competitors' product and service offerings in a way that is
important to our current and potential customers and for which they are willing
to pay. The market may fail to accept our new products and services due to the
customer's assessment of their cost relative to the benefit received. In
addition, the health information technology business is experiencing rapid
technological change, which could render our products or services obsolete. Our
products and services may also fail to achieve market acceptance due to errors
and defects, especially when first introduced or introduced as new versions. If
so, our strategy to compete on the basis of these products would be adversely
affected. If we decide to discontinue a product because it is not well received
in the market or for other reasons, we may need to write-off any investment we
may have in the product, which could adversely affect our financial results.
Continued growth may increase demands on our management and other resources
which we may be unable to meet
Our business has grown rapidly in the last three fiscal years, with total
revenues increasing from approximately $87.2 million in fiscal 1995 to
approximately $666.2 million in fiscal 1998. We intend to pursue a strategy of
aggressive growth. Recent growth has placed, and if such growth continues will
increasingly place, a significant strain on our management and operations.
Specifically, we will need to invest in new information systems and additional
personnel to service a larger customer base. Also, our senior management team
is significantly involved in our marketing efforts which leaves less time for
necessary administrative duties. Accordingly, our future operating results will
depend in part on the availability of necessary capital and the ability of our
officers and other key employees to continue implementing and improving our
operations, customer support and financial control systems and to effectively
expand, train and manage our employee base. If we are unable to manage future
expansion successfully or hire and retain the personnel needed to manage our
business successfully, then our business, operating results and financial
condition would be materially and adversely affected.
Our acquisition and alliance strategy carries inherent risk
We have completed several acquisitions and plan to acquire complementary
products, technologies or businesses and to enter into strategic alliances. We
have encountered problems in some of our acquisitions. At the time we acquired
CareStream ScripCard in 1996, a significant number of its customers were not
satisfied with their prior services. This resulted in customer attrition and
required us to expend substantially more resources retaining customers than we
had initially expected. Also, the short-term nature of the contracts in our
industry means that when we acquire a company, there can be no assurance that
we will retain those customers for any significant period of time. In addition,
our experiences with prior acquisitions lead us to believe that the following
factors are also material risks to our acquisition and alliance strategy:
l difficulties in identifying, financing and completing viable
acquisitions or alliances,
l difficulties in integrating the acquired company, retaining the
acquired company's customers and achieving the expected benefits,
l the diversion of our management's attention from current
operations,
8
<PAGE>
l lack of experience in new products or markets,
l the loss of key employees of the acquired company,
l the assumption of undisclosed liabilities,
l potential dilution of current stockholders, and
l the amortization or accelerated write-off of expenses related to
goodwill and intangible assets which could reduce earnings.
These risks associated with acquisitions and alliances could have a
material adverse effect on us.
We derive a significant portion of our revenues from a small group of
customers with which we have short-term contracts
We rely on a small number of customers to produce a disproportionate
amount of our revenues. The expiration or termination of our contracts with
one or more significant customers would have a material adverse effect on our
business and results of operations. Our ten largest customers accounted for
approximately 42.8% of our revenues in fiscal 1996, 37.1% of our revenues in
fiscal 1997 and approximately 35.2% of our revenues in fiscal 1998. In
addition, one of those ten customers, American Medical Security, Inc.,
accounted for approximately 17.9% of our revenues in fiscal 1996, 11.7% of our
revenues in fiscal 1997, and 11.4% of our revenues in fiscal 1998. Our
contract with American Medical Security, Inc. terminates on July 1, 2000. We
generally do not have long-term contracts with our customers. In most cases,
our contracts automatically renew at the end of the initial term on a one-year
basis, unless the customer gives notice to us of its intention not to renew
the contract. In other cases, customers may terminate contracts with us at any
time for any reason. Additionally, many participants in the healthcare
industry, including our customers, are under severe financial pressures due to
rising claims and costs. An adverse change in the financial condition of any
of our significant customers, including an adverse change as a result of a
change in governmental or private reimbursement programs, could have a
material adverse effect on us.
Interpretation and enforcement of the government regulations applicable to our
business is uncertain
The healthcare industry is subject to extensive laws and regulations.
Compliance with such laws and regulations imposes significant operational
requirements on us. The regulatory requirements we must comply with in
conducting our business vary from state to state, and are not always clear as
to meaning or consistently enforced. Although we believe that we substantially
comply with all existing statutes and regulations material to the operation of
our business, regulatory authorities may disagree and take enforcement or
other actions against us. These actions may result in fines or other
penalties, or suspend, restrict or preclude us from engaging in certain
business practices in the relevant jurisdiction. In addition, we cannot
predict the impact of future legislation and regulatory changes on our
business or assure you that we will be able to obtain or maintain the
regulatory approvals required to operate our business. For example, formulary
fees, discounts and rebates are currently a topic of discussion and debate in
federal and state legislatures. Changes in existing laws or regulations,
changes in interpretations of laws or regulations, or adoption of new laws or
regulations relating to these discounts, rebates and fees may have adverse
effects on our ability to generate formulary revenues in the future.
Regulatory initiatives may restrict our ability to use confidential patient
medical information
Most of our activities involve the receipt or use by us of confidential
patient medical information which our customers provide to us. Our inability
to use patient medical information could render our health information
technology products and services, and our business growth strategy based on
these products and services, obsolete. Federal and state legislation has been
proposed to restrict the use and disclosure of
9
<PAGE>
confidential medical information. To our knowledge, no legislation has been
enacted that adversely impacts our ability to provide our current services.
Even if such legislation is not enacted, however, individual customers could
prohibit us from including their patients' medical information in our various
databases of medical data, or from using such information in providing services
to our other customers.
Our quarterly operating results are likely to fluctuate significantly, which
may cause volatility in the price of our common stock
Our operating results have in the past and are likely in the future to
vary significantly from quarter to quarter. Fluctuations in our results make it
harder to identify and understand trends in our business and may lead to
volatility in our stock price. For example, in August 1996 we acquired
CareStream ScripCard, which was a significant factor in causing our revenues to
increase by 55% for the full fiscal quarter after the acquisition compared to
the fiscal quarter in which the acquisition occurred. In addition, our
experience over the last several years leads us to believe that the following
factors are also material risks which could cause our quarterly operating
results to fluctuate significantly:
l the expiration or termination of contracts with significant
customers,
l the size and timing of new contracts and product orders, whether
through acquisitions or otherwise,
l the number of covered lives in our customers' benefit plans,
l the timing of new service and product announcements,
l changes in our pricing policies or in our competitors' pricing
policies,
l market acceptance of our services and new products, such as
ProVMed, ProVCor and ProVQuery,
l the length of our sales cycles,
l the timing of revenue recognition from the sale of our services
and products,
l the impairment or obsolescence of our products or other assets due
to technological changes or other factors,
l changes in operating expenses,
l personnel changes, and
l conditions in the healthcare industry and the economy generally.
Our revenues are not predictable with any significant degree of certainty
because of these factors and because the market for our services and products
is rapidly evolving. Based upon the factors listed above, we believe that our
quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of our operating
results are not necessarily meaningful and that, in any event, such comparisons
should not be relied upon as indications of our future performance.
Furthermore, it is possible that in some future quarters, our operating results
will fall below our expectations or the expectations of market analysts and
investors. If we do not meet these expectations, the price of the common stock
may decline significantly.
Sales may be delayed or lost due to long sales cycles for our products
The period of time required to sell our products and services to a new
customer can be up to a year or more. Our long sales cycle adds to the
unpredictability of our revenues, which could cause substantial volatility in
the price of the common stock. Our sales cycle varies substantially from
customer to customer because of a
10
<PAGE>
number of factors over which we have little or no control. These factors
include our customers' budgetary constraints, the timing of budget cycles,
changes in our customers' budgetary or purchasing priorities, concerns about
the introduction of new or updated services and products by us or our
competitors and potential downturns in general economic conditions, which may
be associated with reductions in demand for health management information
systems.
Changes in financing and reimbursement practices in the healthcare industry may
delay or prevent acceptance of our products
We have designed our services and products to compete within the current
payment and reimbursement structure of the U.S. healthcare system. However,
changing political, economic and regulatory influences may affect healthcare
financing and reimbursement practices. If the current healthcare financing and
reimbursement system changes significantly, then our products and services
could be less competitive and we could be materially and adversely affected.
Congress is currently considering proposals to reform the U.S. healthcare
system, such as the proposal to overhaul Medicare. These proposals may increase
governmental involvement in healthcare and pharmacy benefit management services
and otherwise change the way our customers do business. Healthcare
organizations may react to these proposals and the uncertainty surrounding such
proposals by cutting back or delaying investments in the healthcare cost
control tools and related technology which we provide. We cannot predict what
effect, if any, these proposals might have on our business, operating results
and financial condition. Other legislative or market-driven reforms that we
cannot anticipate could affect our business, operating results and financial
condition in unpredictable ways.
We may be subject to liability claims which may not be covered by our insurance
policies
Various aspects of our business, including the dispensing of
pharmaceutical products, performing drug utilization review and providing
information to physicians about drug therapy, which we refer to as our
therapeutic intervention services, entail a risk of litigation and liability
relating to product and professional liability claims. A successful product or
professional liability claim not covered by our insurance policies or in excess
of our insurance coverage could have a material adverse effect upon our
business, operating results and financial condition. We cannot assure you that
we will be able to maintain appropriate types or levels of insurance in the
future, that adequate replacement policies will be available on acceptable
terms, or that insurance will cover all claims against us. Our software
products are also internally complex and may contain errors or defects,
especially when first introduced or when new versions are released. Errors in
products or versions could result in liability claims, which could adversely
affect our business, operating results and financial condition.
Losing key employees on whom we depend could adversely affect our business
Our future performance will depend, in part, upon the efforts and
abilities of our key management, sales, marketing and technical personnel. We
do not have employment agreements with any of our executive officers, and so
they are not contractually obligated to continue to work for us. If we cannot
attract, motivate and retain key personnel, our business could be materially
and adversely affected.
We may lose existing and potential customers and our bargaining power due to
consolidation
Over the past several years, the overall number of insurance companies,
health maintenance organizations, managed care companies and other clients and
potential clients of ours has decreased as a result of mergers, acquisitions
and similar transactions. Our customers have been and may continue to be
subject to these consolidation pressures. We may lose existing and potential
customers due to consolidation in the healthcare industry. Consolidation could
also create larger customers capable of exerting greater bargaining power than
our traditional clients. As we implement our business strategy of marketing to
these larger customers in response to this consolidation and other competitive
pressures, the prices we are able to charge for
11
<PAGE>
our products and services may decline. The loss of existing and potential
customers and/or price declines due to consolidation could have a material
adverse effect on us.
Our intellectual property may be inadequately protected or subject to claims
that it infringes on another person's intellectual property
We have no patents or registered copyrights. We rely primarily on a
combination of statutory and common law copyright, trademark and trade secret
laws, customer licensing agreements, nondisclosure agreements and other methods
to protect our intellectual property rights. These laws and contractual
provisions may not provide effective protection of our rights. Another person
may copy or otherwise obtain and use our technology without authorization or
develop similar technology independently. If other people or companies copy our
products without our permission or misuse our products, then our business,
results of operations and financial condition could be materially adversely
affected. Furthermore, another person may claim that our technology infringes
on their rights. As the number of software products made by our competitors and
offered to our target market increases, software developers like us may become
increasingly subject to infringement claims. Any such claims, whether with or
without merit, can be time consuming and expensive to defend. If another person
successfully asserts infringement claims against us, then we may need to enter
into royalty arrangements, which could reduce profitability, or become subject
to litigation which could have a material adverse effect on us.
Year 2000 issues may adversely affect our business
Our state of readiness for Year 2000. Many currently installed computer
systems and software products accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish years after 1999 from years before 1999. As a result, computer
systems that cannot accept four-digit entries in the date field as of January
1, 2000 may not function properly. We have designed our products to be capable
of handling four digit dates, and therefore we believe that the direct impact
of the Year 2000 problem on our products will not be significant. We have
initiated a comprehensive project designed to eliminate or minimize any
business disruption associated with potential Year 2000 date processing
problems in our systems. We have completed the first three phases of this
project. We are nearly complete with the fourth phase of systems renovation. We
are actively engaged in the last phase of testing our systems, which we expect
to complete in the third quarter of 1999. We have also initiated communications
with our vendors and suppliers regarding their state of Year 2000 readiness. We
plan to continue our assessment of our third party business partners' Year 2000
readiness.
Our costs to address Year 2000 issues. We estimate that we will incur
expenses of $0.6 to $0.8 million in conjunction with our Year 2000 compliance
project, of which $0.4 million has been spent through January 30, 1999.
Risks of our Year 2000 issues. We may be adversely affected by non-
compliant systems used by other companies, including our clients, with which we
do business. Year 2000 issues may significantly affect the purchasing patterns
of customers and potential customers. Many companies are spending large amounts
of money to correct their systems for Year 2000 compliance. These expenditures
may result in a smaller amount of money available to our customers and
potential customers to purchase our products and services. These factors could
result in a material adverse effect on our business, operating results and
financial condition.
Our contingency plans for Year 2000 malfunctions. We believe that the
most reasonably likely worst case scenario related to Year 2000 is that we will
experience a number of minor systems malfunctions and errors in early Year 2000
that we did not detect during our renovation and testing process, and that some
of our customers and vendors will not be Year 2000 compliant. We have begun
planning preparations to handle these most reasonably likely worst case
scenarios. We intend to complete our contingency plans during the second
12
<PAGE>
quarter of fiscal 1999. However, despite our compliance program we may have
overlooked or otherwise not remedied Year 2000 issues which may have a material
adverse effect on us.
For additional information regarding Year 2000 Issues, please refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
Risks Relating to ProVantage's Relationship with ShopKo
ShopKo's control of ProVantage could adversely affect the price of the common
stock
ShopKo beneficially owns all of the outstanding common stock. After the
offering, ShopKo will own approximately 70.3% of the outstanding common stock.
As a majority stockholder, ShopKo will be able to control the business and
affairs of ProVantage, including:
l the election of the entire board of directors,
l any determinations with respect to mergers or other business
combinations, and
l the payment of dividends with respect to the common stock.
For a more complete description of the aspects of ProVantage's business
and affairs which ShopKo will be able to control through its stock ownership,
see "Relationship With ShopKo." As a consequence of this ownership, the market
price of the common stock could be adversely affected because it is unlikely to
reflect any "takeover premium."
Most of the offering proceeds will be used to pay a demand promissory note to
be issued to ShopKo
Prior to the offering, we will declare as a dividend to ShopKo a demand
promissory note in the principal amount of $115.0 million. The purpose of the
dividend is to return a portion of ShopKo's equity investment in ProVantage. We
intend to use all but $20.0 million of the net proceeds of the offering to
repay a portion of this note. Any balance remaining on this note will be
contributed to ProVantage by ShopKo as a capital contribution.
Some of the terms of our intercompany agreements with ShopKo may not be as
favorable as we could have negotiated with independent parties
We currently have a variety of contractual relationships with ShopKo and
its affiliates. We cannot assure you that each of such agreements, or the
transactions provided for therein, has been or will be effected on terms at
least as favorable to us as could have been obtained from unaffiliated third
parties. ShopKo's interests under these agreements are adverse to and diverge
from our interests based on a variety of factors, including:
l fees and other payments,
l quality and quantity of services received, and
l rights in the event of nonperformance.
As a party to these contracts, ShopKo could use its control position to
act in a manner adverse to the other stockholders of ProVantage. For a
description of the intercompany agreements with ShopKo, see "Relationship With
ShopKo--Intercompany Agreements." In addition, ShopKo may be unwilling or
unable to amend these agreements to accommodate our future operating needs.
When our intercompany agreements with ShopKo expire or are terminated, it may
be more expensive for us to obtain substitute services from third parties. This
increased expense could negatively affect our financial performance.
13
<PAGE>
The terms of ShopKo's credit agreement may adversely affect our ability to
raise capital and take other strategic actions.
Under ShopKo's existing credit agreement, we are considered a
"subsidiary" of ShopKo. This means that ShopKo is obligated to cause us to
comply with various covenants in the credit agreement, which may not always be
in our best interests. These covenants include limitations and prohibitions on
our ability to sell our common stock and the stock of our subsidiaries unless
ShopKo meets financial tests, to pledge particular categories of assets, to
incur debt to third parties beyond specified limits and to enter into
agreements which restrict our ability to pay dividends. The restriction on the
sale of stock provides that we cannot sell our common stock or the common stock
or other equity interests of our subsidiaries unless at the time of such sale
ShopKo can demonstrate that the minimum consolidated net worth test, the
leverage ratio test, and the interest coverage ratio test can be met on a pro
forma basis assuming the proposed sale had occurred one year earlier. This
restriction will not limit this offering or the sale of stock pursuant to our
stock incentive plan. However, in the future this restriction could limit our
ability to sell our common stock or the common stock or other equity interests
of our subsidiaries. The extent of such limit will depend on a number of
factors, including the size of the proposed sale and ShopKo's financial results
over the preceding year. Likewise, our ability to incur debt to third parties
is limited under a formula contained in ShopKo's credit agreement. At January
30, 1999, we could have borrowed approximately $190.0 million from third
parties under this formula. This formula is impacted by ShopKo's financial
results and operating activities, including the amount of debt incurred by
other ShopKo subsidiaries. Our credit agreement with ShopKo restricts us from
borrowing funds from parties other than ShopKo without ShopKo's consent. These
limitations could prevent us from borrowing additional funds. These covenants
will apply after this offering is completed and may cause ShopKo to force us to
act inconsistently with our best interests. ShopKo's credit agreement has been
filed by ShopKo as an exhibit to ShopKo's Securities Exchange Act reports.
"Principal and Selling Stockholder" explains how you can obtain these reports.
We may experience potential conflicts of interest with ShopKo which may not be
resolved in our favor
Upon consummation of this offering and the election of two independent
directors, who are not affiliated with ShopKo, we will have a board of
directors consisting of seven members. Four of the members of our board of
directors also serve on the ShopKo board of directors. As these individuals
perform their duties to ShopKo and to us, conflicts of interest and conflicting
demands on the amount of time these individuals will have available for our
affairs may arise. Because ShopKo, a specialty discount retailer, and
ProVantage have substantially different businesses, we do not expect these
conflicts to arise over the allocation of corporate opportunities. Conflicts
may arise over the allocation of capital, human and other resources. We have
not adopted any policies regarding the allocation of corporate opportunities or
other conflicts, aside from a policy to approve related party transactions and
except as set forth in the intercompany agreements. We cannot assure you that
any conflicts that may arise will be resolved in our favor. In addition, ShopKo
will have the ability to change the size and composition of our board of
directors and its committees.
Risks Relating to the Offering of Common Stock
We cannot assure you of our success as a stand-alone company; our historical
financial information may have limited relevance in evaluating our business
To date, we have been operated as a subsidiary of ShopKo. After this
offering, we will continue to be a majority-owned subsidiary of ShopKo, but
will operate as a stand-alone company. ShopKo will have no obligation to
provide assistance to us except as provided in our agreements with ShopKo. We
cannot assure you that we will be viable as a stand-alone company or that this
change will not have an adverse effect on us. Because the financial information
included in this prospectus relates to periods during which we were wholly-
owned by ShopKo, it is not necessarily indicative of our future results of
operations, financial position and cash flows.
14
<PAGE>
Shares of common stock eligible for future sale could adversely affect the
market price of the common stock
Sales of substantial amounts of common stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
common stock. Upon completion of this offering, there will be 17,850,000 shares
of common stock outstanding. The common stock sold in this offering will be
freely tradable without restrictions by persons other than "affiliates" of
ProVantage, as such term is defined in the Securities Act of 1933. In addition,
ShopKo has the right to have its ProVantage common stock registered under the
federal securities laws for sale to the public. Once it is registered, ShopKo
may sell it. We cannot predict the effect, if any, that future sales of shares
of common stock, or the availability of shares of common stock for future
sales, will have on the market price of the shares of common stock.
If you purchase the common stock, then you will incur immediate and substantial
dilution in the book value of your shares
The assumed initial public offering price of $17.00 per share is
substantially higher than the net tangible book value of $(5.49) per share of
the common stock at January 30, 1999, giving pro forma effect to the
reorganization of ProVantage's corporate structure. Accordingly, purchasers in
this offering will incur immediate and substantial net tangible book value
dilution of $13.30 per share.
An active and continuous trading market for the common stock may not develop
after the offering which may result in a decline in the price for the common
stock or price volatility
Prior to this offering, there has been no public market for the common
stock, and an active, continuous trading market for the common stock may not
develop. This means that you may not be able to sell shares of common stock you
acquire in this offering easily, if at all. Furthermore, the market price for
the common stock could decline below the price you pay for it. ProVantage and
the representatives of the underwriters will determine the initial public
offering price based on the factors described under "Underwriting." Their
determination may not necessarily equal the intrinsic value or the market value
of the common stock. The trading prices of the common stock could be subject to
wide fluctuations in response to quarter-to-quarter variations in our operating
results, governmental or other regulatory action, general conditions in the
healthcare industry, changes in earnings estimates or recommendations by
research analysts and other events or factors, many of which are beyond our
control. In addition, the stock market recently has experienced a high level of
price and volume volatility, and market prices for the stock of many companies,
particularly small and emerging growth companies like ProVantage, have
experienced wide price fluctuations which have not necessarily been related to
their operating performance. These broad market fluctuations could have a
material adverse effect on the market price of the common stock.
Anti-takeover provisions in our organizational documents and agreements with
our executive officers could delay or prevent a change in control of ProVantage
at a premium price
Certain provisions of ProVantage's restated certificate of incorporation
and amended and restated bylaws, a stockholders rights plan, and change of
control severance agreements which have been entered into with certain of
ProVantage's executive officers could have an anti-takeover effect. These
provisions include:
la staggered board of directors,
lsupermajority amendment provisions,
lpreferred stock purchase rights which may deter offers for the
common stock, and
llarge severance payments.
This anti-takeover effect could delay, defer or prevent a change of
control of ProVantage without further action by the stockholders, could
discourage potential investors from bidding for the common stock at a
15
<PAGE>
premium over the market price of the common stock and could adversely affect
the market price of, and the voting and other rights of the holders of, the
common stock. In addition, provisions of the Delaware General Corporation Law
restrict the ability of stockholders to cause a merger or business combination
or obtain control of ProVantage. These provisions may prevent a takeover of
ProVantage at a premium price. See "Management--Change of Control Severance
Agreements" and "Description of Capital Stock."
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements regarding the
operations and business of ProVantage. Statements in this document that are
not historical facts are "forward-looking statements." Such forward-looking
statements include those relating to:
lProVantage's future business prospects,
lprojected or anticipated product development or introduction,
lpossible acquisitions,
lprojected revenues, working capital, liquidity, capital needs,
interest costs and income, and
lstatements regarding ProVantage's Year 2000 readiness.
The words "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout this
prospectus. Wherever they occur in this prospectus or in other statements
attributable to ProVantage,
forward-looking statements are necessarily estimates reflecting our best
judgment. However, these statements still involve a number of risks and
uncertainties that could cause actual results to differ materially from those
suggested by the forward-looking statements. Discussions in this prospectus
under the captions "Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" are particularly susceptible to risks and
uncertainties. Such forward-looking statements should, therefore, be
considered in light of various important factors, including those set forth in
this prospectus and other factors set forth from time to time in ProVantage's
reports and registration statements filed with the SEC. You are cautioned not
to place undue reliance on these forward-looking statements, which speak only
as of the date hereof. ProVantage disclaims any intent or obligation to update
forward-looking statements. Moreover, ProVantage, through senior management,
may from time to time make forward-looking statements about the matters
described herein or other matters concerning ProVantage.
THE REORGANIZATION
In connection with this offering, ShopKo and ProVantage reorganized
ProVantage's corporate structure. This reorganization consisted of
reincorporating ProVantage in Delaware through a merger with an affiliated
corporation, the transfer of certain assets and liabilities from affiliated
corporations to ProVantage, the amendment and restatement of ProVantage's
charter and bylaws, a 1,243 for 1 stock split effected through a stock
dividend, and the declaration of a dividend to ShopKo in the form of a demand
promissory note in the principal amount of $115.0 million in order to return
to ShopKo a portion of ShopKo's investment in ProVantage. See "Dividend
Policy." This reorganization was accounted for as a tax-free reorganization
among commonly controlled entities. All of the assets and liabilities
transferred in the reorganization retained their historical cost basis.
16
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of shares of common stock offered hereby,
assuming a public offering price of $17.00 per share, are estimated to be
$83.0 million. These net proceeds will be applied as follows:
. we will retain the first $20.0 million of net proceeds from the
offering and use these proceeds for working capital, capital
expenditures and other general corporate purposes, including
contingent payments for previous acquisitions, and
. the balance of the net proceeds will be paid to ShopKo as a
repayment on the demand promissory note and any remaining balance
on the note will be contributed to ProVantage by ShopKo as a
capital contribution.
The demand promissory note will have a principal amount of $115.0
million, will bear interest at 5.0% per annum and will be due on demand. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
We will not receive any proceeds from the exercise of the underwriters'
over-allotment option.
DIVIDEND POLICY
We do not intend to pay cash dividends on the common stock in the
foreseeable future, but rather intend to use future earnings principally to
support operations and to finance expansion and possible acquisitions. The
payment of cash dividends in the future will be at the discretion of our board
of directors and will depend on a number of factors, including our financial
condition, capital requirements, future business prospects, contractual
restrictions and such other factors as our board of directors may deem
relevant. See "Description of Capital Stock."
Prior to the offering, we will declare a dividend to ShopKo in the form
of a demand promissory note in the principal amount of $115.0 million to
return to ShopKo a portion of its equity investment in ProVantage. Holders of
common stock will not receive any portion of the payment on the note held by
ShopKo. See "Relationship With ShopKo."
17
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of ProVantage
at January 30, 1999 on an historical basis, on a pro forma basis giving effect
to the reorganization of Pro Vantage's corporate structure which will be
completed prior to the completion of the offering, and on a pro forma as
adjusted basis to give effect to the sale of the shares of common stock offered
by this prospectus, at an assumed initial public offering price of $17.00 per
share, and the use of the estimated net proceeds as described in the "Use of
Proceeds" section.
<TABLE>
<CAPTION>
January 30, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Cash....................................... $ 24,680 $24,680 $ 44,680
======== ======= ========
Stockholders' equity:
Preferred Stock, $.01 par value;
5,000,000 shares authorized and none
issued or outstanding actual, pro forma
and pro forma as adjusted............... $ 0 $ 0 $ 0
Common Stock, $.01 par value; 50,000,000
shares authorized, 12,550,000 shares
issued and outstanding, actual;
50,000,000 shares authorized, 12,550,000
shares issued and outstanding, pro
forma; and 50,000,000 shares authorized,
17,850,000 shares issued and
outstanding, pro forma as adjusted...... 126 126 179
Additional paid-in capital............... 88,997 88,997 171,987
Retained earnings........................ 24,114 (90,886) (38,929)
-------- ------- --------
Total stockholders' equity............. 113,237 (1,763) 133,237
-------- ------- --------
Total capitalization................... $113,237 $(1,763) $133,237
======== ======= ========
</TABLE>
18
<PAGE>
DILUTION
Our pro forma net tangible book value at January 30, 1999 was
$(68,890,000), or $(5.49) per share of common stock. Pro forma net tangible
book value per share is determined by dividing our net tangible book value--
that is, total tangible assets less total liabilities--by the number of shares
of common stock outstanding, after giving effect to the reorganization of
ProVantage's corporate structure which is to be completed prior to the
completion of the offering. Without taking into account any changes in our pro
forma net tangible book value after January 30, 1999, other than to give effect
to the sale of the shares of common stock offered hereby, assuming an initial
public offering price of $17.00 per share, and the receipt of the net proceeds
therefrom, our adjusted pro forma net tangible book value at January 30, 1999
would have been $66,110,000, or $3.70 per share of common stock. This
represents an immediate dilution in pro forma net tangible book value of $13.30
per share to new investors purchasing shares in this offering and an immediate
increase in pro forma net tangible book value of $9.19 per share to ShopKo. The
following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $ 17.00
-------
Pro forma net tangible book value per share at January
30, 1999................................................ $(5.49)
------
Increase per share attributable to new investors (1)..... 9.19
------
Pro forma net tangible book value after the offering..... 3.70
-------
Dilution per share to new investors (2).................. $ 13.30
=======
</TABLE>
- --------
(1) After deduction of underwriting discounts and estimated offering expenses
to be paid by us.
(2) Determined by subtracting the adjusted pro forma net tangible book value
per share after the offering from the amount of cash paid by a new investor
for one share of common stock.
The following table summarizes on a pro forma basis as of January 30,
1999 the differences in the total cash consideration paid and the average price
per share paid by ShopKo, our sole stockholder prior to this offering, with
respect to the 12,550,000 shares of common stock issued by us to ShopKo and by
the new investors, assuming an initial public offering price of $17.00 per
share, with respect to the 5,300,000 shares of common stock to be issued by us
in this offering:
<TABLE>
<CAPTION>
Shares of Common
Stock Purchased Total Consideration
------------------- ---------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C>
ShopKo........... 12,550,000 70.3% $ 89,123,000 49.7% $ 7.10
New investors.... 5,300,000 29.7 90,100,000 50.3 17.00
---------- ----- ------------- -----
Total........ 17,850,000 100.0% $ 179,223,000 100.0%
========== ===== ============= =====
</TABLE>
The foregoing tables do not give effect to the issuance of an aggregate
of approximately 650,000 shares of common stock subject to options to be
granted under our stock incentive plan at an exercise price equal to the
offering price. See "Management--Compensation of Directors" and "Executive
Compensation--Stock Incentive Plan."
19
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
The following table sets forth certain of our historical consolidated
financial data as of and for each of the five years in the period ended January
30, 1999. The historical consolidated financial data for the four years in the
period ended January 30, 1999 and as of January 30, 1999, January 31, 1998 and
February 1, 1997 were derived from our financial statements which have been
audited by Deloitte & Touche LLP, independent auditors. The remaining financial
data presented below were derived from our accounting records and have not been
audited. Nevertheless, in the opinion of management, this unaudited data
include all adjusting entries, consisting only of normal recurring adjustments,
necessary to present fairly the information set forth therein. The historical
consolidated financial data presented herein are not necessarily indicative of
the results of operations for any future period. The financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our financial statements
and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year (52 Weeks) Ended
------------------------------------------------------------------------
Feb. 4, 1995(1) Feb. 3, 1996 Feb. 1, 1997(2) Jan. 31, 1998 Jan. 30, 1999
--------------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Earnings
Data:
Net sales............... $ 5,424 $87,155 $330,048 $500,891 $666,154
Costs and expenses:
Cost of sales.......... 4,666 78,250 306,760 463,069 618,308
Selling, general and
administrative
expenses.............. 214 4,836 11,828 19,990 24,910
Depreciation and
amortization
expenses.............. 69 1,170 2,233 4,779 6,776
------- ------- -------- -------- --------
4,949 84,256 320,821 487,838 649,994
Income from operations.. 475 2,899 9,227 13,053 16,160
Interest income......... -- 207 353 364 543
------- ------- -------- -------- --------
Earnings before income
taxes.................. 475 3,106 9,580 13,417 16,703
Provision for income
taxes.................. 220 1,553 4,164 5,883 7,221
------- ------- -------- -------- --------
Net earnings............ $ 255 $ 1,553 $ 5,416 $ 7,534 $ 9,482
======= ======= ======== ======== ========
Basic net earnings per
share.................. $ 0.02 $ 0.12 $ 0.43 $ 0.60 $ 0.76
Average number of shares
outstanding............ 12,550 12,550 12,550 12,550 12,550
Pro forma basic net
earnings per share of
common stock(3)........ $ 0.49
Pro forma average number
of shares
outstanding(3)......... 19,315
<CAPTION>
Feb. 4, 1995 Feb. 3, 1996 Feb. 1, 1997 Jan. 31, 1998 Jan. 30, 1999
--------------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash.................... $ 2,092 $ 5,001 $ 5,946 $ 12,533 $ 24,680
Working capital......... 1,628 7,634 4,253 15,480 34,009
Total assets............ 25,823 33,181 118,993 155,037 200,777
Total debt.............. -- -- -- 1,880 968
Total liabilities....... 7,770 9,057 56,310 63,757 87,540
Stockholder's equity.... 18,053 24,124 62,683 91,280 113,237
</TABLE>
- --------
(1) On January 3, 1995, Pro Vantage completed the acquisition of Bravell, Inc.,
a pharmacy benefit management company. The results of Bravell's operations
since the date of acquisition have been included in ProVantage's
consolidated statements of earnings.
(2) On August 2, 1996, ProVantage completed the acquisition of CareStream
ScripCard from Avatex Corporation. CareStream ScripCard is a pharmacy
benefit management company and its operations have been integrated into
ProVantage. The results of CareStream ScripCard's operations since the date
of acquisition have been included in ProVantage's consolidated statement of
earnings.
(3) The pro forma basic net earnings per share of common stock are computed by
dividing net earnings by 19,315, which represents the total number of
shares of common stock outstanding after the reorganization of ProVantage's
corporate structure, plus 6,765 shares of common stock which, when
multiplied by an assumed offering price $17.00 per share would be
sufficient to repay the demand promissory note to be issued to ShopKo prior
to the offering.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with ProVantage's
historical consolidated financial statements and notes and the unaudited
consolidated financial statements and notes included elsewhere herein.
Overview
ProVantage is a leading health benefit management company providing
pharmacy benefit management and health information technology products and
services to our customers. ProVantage conducts its business principally
throughout the United States. Prior to this offering, ProVantage was wholly-
owned by ShopKo. After this offering, ShopKo will own 70.3% of ProVantage's
outstanding common stock, continue to provide to ProVantage a variety of
services and control ProVantage's board of directors, business and affairs.
The financial statements and data included in this prospectus, and this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, covers periods when ProVantage operated as a wholly-owned
subsidiary of ShopKo. For the periods presented, certain general,
administrative and other expenses reflected in the consolidated financial
statements include allocations of certain corporate expenses from ShopKo which
took into consideration estimates of personnel time spent to provide services
or other appropriate bases. These allocations include services and expenses for
general management, information systems management, treasury, tax, financial
reporting, benefits administration, insurance, legal, communications and other
miscellaneous services. Management believes the foregoing allocations were made
on a reasonable basis. Although these allocations do not necessarily represent
the costs which would have been incurred by ProVantage on a stand-alone basis,
management believes that any variance in costs would not be material to
ProVantage's consolidated financial results. After the offering is completed,
the charges for the services provided by ShopKo to ProVantage will be governed
by the intercompany agreements described under "Relationship With ShopKo."
ProVantage derives its revenues from the sale of health benefit
management services, pharmacy mail services, vision benefit management services
and health information technology and clinical support services. ProVantage's
net sales include:
l administrative and dispensing fees plus the cost of
pharmaceuticals dispensed by pharmacies participating in the
network maintained by ProVantage or by ProVantage's mail service
pharmacy to members of health benefit plans sponsored by
ProVantage's clients,
l amounts billed to pharmaceutical manufacturers and third party
formulary administrators for formulary fees,
l administrative fees plus the cost of sales of eyeglasses and
contact lenses relating to vision benefit management services, and
l license and service fees for health information technology and
clinical support services.
Cost of sales includes the amounts paid to network pharmacies and optical
centers for pharmaceutical and vision claims, the cost of prescriptions sold
through the mail service pharmacy and the amounts paid to plan sponsors for
shared formulary fees.
As a result of the competitive environment, ProVantage is continuously
subject to margin pressures when measured as a percent of net sales. In recent
years, competing pharmacy benefit management providers owned by large
companies, including pharmaceutical manufacturers, began pricing their products
and services more aggressively. This aggressive pricing resulted in reduced
margins for ProVantage's traditional prescription
21
<PAGE>
benefit management services. Management expects this competitive environment to
prevail for the foreseeable future. In recent years, we have been able to
offset in large part these reduced margins by selling higher margin advanced
clinical services and health information technology products. In order to
maintain our margins as a percentage of sales, we will need to continue to
increase sales of these higher margin services and products.
In recent years, ProVantage has invested heavily to build its clinical
and health information technology capabilities. These investments include
technology, professional staff, and marketing and service personnel. Management
expects to continue to invest to build these capabilities.
During the periods presented, ProVantage completed acquisitions of
several companies which contributed to ProVantage's growth. Of the health plan
members as of January 30, 1999, approximately 25% were acquired through
acquisitions. Acquisitions make period to period comparisons of the
ProVantage's financial statements less meaningful. Please see "--Acquisitions."
Results of Operations
The following table sets forth certain items from ProVantage's
consolidated statement of earnings as percentages of consolidated net revenue:
<TABLE>
<CAPTION>
Year (52 weeks) Ended
----------------------------------------
Feb. 1, 1997 Jan. 31, 1998 Jan. 30, 1999
------------ ------------- -------------
<S> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0%
Costs and expenses
Cost of sales....................... 92.9 92.4 92.8
Selling, general and administrative
expenses........................... 3.6 4.0 3.8
Depreciation and amortization
expenses........................... 0.7 1.0 1.0
----- ----- -----
97.2 97.4 97.6
Income from operations................ 2.8 2.6 2.4
Interest income....................... 0.1 0.1 0.1
----- ----- -----
Earnings before income taxes.......... 2.9 2.7 2.5
Provision for income taxes............ 1.3 1.2 1.1
----- ----- -----
Net earnings.......................... 1.6% 1.5% 1.4%
===== ===== =====
</TABLE>
Fiscal 1998 Compared to Fiscal 1997
Net sales for fiscal 1998 increased $165.3 million, or 33.0%, to $666.2
million. This increase is attributable to internally generated growth in claims
processing, mail pharmacy and formulary fees. Sales from pharmacy claims
processing increased $122.5 million, or 27.8%. This increase reflects a 16.4%
increase in the number of claims processed and a 9.8% increase in the average
revenue per claim processed. Sales from ProVantage's mail pharmacy increased
$29.8 million, or 79.1%, reflecting a 56.5% increase in the number of
prescriptions dispensed and a 14.5% increase in the average revenue per
prescription dispensed. Formulary fees increased $8.1 million, or 55.0%, to
$22.9 million. This increase is attributable to increased claims subject to
formulary fees and increased participation of pharmaceutical manufacturers in
ProVantage's formulary program. Revenues attributable to vision benefit
management services were immaterial in both periods.
Gross profit, calculated as net sales less cost of sales, for fiscal 1998
increased $10.0 million, or 26.5%, compared to fiscal 1997. This increase is
partially attributable to the sales growth in formulary fees, resulting in a
$4.2 million increase in gross profit over the prior year, sales growth in mail
pharmacy, resulting in a $2.8 million increase in gross profit over the prior
year, and sales growth in claims processing, resulting in
22
<PAGE>
a $1.7 million increase in gross profit over the prior year. As a percentage of
net sales, ProVantage's gross margins were 7.2% for fiscal 1998 and 7.6% for
fiscal 1997. This decline was due to increasing prescription costs and the
addition of larger clients with lower average transaction fees, offset in part
by the addition of higher margin clinical services and information technology
products.
Selling, general and administrative expenses for fiscal 1998 increased
$4.9 million, or 24.6%, to $24.9 million. This increase relates to additional
investments in information technology of $3.0 million, in clinical programs of
$0.5 million and in infrastructure support of $1.4 million related to continued
growth. As a percentage of net sales, selling, general and administrative
expenses were 3.8% in fiscal 1998 compared to 4.0% in fiscal 1997.
Depreciation and amortization expenses for fiscal 1998 increased $2.0
million, or 41.8%, to $6.8 million. This increase is attributable to increased
depreciation and goodwill amortization related to ProVantage's business
acquisitions. As a percentage of net sales, depreciation and amortization
expenses were 1.0% for both fiscal 1998 and fiscal 1997.
The change in interest income during the periods was immaterial.
The effective tax rate for fiscal 1998 was 43.2% compared to 43.8% in
fiscal 1997.
Fiscal 1997 Compared to Fiscal 1996
Net sales for fiscal 1997 increased $170.8 million, or 51.8%, to $500.9
million. This increase is primarily attributable to growth in claims processing
and mail pharmacy. Sales from pharmacy claims processing increased $151.4
million, or 52.3%. This increase reflects a 53.7% increase in the number of
claims processed. Sales from ProVantage's mail pharmacy increased $16.4
million, or 77.1%, reflecting a 73.1% increase in the number of prescriptions
dispensed and a 2.3% increase in the average revenue per prescription
dispensed. Formulary fees decreased $1.9 million, or 11.3%, to $14.8 million.
This decrease is primarily attributable to the expiration of a contract with a
third party formulary administrator. This contract, which included a favorable
formulary revenue guarantee for fiscal 1996, was not renewed for fiscal 1997
because the terms proposed by the third party administrator for fiscal 1997
were less favorable than the terms ProVantage negotiated directly with
pharmaceutical manufacturers. Revenues attributable to vision benefit
management services were immaterial in both periods.
Gross profit for fiscal 1997 increased $14.5 million, or 62.4%, compared
to fiscal 1996. This increase is primarily attributable to the sales growth in
claims processing resulting in a $7.1 million increase in gross profit over the
prior year, and improved gross margin rates in ProVantage's formulary business
resulting in a $3.2 million increase in gross profit over the prior year and
sales growth in mail pharmacy, resulting in a $2.2 million increase in gross
profit over the prior year. As a percentage of net sales, ProVantage's gross
margins were 7.6% for fiscal 1997 and 7.1% for fiscal 1996.
Selling, general and administrative expenses for fiscal 1997 increased
$8.2 million, or 69.0%, to $20.0 million. The increase is primarily
attributable to increased operating costs subsequent to the acquisition of
PharMark of $2.0 million and additional investments in infrastructure support
related to continued growth, including information technology, of $6.2 million.
As a percentage of net sales, selling, general and administrative expenses were
4.0% in fiscal 1997 compared to 3.6% in fiscal 1996.
Depreciation and amortization expenses for fiscal 1997 increased $2.5
million, or 114.0%, to $4.8 million. This increase is primarily attributable to
goodwill amortization related to ProVantage's business acquisitions. As a
percentage of sales, depreciation and amortization expenses were 1.0% in fiscal
1997 and 0.7% in fiscal 1996.
23
<PAGE>
The change in interest income during these periods was immaterial.
The effective tax rate for fiscal 1997 was 43.8% compared to 43.5% in
fiscal 1996.
Liquidity and Capital Resources
Prior to the offering, ProVantage's cash needs in excess of cash flow
provided by operations have been met principally by additional capital
contributions by ShopKo and any excess cash has been distributed to ShopKo.
Cash provided from operating activities was $9.5 million in fiscal 1998, $12.0
million in fiscal 1997 and $3.4 million in fiscal 1996. ShopKo's capital
contributions were $12.5 million in fiscal 1998, $21.1 million in fiscal 1997
and $33.1 million in fiscal 1996.
ProVantage's principal uses of cash are for capital expenditures and
acquisitions. ProVantage spent $8.9 million on capital expenditures in fiscal
1998, $4.2 million on capital expenditures in fiscal 1997 and $2.1 million in
fiscal 1996. Capital expenditures relate primarily to continuing investments in
systems technology.
ProVantage's total capital expenditures are expected to approximate $15.0
to $20.0 million for the fiscal year ending January 29, 2000. The expected
increase in capital expenditures is primarily due to replacement of
ProVantage's retail network processing system and continued enhancements and
development in its suite of health information technology products. The
foregoing capital expenditure plans are based on current facts and
circumstances known to management and assumptions believed by management to be
reasonable. Such plans may be reviewed and revised from time to time in light
of changing conditions. Any such revisions could be material.
In addition, ProVantage has contingent payment obligations of up to $5.0
million with respect to the CareStream Scrip Card acquisition and up to $8.0
million with respect to the PharMark acquisition. Payments, if any, made under
these arrangements would be recorded as additional purchase price. For a more
detailed description, see "--Acquisitions."
ProVantage has entered into a credit agreement with ShopKo which provides
that ProVantage may borrow up to $25.0 million from ShopKo on a revolving
basis. The credit agreement is unsecured, has a term that expires on January
31, 2001, provides that borrowings will bear interest at various market rates
at the time of borrowing and has an annual commitment fee of 1/5 of one percent
of the total commitment amount. ProVantage may terminate the credit agreement
at any time without penalty and may replace it with financing from banks or
other financial institutions. ShopKo may terminate the credit agreement at any
time after it no longer owns a majority of ProVantage's voting stock. This
agreement may negatively affect the future operating results of ProVantage by
increasing interest expense. Prior to the offering, any additional cash needs
in excess of cash flows provided by operations have been met by capital
contributions by ShopKo. After the offering, any additional cash needs will be
met through borrowings under our credit agreement with ShopKo.
Under ShopKo's existing credit agreement, ProVantage is considered a
"subsidiary" of ShopKo which means that ShopKo is obligated to cause ProVantage
to comply with certain covenants in the credit agreement. These covenants
include prohibitions on ProVantage selling its common stock and the stock of
its subsidiaries unless ShopKo meets financial tests, prohibitions on the
pledging of particular categories of assets, limitations on ProVantage's
ability to incur debt to third parties beyond specified limits, and a
prohibition on ProVantage entering into agreements which restrict ProVantage's
ability to pay dividends. These covenants will continue to apply after this
offering is completed. ProVantage does not expect these covenants to impose any
material impediment on ProVantage's existing operations. There can be no
assurance, however, that circumstances will not arise wherein such covenants
could limit ProVantage's ability to enter into certain transactions.
24
<PAGE>
ProVantage believes that its cash needs, other than for significant
acquisitions, will be met through fiscal 1999 through the proceeds from this
offering, cash generated from operations and borrowings from ShopKo or third-
party sources.
In addition to the credit agreement, ProVantage and ShopKo have entered
into or will enter into a number of other agreements to define and formalize
our ongoing relationship and the conduct of our businesses. These agreements
include a tax sharing agreement, an administrative services agreement, an I. T.
support agreement, a lease agreement, an indemnification and hold-harmless
agreement, and a registration rights agreement. In comparison to prior years,
these agreements will not have a material effect on future operating results
because they formalize arrangements on substantially the same financial basis
as presented in the historical financial statements included in this
prospectus. See "Relationship with ShopKo--Intercompany Agreements" for a
description of the agreements described above. When our intercompany agreements
with ShopKo expire or are terminated, it may be more expensive for us to obtain
substitute services from third parties. This increased expense could negatively
effect our financial performance.
Acquisitions
On January 3, 1995, ProVantage completed the acquisition of Bravell,
Inc., a pharmacy benefit management firm that provides custom prescription
benefit plan design, program administration and claims benefit processing
services to insurance companies, third party administrators and self-funded
medical plan sponsors. The transaction was accounted for as a purchase, whereby
ProVantage acquired 97% of the outstanding common stock of Bravell for
approximately $17.3 million. ProVantage was also required to make additional
payments which were contingent upon future results of Bravell's operations. In
fiscal 1996, $0.7 million was paid based on the results of fiscal 1995. On
April 10, 1997, ProVantage made a payment of approximately $8.9 million to the
founders of Bravell to:
l acquire the remaining 3% of the common stock of Bravell which
ProVantage did not acquire in January 1995,
l extinguish all remaining contingent payment obligations to the
founders, and
l terminate the founders' employment agreements.
On August 2, 1996, ProVantage completed the acquisition of CareStream
ScripCard from Avatex Corporation, formerly known as FoxMeyer Health
Corporation. CareStream ScripCard is a prescription benefit management company
and its operations have been integrated with ProVantage. The initial purchase
price was $30.5 million in cash, plus a supplemental cash payment. If Avatex
exercises its right to the supplemental cash payment within the prescribed time
frame after the close of the offering, the supplemental cash payment will be an
amount equal to 1.5% of ProVantage's market value subject to a minimum of $2.5
million and a maximum of $5.0 million. The right of Avatex to the supplemental
cash payment expires on August 2, 2001. Such supplemental payment will be
capitalized as additional purchase price and amortized over a period of 15 to
18 years. We expect that a substantial portion of the supplemental payment will
be capitalized as additional purchase price upon completion of the offering.
On August 20, 1997, ProVantage acquired PharMark, a software and database
development company providing information driven strategies for optimizing
medical and pharmaceutical outcomes, based in Arlington, Virginia, from M. Lee
Morse and Aida A. LeRoy. Mr. Morse and Dr. LeRoy were employed by ProVantage
from August 20, 1997 to January 31, 1999 pursuant to employment agreements
entered into in conjunction with the acquisition. The purchase price for
PharMark was approximately $15.2 million, of which $14.2 million has been paid
in cash and a total of $1.0 million is due in 1999. The sellers of PharMark may
also be entitled to contingent payments of up to $8.0 million in the aggregate
based on the fair market value of ProVantage's outstanding common stock. The
contingent payments, if any, will be due on the first to occur of August 20,
2002 or certain liquidity events related to ProVantage. The offering will not
be a liquidity event.
25
<PAGE>
The contingent payments may be made, at ProVantage's election, in either cash,
ShopKo common stock, ProVantage common stock or any combination thereof;
provided, however, that any stock used for such payments must be traded on a
national securities exchange or the Nasdaq National Market. If the contingent
payments are made in ShopKo or ProVantage common stock, the sellers have the
right to require the issuer of the stock to register the stock for sale under
the Securities Act. The sellers also have the right to have the shares of
common stock they receive as contingent payment included in registration
statements filed under the Securities Act by the issuer. The contingent
payments, if any, will be capitalized as additional purchase price and
amortized over a period of 15 to 19 years. We expect that a portion of the
contingent payments will be capitalized as additional purchase price upon
completion of the offering. The employment agreements entered into in
conjunction with the acquisition of PharMark were mutually terminated as of
January 31, 1999. Payments of approximately $1.1 million were paid to Mr. Morse
and Dr. LeRoy at the time of termination.
ProVantage expects to continue its internal growth and may also consider
the acquisition of health services businesses. Such plans may be reviewed and
revised from time to time in light of changing conditions. Depending upon the
size and structure of any such acquisition, ProVantage may require additional
capital resources. ProVantage believes that adequate sources of capital will be
available.
Year 2000
State of Readiness. In order to address Year 2000 compliance, ProVantage
has initiated a comprehensive project designed to eliminate or minimize any
business disruption associated with potential date processing problems in its
information technology systems, as well as its non-information technology
systems. The project consists of five phases: company awareness, assessment,
strategy and work plan development, renovation and testing. ProVantage has
completed the first three phases for both information technology and non-
information technology systems, is nearly complete with the fourth phase (i.e.,
renovation), and is actively engaged in the fifth stage of testing.
With respect to information technology systems, approximately 80% of
ProVantage's critical business systems are currently compliant, approximately
5% of them will be retired and approximately 15% are in the process of being
renovated. With respect to non-information technology systems, the assessment
phase indicated a need for only minor renovation work. For both information
technology and non-information technology systems, the renovation phase
currently underway is expected to be completed in the second quarter of fiscal
1999. The testing phase for both information technology and non-information
technology systems is planned to be completed in the third quarter of fiscal
1999.
As part of its Year 2000 project, ProVantage has initiated communications
with all of its vendors and service suppliers to assess their state of Year
2000 readiness. A significant percentage of its important vendors have
responded in writing to ProVantage's Year 2000 readiness inquiries. ProVantage
plans to continue assessment of its third party business partners, including
face-to-face meetings with management and/or onsite visits as deemed
appropriate. Despite ProVantage's diligence, there can be no guarantee that the
systems of other companies which ProVantage relies upon to conduct its day-to-
day business will be compliant.
Costs. ProVantage estimates that it will incur internal and external
expenses of $0.6 to $0.8 million in conjunction with the Year 2000 compliance
project of which $0.4 million have been incurred as of January 30, 1999. The
remaining costs will be incurred in fiscal 1999.
Risks. With respect to the risks associated with its information
technology and non-information technology systems, ProVantage believes that the
most reasonably likely worst case scenario is that ProVantage will experience a
number of minor systems malfunctions and errors in the early days and weeks of
the Year 2000 that were not detected during its renovation and testing efforts.
ProVantage also believes that these problems will not be overwhelming and will
not have a material effect on ProVantage's operations or financial
26
<PAGE>
results. However, despite our compliance program we may have overlooked or
otherwise not remedied Year 2000 issues which may have a material adverse
effect on us.
With respect to the risks associated with third parties, ProVantage
believes that the most reasonably likely worst case scenario is that some of
ProVantage's vendors will not be compliant. Management also believes that the
number of such vendors will have been minimized by ProVantage's program of
identifying non-compliant vendors and replacing or jointly developing
alternative supply or delivery solutions prior to the Year 2000.
ProVantage also designs, licenses and sells software products to third
parties. While ProVantage has taken steps to ensure the readiness of this
software and believes it to be compliant, ProVantage cannot be certain that the
software will operate error free, or that ProVantage will not be subject to
litigation, whether the software operates error free or not. However,
ProVantage believes that based on its efforts to ensure compliance, and the
terms and conditions of its software licensing contracts, it is not reasonably
likely that ProVantage will be subject to such litigation.
ProVantage has limited the scope of its risk assessment to those factors
which it can reasonably be expected to have an influence upon. For example,
ProVantage has made the assumption that our customers, government agencies,
utility companies and national telecommunications providers will continue to
operate. Their failure to remedy their Year 2000 problems could have a material
adverse effect on ProVantage's results of operations and ability to operate,
but ProVantage has little, if any, ability to influence such an outcome.
Contingency Plans. ProVantage has recently begun planning preparations to
handle the most reasonably likely worst case scenarios described above.
ProVantage intends to complete the contingency plans for these scenarios during
the second quarter of fiscal 1999.
Year 2000 Readiness Statements. To allow its customers and suppliers an
opportunity to assess ProVantage's state of readiness for the Year 2000,
ProVantage maintains a Year 2000 web page at www.provantageinc.com. Statements
made or contained in this prospectus or on our web page or any past statements
made or contained in this prospectus or on our web page are deemed Year 2000
Readiness Statements and are subject to the Year 2000 Information and Readiness
Disclosure Act (P.L. 105-271), to the fullest extent permitted by law.
Recent Pronouncements
In 1997, Statement of Financial Accounting Standards, SFAS, No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," were issued. Both statements have
been adopted by ProVantage. SFAS No. 130 "Reporting Comprehensive Income"
requires non-cash changes in stockholders' equity be combined with net income
and reported in a new financial statement category entitled "comprehensive
income." Currently, ProVantage's only component of comprehensive income is net
income. SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires ProVantage to report certain information if specific
requirements are met about services, geographic areas of operation and major
types of customers. ProVantage provides integrated health benefit management
services to its customers, and these services account for substantially all of
ProVantage's net sales. As a result, ProVantage's operations will be reported
in one segment.
In 1998, SFAS No. 132, "Employers' Disclosures about Pensions and other
Post-retirement Benefits," and SFAS No. 133, "Accounting for Derivative
Investments and Hedging Activities," were issued. SFAS No. 132 was adopted by
ProVantage and will have no impact on ProVantage's annual financial statements.
SFAS 133 must be adopted by June 15, 1999. ProVantage is currently evaluating
the impact of this statement, but it is not anticipated to have a significant
impact on ProVantage's annual financial statements.
27
<PAGE>
Inflation
Inflation has not had a significant effect on the results of operations
of ProVantage or its internal and external sources of liquidity.
Market Risk
ProVantage has not historically been subject to material market risk,
such as interest rate risk or foreign currency exchange risk. In the future,
the rate of interest paid by ProVantage under its credit agreement with Shopko
will generally be subject to changes in interest rates.
28
<PAGE>
BUSINESS
Overview
We are a leading health benefit management company providing pharmacy
benefit management and health information technology products and services to
our customers. Our goal is to be the leading third-party supplier of products
and services designed to optimize the quality and minimize the cost of
healthcare services. As of January 1999, we provided services to over 3,500
customers, including pharmacy benefit management services covering
approximately 4.5 million individuals and vision benefit management services
covering approximately 500,000 individuals. In addition, our licensed products,
which are designed to improve the quality of healthcare, are being used by our
clients in programs covering over 13 million people. We have experienced
significant growth since fiscal 1995, increasing revenues from $87.2 million to
$666.2 million in fiscal 1998, representing a compound annual growth rate of
approximately 97%. Approximately 75% of our growth in the number of people who
use our pharmacy benefit management services during this period has been
generated internally rather than through acquisitions.
Pharmaceuticals are the fastest growing component of healthcare
expenditures and are generally recognized as being the most difficult for
payors to control. According to IMS Health, U.S. pharmaceutical expenditures
are expected to grow by a compound annual growth rate of 14.5% through 2002. We
believe this market should provide us with opportunities for substantial
growth.
We believe that we are differentiated from most of our competitors by:
l our ability to integrate medical claim, diagnosis and
pharmaceutical data and to analyze this data with our 7,800 rules
that are used to identify improper, ineffective or dangerous drug
use,
l our ability to provide useful data which our clients can use to
reduce drug-related hospitalization and other medical costs,
l our expertise and experience acquired in developing an integrated
database of pharmaceutical and medical claims data on over 13
million people, which we believe is one of the largest databases
of its kind, and
l our ability to offer more comprehensive solutions to our customers
to optimize the quality and minimize the cost of healthcare
services.
We believe that only a small number of our competitors are capable of
offering clients the combination of products, expertise and experience that we
can.
Pharmacy benefit management companies address the pressing need of health
plan sponsors to manage costs and to better understand the effect of
pharmaceutical utilization on their membership. Our traditional pharmacy
benefit management products and services include plan design, administration of
a network of over 50,000 retail pharmacies, electronic point-of-sale claims
processing, mail pharmacy services, formulary administration/management,
physician profiling and clinical services. In addition, our products go beyond
commonly available pharmacy benefit management offerings to include clinical
services and information-based products which are used to track medical
treatment and a patient's response to that treatment. These services give our
customers the ability to assess the safety and effectiveness of healthcare
practices and to identify the most effective treatments, potentially lowering
overall costs.
Our customers include healthcare payors, self-funded employers, third
party health plan administrators, state and federal agencies and pharmaceutical
manufacturers. We believe that our customers are increasingly seeking health
management vendors that can help them reduce medical costs by identifying
opportunities to improve outcomes. While pharmacy benefit management companies
are in a unique position to fulfill this need, we believe that few of them are
able to organize and analyze payor specific data regarding pharmaceutical
29
<PAGE>
use and medical encounters. We believe that our ability to integrate patient
pharmacy and medical data allows our clients and us to assess overall
healthcare results.
One of our principal information-based services, which was launched in
mid-1998, is our Advanced Therapeutic Intervention program. This program is
designed to:
l review a client's pharmaceutical utilization and medical
diagnosis, claims and prescription data on an integrated basis,
. indentify prescribing patterns that exceed recommended periods of
use, unnecessary drug duplication and over- and under-utilization,
l identify specific patients who have been prescribed drugs that
significantly increase the risk of hospitalization or other
adverse medical events due to underlying medical conditions and
multiple diseases, and
l intervene with the treating physicians to identify significant
drug therapy related risks.
We believe this program provides a measurable return on investment to our
clients. The core of our Advanced Therapeutic Intervention program is
RationalMed, our clinical outcomes assessment software that analyzes our
clients' medical and pharmaceutical data to identify problematic prescribing
patterns. Under the direction of our physicians, our staff clinicians review
the risk assessments generated by RationalMed, and intervene with the treating
physicians. We believe the specific information provided by our Advanced
Therapeutic Intervention program can be used to reduce medical costs and allow
us to increase sales to larger and more sophisticated customers.
In addition to our pharmacy benefit management products and services, we
have developed and continue to develop Internet-accessible health information
technology products designed to assist in management of healthcare results.
Certain of these products access our integrated database of pharmaceutical and
medical claims data on over 13 million people, which we believe is one of the
largest databases of its kind. We intend to broaden our product offering and
cross-sell more advanced health information technology products to our more
sophisticated clients. We believe that we have a competitive advantage over
stand-alone healthcare information system companies because of our pharmacy
benefit management relationships with payors, self-funded employers and third
party health plan administrators.
Background
We are a wholly-owned subsidiary of ShopKo Stores, Inc., a leading
specialty discount retailer with pharmacies and optical centers in most of its
retail stores. Capitalizing on its expertise in pharmacy operations, in 1993
ShopKo launched ProVantage as a mail service pharmacy. We have grown primarily
through internal growth but have also expanded through acquisitions and
strategic alliances. In 1995, we acquired Bravell, Inc., a full-service
pharmacy claims adjudication company. In 1996, we acquired CareStream ScripCard
and also began to offer vision benefit management services. In 1997, we
expanded significantly our clinical expertise and added to our databases with
the acquisition of PharMark.
Industry Overview
The Healthcare Financing Administration projects that healthcare
expenditures will rise from $1.15 trillion in 1998 to $2.13 trillion by 2007, a
compound annual growth rate of 7.1%. The managed care industry in the United
States has experienced rapid growth in response to historical increases in
healthcare costs. Payors have sought to minimize certain of these expenses by
capturing economies of scale, controlling utilization and developing risk
sharing strategies. Prescription drug costs represent the fastest growing
component of healthcare costs according to an industry publication.
Pharmaceutical sales in the United States are expected to increase at a
compound annual growth rate of 14.5% and to reach approximately $173 billion in
the year 2002. The major factors contributing to this trend include:
l a substantial increase in the number of major new product launches
due to a shorter FDA approval cycle,
30
<PAGE>
l premium prices for new or branded products,
l increased expenditures for new drug development,
l an aging population, and
l increased demand driven by direct-to-consumer advertising.
In response to increasing demand for pharmaceuticals, health benefit
providers, such as payors and employers, have been searching for ways to better
understand and control drug costs. Pharmacy benefit management companies help
health benefit providers provide a cost effective drug benefit and better
understand the impact of pharmaceutical use on total healthcare expenditures.
In their most basic role as cost savers, pharmacy benefit management
companies provide access to a network of retail pharmacies which have
contractually agreed to provide pharmaceuticals at discounted rates.
Pharmaceutical claims are electronically processed by the pharmacy benefit
management companies from the point of sale, providing operating efficiencies.
Pharmacy benefit management companies also secure volume discounts, rebates and
other formulary revenues from pharmaceutical manufacturers, lowering their
clients' pharmaceutical costs. Pharmacy benefit management companies also seek
to influence behavior patterns by encouraging the substitution of generic
products for more costly branded alternatives and by developing and managing
formularies. Formularies are lists of approved drugs available to health plan
participants.
These cost reduction strategies have become widely used in the healthcare
industry in recent years, however, and payors are now seeking a more
sophisticated approach to managing pharmaceutical expenditures which
incorporates a focus on the quality and efficiency of care as opposed to solely
on cost cutting. Rather than viewing pharmaceutical expenditures as discrete
cost items, payors are beginning to seek an understanding of the effect that
pharmaceutical treatment has on overall healthcare costs and patient care.
We believe that prospective customers are increasingly selecting pharmacy
benefit management companies based on their ability to identify both favorable
and harmful prescribing patterns and to selectively intervene with physicians
and patients to provide information resulting in improved healthcare outcomes
and significantly lower costs. Pharmacy benefit management companies with the
ability to access and derive meaningful conclusions from medical,
pharmaceutical and diagnostic information will have a competitive advantage.
While both payors and providers are intently focused on disease management,
many do not have the scale, expertise and/or resources to internally develop
the data warehouse, decision support tools and clinical therapeutic
capabilities necessary to effectively manage overall healthcare results.
Therefore, we believe that there is a substantial opportunity for organizations
capable of providing information technology based solutions to this market.
Strategy
Overview
Our goal is to be the leading third-party supplier of products and
services designed to optimize the quality and minimize the cost of healthcare
services. To accomplish this goal, we intend to:
l continue to grow our pharmacy benefit management business and
expand our client base by increasing the number of people to whom
we provide services,
l leverage our information-based clinical expertise to develop and
enhance products and services that help manage healthcare
treatment and results, and
l selectively pursue acquisitions and alliances through which we can
realize additional scale benefits in our pharmacy benefit
management offerings or augment our advanced clinical and health
information technology capabilities.
31
<PAGE>
Grow Pharmacy Benefit Management Business. We intend to aggressively grow
our pharmacy benefit management business by increasing the number of people to
whom we provide pharmacy benefit management services and continuing to expand
the breadth of our product offerings. We have built a leading franchise in the
small group market based on our ability to provide individually tailored
products to fit the unique needs of our clients. We believe that we are able to
provide these customers with a level of flexibility in benefit design not
offered by our competitors. Additionally, we have focused intensively on
service, quality and responsiveness and we believe that our clients value this
difference.
While the small group market remains a major focus for us, we believe
that the mid-sized market offers a substantial growth opportunity. As part of
our efforts to penetrate this market, we are building a comprehensive marketing
program targeting larger clients. We believe that we are well positioned to
serve these larger and generally more sophisticated customers which are often
looking for partners who can provide them with healthcare treatment and results
information that enables them to reduce costs. Our sales efforts to this market
are designed to demonstrate that our advanced clinical products and services go
beyond those offered by our competitors by enabling our clients to:
l meaningfully reduce overall healthcare costs, not just pharmacy
costs,
l quantify cost savings, and
l improve healthcare treatment and results.
These products and services include our Advanced Therapeutic Intervention
programs, therapeutic and disease management programs, and a variety of
information-based consultative services including physician profiling and
formulary design. The basis for many of our advanced, clinical products and
services is our database of integrated pharmaceutical and medical claims data
on over 13 million people. Since 1997, our marketing efforts to more
sophisticated clients, both small and mid-sized, have resulted in the addition
of new clients representing a commitment of approximately 900,000 people to
whom we will provide pharmacy benefit management services, including Wausau
Insurance, Security Health Plan and American National Insurance.
In addition to attracting a larger client base, we intend to leverage our
relationships and clinical expertise in managing pharmaceutical benefits to
market a broader array of products. These products can be sold alone or in
bundled form, based on our client's needs. We plan to use our more
sophisticated clinical services to gain access to new customers which might not
be looking to make a change in their provider of traditional pharmacy benefit
management services. Once we have established a relationship with a client and
demonstrated our capabilities, we believe that we have the opportunity to
cross-sell additional offerings to the customer. Furthermore, we believe that
sales of our more advanced, clinically focused products can help mitigate
margin pressure currently being experienced in traditional pharmacy benefit
management services.
Develop Healthcare Management Products. We have leveraged our
information-based clinical expertise in managing pharmaceutical benefits to
develop health information technology products which focus on the broader goal
of analyzing various factors which influence total health outcomes. These
products provide analytical tools which we believe are valuable to payors,
pharmaceutical manufacturers and physicians. These products benefit from
algorithms developed through analyzing millions of patient-years of health
claims in our database. Our algorithms are sets of rules we use to predict the
probability of various results. We believe that this gives us a strong platform
on which to build a reputation as a company with sophisticated health
information technology products capable of identifying clinical practices that
reduce costs and improve the quality of healthcare.
Pursue Acquisitions and Alliances. We intend to selectively pursue
acquisitions or alliances with companies that either provide us with the
opportunity to realize additional scale benefits in our pharmacy benefit
management business or augment our advanced clinical and health information
technology capabilities. During the past five years, we have acquired four
companies, each of which has added either critical mass to
32
<PAGE>
our pharmacy benefit management business or a new core competency which we can
offer to our clients. For example, in 1997 we acquired PharMark, which had
sophisticated software tools and a large database. PharMark's database has
served as the springboard for marketing a number of health information
technology-based products to payors and pharmaceutical manufacturers.
In addition to acquisitions, we are seeking corporate alliances to expand
our health information technology capabilities. For example, in a joint venture
with our largest pharmacy benefit management client, American Medical Security,
Inc., we have acquired a minority interest in ThinkMed, LLC, a developer of
medical decision support software. ThinkMed's software identifies and
categorizes high risk patients for case management. We are currently exploring
methods of integrating ThinkMed software into our current product offerings.
These types of alliances allow us to gain access to new technology and data
without committing the level of financial and management resources associated
with a major acquisition.
Products and Services
We provide prescription and vision benefit management services and
healthcare information-based products and clinical services. We believe that
our pharmacy benefit management services, in combination with our information-
based products and services, result in a highly differentiated product offering
with the potential to assess the effectiveness of healthcare services, identify
ways of improving healthcare results, and lower pharmaceutical and, more
importantly, overall medical costs.
Healthcare Benefit Management Services
We provide high quality, cost efficient pharmacy benefit management
services to health plan sponsors. As of January 1999, we provided pharmacy
benefit management services to approximately 4.5 million people and vision
benefit management services to approximately 500,000 people through more than
3,500 customers. Our core client base has historically been small to mid-size
employers, insurance companies, third party administrators, health maintenance
organizations, HMOs, and self-funded healthcare plan sponsors. We increasingly
are marketing our pharmacy benefit management services to larger organizations
based on our advanced clinical and information-based products and services.
Pharmacy Benefit Management Services. Our pharmacy benefit management
services include national retail pharmacy network administration, claims
adjudication services, mail pharmacy service, formulary development and
management and benefit plan design consultation. We manage a network of over
50,000 retail pharmacies to provide prescription drugs to health plan members.
We contract with these pharmacies to fill prescriptions at predetermined,
negotiated rates, which are significantly more favorable than typical retail
prices, in exchange for designating them as network pharmacies. Health plan
members can fill prescriptions at a network pharmacy in all 50 states, Puerto
Rico and the Virgin Islands. We use on-line point-of-sale electronic claims
processing with pharmacies for swift adjudication of pharmacy claims. When a
member presents his or her identification card at any one of our network
pharmacies, the pharmacist sends encrypted information electronically to us for
processing. Before the prescription is filled, we provide to the pharmacist all
pertinent member, health plan and payment information necessary to fill the
prescription. The information we provide to the pharmacist includes:
l an analysis of whether the member is eligible for benefits,
l the prescription benefits the member's health plan has selected,
l the member's co-payment obligation,
l the amount the pharmacy can expect to receive as reimbursement for
its services, and
l a medication profile with information to warn the pharmacist of
possible interactions, including drug-drug, drug-food, drug-age,
and drug-pregnancy interactions.
33
<PAGE>
We are compensated for pharmacy benefit management services through
processing fees, clinical service fees, formulary administration fees and
reimbursement of the cost of the pharmaceuticals dispensed. In addition,
various ancillary and information management fees may be charged.
Our mail service pharmacy offers health plans and their members a cost
effective way to receive maintenance prescription drugs to treat chronic
illnesses. Members mail their prescriptions, which typically provide for up to
a three month supply, to our mail service pharmacy, where we process and mail
their prescriptions, typically within two business days of receipt. Our mail
service pharmacy helps control prescription costs for health plan sponsors by
buying drugs at volume discounts and dispensing generic drug products when
appropriate. Our mail service pharmacy helps control overall healthcare costs
with compliance programs such as calling the members when they neglect to
refill important prescriptions. As of February 1999, our mail service pharmacy
in Green Bay, Wisconsin, dispensed and mailed approximately 75,000
prescriptions per month. Currently customers representing approximately 50% of
the number of people to whom we provide pharmacy benefit management services
contract with us for access to pharmaceuticals through both our retail pharmacy
network and our mail service pharmacy. In addition to our profits from the sale
of the pharmaceuticals themselves, we are compensated for providing our mail
service pharmacy program by charging our clients a fee per prescription order.
Our Advanced Therapeutic Intervention program is one of the key
differentiating features of our pharmacy benefit management services. We began
providing this service in mid-1998. According to industry sources, a
significant amount of in-patient medical costs are induced by inappropriate
prescription drug therapy. Most pharmacy benefit management companies use
traditional drug utilization review programs to reduce drug-induced adverse
effects caused by drug-on-drug conflicts, duplication of prescriptions and
similar problems. However, these programs are of limited effectiveness because
they are administered without reference to a patient's specific medical profile
and consequently must assume the lowest drug tolerance for each patient. We
believe that as a result, pharmacists typically receive numerous drug
utilization review warnings per day, many of which are not applicable to any
given patient and are often ignored.
Our Advanced Therapeutic Intervention program analyzes the prescription
drug and medical encounter data of each of our participating clients. Using our
RationalMed software, this data is analyzed to identify specific patients who
have been prescribed drugs that significantly increase the patient's risk of
hospitalization due to the underlying medical condition and multiple diseases.
A clinical pharmacist reviews the results and determines those patients for
whom intervention is appropriate. Our clinical staff, under the direction of
our physicians, intervenes by issuing alerts for these patients to the treating
physicians. These alerts inform the treating physicians of the medical
condition, prescribing pattern or other factors that create the increased
hospitalization risk. We are compensated for Advanced Therapeutic Intervention
program services through fixed fees, per member per month fees, a percentage-
of-savings sharing program or some combination of these arrangements. Three
clients, representing approximately 690,000 people, have been enrolled in our
Advanced Therapeutic Intervention program since August 1998.
Our pharmacy benefit management services also include plan design
consultation intended to reduce drug costs while promoting clinically
appropriate drug use. The most common plan design features we offer are co-pay
options, incentives for substituting generic for branded drugs, limitations of
the number of days per prescription and requirements that maintenance drugs be
filled by the mail service pharmacy. We assign an account executive to work
closely with each customer to determine the appropriate plan design features
based on the customer's specific benefit requirements.
We also offer and manage formularies for clients. Our formulary is a list
of drugs which are reviewed for safety and efficacy using our DOC Formulary
analytical tool. Formularies reduce costs through generic substitution,
therapeutic substitution and other techniques. Formulary compliance can be
encouraged by plan design features, including financial incentives and
prescriber education programs.
34
<PAGE>
Working with clients and the pharmaceutical industry, we have been able
to conduct many disease management initiatives that support patient education
and self-management of specific diseases. Through these efforts, we are able to
implement treatment protocols that result in improved overall health and fewer
incidents of unnecessary treatments.
Vision Benefit Management Services. We provide benefit management
services to client plan sponsors offering vision benefits. As of January 1999,
our vision benefit management business covered approximately 500,000 people
through a national network of approximately 4,500 retail optical chains and
private ophthalmologists, optometrists and opticians. Unlike the pharmacy
benefit management business, the vision benefit management business offers
self-insured as well as fully insured products. The self-insured products we
offer are similar to our pharmacy benefit management product and service
offering. The insured products are sold by licensed independent and employee
sales agents and are underwritten by a licensed insurance company, a subsidiary
of American International Group. Our arrangement with AIG requires us to market
the insurer's vision products and to perform various administrative services,
such as maintenance of eligibility records, network maintenance, and claims
processing. AIG underwrites all insured contracts and provides other insurance-
related services such as actuarial review. In consideration for our services,
we receive administrative fees and have the potential for profit sharing based
on improved operating results. In consideration of AIG's insurance services AIG
receives the entire premium amount collected, from which it pays claims and all
other expenses.
Healthcare Information Technology Products and Services
Our healthcare information technology allows us to add value to our
pharmacy benefit management services. We have gained a core competency in
developing, maintaining, and analyzing large repositories of integrated
pharmaceutical and health claims information. This was demonstrated by our
development of a database containing integrated claims data on over 5 million
patients in the United Kingdom. We developed and maintained this database,
which contained millions of patient-years of data, as a consultant for a major
pharmaceutical manufacturer.
We have acquired or developed a number of healthcare information products
and services over the last several years. These products include RationalMed,
ProVQuery, ProVMed, and ProVCOR. The following table sets forth certain
information with respect to our principal healthcare information technology
products as of January 1999:
<TABLE>
<CAPTION>
Number of
Number People
Product of Covered by
Product Target Market Rollout Clients Product
----------- ------------------------------------------- ---------- ------- ----------
<S> <C> <C> <C> <C>
RationalMed Pharmacy Benefit Management Providers, 1993 14(1) 13 million
Health Insurers and State and Federal
Agencies
ProVQuery Pharmacy Benefit Management Providers and 1998 6 770,000(2)
Pharmacy Benefit Management Clients
ProVMed Health Insurers and Payors Early 1999 1(3) 600,000(3)
ProVCOR Pharmaceutical Manufacturers 1999 -- --
</TABLE>
--------
(1) RationalMed users, excluding ProVantage.
(2) In addition to customers which have contracted for ProVQuery, ProVantage
uses the product to support all of its pharmacy benefit management
clients.
(3) The beta site customer.
RationalMed. RationalMed is our clinical outcomes assessment software
that integrates the clients' medical claim, diagnosis, and pharmaceutical data
to identify problematic prescribing patterns and quantify the
35
<PAGE>
resulting increased risk of patient hospitalization or other adverse medical
events. RationalMed uses therapeutic criteria for disease categories and over
7,800 rules that are based on medical research to analyze the integrated
medical data for drug-drug, drug-disease, over- and under-utilization,
duplication and duration conflicts. The physician can therefore determine
whether treating the condition is worth this added risk. In addition, by
comparing historical data on the percentage of patients who were hospitalized
the previous year to the percentage in the intervention year, RationalMed is
able to quantify both the reduction in drug and medical costs and in drug-
therapy related hospitalizations, thereby validating the return on the product.
RationalMed won the Smithsonian Award for Information Technology in Medicine in
1995.
Our target market for RationalMed is pharmacy benefit management
providers, health insurers and state and federal agencies. RationalMed was
first marketed in 1993 on a license basis and is currently used in ten states
for their Medicaid programs and for other customers, representing approximately
13 million covered people.
ProVQuery. ProVQuery is an Internet-accessible pharmaceutical decision
support software system. The system provides clients with desk-top access to
their prescription claims detail for profiling, national comparisons, drug
category breakdown and demographic analyses. This information is provided in
user-friendly pre-designed graphs and reports. Customers' data is loaded into
our centralized data warehouse. The central warehouse currently contains
prescription claims detail on virtually all of the 4.5 million people to whom
we provide pharmacy benefit management services.
With access to our national data, clients can compare their experience to
peer data to better determine where plan changes are necessary and are most
likely to have the greatest impact. The information is provided through user-
friendly, Windows-based systems. For patient confidentiality reasons, all
identifiers of patients are removed prior to loading the data into the
ProVQuery system. Our target market for ProVQuery is pharmacy benefit
management providers and our pharmacy benefit management clients, and this
product is often packaged with our traditional pharmacy benefit management
services and Advanced Therapeutic Intervention program in client proposals. We
currently provide ProVQuery to five clients representing approximately 770,000
people. In addition, in January 1999 Systems Xcellence USA, Inc. purchased
three ProVQuery licenses for resale to end users. We offer ProVQuery on the
basis of an upfront license fee with annual service fee or on a per-claim
basis.
ProVMed. ProVMed is an administrative, financial and clinical decision
support tool that provides direct and easy access to company-wide data
traditionally contained in the customer's separate databases. Our IBM SP2
technology and Oracle databases give quick and easy access to all pertinent
information. It offers organized workbenches and hundreds of standard queries.
As with ProVQuery, a client provides us with its data, which is loaded into our
centralized data warehouse. The client then has access to its own data as well
as other data for comparison purposes.
ProVMed gives clients the ability to access their medical and
pharmaceutical data as well as to view that data relative to national norms.
For example, ProVMed will enable users to quickly access databases to identify
physicians and healthcare providers performing outside the norm, or patients
that are candidates for case management with a view to managing and lowering
costs. This information can be used to support plan benefit design changes,
restrict or encourage protocol usage, perform provider profiling, enhance
provider contracting and adjust product pricing decisions throughout an
organization.
ProVMed was developed as a joint venture with American Medical Security,
Inc., one of our principal pharmacy benefit management clients. We own 80% of
this joint venture. American Medical Security, Inc. is currently our only
subscriber to ProVMed. We believe the principal market for this product will be
large insurance companies, and we intend to offer the product on the basis of
an up-front license fee and an annual service fee.
36
<PAGE>
ProVCOR. ProVCOR is a healthcare decision support product currently under
development. ProVCOR is designed to help study the effects of pharmaceutical
and clinical interventions on healthcare treatment and results in specific
disease areas. It is also being designed to offer disease-specific "datamarts,"
which can be accessed by the customer to create or support disease management
programs. It is intended to be an analytical tool to support drug purchasing
and dispensing, disease treatment protocol design and cost assessment, and
intervention outcomes analysis. We intend to market ProVCOR principally to
pharmaceutical manufacturers. We expect to commence marketing of ProVCOR in
1999, offering it on the basis of an up-front license fee with an annual
service fee.
Acquisitions
Beyond internal growth, we intend to selectively pursue the acquisition
of companies that either increase the size of our pharmacy benefit management
business or augment our advanced clinical and health information technology
capabilities. We have extensive experience in identifying acquisition
candidates, completing acquisitions and integrating acquired companies into our
business. Since 1994, we have acquired and integrated four companies.
<TABLE>
<CAPTION>
Company Date Strategic Purpose
---------------------------- ------------ ------------------------------------------------
<S> <C> <C>
Bravell, Inc. January 1995 To acquire a retail pharmacy network and claims
processing capability
Vision Program and Related April 1996 To offer vision benefit management services
Assets of the United
Wisconsin Insurance Company
CareStream ScripCard July 1996 To grow core pharmacy benefit management
business
PharMark August 1997 To acquire healthcare information products and
obtain millions of patient-years of health
claims data
</TABLE>
Sales and Marketing
We market our pharmacy benefit management services on the basis of our
high quality customer service, our advanced clinical capabilities, including
our Advanced Therapeutic Intervention program, and our healthcare information
products. We have a nationwide sales force of 12 regional sales managers and
one director.
Sales of our healthcare information products tend to require marketing
support by our senior executives and approval at senior levels in a client's
organization and tend to have a long sales cycle. Our sales strategy in these
circumstances is to differentiate ourselves with these products and then to
cross-sell our traditional pharmacy benefit management and other services to
health information technology customers.
We have sales offices in:
l Charlotte, North Carolina l Atlanta, Georgia
l Dallas, Texas l Omaha, Nebraska
l Salt Lake City, Utah l Chicago, Illinois
l Scottsdale, Arizona l Arlington, Virginia
l Green Bay, Wisconsin l Milwaukee, Wisconsin
37
<PAGE>
We also use a national network of independent agents and brokers who
market our products. For certain healthcare information products, we may in the
future use strategic partners or other distribution channels for product
marketing.
Clients
We currently provide health benefit management services for over 3,500
health benefit plan customers, covering over 5.0 million plan members. Our
health benefit management client base is comprised of health maintenance
organizations, third party administrators, insurance companies, self-funded
healthcare plan sponsors and government agencies. Our ten largest customers
accounted for approximately 42.8% of our revenues in fiscal 1996, approximately
37.1% of our revenues in fiscal 1997 and approximately 35.2% of our revenues in
fiscal 1998. In addition, one of those ten customers, American Medical
Security, Inc., accounted for approximately 17.9% of our revenues in fiscal
1996, 11.7% of our revenues in fiscal 1997, and 11.4% of our revenues in fiscal
1998. Our health information technology clients include federal and state
agencies, third party health plan administrators, health maintenance
organizations, insurance companies and pharmaceutical manufacturers. Ten states
currently use our health information technology for the operation of their
state Medicaid programs.
Competition
We face direct competition in both the pharmacy benefit management and
vision benefit management businesses. The pharmacy benefit management industry
is relatively consolidated and dominated by large companies with significant
resources. Many of the large pharmacy benefit management companies are owned by
large companies, including pharmaceutical manufacturers, which can provide them
with significant purchasing power and other advantages which we do not have.
Competitors in this industry include other pharmacy benefit management
companies, drug retailers, physician practice management companies, and
insurance companies/HMOs. In addition to many smaller companies, our six
primary competitors for pharmacy benefit management customers are:
l PCS Health Systems, Inc., a subsidiary of Rite-Aid Corp.
l Merck-Medco Managed Care, LLC, a subsidiary of Merck & Co., Inc.
l Express Scripts, Inc.
l Caremark International, Inc., a subsidiary of MedPartners, Inc.
l Advance Paradigm, Inc.
l Diversified Pharmaceutical Services, Inc., a subsidiary of
SmithKline Beecham, which has announced that it will be acquired
by Express Scripts, Inc.
We may also experience competition from other sources in the future, such
as Internet-based drug stores. Pharmacy benefit management companies compete
primarily on the basis of price, service, reporting capabilities and clinical
services. The primary competitor for vision benefit management services is
Vision Service Plan, which is the largest vision benefit management provider in
the nation. Vision benefit management companies compete principally on the
basis of size and scope of network, service and price. In most cases, the
competitors listed above are large, profitable and well-established companies
with substantially greater financial and marketing resources than us.
Our competitive strengths include the ability to help customers lower
hospitalization and other medical costs, our reputation for client service, our
database of integrated medical and pharmaceutical data, the use of cutting-edge
technology, and clinical capabilities that leverage our database and technology
strengths. We believe that pharmacy benefit management companies which are
unaffiliated with pharmaceutical manufacturers will be in a competitively
advantaged position; due to our independence, we are able to use our products
and an independent pharmacy and therapeutics committee to ensure that decisions
are primarily based on drug efficacy rather than on economics alone.
38
<PAGE>
Suppliers
We have a large number of suppliers for goods and services. However, only
a few are significant in terms of sustaining our daily business. McKesson HBOC,
Inc. is our current wholesaler of pharmaceuticals for our mail service
pharmacy. International Business Machines Corporation, Oracle Corporation and
MicroStrategy Incorporated provide key computer systems that we use to manage
our internal databases and decision support tools. Commencing in 2000, we plan
to use the claims processing programs of Systems Xcellence USA, Inc. to process
pharmacy claims in the retail network.
Government Regulation
Our business is subject to extensive federal and state laws and
regulations including:
Regulation of Pharmacy and Vision Benefit Management Services
Various forms of legislation and government regulations affect or could
affect providers of pharmacy and vision benefit management services. Among the
most prominent forms of such regulation are the following:
Open Network Legislation. Numerous states have adopted "any willing
provider" legislation, which requires pharmacy network sponsors to admit for
network participation any retail pharmacy willing to meet a healthcare plan's
price and other terms. We have not been materially affected by these statutes
because we administer a network of almost 50,000 retail pharmacies and will
admit any qualified, licensed pharmacy that agrees to comply with the terms of
our plans.
Anti-Remuneration Legislation. "Anti-kickback" statutes at the federal
and state level prohibit an entity from paying or receiving any compensation to
induce the referral of healthcare plan beneficiaries or the purchase of items
or services for which payment may be made under such healthcare plans.
Additionally, most states have consumer protection laws that have been the
basis for investigations and multi-state settlements relating to financial
incentives provided by pharmaceutical manufacturers to retail pharmacies in
connection with pharmaceutical switching programs. At the federal level, such
regulations pertain to beneficiaries of Medicare, Medicaid or other federally-
funded healthcare programs. State regulations typically pertain to
beneficiaries of any healthcare plan. Under the federal regulations, certain
payments made by vendors to group purchasing organizations are protected from
characterization as improper or illegal if they are properly disclosed. To our
knowledge, these anti-kickback laws have not been applied to prohibit pharmacy
benefit management companies from receiving amounts from pharmaceutical
manufacturers in connection with pharmaceutical purchasing and formulary
management programs, to therapeutic substitution programs conducted by
independent pharmacy benefit management companies, or to the contractual
relationships such as those we have with certain of our customers.
Some states have enacted legislation that prohibits the plan sponsor from
implementing certain restrictive design features, and many states have
introduced legislation to regulate various aspects of managed care plans,
including provisions relating to the pharmacy benefit. For example, "freedom of
choice" legislation in some states provides that members of the plan may not be
required to use network providers, but must instead be provided with benefits
even if they choose to use non-network providers. Other states have enacted
legislation purporting to prohibit the health plan from offering members
financial incentives for use of mail order pharmacies. Legislation has been
introduced in some states to prohibit or restrict therapeutic substitution, or
to require coverage of all FDA approved drugs. Other states mandate coverage of
certain benefits or conditions. Such legislation does not generally apply to
us, but it may apply to certain of our customers, such as HMOs and health
insurers. If such legislation were to become widespread and broad in scope, it
could have the effect of limiting the economic benefits achievable through
pharmacy benefit management and consequently make our services less attractive.
39
<PAGE>
Consumer Protection Legislation. Most states have consumer protection
laws that have been the basis for investigations and multi-state settlements
relating to financial incentives provided by drug manufacturers to retail
pharmacies in connection with drug switching programs. In addition, pursuant to
a settlement agreement entered into with seventeen states on October 25, 1995,
Merck-Medco Managed Care, LLC, the pharmacy benefit management subsidiary of
pharmaceutical manufacturer Merck & Co., agreed to have pharmacists affiliated
with Merck-Medco Managed Care, LLC mail service pharmacies disclose to
physicians and patients the financial relationships between Merck & Co., Merck-
Medco Managed Care, LLC, and the mail service pharmacy when such pharmacists
contact physicians seeking to change a prescription from one drug to another.
We believe that its contractual relationships with drug manufacturers and
retail pharmacies do not include the features that were viewed by enforcement
authorities as problematic in these settlement agreements. However, no
assurance can be given that we will not be subject to scrutiny or challenge
under one or more of these laws.
Legislation Affecting Drug Prices. Some states have adopted "most favored
nation" legislation providing that a pharmacy participating in the state
Medicaid program must give the state the best price that the pharmacy makes
available to any third party plan. Such legislation may adversely affect our
ability to negotiate discounts in the future from network pharmacies. Other
states have enacted "unitary pricing" legislation, which mandates that all
wholesale purchasers of drugs within the state be given access to the same
discounts and incentives.
Professional Licensure Regulations. All states regulate the practice of
medicine and the practice of nursing. We do not believe that our clinical
counseling or disease management activities constitute either the practice of
medicine or the practice of nursing. However, there can be no assurance that a
regulatory agency in one or more states may not assert a contrary position, and
there is no controlling legal precedent for services of this kind.
Comprehensive Pharmacy Benefit Management Legislation. Although no state
or the federal government has passed legislation regulating pharmacy benefit
management activities in a comprehensive manner, such legislation has been
introduced on several occasions. Such legislation, if enacted in any state in
which we have a significant concentration of business or if enacted by the
federal government, could adversely impact our operations.
Regulation of Mail Service Pharmacy
Licensure. Our mail service pharmacy is duly licensed and in good
standing, in accordance with the laws and regulations of the State of
Wisconsin.
Other Regulation. Many of the states into which we deliver
pharmaceuticals have laws and regulations that require out-of-state mail
service pharmacies to register with the board of pharmacy or similar regulatory
body in the state. These states generally permit the mail service pharmacy to
follow the laws of the state within which the mail service pharmacy is located.
We have registered in every state in which, to our knowledge, such registration
is required. In addition, various pharmacy associations and boards of pharmacy
have promoted enactment of laws and regulations directed at restricting or
prohibiting the operation of out-of-state mail service pharmacies by, among
other things, requiring compliance with all laws of certain states into which
the mail service pharmacy dispenses medications whether or not those laws
conflict with the laws of the state in which the pharmacy is located. To the
extent such laws or regulations are found to be applicable to us, we would be
required to comply with them. Other statutes and regulations impact our mail
service operations. Federal statutes and regulations govern the labeling,
packaging, advertising and adulteration of prescription drugs and the
dispensing of controlled substances. The Federal Trade Commission requires mail
order sellers of goods generally to engage in truthful advertising, to stock a
reasonable supply of the product to be sold, to fill mail orders within thirty
days, and to provide customers with refunds when appropriate. The United States
Postal Service has statutory authority to restrict the transmission of drugs
and medicines through the mail to a degree that could have an adverse effect on
our mail service operations. The United States Postal Service has exercised
such statutory authority only with respect to controlled substances.
Alternative means of delivery are available to us.
40
<PAGE>
Other Governmental Regulation
Licensure/Registration Requirements. Many states have licensure or
registration laws governing certain types of ancillary healthcare
organizations, including preferred provider organizations, third party
administrators and utilization review organizations. These laws differ
significantly from state to state, and the application of such laws to the
activities of pharmacy benefit managers is often unclear. We have registered
under such laws in those states in which we have concluded such registration is
required.
Privacy and Confidentiality Legislation. Most of our activities involve
the receipt or use by us of confidential, medical information concerning
individual members, including the transfer of the confidential information to
the member's health benefit plan. In addition, we use aggregated data--that is,
data from which information which identifies specific patients is removed--for
research and analysis purposes. Legislation has been proposed at the federal
level and in several states to restrict the use and disclosure of confidential
medical information. To date, no such legislation has been enacted that
adversely impacts our ability to provide our services, but there can be no
assurance that federal or state governments will not enact legislation, impose
restrictions or adopt interpretations of existing laws that could have a
material adverse effect on our operations.
Applicability of Insurance Laws. The prescription pharmaceutical plans
currently offered or administered by us are provided on a fee-for-service
basis, and are therefore not generally subject to state insurance laws. The
insured vision benefit plans administered by us are underwritten by an
unaffiliated licensed insurer.
Employee Retirement Income Security Act Preemption. Many of the state
laws described above may be preempted in whole or in part by ERISA, which
provides for comprehensive federal regulation of employee benefit plans.
However, the scope of ERISA preemption is uncertain and is subject to
conflicting court rulings, and in any event we provide services to certain
customers, such as governmental entities, that are not subject to the
preemption provisions of ERISA. Other state laws may be invalid in whole or in
part as an unconstitutional attempt by a state to regulate interstate commerce,
but the outcome of challenges to these laws on this basis is uncertain.
Accordingly, compliance with state laws and regulations is a significant
operational requirement for us.
Future Legislative Initiatives. Legislative and regulatory initiatives
pertaining to such healthcare related issues as reimbursement policies, payment
practices, therapeutic substitution programs, and other healthcare cost
containment issues are frequently introduced at both the state and federal
level. We are unable to predict accurately whether or when legislation may be
enacted or regulations may be adopted relating to our health services
operations or what the effect of such legislation or regulations may be.
Substantial Compliance. We believe that we are in substantial compliance
with, or are in the process of complying with, all existing statutes and
regulations material to the operation of our health services business. To date,
no state or federal agency has taken enforcement action against us for any
material non-compliance, and to our knowledge, no such enforcement against us
is presently contemplated.
41
<PAGE>
Facilities
We operate a number of leased locations:
<TABLE>
<CAPTION>
Use Location Sq. Ft. of Building Space
------------------------------------ --------------------- -------------------------
<S> <C> <C>
Pharmacy Benefit Management/Vision
Benefit Management/Claims
Processing/ Administrative Office Brookfield, Wisconsin 14,100
Pharmacy Benefit Management/Vision
Benefit Management/Claims
Processing/ Administrative Office
Annex Elm Grove, Wisconsin 15,700
Regional Office Salt Lake City, Utah 1,250
Regional Office Dallas, Texas 500
Mail Service Green Bay, Wisconsin 10,000
ProVMed Offices Green Bay, Wisconsin 7,200
PharMark Offices Arlington, Virginia 15,500
</TABLE>
In addition, construction is underway on a new 60,000 square foot
corporate headquarters for us in Pewaukee, Wisconsin to replace the Elm Grove
and Brookfield facilities. This facility will be owned by ShopKo and leased to
us. This new building is expected to be available for occupancy in the Summer
of 1999.
Legal Proceedings
We are involved in various legal proceedings incidental to the conduct of
its business. While there can be no assurance, we do not expect that any such
proceedings will have a material adverse effect on us.
Employees
As of January 30, 1999, we employed 391 people, 27 of whom are licensed
pharmacists and two of whom are physicians. In the opinion of management, we
have good relations with our employees.
Other
ShopKo provides us with certain administrative assistance in accounting,
finance, human resources, facilities management, and information services.
Costs for these services are allocated to us proportionately. We believe that
over time we will become less reliant on ShopKo to provide these services. See
"Relationship With ShopKo" and "Certain Transactions."
42
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to our
director and executive officers as of January 30, 1999 and those individuals
who will be appointed to our board of directors prior to or concurrently with
completion of the offering. In addition, after the completion of the offering,
we will add two independent directors, who are unaffiliated with ShopKo, to our
board of directors.
<TABLE>
<CAPTION>
Name Age Position
------------------------- --- -------------------------------------------
<S> <C> <C>
Dale P. Kramer, RPh...... 59 Chairman of the Board
Jeffrey A. Jones......... 52 President and Chief Executive Officer and a
Director
George M. Barlow......... 52 Senior Vice President, Healthcare
Information Technology
Joseph A. Coffini, RPh... 51 Senior Vice President, Business Development
and Marketing
Peter F. Hoffman, M.D., Senior Vice President and Chief Medical
PhD..................... 54 Officer
Glen C. Laschober........ 48 Executive Vice President, HBM
Jeffrey C. Girard........ 51 Director
William J. Podany........ 52 Director
Gregory H. Wolf.......... 42 Director
</TABLE>
Mr. Kramer is currently our sole director. We will expand our board of
directors concurrently with the completion of the offering, adding Messrs.
Jones, Girard, Podany and Wolf.
Our directors are elected at the annual stockholders' meeting and serve
until their successors are duly elected and qualified or until their earlier
resignation or removal. The terms of directors will be staggered, with Mr.
Jones serving a term expiring in 2000, Messrs. Girard and Wolf serving terms
expiring in 2001, and Messrs. Kramer and Podany serving terms expiring in 2002.
Executive officers are appointed by and serve at the discretion of the board of
directors.
Dale P. Kramer, RPh, has served as our director and Chairman of the Board
since January 1998; a director and Chairman of the Board of our various
affiliates and predecessors in interest since 1993; a director of ShopKo since
August 1991; Chairman of the Board of ShopKo since July 1997; and President and
Chief Executive Officer of ShopKo from February 1991 to March 1999. From April
1983 to February 1991, he served as ShopKo's Executive Vice President, and from
February 1986 to February 1991, he served as its Executive Vice President and
Chief Operating Officer. Mr. Kramer has been employed by ShopKo in various
other positions since 1971.
Jeffrey A. Jones has served as our Executive Vice President and Chief
Operating Officer since November 1997. He will be named as our President and
Chief Executive Officer and will join our board of directors prior to or upon
completion of the offering. Mr. Jones was Senior Vice President and Chief
Financial Officer of ShopKo from November 1993 until August 1998. Mr. Jones had
11 years of executive and chief financial officer experience and 11 years of
experience with Arthur Andersen & Co. Mr. Jones is a director of Pharmacy Care
Management Association and Boys and Girls Club of Green Bay.
George M. Barlow has served as our Senior Vice President, Healthcare
Information Technology since January 1999. He served as the Vice President,
General Manager of ProVMed from December 1997 to January
43
<PAGE>
1999. From 1995 to 1997, Mr. Barlow was Senior Director of Corporate Marketing
with HealthVision, Inc. He was the President of Distributed Micro Systems, Inc.
from 1980 to 1995.
Joseph A. Coffini, RPh, has served as our Senior Vice President, Business
Development and Marketing since January 1999. He served as our Vice President,
Managed Care Services from November 1994 to January 1999. From February 1993 to
November 1994, he held the position of Director of Managed Care. Prior to
joining us, Mr. Coffini had 26 years of experience in the pharmaceutical
healthcare industry with Geriatric and Medical Companies, Inc., last serving as
Pharmacy Division President from 1990 to 1993, and Thrift Drug Company, Inc.,
last serving as National Sales Manager of Third Party Programs from 1986 to
1990.
Peter F. Hoffman, M.D., PhD, has served as our Senior Vice President and
the Chief Medical Officer since January 1999. He served as the Vice President
and the Chief Medical Officer of PharMark from January 1998 to January 1999.
From June 1996 to January 1998, Dr. Hoffman was the Chief Medical Officer of
Wang Healthcare Information Systems, an electronic medical records company.
From 1966 until his retirement in 1996, Dr. Hoffman served as a Medical Corps
Officer in the United States Air Force. He commanded a wide range of medical
treatment facilities, served as the Command Surgeon of three commands and was
the Director of Programs and Resources in the Office of the Surgeon General of
the Air Force. He retired as a Brigadier General.
Glen C. Laschober has served as our Executive Vice President of our
health benefit management operations since he joined us in March 1997. From
1989 to 1997, Mr. Laschober was with Caremark International, Inc., where his
most recent position was Vice President and General Manger of Caremark's
prescription service division. Mr. Laschober also served in senior management
positions at the NutraSweet and GD Searle divisions of Monsanto Company.
Jeffrey C. Girard has served as a director of ShopKo since June 1991. Mr.
Girard is the President of Girard & Co. of Minneapolis, Minnesota, a private
consulting company, and an Adjunct Professor at the Carlson School of
Management, University of Minnesota. He served as the Executive Vice President
and Chief Financial Officer of Supervalu, Inc. from October 1992 to July 1997
and, prior thereto, held the positions of Executive Vice President, Chief
Financial Officer and Treasurer of Supermarkets General Holdings Corporation
and Senior Vice President and Chief Financial Officer of Supervalu, Inc.
William J. Podany has served as a director of ShopKo since July 1997 and
as President and Chief Operating Officer of ShopKo's retail stores division
from November 1997 to March 1999, and as President and Chief Executive Officer
of ShopKo since March 1999. From November 1994 to November 1997, he held the
position of Chief Operating Officer/Executive Vice President of ShopKo's retail
stores division. From 1992 to 1994, Mr. Podany was Executive Vice President--
Merchandise of Carter Hawley Hale, a federation of four department store
chains. He has held senior merchandising executive officer positions with
Allied Stores, May Department Stores and Carter Hawley Hale since 1978.
Gregory H. Wolf has been a director of ShopKo since November 1998. He has
been an officer of Humana, Inc. since October 1995, having first served as
Senior Vice President of Sales and Marketing; as Chief Operating Officer from
July 1996 to September 1996; President from September 1996 through November
1997; and President, Chief Executive Officer and Director since December 1997.
Humana, Inc. provides managed healthcare products and services through the
operation of health maintenance organizations and preferred provider
organizations. Prior to joining Humana, Mr. Wolf had been employed by EMPHESYS
Financial Group, Inc. and its affiliates since 1998 where he most recently
served as President. In October 1995, EMPHESYS was acquired by Humana. Mr. Wolf
is also a director of National City Bank of Kentucky, Boys and Girls Club of
Green Bay, Greater Louisville, Inc. and the Louisville Downtown Development
Corporation.
44
<PAGE>
Committees of the Board of Directors
After the offering, the board of directors will establish three standing
committees: an audit committee, a compensation committee and an executive
committee.
The functions of the audit committee will include making recommendations
to the board of directors as to the selection of the firm of independent
public accountants to examine the financial statements and our books and
accounts for each fiscal year, the proposed engagement arrangements for the
independent public accountants and the advisability of having the independent
public accountants make specified studies and reports regarding auditing
matters, accounting procedures, tax or other matters. The audit committee will
also review the results of the audit for each fiscal year. The audit committee
will also be responsible for reviewing all related party transactions and for
monitoring corporate policies and procedures with respect to our ethics and
compliance program. Each member of the audit committee will be an "independent
director" within the meaning of the rules of the New York Stock Exchange.
The functions of the compensation committee will include considering and
recommending to the board of directors our overall compensation programs,
reviewing and approving the compensation payable to our senior management
personnel and reviewing and monitoring our executive development efforts to
assure development of a pool of management and executive personnel adequate
for our operations. The committee will also review significant changes in
employee benefit plans and stock related plans and serve as the "committee"
under our stock incentive plan. A majority of the members of the compensation
committee will be "non-employee directors" within the meaning of Rule 16b-3
under the Exchange Act and "outside directors" within the meaning of Section
162(m) of the Internal Revenue Code of 1986.
The functions of the executive committee will include such functions as
may be delegated by the board of directors from time to time. The members of
the executive committee will be Messrs. Podany, Kramer and Jones. Mr. Podany
will chair the executive committee.
The board of directors may, from time to time, establish certain other
committees to facilitate its work.
With respect to material transactions between ShopKo and us after the
offering is completed, our board of directors has established a policy that
all such transactions will be submitted for review, approval and authorization
to our directors who are not affiliated with ShopKo.
Compensation of Directors
Each director who is not one of our employees will receive an annual
retainer fee of $10,000, a fee of $1,000 for each board meeting in which the
director participates and a fee of $1,000 for each committee meeting in which
the director participates, if the committee meeting is not held on the same
day as a board meeting. We will also reimburse all directors for travel and
related expenses incurred in connection with board and committee meetings.
Directors are eligible to receive stock options under our stock incentive
plan. See "Executive Compensation--Stock Incentive Plan."
45
<PAGE>
Executive Compensation
Summary Compensation Table
The following table summarizes compensation paid by us for services
rendered in all capacities to us during our fiscal year ended January 30, 1999,
to our chief executive officer and our four other most highly compensated
executive officers.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
----------------------- -------------------
Securities
Name and Principal Underlying All Other
Position Salary ($) Bonus ($)(1) Options/SARs (#)(2) Compensation ($)
- ------------------ ---------- ------------ ------------------- ----------------
<S> <C> <C> <C> <C>
Jeffrey A. Jones........ 340,000 255,000 0 232,030(3)
President and Chief
Executive Officer
Glen C. Laschober....... 192,115 67,240 0 5,284(4)
Executive Vice
President, HBM
Peter F. Hoffman........ 163,000 40,750 3,000 38,750(5)
Senior Vice President,
Chief Medical Officer
Joseph A. Coffini....... 152,696 30,539 0 73,686(6)
Senior Vice President,
Business Development
and Marketing
George M. Barlow........ 150,000 30,000 2,000 6,275(7)
Senior Vice President,
Healthcare
Information Technology
</TABLE>
- --------
(1) Represents bonuses earned with respect to the indicated fiscal year
pursuant to the ShopKo's executive incentive plan, although all or a
portion of the bonus may have been paid during the subsequent fiscal year.
(2) All securities referenced are options to purchase shares of ShopKo's common
stock.
(3) "All Other Compensation" for Mr. Jones includes the following: ProVantage-
paid portion of individual life insurance policy: $1,802; 401(k) ProVantage
match: $5,819; ShopKo profit sharing plan contributions: $30,392;
relocation expenses and associated tax adjustments: $33,303; and retention
bonus: $160,714.
(4) "All Other Compensation" for Mr. Laschober includes the following:
ProVantage-paid portion of individual life insurance policy: $524; and
401(k) ProVantage match: $4,760.
(5) "All Other Compensation" for Dr. Hoffman consists of a signing bonus he
received at the time he joined ProVantage.
(6) "All Other Compensation" for Mr. Coffini includes the following:
ProVantage-paid portion of individual life insurance policy: $1,802; 401(k)
ProVantage match: $4,709; ShopKo profit sharing plan contributions:
$13,604; and retention bonus: $53,571.
(7) "All Other Compensation" for Mr. Barlow includes the following: ProVantage-
paid portion of individual life insurance policy: $707; and relocation
expenses and associated tax adjustments: $5,568.
46
<PAGE>
Option Grants Table
The following table sets forth information about ShopKo stock option
grants during the fiscal year ended January 30, 1999 to our chief executive
officer and our four other most highly compensated executive officers.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation For Option
Individual Grants(1) Term
---------------------------------------------- ------------------------
% of Total
Number of Options/SARs
Securities Granted to Exercise
Underlying ShopKo or Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---- ------------ ------------ --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Jones........ 0 -- -- -- -- --
Glen C. Laschober....... 0 -- -- -- -- --
Peter F. Hoffman........ 3,000 * 28.1875 3-11-08 70,590 162,488
Joseph A. Coffini....... 0 -- -- -- -- --
George M. Barlow........ 2,000 * 28.1875 3-11-08 47,060 108,325
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- --------
* Less than 1%
(1) Forty percent (40%) of these stock options vest and become exercisable on
the second anniversary of the date of grant, with an additional twenty
percent (20%) of the options vesting and becoming exercisable on each
successive anniversary of the date of grant. All stock options vest
immediately upon a "change of control" of ShopKo, as defined in ShopKo's
stock option plans.
Option Exercise and Fiscal Year End Value Table
The following table sets forth information with respect to our chief
executive officer and our four other most highly compensated executive officers
concerning stock options to purchase ShopKo common stock that were exercised
during the last fiscal year and the number and value of options outstanding on
January 30, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at Fiscal In-the-Money Options/SARs
Shares Year-End (#) at Fiscal Year-End ($)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Jones........ 0 0 23,000 86,000 491,750 802,250
Glen C. Laschober....... 0 0 0 35,000 0 452,038
Peter F. Hoffman........ 0 0 0 3,000 0 10,688
Joseph A. Coffini....... 5,300 73,119 200 11,200 4,174 108,875
George M. Barlow........ 0 0 0 2,000 0 7,125
</TABLE>
47
<PAGE>
Indemnification of Directors and Officers
Our amended and restated bylaws provide for the indemnification, or
reimbursement for losses and expenses incurred in litigation relating to
corporate affairs, of our directors and officers to the full extent permitted
by the Delaware General Corporation Law. We have entered into agreements to
indemnify, or reimburse, our directors and certain officers, in addition to the
indemnification provided for in the amended and restated bylaws. These
agreements will, among other things, indemnify our directors and certain of our
officers to the full extent permitted by Delaware law for any claims,
liabilities, damages, judgments, penalties, fines, settlements, disbursements
or expenses, including attorneys' fees, incurred by such person in any action
or proceeding, including any action by or in our right, on account of services
as one of our directors or officers. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and officers.
Change of Control Severance Agreements
ShopKo has entered into change of control severance agreements with
certain of our officers, including Messrs. Jones, Laschober, Hoffman, Barlow
and Coffini. The ShopKo severance agreements provide that, if, within two years
after a "change of control," as defined in the agreement, ShopKo terminates the
individual's employment other than for "cause," as defined in the agreement, or
disability, or the individual terminates the individual's employment for "good
reason," as defined in the agreement, then the individual will be entitled to a
lump-sum cash payment equal to a multiple of one and one half or two times the
individual's annual base salary, plus a multiple of one, one and one half or
two times the individual's average annual bonus for the three fiscal years
immediately preceding the date of termination. The multiple referred to in this
paragraph is two for Mr. Jones and one and one half for Messrs. Laschober,
Hoffman, Barlow and Coffini. Each individual would also receive his salary
through the date of termination and all other amounts owed to the individual at
the date of termination under ShopKo's and our benefit plans. In addition,
under such circumstances, the individual will be entitled to continued health
and dental coverage for the individual and the individual's family for a one or
two year period after the date of termination. The ShopKo severance agreements
provide that if certain amounts to be paid thereunder constitute "parachute
payments," as defined in Section 280(G) of the Internal Revenue Code, the
severance benefits owed to the individual may be decreased, but only if the
result is to give the individual a larger after-tax benefit than if the
payments are not reduced. The individual is permitted to elect the payments to
be reduced. Pursuant to the terms of the ProVantage severance agreements
described below, the ShopKo severance agreements will terminate upon completion
of the offering.
We have entered into change of control severance agreements with certain
of our officers, including Messrs. Jones, Laschober, Hoffman, Barlow and
Coffini. The ProVantage severance agreements provide that, if, within two years
after a "change of control," as defined below, we terminate the individual's
employment other than for "cause," as defined below, or disability, or the
individual terminates the individual's employment for "good reason," as defined
below, then the individual will be entitled to a lump-sum cash payment equal to
a multiple of one, one and one-half or two times the individual's annual base
salary, plus a multiple of one, one and one-half or two times the lesser of (A)
the individual's average annual bonus for the three fiscal years immediately
preceding the date of termination or (B) the average of the individual's annual
bonus "norm" for the three fiscal years immediately preceding the date of
termination. The multiple referred to in this paragraph is two for Mr. Jones
and one and one-half for Messrs. Laschober, Hoffman, Barlow and Coffini. Each
individual would also receive his salary through the date of termination and
all other amounts owed to the individual at the date of termination under our
benefit plans. In addition, under such circumstances, the individual will be
entitled to continued health and dental coverage for the individual and the
individual's family for a one, one and one-half or two year period after the
date of termination. The ProVantage severance agreements provide that if
certain amounts to be paid thereunder constitute "parachute payments," as
defined in Section 280(G) of the Internal Revenue Code, the severance benefits
owed to the individual may be decreased, but only if the result is to give the
individual a larger after-tax benefit than if the payments are not reduced. The
individual is permitted to elect the payments to be reduced.
48
<PAGE>
A "change of control" is defined in the ProVantage severance agreements
as occurring if:
l the incumbent directors or their permitted successors cease to
constitute at least a majority of our board of directors,
l our stockholders approve certain mergers, consolidations,
liquidations, dissolutions or reorganizations of ProVantage, or
l our stockholders approve a complete liquidation or dissolution of
ProVantage.
For purposes of the ProVantage severance agreements, "cause" means:
l personal dishonesty by the individual intended to result in his or
her substantial personal enrichment at our expense,
l repeated, willful violations by the individual of his or her
obligation to devote reasonable time and efforts to carry out his
or her responsibilities to us, or
l the conviction of the individual of a felony.
"Good reason" as used in the ProVantage severance agreements means any
materially adverse reduction of the individual's authority, responsibilities or
compensation, excluding for this purpose specified actions by us not taken in
bad faith and which are promptly remedied by us upon receipt of notice, or any
required relocation of the individual to a place of business more than 50 miles
from where the individual works at the time of the change of control.
Other Compensation
We provide certain personal benefits and other noncash compensation to
our executive officers. For the fiscal year ended January 30, 1999, the
incremental cost of providing such compensation did not exceed the minimum
amounts required to be disclosed under current SEC rules for each person named
in the Summary Compensation Table.
Compensation Committee Interlocks and Insider Participation
The compensation committee is expected to consist of Mr. Kramer,
Chairman, Girard and Wolf. All of these individuals are members of ShopKo's
board of directors. Mr. Kramer is chairman of that board and is ShopKo's former
president and chief executive officer. We are a party to various agreements
with ShopKo described below in "Relationship With ShopKo." Additionally, ShopKo
was our sole stockholder prior to this offering, and upon completion of the
offering, will own a substantial majority of our common stock. See "Principal
Stockholder" and "Description of Capital Stock."
Stock Incentive Plan
Prior to the offering, our board of directors plans to approve our stock
incentive plan. The purpose of the stock incentive plan is to provide a means
to attract and retain high quality individuals, to motivate key personnel to
achieve our long-term goals, to provide incentive compensation opportunities to
our key personnel that are competitive with those of similar companies and to
further align the interests of key personnel who participate in the stock
incentive plan with those of our stockholders through compensation that is
based on the value of our common stock.
The board of directors plans to delegate administration of the stock
incentive plan to the compensation committee. Under the stock incentive plan,
the compensation committee may grant:
l incentive stock options within the meaning of Section 422 of the
Internal Revenue Code,
l non-qualified stock options, and
l shares of stock or the right to receive shares of stock in the
future
49
<PAGE>
Options and stock awards are collectively referred to as "awards." Awards
may be made to our directors and certain of our key personnel and the directors
and the key personnel of our "related companies". Our "related companies"
include any corporation, joint venture, limited liability company or other
business entity in which we have a significant direct or indirect equity
interest or which has a significant direct or indirect equity interest in
ProVantage. The compensation committee will have final authority, subject to
the express provisions of the stock incentive plan, to determine to whom awards
shall be granted; to determine the types of awards and the numbers of shares
covered by the awards; to determine the terms, conditions, performance
criteria, restrictions and other provisions of each award, and to cancel or
suspend awards; to determine the terms and provisions of any agreements made
pursuant to the stock incentive plan; and to make all other determinations that
may be necessary or advisable for the administration of the stock incentive
plan. In making such award determinations, the stock option committee may take
into account the nature of the services rendered by the respective personnel,
their present and potential contribution to our success and such other factors
as the compensation committee deems relevant. The board of directors has the
non-exclusive power to exercise the authority of the compensation committee
with respect to awards to our non-employee directors and our "related
companies". The stock incentive plan provides for accelerated vesting of awards
upon the occurrence of certain "change of control" transactions as described in
the stock incentive plan.
Incentive stock options may be granted under the stock incentive plan to
full or part-time employees, including officers and directors who are also
employees, of ours or our "related companies". In addition,
non-qualified stock options and stock awards may be granted to employees and
non-employee directors of ProVantage or our related companies."
Subject to the compensation committee's authority to adjust the number
and kind of shares subject to each outstanding award and the exercise price in
the event of certain corporate transactions involving us, the aggregate number
of shares of common stock which may be issued under the stock incentive plan is
1,750,000 shares. Award limits established under the stock incentive plan are
as follows: the maximum number of shares of common stock which may be issued
pursuant to incentive stock options is 500,000; the maximum number of shares of
common stock covered by options granted to any one individual is 500,000 in any
one calendar year; and the maximum value of stock awards granted to any one
person is $5,000,000.
The period during which incentive stock options may be granted under the
stock incentive plan will expire on the tenth anniversary of the date the stock
incentive plan is adopted, and the term of each option granted under the stock
incentive plan will expire not more than ten years from the date of grant. Each
option granted will specify an exercise price or prices; provided, however,
that no option may be granted with a per share exercise price less than the
fair market value per share of common stock on the date of grant. The fair
market value per share on a particular date is the last reported sale price per
share of common stock on that date on the New York Stock Exchange. At the
discretion of the compensation committee, options may be exercised in full at
any time, from time to time or in installments, or upon the occurrence of
specified events. An option may be exercised as to any or all of the shares
covered by the option by delivering written notice of exercise to our corporate
secretary, accompanied by full payment of the exercise price for such shares.
Payment of the exercise price must be made in cash, by tendering previously
owned shares of common stock or by authorizing a third party to sell shares of
the common stock acquired upon exercise of an option and remitting the purchase
price to us.
The stock incentive plan may be terminated or amended by our board of
directors. The board of directors may not, without approval of our
stockholders, increase the number of shares of common stock which may be
delivered pursuant to Awards granted under the stock incentive plan, except for
increases resulting from certain corporate transactions involving us.
ProVantage intends to grant options over approximately 650,000 shares of common
stock under the stock incentive plan effective as of the closing date of the
offering. The exercise price of these options will be the public offering price
in the offering.
50
<PAGE>
RELATIONSHIP WITH SHOPKO
Intercompany Agreements
We have entered into a number of agreements with ShopKo for the purpose
of defining our ongoing relationship and the conduct of our respective
businesses. These agreements were developed in connection with this offering
while we were a wholly-owned subsidiary of ShopKo, and, therefore, such
agreements were not the result of arm's-length negotiations--that is,
negotiations between independent and unrelated parties each acting in its own
self-interest. As a result, there can be no assurance that each of these
agreements, or the transactions provided for in these agreements, has been or
will be effected on terms at least as favorable to us as could have been
obtained from parties other than ShopKo.
These agreements may be modified and additional agreements, arrangements
and transactions may be entered into between us after completion of this
offering. Any such future modifications, agreements, arrangements and
transactions will be determined through negotiation between us. With respect to
material transactions between us after the offering is completed, our board of
directors has established a policy that all such transactions will be submitted
for review, approval and authorization to our directors who are not affiliated
with ShopKo.
The following is a summary of the material features of certain
agreements, arrangements and transactions between us. The summaries of each of
the following agreements are qualified in their entirety by reference to the
full text of such agreement, a copy of which has been filed as an exhibit to
the registration statement of which this prospectus is a part.
Credit Agreement. As a wholly-owned subsidiary of ShopKo, we participated
in ShopKo's funding and cash management system. Prior to this offering, our
cash needs in excess of cash flow provided by operations have been met
principally by additional capital contributions by ShopKo, and excess cash has
been distributed to ShopKo. In connection with this offering, we have entered
into a credit agreement with ShopKo to provide us with a revolving line of
credit commencing on the closing date of this offering and expiring on January
31, 2001. Pursuant to the credit agreement, ShopKo has agreed, subject to
certain conditions, to make advances to us on a revolving basis in an aggregate
amount not to exceed $25.0 million. Borrowings under the credit agreement will
bear interest at various market rates at the time of borrowing. The credit
agreement provides for an annual commitment fee of 1/5 of one percent of the
total commitment amount. The credit agreement is unsecured, and we may
terminate the credit agreement at any time without penalty. We may at any time
replace the credit agreement with borrowings from banks or other financial
institutions or in the private or public markets. The credit agreement
restricts us from borrowing funds from parties other than ShopKo without
ShopKo's consent, and prohibits us from selling our common stock unless ShopKo
meets certain financial tests, pledging certain of our assets and entering into
agreements which restrict our ability to pay dividends. Our interest expense in
the future will depend on the amount, timing and maturity of borrowings, market
rates and negotiations with lenders. The interest rate and other terms provided
by third-party lenders may not be as favorable to us as those provided by
ShopKo under the credit agreement.
Indemnification and Hold Harmless Agreement. We have entered into an
indemnification and hold harmless agreement with ShopKo with respect to the
allocation of responsibility for certain liabilities. In general, the
indemnification agreement provides that we and ShopKo will each indemnify the
other party and that party's directors, officers, employees and agents against
certain liabilities arising from or based upon the operation of their own
respective businesses prior to and following the offering, including, but not
limited to, liabilities arising under securities, environmental and contract
law.
Tax Sharing Agreement. We have entered into a tax sharing agreement with
ShopKo which provides that ShopKo will prepare all returns and, generally, have
liability for all income taxes attributable to all tax periods ending on or
before the offering. We have entered into an administrative services agreement,
described
51
<PAGE>
below, pursuant to which ShopKo will continue to prepare tax returns for us
after the offering, however, we have liability for all taxes for tax periods
beginning after the offering. For tax periods which begin before the offering
but end after the offering, ShopKo has liability for income taxes attributable
to income allocable to the period ending with the offering and we have
liability for the remainder. ShopKo will determine the method for allocating
income in the tax year in which the offering occurs. By law, we are liable for
the entire federal income tax of ShopKo and other companies included in the
consolidated return for all periods in which we are included in the
consolidated group. In the tax sharing agreement, however, ShopKo agrees to
indemnify us against this liability except to the extent it relates to us and
our subsidiaries, if any, after the offering. If our employees exercise ShopKo
stock options or otherwise receive compensation from ShopKo nonqualified plans
after the offering, the tax sharing agreement provides that we will reimburse
ShopKo for the tax benefit, if any, that we receive from deducting compensation
attributable thereto and the employer's share of any employment taxes arising
in connection with such compensation which is paid by ShopKo.
Administrative Services Agreement. We have entered into an administrative
services agreement with ShopKo pursuant to which ShopKo will make available and
provide certain administrative, support and consultation services to us,
including employee benefits, payroll processing, insurance, tax compliance,
treasury, and accounts payable processing. The administrative services
agreement has an initial term which expires January 31, 2001, subject to
automatic renewal for successive one-year terms. At any time during the term of
the administrative services agreement, either party may terminate existing
categories of services upon 120 days' prior written notice. ShopKo is obligated
to provide us transition assistance, at our request and expense, upon the
termination of any service provided pursuant to the agreement. We anticipate
that we will pay ShopKo a total of $0.4 million in the first twelve months
following this offering for such services.
I.T. support agreement. Certain components of our computer systems are
located in ShopKo's corporate headquarters. We have entered into an I.T.
support agreement with ShopKo pursuant to which ShopKo has agreed to provide us
with:
l access to ShopKo's computer facilities,
l certain support services to be performed by ShopKo's systems
personnel, and
l the shared use of ancillary computer hardware and operating
software.
The I.T. support agreement has a term which expires on January 31, 2001.
At any time during the term of the I.T. support agreement, either party may
terminate existing categories of services upon 120 days' prior written notice.
In addition, ShopKo has agreed to provide transition assistance to us if any
services are terminated as a result of expiration or termination of the
agreement or otherwise. We anticipate that we will pay ShopKo between $0.7
million and $1.3 million in the first twelve months after the offering under
this agreement. The I.T. support agreement also contains confidentiality
provisions relating to our patient data and proprietary software.
Lease Agreement. Upon ShopKo's completion of construction of our new
corporate headquarters, we expect to enter into a long term triple net lease
with ShopKo, whereby we will lease the building from ShopKo upon terms and
conditions to be determined. While the lease agreement has not been finalized,
we expect that the lease will have a term of 15 years with four options to
renew for 5 years each, will have annual rental payments of $200,000, and will
provide that we will have the option to purchase the facility at fair market
value or increase the rental payments to fair market rates at the time when
ShopKo ceases to beneficially own at least 51% of the outstanding common stock.
Registration Rights Agreement. We have entered into a registration rights
agreement with ProVantage Holdings, Inc., a wholly-owned subsidiary of ShopKo,
pursuant to which we have granted demand and "piggyback" registration rights to
ProVantage Holdings and its affiliates, including ShopKo, with respect to
shares of common stock owned by ProVantage Holdings and its affiliates,
including ShopKo, following the offering. Pursuant to the registration rights
agreement, ProVantage Holdings has the right to require us to file
52
<PAGE>
up to three registration statements under the Securities Act (which may be
increased by an unlimited number of registration statements if effected on Form
S-3) covering ProVantage Holdings' shares. ProVantage Holdings also has the
right, if we file a registration statement, to require us to include its shares
in such registration statement. Our obligations under the registration rights
agreement are subject to certain limitations relating to the minimum amount of
common stock to be included in a registration statement, the timing of the
exercise of registration rights and other similar matters. We have agreed to
pay all costs and expenses relating to the exercise of ProVantage Holdings'
registration rights, except for underwriting commissions and filing fees
relating to the shares sold by ProVantage Holdings, any special or
extraordinary auditing expenses, ProVantage Holdings' legal expenses and, in
the case of demand registration rights, printing fees. We and ProVantage
Holdings will each indemnify the other party for certain liabilities, including
liabilities under the Securities Act, in connection with any registration under
the registration rights agreement. The registration rights agreement will
terminate when ProVantage Holdings or its affiliates owns less than 5% of our
outstanding common stock. ShopKo has agreed with the underwriters, however, not
sell or otherwise dispose of any common stock or our related securities for a
period of 180 days after the closing of this offering without the prior written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. See "Shares
Eligible for Future Sale."
Control by ShopKo
After the offering is completed, ShopKo will own approximately 70.3% of
the common stock. As a majority stockholder, ShopKo will be able to control our
business and affairs, including:
l the election of our entire board of directors,
l any determinations with respect to mergers or other business
combinations,
l the amendment of our restated certificate of incorporation or
amended and restated bylaws,
l the acquisition or disposition of material assets,
l the incurrence of indebtedness,
l the issuance of additional common stock or other equity
securities,
l the payment of dividends with respect to the common stock,
l the power to determine all matters submitted to a vote of
stockholders,
l the power to delay, defer or prevent a change in control, and
l the ability to take other actions that might be favorable to
ShopKo but not to our stockholders generally.
CERTAIN TRANSACTIONS
We have in the past entered into intercompany transactions and
arrangements with ShopKo and its affiliates incidental to our businesses.
General administrative and other expenses have in the past been allocated to us
from ShopKo for the types of services described in the administrative services
agreement and the information technology services agreement. The allocation for
the last three fiscal years is as follows:
<TABLE>
<CAPTION>
Fiscal Year
--------------
1996 1997 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
Selling, general and administrative expenses............... $0.4 $1.1 $1.2
</TABLE>
53
<PAGE>
In addition to the allocations described above, we have entered into
various transactions with ShopKo in the ordinary course of our businesses. The
payments for these activities for the last three fiscal years are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------------
1996 1997 1998
----- ----- -----
(in millions)
<S> <C> <C> <C>
Our payment to ShopKo for prescription costs............ $21.0 $25.8 $35.7
Our payment to ShopKo for shared formulary fees......... 0.2 0.1 0.0
Our purchase of pharmaceutical inventory from ShopKo.... 1.0 0.8 0.3
ShopKo payment to us for claims processing.............. 1.6 1.6 2.1
</TABLE>
For a further description of recent transactions between ShopKo and us,
please see Note H of the Notes to the Consolidated Financial Statements
included elsewhere in this prospectus.
We receive a benefit in the form of lower prices when purchasing various
goods and services when such purchases are made through or in conjunction with
ShopKo. Such benefits may not be available in all cases in the future.
We will continue to engage in various transactions with ShopKo on a
contractual and non-contractual basis after the offering is completed. See
"Relationship With ShopKo."
In connection with the PharMark acquisition, we entered into five-year
employment agreements with each of M. Lee Morse and Aida A. LeRoy. These
agreements were extinguished as of January 31, 1999, at which time they entered
into agreements to provide certain consulting services to us. At that time, we
entered into several new agreements with Mr. Morse and Dr. LeRoy:
l a mutual settlement agreement and release of specified claims,
whereby the parties mutually agreed to release all claims
associated with the employment agreements;
l a trademark license agreement, whereby Mr. Morse and Dr. LeRoy
license the trademark "Mikalix" from us;
l a sublease, whereby Mr. Morse and Dr. LeRoy sublease certain
office space from us; and
l non-disclosure, non-interference and non-competition agreements
containing certain confidentiality, non-interference and non-
competition provisions which are effective for a term of two
years.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Acquisitions."
54
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDER
Prior to this offering, our only stockholder was ShopKo, whose address is
700 Pilgrim Way, Green Bay, Wisconsin 54304. ShopKo is subject to the
requirements of the Securities Exchange Act of 1934 and as a result files
reports, proxy statements and other information with the SEC on a periodic
basis. You can read and make copies of these materials at the offices of the
SEC, or by means of the SEC's website, in each case at the addresses listed
under the caption "Where You Can Find More Information."
As of the date of this prospectus, ShopKo owns beneficially and of record
12,550,000 shares of common stock, representing all of the shares of common
stock outstanding prior to this offering. Upon the sale by us of the 5,300,000
shares of common stock offered hereby, ShopKo will own beneficially and of
record 70.3% of the outstanding common stock. ShopKo will own 65.9% of the
common stock if the underwriters' over-allotment option is exercised in full.
The following table sets forth as of January 30, 1999 the number of
shares of ShopKo common stock owned by our director, by our chief executive
officer, our four other most highly compensated executive officers, by each
individual who will be appointed as a member of our board of directors prior to
or concurrently with the offering and by our director, individuals who will be
appointed as our directors and executive officers as a group. Except as
otherwise noted, the persons named in the below table have sole voting and
investment power with respect to all shares shown as beneficially owned by
them. The column entitled "Amount and Nature of Beneficial Ownership" includes
shares which may be acquired within 60 days pursuant to stock options as
follows: Mr. Kramer, 180,000 shares; Mr. Podany, 15,000 shares; Mr. Jones,
23,000 shares; Mr. Coffini, 200 shares; and all directors and executive
officers as a group, 218,200 shares.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial
Name of Beneficial Owner Ownership Percent
------------------------ ----------------- -------
<S> <C> <C>
Dale P. Kramer (1)(2).......................... 270,000 1.0%
Jeffrey C. Girard (3).......................... 1,000 *
Gregory H. Wolf................................ -- *
William J. Podany (2)(4)....................... 40,000 *
Jeffrey A. Jones (2)........................... 23,000 *
Glen C. Laschober.............................. -- *
Peter F. Hoffman............................... 0 *
Joseph A. Coffini (2).......................... 275 *
George M. Barlow............................... 0 *
All directors and executive officers as a group
(9 persons)................................... 334,275 1.3%
</TABLE>
- --------
* Less than 1%
(1) Includes 50,000 shares of restricted stock granted pursuant to ShopKo's
restricted stock plan.
(2) The number of shares shown with respect to Messrs. Kramer, Podany and Jones
does not reflect funds from their respective deferred compensation plan
accounts and profit sharing/401(k) plan accounts invested in ShopKo common
stock through the ShopKo stock fund. As of January 30, 1999, such executive
officers' approximate ShopKo stock fund account balances were as follows:
Mr. Kramer, $332,624; Mr. Podany, $45,081; Mr. Jones, $203,213; and Mr.
Coffini, $54,960.
(3) Mr. Girard is a former executive officer of Supervalu. Prior to July 2,
1997, Supervalu and a wholly-owned subsidiary of Supervalu, Supermarket
Operators of America, Inc., beneficially owned 14,731,667 shares of
ShopKo's common stock.
(4) Includes 25,000 shares of restricted stock granted pursuant to ShopKo's
restricted stock plan.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Prior to the completion of this offering, we will file a restated
certificate of incorporation and adopt amended and restated bylaws. The
following description gives effect to the adoption and filing of these
documents.
Authorized Capital Stock
Our authorized capital stock consists of 50,000,000 shares of common
stock, par value $.01 per share, and 5,000,000 shares of preferred stock, par
value $.01 per share. 12,550,000 shares of common stock and no shares of
preferred stock are outstanding as of the date hereof. 5,300,000 shares of
common stock are being offered in the offering and 1,750,000 shares have been
reserved for issuance pursuant to certain employee and non-employee director
benefit and option plans. See "Executive Compensation." All of such shares are
validly issued, fully paid and non-assessable, and upon completion of the
offering all of the outstanding shares of common stock will be validly issued,
fully paid and non-assessable under the laws of the state of Delaware, the
state in which we are incorporated. We are qualified as a foreign corporation
in the state of Wisconsin, and Wisconsin courts have held the predecessor to
Section 180.0622(2)(b) of the Wisconsin Business Corporation Law to be
applicable to foreign corporations. Under Section 180.0622(2)(b), holders of
common stock are liable up to the amount equal to the par value of the common
stock owned by such holder for all debt owing to employees for services
performed, but not exceeding six months' service in any one case. Some
Wisconsin courts have interpreted "par value" to mean the full amount paid by
the holders to purchase the common stock. The following summary description of
our capital stock is qualified in its entirety by reference to our form of
restated certificate of incorporation and our amended and restated bylaws, a
copy of each of which is filed as an exhibit to the registration statement of
which this prospectus is a part.
Common Stock
Voting Rights. The holders of common stock are entitled to one vote per
share on all matters to be voted on by stockholders. The holders of common
stock are not entitled to cumulative voting rights. Generally, all matters to
be voted on by stockholders must be approved by a majority, or, in the case of
election of directors, by a plurality, of the votes entitled to be cast by all
shares of common stock present in person or represented by proxy, subject to
any voting rights granted to holders of any preferred stock.
Dividends. Holders of common stock are entitled to receive dividends
when, as and if declared by the board of directors out of funds legally
available therefor, subject to any preferential rights of any outstanding
preferred stock.
Other Rights. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of ProVantage, the holders of shares of common stock
would be entitled to share ratably in all assets remaining after payment of
liabilities subject to prior distribution rights and payment of any
distributions owing to holders of shares of preferred stock then outstanding,
if any. Holders of the shares of common stock have no preemptive rights, and
the shares of common stock are not subject to further calls or assessment by
us. There are no redemption provisions or provisions setting aside particular
assets to enable us to retire the common stock, commonly referred to as sinking
fund provisions, which are applicable to the shares of common stock.
Preferred Stock
The board of directors has the authority, without further action by the
stockholders, to issue preferred stock in one or more series and to fix the
rights, designation, preferences, privileges, limitations and restrictions
thereof, including dividend rights, conversion rights, terms and rights of
redemption, liquidation preferences and sinking fund terms, any or all of which
may be greater than the rights of the common stock. The board of
56
<PAGE>
directors, without stockholder approval, may issue shares of preferred stock
with conversion, voting and other rights which could adversely affect the
rights of the holders of shares of common stock.
Authorized but Unissued Shares
Delaware law does not require stockholder approval for any issuance of
authorized shares. These additional shares may be used for a variety of
corporate purposes, including future public or private offerings to raise
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of unissued and unreserved shares may be to enable the board
of directors to issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to obtain control
of ProVantage by means of a merger, tender offer, proxy contest or otherwise,
and thereby protect the continuity of our management and possibly deprive the
stockholders of opportunities to sell their shares of common stock at prices
higher than prevailing market prices.
Delaware Law and Certain Charter and Bylaw Provisions; Anti-Takeover Measures
Upon the completion of this offering, we will be subject to the
provisions of Section 203 of the Delaware General Corporation Law, the DGCL. In
general, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is, or the
transaction in which the person became an interested stockholder was, approved
in a prescribed manner or another exception applies. For purposes of Section
203, a "business combination" is defined broadly to include a merger, asset
sale or other transaction resulting in financial benefit to the interested
stockholder, and subject to certain exceptions, an "interested stockholder" is
a person who, together with affiliates and associates, owns (or within the
three prior years, did own) 15% or more of the corporation's voting stock.
Our restated certificate of incorporation provides that our board of
directors is divided into three classes serving staggered three-year terms. As
a result, at least two stockholders' meetings will generally be required for
stockholders to change a majority of the directors. The board of directors is
authorized to create new directorships and to fill such positions so created.
The board of directors (or its remaining members, even though less than a
quorum) is also empowered to fill vacancies on the board of directors occurring
for any reason. Any director appointed to fill a vacancy or to a newly created
directorship will hold office until the next election for the class of
directors to which the new director has been appointed. Directors may only be
removed for cause by the affirmative vote of two-thirds of the outstanding
common stock entitled to vote at a meeting called for this purpose. Our
restated certificate of incorporation and amended and restated by-laws provide
that stockholders may not act by written consent in place of an annual or
special meeting. Our restated certificate of incorporation and amended and
restated by-laws provide that special meetings of stockholders may only be
called by the chairman of the board or the president, or by a majority of the
board of directors.
The provisions in our restated certificate of incorporation relating to
amendment of our bylaws, the structure of our board of directors and
prohibiting action by written consent of our stockholders may only be amended
by a vote of 75% of our outstanding common stock.
Our amended and restated bylaws provide that, for nominations to the
board of directors or for other business to be properly brought by a
stockholder before an annual meeting of stockholders, the stockholder must
first have given timely notice thereof in writing to our corporate secretary.
To be timely, a stockholder's notice generally must be delivered not less than
120 days prior to the anniversary date of the annual meeting in the immediately
preceding year. The notice by a stockholder must contain, among other things,
certain information about the stockholder delivering the notice and, as
applicable, background information about the nominee or a description of the
proposed business to be brought before the meeting. Our amended and restated
57
<PAGE>
bylaws may only be amended by a vote of 75% of our outstanding common stock or
by majority vote of our board of directors.
Certain of the provisions of our amended and restated certificate of
incorporation and amended and restated bylaws discussed above could make more
difficult or discourage a proxy contest or other change in our management or
the acquisition or attempted acquisition of control by a holder of a
substantial block of our stock. It is possible that such provisions could make
it more difficult to accomplish, or could deter, transactions which
stockholders may otherwise consider to be in their best interests.
As permitted by the DGCL, the restated certificate of incorporation
provides that our directors shall not be personally liable to us or our
stockholders for monetary damages for breach of their fiduciary duties as
directors, except for liability:
l for any breach of their duty of loyalty to us or our stockholders,
l for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
l for unlawful payments of dividends or unlawful stock repurchases
or redemptions, as provided in Section 174 or successor provisions
of the DGCL, or
l for any transaction from which the director derived an improper
personal benefit.
The amended and restated bylaws provide that we shall indemnify our
directors, officers and employees to the fullest extend permitted by the DGCL,
except in some circumstances, with respect to suits initiated by the director,
officer or employee, and advance expenses to such directors, officers or
employees to defend any action for which rights of indemnification are
provided. In addition, the amended and restated bylaws permit us to grant such
rights to our agents. The amended and restated bylaws also provide that we may
purchase insurance on behalf of any director, officer, employee or agent
against certain expenses, liabilities and losses, whether or not we would have
the power to indemnify such person against such expenses, liabilities or
losses. We believe that these provisions will assist us in attracting and
retaining qualified individuals to serve as directors, officers and employees.
Rights Plan
Prior to the closing of this offering, the board of directors will adopt
a stockholders rights plan pursuant to which one right to purchase one one-
thousandth of a share of our newly created Series B Junior Participating
Preferred Stock, par value $0.01 per share, would be issued as a dividend for
each outstanding share of common stock. Each right, when exercisable, would
represent the right to purchase one one-thousandth of a share of Series B
Junior Participating Preferred Stock at a specified price. The rights would
become exercisable ten days after a person or group acquires 15% or more of the
outstanding common stock (other than certain persons who own more than 15% of
the outstanding common stock as a result of the purchase of common stock from
ShopKo or its affiliates) or commences or announces a tender or exchange offer
which would result in such ownership.
If, after the rights become exercisable, we were to be acquired through a
merger or other business combination transaction or 50% or more of our assets
or earning power were sold, each right would permit the holder to purchase, for
the exercise price, common stock of the acquiring company having a market value
of twice the exercise price. In addition, if any person acquires 15% or more of
the outstanding common stock, each right not owned by such person would permit
the purchase, for the exercise price of $120.00, of common stock having a
market value of twice the exercise price.
The rights would expire ten years after the adoption of the rights plan,
unless earlier redeemed by us in accordance with the terms of the rights plan.
The purchase price payable and the shares of Series B Junior
58
<PAGE>
Participating Preferred Stock issuable upon exercise of the rights would be
subject to adjustment from time to time as specified in the rights plan. In
addition, the board of directors would retain the authority to redeem (at $0.01
per right) and replace the rights with new rights at any time, provided that no
such redemption could occur after a person or group acquires 15% or more of the
outstanding common stock.
Shares of Series B Junior Participating Preferred Stock, when issued upon
exercise of the rights, will be nonredeemable and will rank junior to all
series of any other class of preferred stock. Each share of Series B Junior
Participating Preferred Stock will be entitled to a cumulative preferential
quarterly dividend payment equal to the greater of $10 per share or 1,000 times
the dividend declared per share of common stock. In the event of liquidation,
the holders of shares of Series B Junior Participating Preferred Stock will be
entitled to a preferential liquidation payment equal to the greater of $1,000
per share or 1,000 times the payment made per share of common stock. Each share
of Series B Junior Participating Preferred Stock will entitle the holder to
1,000 votes, voting together with the common stock. Finally, in the event of
any merger, consolidation or other transaction in which common stock is
exchanged, each share of Series B Junior Participating Preferred Stock will be
entitled to receive 1,000 times the amount received per share of common stock.
The foregoing rights would be subject to antidilution adjustments. The number
of shares constituting the series of Series B Junior Participating Preferred
Stock will be 100,000.
Transfer Agent
The transfer agent for the common stock is Norwest Shareowner Services.
SHARES ELIGIBLE FOR FUTURE SALE
The 5,300,000 shares of common stock sold in this offering, 6,095,000
shares of common stock if the underwriters exercise their over-allotment option
in full, will be freely tradable without restriction under the Securities Act,
except for any such shares which may be acquired by our "affiliates," as that
term is defined in Rule 144 promulgated under the Securities Act, which shares
will remain subject to the resale limitations of Rule 144.
The 12,550,000 shares of common stock that will continue to be held by
ShopKo after the offering will constitute "restricted securities" within the
meaning of Rule 144, and will be eligible for sale in the open market after the
offering, subject to certain contractual lockup provisions and to the
applicable requirements of Rule 144, both of which are described below. We have
entered into a registration rights agreement with ShopKo relating to ShopKo's
rights to have us register under the Securities Act all or a portion of the
common stock owned by it. See "Relationship With ShopKo." In addition, we have
the option to satisfy certain contingent obligations to the sellers of the
PharMark business with shares of common stock. If we issue shares of common
stock to the PharMark sellers, they have the right to require us to register
those shares for sale under the Securities Act. They also have the right to
have those shares included in registration statements we file under the
Securities Act. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Acquisitions" for a more complete
description of the contingent payments due to the PharMark sellers.
Generally, Rule 144 provides that a person who has beneficially owned
"restricted securities" for at least one year will be entitled to sell on the
open market in broker's transactions within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares,
or the average weekly trading volume on the open market during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain notice requirements and the availability of current public information
about us. Shares properly sold in reliance upon Rule 144 to persons who are not
"affiliates" are thereafter freely tradable without the restriction or
registration under the Securities Act. Ninety days after completion of this
59
<PAGE>
offering, ShopKo will be able to sell in the public market its shares of common
stock, subject to the volume and manner of sale restrictions described above
and subject to the lock-up provisions described below.
We and our executive officers and directors and Shopko have agreed,
subject to certain exceptions, not to directly or indirectly offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of,
lend or otherwise dispose of or transfer any shares of our common stock or
securities convertible into or exchangeable or exercisable for or repayable
with our common stock, whether now owned or thereafter acquired by the person
executing the agreement or with respect to which the person executing the
agreement thereafter acquires the power of disposition, or file a registration
statement under the Securities Act with respect to the foregoing, or enter into
any swap or other agreement that transfers, in whole or in part, the economic
consequence of ownership of our common stock whether any such swap or
transaction is to be settled by delivery of our common stock or other
securities, in cash or otherwise, without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated on behalf of the underwriters for a
period of 180 days after the date of this prospectus.
Sales of substantial amounts of common stock in the open market, or the
availability of such shares for sale, could adversely affect prevailing market
prices.
60
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co.
Inc., William Blair & Company, L.L.C. and Lehman Brothers Inc. are acting as
representatives of each of the underwriters named below. Subject to the terms
and conditions set forth in the purchase agreement among us, Shopko and the
underwriters, we have agreed to sell to the underwriters, and each of the
underwriters severally and not jointly has agreed to purchase from us, the
number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
Bear, Stearns & Co. Inc..........................................
William Blair & Company, L.L.C...................................
Lehman Brothers Inc. ............................................
---------
Total....................................................... 5,300,000
=========
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the shares of
common stock being sold pursuant to such agreement if any of such shares are
purchased. Under certain circumstances, the commitments of non-defaulting
underwriters under the purchase agreement may be increased.
The representatives have advised us that the underwriters propose
initially to offer the shares of common stock to the public at the initial
public offering price set forth on the cover page of this prospectus, and to
certain dealers at such price less a concession not in excess of $ per share
of common stock. The underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share of common stock on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
ShopKo has granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of 795,000
additional shares of common stock at the initial public offering price set
forth on the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of the common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of common
stock proportionate to such underwriter's initial amount reflected in the
foregoing table.
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
Per
Share Without Option With Option
-------- -------------- -----------
<S> <C> <C> <C>
Public offering price................. $ $ $
Underwriting discount................. $ $ $
Proceeds, before expense, to us....... $ $ $
Proceeds to ShopKo.................... $ $ $
</TABLE>
61
<PAGE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $750,000 and are payable entirely by us. These expenses will not
reduce the $20.0 million of net proceeds of the offering which we will retain.
See "Use of Proceeds."
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and
certain other conditions. The underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part.
We and our officers and directors and ShopKo have agreed, subject to
certain exceptions, not to directly or indirectly offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant for the sale of, lend or
otherwise dispose of or transfer any shares of our common stock or securities
convertible into or exchangeable or exercisable for or repayable with our
common stock, whether now owned or thereafter acquired by the person executing
the agreement or with respect to which the person executing the agreement
thereafter acquires the power of disposition, or file a registration statement
under the Securities Act with respect to the foregoing, or enter into any swap
or other agreement that transfers, in whole or in part, the economic
consequence of ownership of our common stock whether any such swap or
transaction is to be settled by delivery of our common stock or other
securities, in cash or otherwise, without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated on behalf of the underwriters for a
period of 180 days after the date of this prospectus. See "Shares Eligible for
Future Sale."
Prior to the offering, there has been no public market for our common
stock. The initial public offering price will be determined through
negotiations between us and the representatives. The factors to be considered
in determining the initial public offering price will be prevailing market
conditions, the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us, certain of our financial
information, our history and our prospects and the industry in which we
compete, and an assessment of our management, its past and present operations,
the prospects for, and timing of, our future revenues, the present state of our
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to ours.
There can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market
subsequent to the offering at or above the initial public offering price.
We have applied to have our common stock approved for listing on the New
York Stock Exchange under the symbol "PHS." The underwriters have undertaken
that the common stock will be sold to ensure that the distribution standards of
the New York Stock Exchange relating to round lots, public shares and aggregate
market value will be met.
We and ShopKo have agreed to indemnify the underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the underwriters may be required to make in respect
thereof.
Until the distribution of the common stock is completed, rules of the SEC
may limit the ability of the underwriters and certain selling group members to
bid for and purchase the common stock. As an exception to these rules, the
representatives are permitted to engage in certain transactions that stabilize
the price of the common stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the common
stock.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares of common stock
than are set forth on the cover page of this prospectus, the representatives
may reduce that short position by purchasing common stock in the open market.
The
62
<PAGE>
representatives may also elect to reduce any short position by exercising all
or part of the over-allotment option described above.
The representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that if the representatives purchase
shares of common stock in the open market to reduce the underwriters' short
position or to stabilize the price of the common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group
members who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the common stock to the extent
that it discourages resales of the common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the
representatives will engage in the transactions described above or that these
transactions, if commenced, will not be discontinued without notice.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 265,000 of the shares offered hereby for sale to
directors and employees of ProVantage, ShopKo and their affiliates. The number
of shares of our common stock available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares which are not orally confirmed for purchase within one day of the
pricing of the offering will be offered by the underwriters to the general
public on the same terms as the other shares offered hereby.
Some of the underwriters or their affiliates have provided investment or
commercial banking services to us and to ShopKo in the past and may do so in
the future. They receive customary fees and commissions for these services.
LEGAL MATTERS
Certain legal matters relating to the legality of the issuance of the
shares of common stock being offered hereby will be passed upon for us by
Godfrey & Kahn, S.C., Milwaukee, Wisconsin. Certain legal matters will be
passed upon for the underwriters by Dewey Ballantine LLP, New York, New York.
EXPERTS
The Consolidated Financial Statements of ProVantage Health Services, Inc.
and subsidiaries as of January 30, 1999, January 31, 1998 and February 1, 1997
and for each of the four years in the period ended January 30, 1999 included in
the registration statement of which this prospectus forms a part and the
related financial statement schedule included elsewhere in the registration
statement have been so included in reliance on the report of Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the registration statement, and have been so included in reliance
upon the reports of such firm, given upon their authority as experts in
accounting and auditing.
63
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits thereto. For further information with respect to us and the common
stock, you should refer to the registration statement and the exhibits thereto.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. You may inspect and copy the registration
statement and its exhibits at the public reference facilities of the SEC
located at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as at the regional offices of the SEC located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New
York, New York 10048. You may obtain copies of these materials for a fee by
writing to the SEC's Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and you can access this information electronically by
means of the SEC's website on the Internet at http://www.sec.gov. You may
obtain information about the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330.
As a result of the offering, we will be subject to the requirements of
the Exchange Act, which means that we will file reports, proxy statements and
other information with the SEC on a periodic basis. You can read and copy these
reports, proxy statements and other information we file with the SEC at the
offices of the SEC, and at the website listed above.
We intend to furnish its stockholders with annual reports containing
audited financial statements examined by its independent accountants for each
fiscal year.
64
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-1
Consolidated Statements of Earnings for each of the three fiscal years in
the period ended January 30, 1999....................................... F-2
Consolidated Balance Sheets at January 31, 1998 and January 30, 1999..... F-3
Consolidated Statements of Cash Flows for each of the three fiscal years
in the period ended January 30, 1999.................................... F-4
Consolidated Statements of Stockholder's Equity for each of the three
years in the period ended January 30, 1999.............................. F-5
Notes to Consolidated Financial Statements............................... F-6
</TABLE>
65
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
ProVantage Health Services, Inc.:
We have audited the consolidated balance sheets of ProVantage Health
Services, Inc. and subsidiaries, formerly known as ProVantage, Inc. (an
indirect, wholly-owned subsidiary of ShopKo Stores, Inc.), as of January 30,
1999 and January 31, 1998 and the related consolidated statements of earnings,
stockholder's equity and cash flows for each of the three years in the period
ended January 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of ProVantage Health Services,
Inc. and subsidiaries as of January 30, 1999 and January 31, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended January 30, 1999 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Milwaukee, Wisconsin
March 12, 1999
F-1
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year (52 weeks) Ended
----------------------------------------
Feb. 1, 1997 Jan. 31, 1998 Jan. 30, 1999
------------ ------------- -------------
<S> <C> <C> <C>
Net sales............................ $330,048 $500,891 $666,154
Costs and expenses:
Cost of sales...................... 306,760 463,069 618,308
Selling, general and administrative
expenses.......................... 11,828 19,990 24,910
Depreciation and amortization
expenses.......................... 2,233 4,779 6,776
-------- -------- --------
320,821 487,838 649,994
Income from operations............... 9,227 13,053 16,160
Interest income...................... 353 364 543
-------- -------- --------
Earnings before income taxes......... 9,580 13,417 16,703
Provision for income taxes........... 4,164 5,883 7,221
-------- -------- --------
Net earnings......................... $ 5,416 $ 7,534 $ 9,482
======== ======== ========
Basic net earnings per share of
common stock........................ $ 0.43 $ 0.60 $ 0.76
======== ======== ========
Average number of shares of common
stock outstanding................... 12,550 12,550 12,550
======== ======== ========
Pro forma basic net earnings per
share of common stock............... $ 0.49
========
Pro forma average number of shares of
common stock outstanding............ 19,315
========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
January 31, 1998 January 30, 1999
---------------- ----------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 12,533 $ 24,680
Receivables, less allowance for losses of
$976 and $1,314, respectively............. 59,662 84,935
Pharmaceutical inventories................. 1,312 3,121
Other current assets....................... 1,054 2,343
-------- --------
Total current assets..................... 74,561 115,079
Goodwill--net................................ 67,926 67,127
Other assets--net............................ 3,119 3,295
Property and equipment--net.................. 9,431 15,276
-------- --------
Total assets............................. $155,037 $200,777
======== ========
<CAPTION>
Liabilities and Stockholder's Equity
<S> <C> <C>
Current liabilities:
Short-term debt............................ $ 967 $ 968
Accounts payable trade..................... 46,481 66,077
Accrued liabilities........................ 11,633 14,025
-------- --------
Total current liabilities................ 59,081 81,070
Long-term obligations........................ 913 --
Deferred income taxes........................ 1,448 3,521
Minority interest............................ 2,315 2,949
Stockholder's equity:
Common Stock; $.01 par value, 50,000 shares
authorized, 12,550 shares outstanding..... 126 126
Additional paid-in capital................. 76,522 88,997
Retained earnings.......................... 14,632 24,114
-------- --------
Total stockholder's equity............... 91,280 113,237
-------- --------
Total liabilities and stockholder's
equity.................................. $155,037 $200,777
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year (52 weeks)
Ended
----------------------------
Feb. 1, Jan. 31, Jan. 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.................................... $ 5,416 $ 7,534 $ 9,482
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization.................. 2,233 4,779 6,776
Provision for losses on receivables............ 878 38 185
Deferred income taxes.......................... 63 305 1,715
Change in assets and liabilities excluding the
effect of business acquisitions:
Receivables.................................. (42,031) (6,314) (24,824)
Pharmaceutical inventories................... (746) (62) (1,809)
Other current assets......................... (162) 151 (932)
Other assets................................. (258) (1,500) (635)
Accounts payable............................. 29,653 11,385 19,596
Accrued liabilities.......................... 8,344 (4,330) (77)
-------- -------- --------
Net cash provided by operating activities.. 3,390 11,986 9,477
Cash flows used in investing activities:
Payments for property and equipment............ (2,057) (4,198) (8,863)
Business acquisitions, net of cash acquired.... (33,531) (22,390) --
-------- -------- --------
Net cash used in investing activities...... (35,588) (26,588) (8,863)
Cash flows from financing activities:
Change in short-term debt...................... -- 967 1
Capital contribution........................... 33,143 21,063 12,475
Reduction in debt.............................. -- (841) (943)
-------- -------- --------
Net cash provided by financing activities.. 33,143 21,189 11,533
Net increase in cash and cash equivalents....... 945 6,587 12,147
Cash and cash equivalents at beginning of
period......................................... 5,001 5,946 12,533
-------- -------- --------
Cash and cash equivalents at end of period...... $ 5,946 $ 12,533 $ 24,680
======== ======== ========
Supplemental cash flow information:
Cash paid during the period for:
Income taxes................................. $ 4,044 $ 5,585 $ 6,793
Accrued supplemental contingent payment........ -- -- $ 2,500
During fiscal 1997 and 1996, the Company
acquired companies. In conjunction with these
acquisitions, the purchase price consisted of
the following:
Cash paid...................................... $ 33,531 $ 22,390 $ --
Notes payable issued........................... -- 1,833 --
Liabilities assumed............................ -- 4,030 --
-------- -------- --------
Total fair value of acquisitions........... $ 33,531 $ 28,253 $ --
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
------------- Paid-In Retained
Shares Amount Capital Earnings
------ ------ ---------- --------
<S> <C> <C> <C> <C>
Balances at February 3, 1996.................. 12,550 126 $22,316 $ 1,682
Capital contribution.......................... 33,143
Net earnings.................................. 5,416
------ ---- ------- -------
Balances at February 1, 1997.................. 12,550 126 55,459 7,098
Capital contribution.......................... 21,063
Net earnings.................................. 7,534
------ ---- ------- -------
Balances at January 31, 1998.................. 12,550 126 76,522 14,632
Capital contribution.......................... 12,475
Net earnings.................................. 9,482
------ ---- ------- -------
Balances at January 30, 1999.................. 12,550 $126 $88,997 $24,114
====== ==== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Summary of Significant Accounting Policies
Organization and Basis of Presentation:
The consolidated financial statements include the accounts of ProVantage
Health Services, Inc. and all its subsidiaries, formerly known as ProVantage,
Inc. ("ProVantage" or the "Company"). ProVantage consolidates all subsidiaries
in which it has a majority voting interest. All significant intercompany
accounts and transactions have been eliminated. ProVantage is a Delaware
corporation. ProVantage is a wholly-owned subsidiary of ProVantage Holdings,
Inc., which in turn is wholly-owned by ShopKo Stores, Inc. ("ShopKo").
ProVantage, which conducts its business principally throughout the United
States, provides health benefit management services, pharmacy mail services,
vision benefit management services and health information technology and
clinical support services.
For the periods presented, certain general, administrative and other
expenses reflected in the consolidated financial statements include allocations
of certain corporate expenses from ShopKo which took into consideration
personnel, space, estimates of time spent to provide services or other
appropriate bases. These allocations include services and expenses for general
management, information systems management, treasury, tax, financial reporting,
benefits administration, insurance, legal, communications and other
miscellaneous services.
Management believes the foregoing allocations were made on a reasonable
basis. Although these allocations do not necessarily represent the costs which
would have been or may be incurred by ProVantage on a stand alone basis,
management believes that any variance in costs would not be material.
Revenues and Costs of Revenues:
ProVantage's net sales are recorded when earned and include (i)
administrative and dispensing fees plus the cost of pharmaceuticals dispensed
by pharmacies participating in the network maintained by ProVantage or by
ProVantage's mail service pharmacy to members of health benefit plans sponsored
by ProVantage's clients; (ii) amounts billed to pharmaceutical manufacturers
and third party formulary administrators for formulary fees, which are
discounts, rebates and fees earned from pharmaceutical manufacturers; (iii) the
sale of eyeglasses and contact lenses and related administrative fees relating
to vision benefit management services; and (iv) license and service fees for
health information technology and clinical support services. Cost of sales
includes the amounts paid to network pharmacies and optical centers for medical
claims, the cost of prescription medications sold through the mail service
pharmacy and the amounts paid to plan sponsors for shared formulary fees.
Cash and Cash Equivalents:
ProVantage records all highly liquid investments with a maturity of three
months or less as cash equivalents.
Receivables:
Receivables consist primarily of amounts collectible from (i) insurance
companies, third party administrators and self-funded medical plan sponsors for
pharmaceutical claims and claim processing fees, (ii) pharmaceutical
manufacturers and third party formulary administrators for formulary fees and
(iii) customers for license and service fees for health information technology
and clinical support services. Substantially all amounts are expected to be
collected within one year.
F-6
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pharmaceutical Inventories:
Pharmaceutical inventories are stated at the lower of cost or market.
Cost, which includes certain distribution and transportation costs, is
determined through use of the first-in, first-out (FIFO) method.
Property and Equipment:
Property and equipment are carried at cost. The cost of equipment is
depreciated over the estimated useful life of the assets using the straight-
line method. Useful lives generally assigned are 3 to 10 years. Costs of
leasehold improvements are amortized over the period of the lease or the
estimated useful life of the asset, whichever is shorter, using the straight-
line method.
Expenditures relating to the development of software to be marketed to
clients, or to be used for internal purposes, are charged to expense until
technological feasibility is established. Thereafter, the remaining software
production costs up to the date of general release to customers or to the date
placed into production are capitalized and included as property and equipment.
During fiscal years 1996, 1997 and 1998, $1.4 million, $2.1 million and $4.6
million in software development costs were capitalized, respectively.
Capitalized software development costs amounted to $3.8 million and $8.4
million at January 31, 1998 and January 30, 1999, respectively. Amortization of
capitalized amounts commences on the date of general release to customers or
the date placed into production using the straight-line method over estimated
economic life of the product but not more than five years. Total amortization
expense of capitalized software costs was $0.1 million, $1.0 million and $1.9
million in fiscal years 1996, 1997 and 1998, respectively.
The components of property and equipment are (in thousands):
<TABLE>
<CAPTION>
January 31, January 30,
1998 1999
----------- -----------
<S> <C> <C>
Property and equipment at cost:
Software........................................ $8,058 $13,834
Equipment....................................... 3,670 6,441
Leasehold improvements.......................... 353 668
------ -------
12,081 20,943
Less accumulated depreciation and amortization.... 2,650 5,667
------ -------
Net property and equipment........................ $9,431 $15,276
====== =======
</TABLE>
Goodwill:
The excess of cost over fair value of the net assets of businesses
acquired (goodwill) is amortized using the straight-line method over 18 to 22
years. Accumulated amortization for these costs was $5.7 million and $9.4
million at January 31, 1998 and January 30, 1999, respectively.
Impairment of Long Lived Assets:
ProVantage evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of long lived assets may warrant
revision or that the remaining balance of an asset may not be recoverable. The
measurement of possible impairment is based on the ability to recover the
balance of assets from expected future operating cash flows on an undiscounted
basis. In the opinion of management, no such impairment existed as of January
30, 1999.
F-7
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net Earnings Per Common Share:
In 1997, SFAS No. 128, "Earnings Per Share" was issued. SFAS No. 128
replaces the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic net earnings per common share
is computed by dividing net earnings by the weighted average number of common
shares outstanding. Diluted net earnings per common share is computed by
dividing net earnings by the weighted average number of common shares
outstanding increased by the number of dilutive potential common shares based
on the treasury stock method.
Pro Forma Basic Net Earnings Per Share of Common Stock:
Pro forma basic net earnings per share of common stock are computed by
dividing net earnings by 19,314,706, which represents the total number of
shares of common stock which will be outstanding after completion of the
reorganization of ProVantage's corporate structure, plus 6,764,706 shares of
common stock which, when multiplied by an assumed offering price of $17.00 per
share, would be sufficient to repay the demand promissory note to be issued to
ShopKo prior to the offering.
Income Taxes:
ProVantage's results are included in ShopKo's consolidated U. S. federal
income tax return. All income tax payments are made by ShopKo on behalf of its
subsidiaries, a portion of which are allocated to ProVantage. The amounts
reflected in the provision for income taxes are based on applicable federal
statutory rates, adjusted for permanent differences between financial and
taxable income. In effect, the income tax provision is computed on a separate
return basis.
The financial statements reflect the application of SFAS No. 109,
"Accounting for Income Taxes."
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reporting period. Actual results could differ from those
estimates.
B. Acquisitions
On January 3, 1995, ProVantage completed the acquisition of Bravell,
Inc. ("Bravell"), a pharmacy benefit management firm that provides custom
prescription benefit plan design, program administration and claims benefit
processing services to insurance companies, third party administrators and
self-funded medical plan sponsors. The transaction was accounted for as a
purchase, whereby ProVantage acquired 97% of the outstanding common stock of
Bravell for approximately $17.3 million. ProVantage was also required to make
additional payments which were contingent upon future results of Bravell's
operations. In fiscal 1996, $0.7 million was paid based on the results of
fiscal 1995. On April 10, 1997, ProVantage made a payment of approximately
$8.9 million to the founders of Bravell to (i) acquire the remaining 3% of the
common stock of Bravell which ProVantage did not acquire in January 1995, (ii)
extinguish all remaining contingent payment obligations to the founders and
(iii) terminate the founders' employment agreements. This $8.9 million payment
was capitalized as additional purchase price and amortized over 20 years.
F-8
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On August 2, 1996, ProVantage completed the acquisition of CareStream
ScripCard from Avatex Corporation, formerly known as FoxMeyer Health
Corporation. CareStream ScripCard is a prescription benefit management company
and its operations have been integrated with ProVantage. The initial purchase
price was $30.5 million in cash, with the obligation to make an additional
contingent cash payment equal to 1.5% of ProVantage's market value, subject to
a minimum of $2.5 million and a maximum of $5.0 million. Based upon meeting the
minimum requirement, ProVantage has accrued $2.5 million as of January 30,
1999. Avatex has a right to receive the additional contingent cash payment at
its election without further condition at any time prior to August 2, 2001. The
supplemental payment will be capitalized as additional purchase price and
amortized over a period of 15 to 18 years.
On August 20, 1997, ProVantage acquired The Mikalix Group, Inc. and its
subsidiaries, an international privately held group of companies based in
Arlington, Virginia. Mikalix's primary subsidiary is PharMark Corporation, a
software and database development company providing information driven
strategies for optimizing medical and pharmaceutical outcomes. The purchase
price for Mikalix was approximately $15.2 million, of which $14.2 million has
been paid in cash and $1.0 million is due in 1999. The sellers of Mikalix may
also be entitled to contingent payments of up to $8.0 million in the aggregate
based on future increases in the market value of ProVantage's outstanding
common stock (the "Contingent Payments"). The Contingent Payment amounts of up
to $8.0 million are calculated based upon the market value of ProVantage's
outstanding common stock ranging from $250.0 million to $500.0 million. The
Contingent Payments, if any, will be due on the first to occur of August 20,
2002 or certain liquidity events related to ProVantage and will be capitalized
as additional purchase price and amortized over a period of 15 to 19 years. The
Contingent Payments may be made, at ProVantage's election, in either cash,
ShopKo common stock or ProVantage common stock; provided, however, that any
stock used for such payments must be traded in a public market.
The allocation of the purchase prices of ProVantage's acquisitions were
based on fair values at the dates of acquisition. The excess of the purchase
price over the fair value of the net assets acquired of approximately $76.5
million is being amortized on a straight-line basis over 18 to 22 years. The
results of the acquired companies' operations since the dates of acquisition
have been included in the consolidated statements of earnings of ProVantage.
C. Debt
ProVantage's short-term debt consists of two promissory notes due to the
former owners of PharMark. The promissory notes, which are due August 20, 1999,
bear interest at 6%.
D. Leases
ProVantage is obligated under operating leases, primarily for buildings
and computer hardware. Minimum future obligations under operating leases in
effect at January 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Lease
Year Obligations
---- -----------
<S> <C>
1999.................................. $1,708
2000.................................. 1,322
2001.................................. 1,056
2002.................................. 418
Thereafter............................ 251
------
Total minimum obligations............. $4,755
======
</TABLE>
F-9
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total minimum rental expense related to all operating leases with terms
greater than one year was $0.4 million, $0.9 million and $1.9 million in
fiscal years 1996, 1997 and 1998, respectively.
E. Income Taxes
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Components of ProVantage's net deferred tax liability are as follows (in
thousands):
<TABLE>
<CAPTION>
January 31, January 30,
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Goodwill......................................... $ 1,795 $ 1,948
Property and equipment........................... -- 1,573
Inventory valuation.............................. 202 --
------- -------
Total deferred tax liabilities................. 1,997 3,521
Deferred tax assets:
Property and equipment........................... (345) --
Reserves and allowances.......................... (1,106) (1,260)
------- -------
Total deferred tax assets...................... (1,451) (1,260)
------- -------
Net deferred tax liabilities....................... $ 546 $ 2,261
======= =======
</TABLE>
The amounts reflected in the provision for income taxes are based on
applicable federal statutory rates, adjusted for permanent differences between
financial and taxable income. The provision for federal and state income taxes
includes the following (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................. $3,294 $4,537 $4,428
State............................................... 807 1,041 1,078
Deferred............................................ 63 305 1,715
------ ------ ------
Total provision................................... $4,164 $5,883 $7,221
====== ====== ======
</TABLE>
The effective tax rate varies from the statutory federal income tax rate
for the following reasons:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory income tax..................................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefits.......... 5.0 5.0 5.1
Goodwill................................................. 3.5 3.6 2.9
Other.................................................... -- 0.2 0.2
---- ---- ----
Effective income tax rate................................ 43.5% 43.8% 43.2%
==== ==== ====
</TABLE>
F-10
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Provision is made for deferred income taxes and future income tax
benefits applicable to temporary differences between financial and tax
reporting. The sources of these differences and the effects of each are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----- ---- ------
<S> <C> <C> <C>
Depreciation and amortization.......................... $ 569 $131 $2,072
Reserves and allowances................................ (494) 166 (118)
Other.................................................. (12) 8 (239)
----- ---- ------
$ 63 $305 $1,715
===== ==== ======
</TABLE>
F. Stockholder's Equity
ProVantage has 50,000,000 shares of $0.01 par value of common stock
authorized with 12,550,000 shares issued and outstanding as of January 31, 1998
and 12,550,000 shares issued and outstanding as of January 30, 1999. The
stockholder's equity section of the balance sheet is adjusted to show the
retroactive effect of a stock split effected through a stock dividend. The
stock split, which will be made immediately prior to the public sale of the
shares, is required to convert the existing 10,100 shares of outstanding common
stock into 12,550,000 shares of common stock.
G. Employee Benefits
Substantially all employees of ProVantage are covered by a defined
contribution profit sharing plan sponsored by ShopKo. The plan provides for two
types of Company contributions: an amount determined annually by the Board of
Directors and an employer matching contribution equal to one-half of the first
6% of compensation contributed by participating employees. ProVantage
contributions were $0.1 million, $0.1 million and $0.2 million for fiscal years
1996, 1997 and 1998, respectively.
H. Related Party Transactions
ProVantage provided claims processing services for ShopKo. ProVantage
bills ShopKo for the cost of the prescription claim plus processing fees. These
amounts were $1.6 million, $1.6 million and $2.1 million for fiscal years 1996,
1997 and 1998, respectively, and were included in ProVantage's sales.
Receivables include amounts due from ShopKo of $0.1 million at both January 31,
1998 and January 30, 1999.
A portion of ProVantage's payments made to network pharmacies are made to
pharmacies owned by ShopKo. The payments reflect the cost of the prescription
claim less an on-line remittance fee. These amounts were $21.0 million, $25.8
million and $35.7 million for fiscal years 1996, 1997 and 1998, respectively,
and were included in ProVantage's cost of sales. Accounts payable include
amounts payable to ShopKo for claims of $1.3 million at January 31, 1998 and
$1.7 million at January 30, 1999, respectively.
ProVantage receives formulary fees from pharmaceutical manufacturers. A
portion of these fees are shared with and paid to the network pharmacies owned
by ShopKo. These amounts were $0.2 million and $0.1 million for fiscal years
1996 and 1997, respectively, and were included in ProVantage's cost of sales.
Purchases of inventory from ShopKo were $1.0 million, $0.8 million and
$0.3 million for fiscal years 1996, 1997 and 1998, respectively.
F-11
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
General, administrative and other expenses were allocated to ProVantage
from ShopKo. These allocations took into consideration personnel, space,
estimates of time spent to provide services or other appropriate bases and
included amounts for general management, tax, financial reporting, benefits
administration, insurance, legal, communications and other miscellaneous
services. Amounts charged for these services reflect amounts historically
incurred by ShopKo and were $0.4 million, $1.1 million and $1.2 million for
fiscal years 1996, 1997 and 1998, respectively.
I. Major Customers
For fiscal 1996, one customer represented $59.1 million, or 17.9%, of net
sales, for fiscal year 1997, this customer represented $58.6 million, or 11.7%,
of net sales, and for fiscal year 1998, this customer represented $76.1
million, or 11.4%, of net sales.
J. Subsequent Events (unaudited)
ProVantage has filed a registration statement with the Securities and
Exchange Commission under which a portion of its shares of common stock will be
sold. The average number of shares of common stock is adjusted to show the
retroactive effect of a stock split through a stock dividend. The stock split,
which will be made prior to the public sale of shares, is required to convert
the existing 10,100 shares of outstanding common stock into 12,550,000 shares
of common stock. After the offering, 17,850,000 shares of common stock will be
outstanding, excluding the underwriters' over-allotment option. In addition,
ProVantage will declare a dividend to ShopKo of $115.0 million in the form of a
demand promissory note. The demand promissory note will be paid with the
proceeds of the offering and to the extent that the proceeds of the offering
are less than $115.0 million, the remainder of the demand promissory note will
be contributed to ProVantage by ShopKo.
Also pursuant to this offering of common stock, ProVantage will enter
into agreements which call for ShopKo to provide credit, administrative and
information technology services to ProVantage. All of these agreements expire
on January 31, 2001 and are subject to automatic one year renewal terms and
earlier termination under certain circumstances. In addition, ProVantage will
lease its corporate headquarters building, currently under construction, from
ShopKo at terms to be determined.
The credit agreement provides ProVantage with an unsecured, revolving
line of credit of up to $25.0 million at market rates. ProVantage will pay an
annual facility fee of 1/5 of one percent of the total commitment amount.
The administrative services agreement provides ProVantage with certain
administrative, support and consultation services including employee benefits,
payroll processing, insurance, tax compliance, treasury and accounts payable
processing.
The information technology services agreement provides ProVantage with
the use and the personnel to manage and maintain certain hardware, software and
computer facilities.
F-12
<PAGE>
PROVANTAGE HEALTH SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited, in thousands)
The following balance sheet of ProVantage presents its unaudited pro
forma balance sheet as of January 30, 1999. The unaudited pro forma balance
sheet gives effect to the $115.0 million dividend declared to ShopKo as if such
transactions had occurred on January 30, 1999. The pro forma balance sheet
should be read in conjunction with the historical statements and related notes
of ProVantage included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Pro Forma
January 30, 1999 Adjustments Pro Forma
---------------- ----------- ---------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........... $ 24,680 $ 24,680
Receivables, less allowance for
losses of $1,314 .................. 84,935 84,935
Pharmaceutical inventories.......... 3,121 3,121
Other current assets................ 2,343 2,343
-------- --------
Total current assets.............. 115,079 115,079
Goodwill--net......................... 67,127 67,127
Other assets--net..................... 3,295 3,295
Property and equipment--net........... 15,276 15,276
-------- --------
Total assets...................... $200,777 $200,777
======== ========
Liabilities and Stockholder's Equity
Current liabilities:
Demand promissory note payable to
ShopKo............................. $115,000(1) $115,000
Short-term debt..................... $ 968 968
Accounts payable trade.............. 66,077 66,077
Accrued liabilities................. 14,025 14,025
-------- --------
Total current liabilities......... 81,070 196,070
Long-term obligations................. -- --
Deferred income taxes................. 3,521 3,521
Minority interest..................... 2,949 2,949
Stockholder's equity:
Common Stock; $.01 par value 50,000
shares authorized 12,550 shares
issued and outstanding, actual;
50,000 shares authorized, 12,550
shares issued and outstanding, pro
forma.............................. 126 126
Additional paid-in capital.......... 88,997 88,997
Retained earnings................... 24,114 (115,000)(1) (90,886)
-------- --------
Total stockholder's equity........ 113,237 (1,763)
-------- --------
Total liabilities and
stockholder's equity............. $200,777 $200,777
======== ========
</TABLE>
(1) To record a $115.0 million dividend to ShopKo Stores, Inc. in the form of a
demand promissory note subsequent to January 30, 1999.
F-13
<PAGE>
ProVantage's
Advanced Therapeutic Intervention Program
Medical Pharmaceutical Medical
Diagnosis Data Claims Data Claims Data
Identify
Quantify
Prioritize
Physician and Patient
Alert
Reduce Hospital Improve Quality Platform for
& Drug Costs of Healthcare Research
Our Advanced Therapeutic Intervention Program analyzes our clients' medical
diagnosis, claims and prescription data on an integrated basis, thereby
providing the capability to: identify patients at risk for drug-induced illness,
quantify medical risk using statistical measures, and prioritize patients at
risk.
Our clinical staff, under the direction of our physicians, intervene by issuing
alerts for these patients to the treating physicians. Alerts inform the treating
physicians of the medical condition, prescribing pattern or other factors that
create the increased hospitalization risk.
This program allows clients to measure their return on investment by quantifying
healthcare cost savings. The program is designed to improve the quality of
healthcare, and provides a platform for future research.
[LOGO OF PROVANTAGE]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers that buy, sell or trade the common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
5,300,000 Shares
ProVantage Health Services, Inc.
Common Stock
[COMPANY LOGO]
----------------------
P R O S P E C T U S
----------------------
Merrill Lynch & Co.
Bear, Stearns & Co. Inc.
William Blair & Company
Lehman Brothers
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the issuance and
distribution of the Common Stock being registered hereunder, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC registration fee............................................. $ 30,500
New York Stock Exchange listing fee.............................. 129,500
NASD filing fee.................................................. 11,500
Blue Sky fees and expenses (including fees of counsel)........... 7,500
Accounting fees and expenses..................................... 150,000
Legal fees and expenses.......................................... 200,000
Printing and engraving expenses.................................. 200,000
Transfer Agent and Registrar fees................................ 5,000
Miscellaneous.................................................... 16,000
--------
Total........................................................ $750,000
========
</TABLE>
All amounts except the SEC registration fee, New York Stock Exchange
listing fee and NASD filing fee are estimated.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
a Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful.
In the case of an action by or in the right of the corporation, Section
145 permits the corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interest of the corporation. No indemnification may be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and
II-1
<PAGE>
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in the preceding two paragraphs, Section
145 requires that such person be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Section 145 provides that expenses (including attorneys' fees) incurred
by an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in Section 145.
The Registrant's Restated Certificate of Incorporation provides that an
officer or director of the Registrant will not be personally liable to the
Registrant or its stockholders for monetary damages for any breach of his
fiduciary duty as an officer or director, except in certain cases where
liability is mandated by the DGCL. The provision has no effect on any non-
monetary remedies that may be available to the Registrant or its stockholders,
nor does it relieve the Registrant or its officers or directors from compliance
with federal or state securities laws.
The Registrant's Amended and Restated Bylaws generally provide that the
Registrant shall indemnify, to the fullest extent permitted by the DGCL, each
person who was or is made a party to or is threatened to be made a party to or
is involved in any threatened, pending or completed action, suit or proceeding
(each, a "Proceeding") by reason of the fact that such person is or was a
director, officer or employee of the Registrant, or is or was serving at the
request of the Registrant as a director, officer or employee of another entity,
against all expenses, liabilities and losses reasonably incurred or suffered by
such person in connection with such Proceeding.
An officer or director shall not be entitled to indemnification by the
Registrant if (i) the officer or director did not act in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
the Registrant, or (ii) with respect to any criminal action or proceeding, the
officer or director had reasonable cause to believe his conduct was unlawful.
The Purchase Agreement filed herewith as Exhibit 1.1 provides for
indemnification of the directors, certain officers and controlling persons of
the Registrant by the Underwriters against certain civil liabilities, including
liabilities under the Securities Act.
The Registrant has entered into agreements to indemnify its directors and
certain officers, in addition to the indemnification provided for in the
Amended and Restated Bylaws. These agreements will, among other things,
indemnify the Registrant's directors and certain of its officers to the full
extent permitted by Delaware law for any claims, liabilities, damages,
judgments, penalties, fines, settlements, disbursements or expenses (including
attorneys' fees) incurred by such person in any action or proceeding, including
any action by or in the right of the Registrant, on account of services as a
director or officer of the Registrant.
In addition, the Registrant has directors' and officers' liability
insurance that insures against certain liabilities, including liabilities under
the Securities Act, subject to applicable restrictions.
Item 15. Recent Sales of Unregistered Securities
The following information is furnished as to securities of the Registrant
sold within the past three years that were not registered under the Securities
Act:
II-2
<PAGE>
On August 20, 1997, the Registrant acquired The Mikalix Group, Inc. as
described under "Management's Discussion and Analysis of Financial Condition
and Results of Operation" in the prospectus contained in this Registration
Statement which description is incorporated by reference herein. The securities
which may be issued to the sellers of The Mikalix Group, Inc. were sold in
reliance on Section 4(2) of the Securities Act of 1933, as amended. The
securities were sold in a private offering to purchasers who represented that
they were purchasing such securities with investment intent and not with a view
to the distribution thereof.
Item 16. Exhibits and Financial Schedules
(a) Exhibits
The list of exhibits is incorporated by reference to the "Index to
Exhibits" located after the signature page of this Registration Statement.
(b) Financial Statement Schedules
ProVantage Health Services, Inc. and Subsidiaries
Schedule VIII--Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Additions
---------------------
Balance at Charged to Charged to Balance at
beginning bad debt other Deductions/ end
of year expense accounts* Writeoffs of year
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year (52 weeks) ended
February 1, 1997:
Allowance for losses
on receivables....... $ 40 $878 $800 $1,718
Year (52 weeks) ended
January 31, 1998:
Allowance for losses
on receivables....... $1,718 $ 38 $101 $881 $ 976
Year (52 weeks) ended
January 30, 1999:
Allowance for losses
on receivables....... $ 976 $185 $207 $ 54 $1,314
</TABLE>
- --------
* Charges to other various income statement accounts, other than bad debts.
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of a
schedule or because the information required is included in the consolidated
financial statements of the Registrant or the notes thereto or the schedules
are not required or inapplicable under the related instructions.
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
II-3
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(b) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has caused this Amendment No. 1 to the Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Milwaukee, State of Wisconsin, on March 25, 1999.
Provantage Health Services, Inc.
/s/ Jeffrey A. Jones*
By: _________________________________
Jeffrey A. Jones,
Executive Vice President
and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Dale P. Kramer* Chairman of the Board March 25, 1999
____________________________________
Dale P. Kramer
/s/ Jeffrey A. Jones* Executive Vice President and March 25, 1999
____________________________________ Chief Operating Officer
Jeffrey A. Jones (Principal Executive
Officer and Principal
Financial Officer)
/s/ Peter J. Beste* Vice President and March 25, 1999
____________________________________ Controller (Principal
Peter J. Beste Accounting Officer)
</TABLE>
/s/ Richard D. Schepp
- -------------------------------
*By Richard D. Schepp pursuant
to Powers of Attorney
previously filed.
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Document Description
------- --------------------
<C> <S> <C>
1.1 Form of Purchase Agreement**
3.1 Form of Restated Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Bylaws of the Registrant
4.1 Form of Stock Certificate
4.2 Form of Rights Agreement between the Registrant and Norwest Bank
Minnesota, N.A. (including the Form of Certificate of
Designation, Preferences and Rights of Senior B Junior
Participating Preferred Stock and Form of Rights Certificate)
4.3 Form of Demand Promissory Note issued by the Registrant to
ProVantage Holdings, Inc.
5.1 Opinion of Godfrey & Kahn, S.C.**
10.1 Form of Administrative Services Agreement between the Registrant
and ShopKo Stores, Inc.
10.2 Form of I.T. Support Agreement between the Registrant and ShopKo
Stores, Inc.
10.3 Form of Credit Agreement between the Registrant and ShopKo
Stores, Inc.
10.4 Form of Indemnification and Hold Harmless Agreement between the
Registrant and ShopKo Stores, Inc.
10.5 Form of Registration Rights Agreement between the Registrant and
ProVantage Holdings, Inc.
10.6 Form of Tax Matters Agreement between the Registrant and ShopKo
Stores, Inc.
10.7 Form of Indemnification Agreement between the Registrant and the
directors and certain officers of the Registrant
10.8 Form of Change of Control Severance Agreement between the
Registrant and certain officers of the Registrant
10.9(a) First Amended and Restated Prescription Benefit Management
Agreement between ProVantage Prescription Benefit Management,
Inc. and American Medical Security, Inc. dated as of March 14,
1996
10.9(b) First Amendment to the First Amended and Restated Prescription
Benefit Management Agreement between ProVantage Prescription
Benefit Management, Inc. and American Medical Security, Inc.
10.10 Registrant's 1999 Stock Incentive Plan
10.11 Prescription Benefit Management Agreement between the Registrant
and ShopKo Stores, Inc. dated as of January 27, 1999
10.12 System Agreement between Systems Xcellence USA, Inc. and the
Registrant dated as of January 27, 1999
10.13 Vision Benefit Group Insurance Policy
21.1 Subsidiaries of the Registrant*
23.1 Consent and Report on Schedule of Deloitte & Touche LLP
23.2 Consent of Godfrey & Kahn, S.C. (contained in Exhibit 5.1).**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document Description
------- --------------------
<C> <S> <C>
24.1 Powers of Attorney*
27.1 Financial Data Schedule
99.1 Consent of Jeffrey C. Girard*
99.2 Consent of William J. Podany*
99.3 Consent of Gregory H. Wolf*
99.4 Consent of Jeffrey A. Jones
</TABLE>
- --------
*Previously filed.
**To be filed.
2
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
-------------------------------------
OF
--
PROVANTAGE HEALTH SERVICES, INC.
--------------------------------
ProVantage Health Services, Inc., a Delaware corporation (the
"Corporation"), the original certificate of incorporation of which was filed
with the Secretary of State of the State of Delaware on June 26, 1989 (the
"Certificate of Incorporation") under the name The Mikalix Group, Inc., hereby
certifies that this Restated Certificate of Incorporation, restating,
integrating and amending its Certificate of Incorporation, was duly adopted by
its Board of Directors and its stockholder in accordance with Sections 242 and
245 of the General Corporation Law of the State of Delaware (the "DGCL").
FIRST: The name of the Corporation is: ProVantage Health Services, Inc.
-----
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is The Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware, County of Newcastle. The name of its registered agent at
such address is the Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which corporations may be organized under the DGCL.
FOURTH: A. The total number of shares of stock that the Corporation shall
------
have authority to issue is 55,000,000 of which (i) 50,000,000 shares shall be
shares of Common Stock, $.01 par value per share (the "Common Stock"), and (ii)
5,000,000 shares shall be shares of Preferred Stock, $.01 par value per share
(the "Preferred Stock").
B. The number of authorized shares of any class or classes of stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the votes
entitled to be cast by the holders of the Common Stock of the Corporation,
voting together as a single class, irrespective of the provisions of Section
242(b)(2) of the DGCL or any corresponding provision enacted subsequent to the
date hereof.
C. The following is a statement of the powers, preferences, and relative
participating, optional or other special rights and qualifications, limitations
and restrictions of the Common Stock:
1. Subject to the rights of the holders of Preferred Stock, and subject to
any other provisions of this Restated Certificate of Incorporation (the
"Restated Certificate"), holders of Common Stock shall be entitled to receive
such dividends and other distributions in cash, stock
<PAGE>
or property of the Corporation as may be declared thereon by the Board of
Directors of the Corporation from time to time out of assets or funds of the
Corporation legally available therefor.
2. (a) At every meeting of the stockholders of the Corporation, every
holder of Common Stock shall be entitled to one vote in person or by proxy for
each share of Common Stock standing in his or her name on the transfer books of
the Corporation in connection with the election of directors and all other
matters submitted to a vote of the stockholders. The holders of Common Stock
shall vote together as a single class, subject to any voting rights which may be
granted to holders of Preferred Stock, on all matters submitted to a vote of the
holders of Common Stock. No stockholder shall be entitled to exercise any right
of cumulative voting.
(b) Subject to any rights of the holders of Preferred Stock, the
provisions of this Restated Certificate shall not be modified, revised, altered
or amended, repealed or rescinded in whole or in part, without the approval of a
majority of the votes entitled to be cast by the holders of the Common Stock,
voting together as a single class.
(c) Any corporate action which may be taken at any annual or special
meeting of the stockholders, may be taken only at a duly called annual or
special meeting of stockholders and may not be taken by written consent of the
stockholders in lieu of such meeting. Notwithstanding anything contained in
this Restated Certificate to the contrary, the affirmative vote of the holders
of at least 75% of the total voting power of all classes of outstanding capital
stock, voting together as a single class, shall be required to amend or repeal
this paragraph (C)(2)(c) or adopt any provision inconsistent with this paragraph
(C)(2)(c).
3. In the event of any dissolution, liquidation or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after payment in
full of the amounts required to be paid to the holders of Preferred Stock, the
remaining assets and funds of the Corporation shall be distributed pro rata to
the holders of Common Stock. For the purposes of this paragraph (C)(3), the
voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
assets of the Corporation or a consolidation or merger of the Corporation with
one or more other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger) shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
4. All rights to vote and all voting power (including, without limitation
thereto, the right to elect directors) shall be vested exclusively in the
holders of Common Stock, voting together as a single class, except as otherwise
expressly provided in this Restated Certificate, in a Preferred Stock
Designation or as otherwise expressly required by applicable law.
D. Subject to the limitations and in the manner provided by law, shares
of the Preferred Stock may be issued from time to time in series, and the Board
of Directors of the Corporation or a duly authorized committee of the Board of
Directors of the Corporation, in accordance with the laws of the State of
Delaware, is hereby authorized to determine or alter the powers (including
voting powers), designations, preferences and relative, participating, optional
or other rights, if any, and qualifications, limitations or restrictions of the
Preferred Stock or any wholly unissued series of shares of Preferred Stock, and
to increase (but not above the total number of authorized
2
<PAGE>
shares of the class) or decrease (but not below the number of shares of any
series of Preferred Stock then outstanding) the number of shares of any such
series subsequent to the issue of shares of that series. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall upon the taking of any action required by applicable law resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
FIFTH: The books and records of the Corporation may be kept (subject to
-----
any mandatory requirement of law) outside the State of Delaware at such place or
places as may be designated from time to time by the Board of Directors or by
the Bylaws of the Corporation.
SIXTH: Special meetings of stockholders of the Corporation, for any
-----
purpose or purposes, unless otherwise prescribed by statute or by this Restated
Certificate, may be called by the Chairman of the Board or the President and
shall be called by the Chairman of the Board or the President or Secretary at
the request in writing of a majority of the Board of Directors. Such request
shall state the purpose or purposes of the proposed meeting.
SEVENTH: The Bylaws of the Corporation may be altered, amended or repealed
-------
at any meeting of the Board of Directors or of the stockholders (subject, in the
case of meetings of the stockholders, to the provisions of Article II of the
Bylaws), as the case may be. All such amendments must be approved by the
affirmative vote of the holders of at least 75% of the total voting power of all
classes of outstanding capital stock, voting together as a single class (if
effected by action of the stockholders), or by the affirmative vote of directors
constituting not less than a majority of the entire Board of Directors (if
effected by action of the Board of Directors). Notwithstanding anything
contained in this Restated Certificate to the contrary, the affirmative vote of
the holders of at least 75% of the total voting power of all classes of
outstanding capital stock, voting together as a single class, shall be required
to amend or repeal this ARTICLE SEVENTH or to adopt any provision inconsistent
with this ARTICLE SEVENTH.
EIGHTH: The business and affairs of the Corporation shall be managed by or
------
under the direction of a Board of Directors consisting of a number of directors
as determined from time to time by resolution adopted by the affirmative vote of
a majority of the entire Board of Directors then in office. The directors shall
be divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. Class I
directors shall be elected initially for a one-year term, Class II directors
shall be elected initially for a two-year term, and Class III directors shall be
elected initially for a three-year term. At each succeeding annual meeting of
stockholders beginning in 2000, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be duly elected and
3
<PAGE>
shall qualify, subject, however, to his prior death, resignation or removal from
office. Any vacancy on the Board of Directors, however caused, including,
without limitation, any vacancy resulting from an increase in the number of
directors, shall be filled by the vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. Any
director so elected to fill any vacancy on the Board of Directors, including a
vacancy created by an increase in the number of directors, shall hold office for
the remaining term of directors of the class to which he has been elected and
until his successor shall be elected and shall qualify.
Notwithstanding anything contained in this Restated Certificate to the
contrary, the affirmative vote of the holders of at least 75% of the total
voting power of all classes of outstanding capital stock, voting together as a
single class, shall be required to amend or repeal this ARTICLE EIGHTH or to
adopt any provision inconsistent with this ARTICLE EIGHTH.
NINTH: No director of the Corporation shall be liable to the Corporation
-----
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which
the director derived an improper personal benefit.
If the DGCL hereafter is amended to further eliminate or limit the
liability of directors, then the liability of a director of the Corporation, in
addition to the limitation on personal liability provided herein, shall be
limited to the fullest extent permitted by the amended DGCL. Any repeal or
modification of this paragraph by the stockholders of the Corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the Corporation existing at the time of such repeal
or modification.
TENTH: The Corporation may purchase and maintain insurance, at its
-----
expense, to protect the Corporation and any director, officer or employee of the
Corporation to the fullest extent authorized by the DGCL. The Corporation may
also enter into agreements providing for the indemnification of any director,
officer or employee of the Corporation.
IN WITNESS WHEREOF, ProVantage Health Services, Inc. has caused this
Restated Certificate of Incorporation to be signed on this ____ day of
___________, 1999 in its name.
PROVANTAGE HEALTH SERVICES, INC.
By:______________________________________
Name: Jeffrey A. Jones
Title: Executive Vice President and
Chief Operating Officer
4
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
---------------------
BYLAWS
------
OF
--
PROVANTAGE HEALTH SERVICES, INC.
--------------------------------
ARTICLE I
---------
Offices
-------
Section 1. Registered Office. The registered office of the corporation
-----------------
shall be in the City of Wilmington, County of Newcastle, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
-------------
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
----------
Meetings of Stockholders
------------------------
Section 1. Place of Meetings. All meetings of the stockholders shall be
-----------------
held at such place either within or without the State of Delaware as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting.
Section 2. Annual Meeting. Annual meetings of stockholders shall be held
--------------
at such date and time as shall be designated from time to time by the board of
directors and stated in the notice of meeting, at which time the stockholders
shall elect by a majority vote a board of directors, and transact such other
business as may properly be brought before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual meeting
------------------------
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 4. Stockholders List. The officer who has charge of the stock
-----------------
ledger of the corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting either at a place within the city
where the meeting is to be held, which place
<PAGE>
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose or purposes, unless otherwise prescribed by statute or by the
restated certificate of incorporation, may be called by the chairman of the
board or the president and shall be called by the chairman of the board, the
president or the secretary at the request in writing of a majority of the board
of directors. Such request shall state the purpose or purposes of the proposed
meeting.
Section 6. Notice of Special Meetings. Written notice of a special
--------------------------
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting to each stockholder
entitled to vote at such meeting.
Section 7. Business Transacted at Special Meetings. Business transacted
---------------------------------------
at any special meeting of stockholders shall be limited to the purpose or
purposes stated in the notice.
Section 8. Quorum and Adjournment. Except as otherwise provided by
----------------------
statute or by the restated certificate of incorporation, the holders of a
majority of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business; provided, however,
-------- -------
that where a separate vote by a class or classes or series is required, a
majority of the outstanding shares of such class or classes or series, present
in person or represented by proxy, shall constitute a quorum entitled to take
action with respect to that vote on that matter. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting to another time and place,
without further notice other than announcement at the meeting of such time and
place, until a quorum shall be present or represented. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. Organization. At every meeting of the stockholders, the
------------
chairman of the board or, in his or her absence, the chief executive officer or
the president, shall preside. In the absence of said officers, any other officer
of the rank of vice president present shall call such meeting to order and
preside. The presiding officer shall announce the date and time of the opening
and closing of the polls for each matter upon which the stockholders will vote
at a meeting. The secretary or, in the secretary's absence, the appointee of the
presiding officer of the meeting shall act as secretary of the meeting.
2
<PAGE>
Section 10. Voting. Except as otherwise provided in the restated
------
certificate of incorporation or required by the General Corporation Law of the
State of Delaware (the "DGCL"), when a quorum is present or represented at any
meeting, the affirmative vote of the majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders in all matters other than the election of
directors; provided, however, that where a separate vote by class or classes or
-------- -------
series is required, the affirmative vote of the majority of shares of such class
or classes or series present in person or represented by proxy at the meeting
shall be the act of such class or classes or series. Directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote in the election of directors.
Unless otherwise provided in the restated certificate of incorporation,
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder. No proxy shall be voted on after three (3)
years from its date, unless the proxy provides for a longer period.
Section 11. Action by Written Consent. Except as otherwise provided in
-------------------------
the restated certificate of incorporation, any corporate action required to be
taken at any annual or special meeting of the stockholders, or any corporate
action which may be taken at any annual or special meeting of the stockholders,
may be taken only at a duly called annual or special meeting of stockholders and
may not be taken by written consent of the stockholders in lieu of such meeting.
Section 12. Inspectors of Election. The board of directors by resolution
----------------------
shall, in advance of any meeting of stockholders, appoint, or shall authorize an
officer of the corporation to appoint, one or more inspectors to act at such
meeting and make a written report thereof. The board of directors, or an officer
authorized by the board of directors, may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of the duties of inspector, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of such inspector's ability. The
inspectors shall have the duties prescribed by the DGCL.
Section 13. Advance Notice Shareholder-Proposed Business at Annual
------------------------------------------------------
Meeting. At an annual meeting of stockholders, only such business shall be
- -------
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (a) specified in the notice
of meeting (or any amendment or supplement thereto) given in accordance with
Section 3, (b) otherwise properly brought before the meeting by or at the
direction of the board of directors, the chairman of the board, the chief
executive officer, or the president, or (c) otherwise properly brought before
the meeting by a stockholder. In addition to any other requirements under
applicable law, the restated certificate of incorporation or the bylaws, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice must be received at the
principal office of the corporation not less than 120 days prior to the
anniversary date of the annual meeting of stockholders in the
3
<PAGE>
immediately preceding year. A stockholder's notice to the secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (i) the text of such proposal or a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of
stock of the corporation which are owned beneficially and of record by the
stockholder, (iv) any interest of the stockholder in such business, (v) a
representation that the person sending the notice is a stockholder of record
entitled to vote at such meeting and will remain such through the record date
for the meeting, and (vi) a representation that such stockholder intends to
appear in person or by proxy at such meeting to move for the consideration of
the business set forth in the notice. In addition, any such stockholder shall be
required to provide such further information as may be requested by the
corporation in order to comply with federal and state securities laws, and rules
and regulations thereunder. The corporation may require evidence by any person
giving notice under this Section 13 that such person is a bona fide beneficial
owner of the corporation's stock.
Notwithstanding anything in the bylaws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 13; provided, however, that nothing in this Section 13
-------- -------
shall be deemed to preclude discussion by any stockholder of any business
properly brought before the annual meeting in accordance with said procedure.
The presiding officer at an annual meeting shall, if the facts warrant,
determine and declare to the meeting that the business was not properly brought
before the meeting in accordance with the provisions of this Section 13, and if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Section 14. Procedure for Nomination of Directors. Only persons nominated
-------------------------------------
in accordance with all of the procedures set forth in the corporation's restated
certificate of incorporation and bylaws shall be eligible for election as
directors. Nominations of persons for election to the board of directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the board of directors, by any nominating committee or persons appointed by the
board, or by any stockholder of the corporation entitled to vote for election of
directors at the meeting who complies with all of the notice procedures set
forth in this Section 14.
Nominations other than those made by or at the direction of the board of
directors or any nominating committee or person appointed by the board shall be
made pursuant to timely notice in proper written form to the secretary of the
corporation. To be timely, a stockholder's request to nominate a person for
director, together with the written consent of such person to serve as director,
must be received by the secretary of the corporation at the corporation's
principal office (i) with respect to an election held at an annual meeting of
stockholders, not less than 120 days prior to the anniversary date of the annual
meeting of stockholders in the immediately preceding year, or (ii) with respect
to an election held at a special meeting of stockholders for the election of
directors, not less than the close of business on the eighth day following the
date of the earlier of public announcement or notice of such meeting. To be in
proper written form, such
4
<PAGE>
stockholder's notice shall set forth in writing (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of stock of the corporation which are beneficially owned by such person,
and (iv) such other information relating to such person as would be required to
be disclosed in solicitations of proxies for election of directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, and any
successor to such Regulation; and (b) as to the stockholder giving the notice
(i) the name and address, as they appear on the corporation's books, of such
stockholder, (ii) the class and number of shares of stock of the corporation
which are owned beneficially and of record by such stockholder, (iii) a
representation that the stockholder intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice, and (iv)
a representation that the person sending the notice is a stockholder of record
entitled to vote at such meeting and will remain such through the record date
for the meeting. The corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the corporation to
determine the eligibility of such proposed nominee to serve as a director of the
corporation or the stockholder to nominate the proposed nominee. The presiding
officer at the meeting shall, if the facts so warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures or
other requirements prescribed by the corporation's restated certificate of
incorporation and bylaws; and if he should so determine, such presiding officer
shall so declare to the meeting and the defective nomination(s) shall be
disregarded.
ARTICLE III
-----------
Directors
---------
Section 1. Number. The number of directors which shall constitute the
------
whole board shall be not less than one (1) and not more than fifteen (15), the
exact number of directors to be determined from time to time by resolution
adopted by the affirmative vote of a majority of the entire board of directors
then in office.
Section 2. Classification. The directors shall be divided into three
--------------
classes, designated Class I, Class II, and Class III. Each class shall consist,
as nearly as may be possible, of one-third of the total number of directors
constituting the entire board of directors. If the number of directors is
changed by resolution of the board of directors pursuant to Section 1 of this
Article, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
but in no case shall a decrease in the number of directors shorten the term of
any incumbent director.
Section 3. Term. The term of directors of each class shall be three
----
years. A director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be duly elected and shall
qualify, subject, however, to his prior death, resignation or removal from
office.
5
<PAGE>
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the restated certificate of incorporation applicable thereto. Directors
so elected shall not be divided into classes unless expressly provided by the
restated certificate of incorporation, and during the prescribed terms of office
of such directors, the board of directors shall consist of such directors in
addition to the number of directors determined as provided in Section 1 of this
Article.
Section 4. Removal. Exclusive of directors, if any, elected by the
-------
holders of one or more classes of Preferred Stock, no director of the
corporation may be removed from office except for Cause and by the affirmative
vote of two-thirds of the outstanding shares of capital stock of the corporation
entitled to vote at a meeting of stockholders duly called for such purpose. As
used in this Section 4, the term "Cause" shall mean solely malfeasance arising
from the performance of a director's duties which has a materially adverse
effect on the business of the corporation.
Section 5. Vacancies. Exclusive of a vacancy in directors, if any, elected
---------
by the holders of one or more classes of preferred stock, any vacancy on the
board of directors, however caused, including, without limitation, any vacancy
resulting from an increase in the number of directors, shall be filled by the
vote of a majority of the directors then in office, although less than a quorum,
or by a sole remaining director. Any director so elected to fill any vacancy in
the board of directors, including a vacancy created by an increase in the number
of directors, shall hold office for the remaining term of directors of the class
to which he has been elected and until his successor shall be elected and shall
qualify. A vacancy that will occur at a specific later date may be filled before
the vacancy occurs, but the new director will not take office until the vacancy
occurs.
Section 6. Resignations. Any director of the corporation may resign at
------------
any time by giving written notice to the chairman of the board, or to the
president, or to the secretary of the corporation. The resignation of any
director shall take effect at the date of receipt of such notice or at any later
date specified therein; and unless otherwise specified therein the acceptance of
such resignation by the board of directors shall not be necessary to make it
effective.
Section 7. General Powers. The business and affairs of the corporation
--------------
shall be managed by or under the direction of its board of directors which may
exercise all such powers of the corporation and do all such lawful acts and
things as are not directed or required to be exercised or done by the
stockholders pursuant to the DGCL or the restated certificate of incorporation.
Section 8. Compensation of Directors. The directors may be paid their
-------------------------
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a fixed sum for attendance at each meeting of the board of directors
and/or a retainer fee as director. No such payment shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor. Chairman and/or members of special or standing committees may be
allowed compensation as determined by the board for chairing and/or attending
committee meetings.
6
<PAGE>
ARTICLE IV
----------
Meetings of the Board of Directors
----------------------------------
Section 1. Place of Meetings. The board of directors of the corporation
-----------------
may hold meetings, both regular and special, either within or without the State
of Delaware.
Section 2. Regular Meetings. Regular meetings of the board of directors
----------------
may be held without notice at such time and at such place as shall from time to
time be determined by the board.
Section 3. Special Meetings. Special meetings of the board may be called
----------------
by the chairman of the board, the chief executive officer or the president on at
least 24 hours prior notice to each director, either personally or by mail,
telegram, facsimile or other electronic transmission; special meetings shall be
called by the chief executive officer, president or secretary in like manner and
on like notice on the written request of any two directors.
Section 4. Quorum. At all meetings of the board, a majority of the total
------
number of directors shall constitute a quorum for the transaction of business
and the vote of the majority of the directors present at any meeting at which a
quorum is present shall be the act of the board of directors, except as may be
otherwise specifically provided by the DGCL or by the restated certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting to another
time and place, without further notice other than announcement at the meeting of
such time and place, until a quorum shall be present.
Section 5. Action by Written Consent. Unless otherwise restricted by the
-------------------------
restated certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the board of directors may be taken
without a meeting, if all members of the board consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the board.
Section 6. Electronic Participation. To the fullest extent permitted by
------------------------
law, members of the board of directors may participate in a meeting of the board
of directors by means of video teleconference, conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 6 shall constitute presence in person at the meeting.
ARTICLE V
---------
Committees
----------
Section 1. Committees of Directors. The board of directors may designate
-----------------------
one or more committees, each committee to consist of one or more of the
directors of the corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or
7
<PAGE>
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the board
of directors to act at the meeting in the place of such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to the following matters: (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
Section 2. Other Committees. The board of directors may from time to time
----------------
by resolution create such other committee or committees of directors, officers,
employees, or other persons designated by it for the purpose, and with such
functions, powers and responsibilities, as the board shall by resolution
prescribe. None of the powers and authorities reserved to the board of
directors by Section 1 of this Article V may be delegated to any such committee.
Section 3. Committee Procedures. Each committee created by the board of
--------------------
directors shall have such name as may be determined from time to time by the
board of directors. The board of directors shall have power to change the
members of any such committee at any time, to fill vacancies, and to dissolve
any such committee at any time. Unless specifically provided to the contrary in
or otherwise restricted by the restated certificate of incorporation, these
bylaws or a resolution adopted by the board of directors, the procedures set
forth in Article IV shall apply to each committee created by the board of
directors in the same manner as that Article applies to the board of directors,
as though references therein to directors were to members of the committee. Each
such committee shall keep regular minutes of its meetings and report the same to
the board of directors when so requested.
ARTICLE VI
----------
Officers
--------
Section 1. Number and Titles. The officers of the corporation shall be
-----------------
appointed by the board of directors and shall be such officers as the board of
directors may determine and may be a chairman of the board, a chief executive
officer, a president, a secretary and a treasurer. The board of directors may
also appoint one or more vice presidents, one or more assistant secretaries and
assistant treasurers, and such other officers as the board may by resolution
create, or as may be appointed in accordance with Section 2 of this Article. Any
one or more vice presidents may be designated executive vice president or senior
vice president. One person may hold any number of offices, unless the restated
certificate of incorporation or these bylaws otherwise provide.
Section 2. Appointment. The board of directors at its first meeting after
-----------
each annual meeting of stockholders shall choose such officers as it may
determine which may be a chairman of the board, a chief executive officer, a
president, a secretary and a treasurer. The board of
8
<PAGE>
directors may appoint such other officers and agents as it shall deem necessary
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the board.
Section 3. Compensation. The compensation of all officers and agents of
------------
the corporation shall be fixed by the board of directors or by a committee
created or officers designated for that purpose.
Section 4. Term of Office. The officers of the corporation shall hold
--------------
office until their successors are elected and qualify or until their earlier
death, resignation or removal. Any officer elected or appointed by the board of
directors may be removed at any time by the affirmative vote of a majority of
the board of directors. Any vacancy occurring in any office of the corporation
occurring by reason of death, resignation, removal or otherwise shall be filled
by the board of directors.
Section 5. Chairman of the Board. The chairman of the board shall preside
---------------------
at all annual and special meetings of stockholders and all regular and special
meetings of the board of directors, shall advise and counsel with the chief
executive officer and shall be responsible for the administration and management
of the areas of the business and affairs of the corporation assigned to him or
her from time to time by the board of directors.
Section 6. Chief Executive Officer. The chief executive officer shall be
-----------------------
the principal executive officer of the corporation and, subject to the control
of the board of directors, shall have general supervision and control of the
business and affairs of the corporation and its officers. The chief executive
officer shall have the authority, subject to such rules as may be prescribed by
the board of directors, to appoint such agents and employees of the corporation
as the chief executive officer deems necessary, prescribe their powers, duties
and compensation, and delegate authority to them. Such agents and employees
shall hold offices at the discretion of the chief executive officer. The chief
executive officer shall have authority to sign, execute and acknowledge, on
behalf of the corporation, all deeds, mortgages, bonds, stock certificates,
contracts, leases, reports and all other documents or instruments necessary or
proper to be executed in the course of the corporation's regular business or
which shall be authorized by the board of directors. Except as otherwise
provided by the DGCL or the board of directors, the chief executive officer may
authorize any other officer or agent of the corporation to sign, execute and
acknowledge such documents in his or her place and stead. In general, the chief
executive officer shall have all authority and perform all duties incident to
the office of the chief executive offices and such other duties as may be
prescribed by the board of directors from time to time.
Section 7. President. In the absence of the chief executive officer or in
---------
the event of his or her death, or inability or refusal to act, the president
shall perform the duties of the chief executive officer, and when so acting
shall have all the powers and duties of the chief executive officer. In
addition, the president shall be responsible for the administration and
management of the areas of the business and affairs of the corporation assigned
to him from time to time by the board of directors or the chief executive
officer.
9
<PAGE>
Section 8. Vice Presidents. One or more of the vice presidents may be
---------------
designated as senior executive vice president, executive vice president or
senior vice president. In the absence of the president or in this event of his
or her death, or inability or refusal to act, the vice presidents in the order
designated at the time of their election, shall perform the duties of the
president and when so acting shall have all the powers of and be subject to all
the restrictions upon the president. Any vice president may sign with the
secretary or assistant secretary certificates for shares of the corporation. Any
vice president shall perform such other duties as are incident to the office of
vice president or as may be prescribed from time to time by the board of
directors, the chief executive officer or the president.
Section 9. Secretary. The secretary shall: (i) keep the minutes of the
---------
meetings of the stockholders and board of directors in one or more books
provided for that purpose, (ii) see that all notices are duly given in
accordance with the provisions of the bylaws or as required by law, (iii) be
custodian of the corporation's records and of the seal of the corporation, (iv)
see that the seal of the corporation is affixed to all appropriate documents the
execution of which on behalf of the corporation under its seal is duly
authorized, (v) keep a register of the address of each stockholder which shall
be furnished to the secretary by such stockholder, and (vi) perform all duties
incident to the office of secretary and such other duties as may be prescribed
from time to time by the board of directors, the chief executive officer or the
president.
Section 10. Treasurer. The treasurer shall: (i) have charge and custody
---------
of and be responsible for all funds and securities of the corporation, (ii)
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation,
and (iii) in general perform all of the duties incident to the office of
treasurer and have such other duties and exercise such other authority as from
time to time may be delegated or assigned by the board of directors, the chief
executive officer or the president.
Section 11. Assistant Secretaries and Assistant Treasurers. An assistant
----------------------------------------------
secretary, if any, when authorized by the board of directors, may sign with the
chief executive officer, the president or any vice president certificates for
stock of the corporation, the issuance of which shall have been authorized by a
resolution of the board of directors. An assistant treasurer, if any, shall, if
required by the board of directors, give bonds for the faithful discharge of his
or her duties in such sums and with such sureties as the board of directors
shall determine. The assistant secretaries and assistant treasurers, in general,
shall perform such duties as shall be assigned to them by the board of
directors, the chief executive officer, the president, the secretary or the
treasurer, respectively.
ARTICLE VII
-----------
Capital Stock
-------------
Section 1. Certificates. Every holder of stock in the corporation shall
------------
be entitled to have a certificate, signed by or in the name of the corporation
by the chairman of the board of directors, or the chief executive officer, or
president, or a vice president and by the treasurer or an assistant treasurer,
or the secretary or an assistant secretary of the corporation, representing the
number of shares of stock owned by such holder in the corporation. Any or all of
the signatures
10
<PAGE>
on the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue. If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the DGCL, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock a
statement that the corporation will furnish without charge to each stockholder
who so requests, the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 2. Lost Certificates. The board of directors may direct a new
-----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed or the issuance of such new certificate or certificates.
Section 3. Transfers of Stock. Upon surrender to the corporation or the
------------------
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, including evidence of approval of such transfer by the corporation as
required by the restated certificate of incorporation, it shall be the duty of
the corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 4. Fixing Record Date. In order that the corporation may
------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any right in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors and which
record date shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than ten (10) days after the date upon
which the
11
<PAGE>
resolution fixing the record date to determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, nor more than sixty (60) days prior to any other action. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
Section 5. Registered Stockholders. The corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares of stock to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares of stock, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares of stock on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
Section 6. Dividends. Dividends upon the capital stock of the
---------
corporation, subject to the provisions of the restated certificate of
incorporation, if any, may be declared by the board of directors at any regular
or special meeting, pursuant to law. Dividends may be paid in cash, in property,
or in shares of the corporation's capital stock, subject to the provisions of
the restated certificate of incorporation.
Section 7. Reserves. Before payment of any dividend, there may be set
--------
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interests
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
ARTICLE VIII
------------
Indemnification
---------------
Section 1. Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that such person, or another person of whom such person is the legal
representative, is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of, or in
some other representative capacity for, another corporation or a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director or officer or in any other capacity while
serving as a director or officer shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the corporation to provide broader
indemnification rights than said law permitted the corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, penalties, judgments, fines, amounts paid or to be paid in
settlement and excise taxes or penalties imposed
12
<PAGE>
on fiduciaries with respect to (i) employee benefit plans, (ii) charitable
organizations or (iii) similar matters) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of such person's heirs, executors and administrators; provided, however, that
-------- -------
except as provided in Section 2 of this Article with respect to proceedings
seeking to enforce rights to indemnification, the corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the board of directors of the corporation. The right to
indemnification conferred in this Section 1 shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
--------
however, that, if the DGCL so requires, the payment of such expenses incurred by
- -------
a director or officer in such person's capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such person
while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the corporation of an undertaking, by or on
behalf of such person, to repay all amounts so advanced if it shall ultimately
be determined that such director or officer is not entitled to be indemnified
under this Section 1 or otherwise.
Section 2. Right of Claimant to Bring Suit. If a claim under Section 1 of
-------------------------------
this Article is not paid in full by the corporation within ninety days after a
written claim has been received by the corporation, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the DGCL for the corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because the claimant has met the
applicable standard of conduct set forth in the DGCL, nor an actual
determination by the corporation (including its board of directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
Section 3. Non-Exclusivity of Rights. The right to indemnification and
-------------------------
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
rights which any person seeking indemnification or advancement of expenses may
be entitled or hereafter acquire under any statute, provision of the restated
certificate of incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
13
<PAGE>
Section 4. Insurance. The corporation may purchase and maintain
---------
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation serving in any capacity on behalf of the corporation
or at its request for any other entity to the fullest extent authorized by the
DGCL, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment grants the corporation
broader rights than said law permitted the corporation to provide prior to such
amendment), whether or not the corporation would have the power to indemnify
such person against such expense, liability or loss under the DGCL.
Section 5. Retroactive Indemnification. The provisions of this Article
---------------------------
shall cover claims, actions, suits and proceedings, civil or criminal, whether
now pending or hereafter commenced, and shall be retroactive to cover acts or
omissions or alleged acts or omissions which heretofore have taken place. If
any part of this Article should be found to be invalid or ineffective in any
proceeding, the validity and effect of the remaining provisions shall not be
affected.
Section 6. Indemnification of Other Employees and Agents. The corporation
---------------------------------------------
may, to the extent authorized from time to time by the board of directors, grant
rights to indemnification, and rights to be paid by the corporation the expenses
incurred in defending any proceeding in advance of its final disposition, to any
employee or agent of the corporation to the fullest extent of the provisions of
this Article with respect to the indemnification and advancement of expenses of
directors and officers of the corporation.
ARTICLE IX
----------
Notices
-------
Section 1. Form of Notices. Whenever, under the provisions of the
---------------
statutes or of the restated certificate of incorporation or of these bylaws,
notice is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, by
mail, addressed to such director or stockholder, at his or her address as it
appears in the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given by
telegram or by facsimile or other electronic transmission.
Section 2. Waiver of Notice. Whenever any notice is required to be given
----------------
under the provisions of the DGCL, the restated certificate of incorporation or
these bylaws, a written waiver signed by the person entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, directors or members of a committee of directors need be
specified in any written waiver of notice.
14
<PAGE>
ARTICLE X
---------
Miscellaneous
-------------
Section 1. Annual Statements. The board of directors may present at any
-----------------
annual meeting, or at any special meeting of the stockholders when called for by
vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
Section 2. Checks. All checks or demands for money and notes of the
------
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the corporation shall end on
-----------
such date as is determined by the board of directors.
Section 4. Seal. The corporate seal shall be in such form as may be
----
approved from time to time by the board of directors, and said seal, or a
facsimile thereof, may be imprinted or affixed by any process or in any manner
reproduced. Affixing the seal is not necessary to make the execution of any
document effective or binding.
ARTICLE XI
----------
Amendments
----------
Section 1. Amendment by Corporation's Board of Directors or Stockholders.
-------------------------------------------------------------
These bylaws may be altered, amended or repealed at any meeting of the board of
directors or of the stockholders (subject, in the case of meetings of
stockholders, to the provisions of Article II), as the case may be. All such
amendments must be approved by the affirmative vote of the holders of at least
75% of the total voting power of all classes of outstanding capital stock,
voting together as a single class (if effected by action of the stockholders),
or by the affirmative vote of directors constituting not less than a majority of
the entire board of directors (if effected by action of the board of directors).
15
<PAGE>
COMMON STOCK
PAR VALUE $.01
SHARES
NUMBER
PV
[PROVANTAGE LOGO APPEARS HERE] THIS CERTIFICATE
IS TRANSFERABLE
IN NEW YORK,
NEW YORK OR MINNEAPOLIS,
MINNESOTA
CUSIP 743725 10 3
SEE REVERSE FOR CERTAIN DEFINITIONS
[ARTWORK APPEARS HERE]
ProVantage Health Services, Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
ProVantage Health Services, Inc. transferable only on the books of the
Corporation by the holder hereof in person or duly authorized attorney upon the
surrender of this certificate properly endorsed or assigned. This certificate is
not valid unless countersigned and registered by the Transfer Agent and
Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated
[PROVANTAGE HEALTH SERVICES, INC. CORPORATE SEAL]
COUNTERSIGNED AND REGISTERED /s/ Jeffrey A. Jones
NORWEST BANK MINNESOTA, N.A. PRESIDENT
TRANSFER AGENT AND REGISTRAR
/s/ Patricia Nussle
SECRETARY
AUTHORIZED SIGNATURE
<PAGE>
ProVantage Health Services, Inc.
ProVantage Health Services, Inc. will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Any such request should be made to the
Secretary of the Corporation, at the Corporation's principal executive offices.
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between ProVantage Health Services,
Inc. and Norwest Bank Minnesota, N.A., dated __________, 1999 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal executive offices of ProVantage
Health Services, Inc. Under certain circumstances, as set forth in the Rights
Agreement, such rights shall be evidenced by separate certificates and shall no
longer be evidenced by this certificate. ProVantage Health Services, Inc. shall
mail to the holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Under certain circumstances,
as set forth in the Rights Agreement, rights issued to any person who becomes an
Acquiring Person or any Associate or Affiliate of any Acquiring Person (as such
terms are defined in the Rights Agreement) (or nominee of any of them) may
become null and void.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT--__________ Custodian ___________
(Cust) (Minor)
under Uniform Gifts to Minors
Act__________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, ____________________
AFFIX MEDALLION SIGNATURE X____________________________________________
GUARANTEE IMPRINT BELOW (SIGNATURE)
X____________________________________________
(SIGNATURE)
_____________________________________________
ABOVE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION SUCH AS A
SECURITIES BROKER/DEALER, COMMERCIAL BANK &
TRUST COMPANY, SAVINGS AND LOAN ASSOCIATION OR
A CREDIT UNION PARTICIPATING IN A MEDALLION
PROGRAM APPROVED BY THE SECURITIES TRANSFER
ASSOCIATION, INC.
<PAGE>
RIGHTS AGREEMENT
BY AND BETWEEN
PROVANTAGE HEALTH SERVICES, INC.
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
RIGHTS AGENT
DATED AS OF ______________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1. Certain Definitions.......................................................................... 1
Section 2. Appointment of Rights Agent.................................................................. 5
Section 3. Issue of Right Certificates.................................................................. 5
Section 4. Form of Right Certificates................................................................... 7
Section 5. Countersignature and Registration............................................................ 7
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates................................................. 8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights................................ 8
Section 8. Cancellation and Destruction of Right Certificates........................................... 10
Section 9. Availability of Preferred Shares............................................................. 10
Section 10. Preferred Shares Record Date................................................................. 11
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights........................... 11
Section 12. Certificate of Adjusted Purchase Price or Number of Shares................................... 19
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power......................... 20
Section 14. Fractional Rights and Fractional Shares...................................................... 21
Section 15. Rights of Action............................................................................. 23
Section 16. Agreement of Right Holders................................................................... 23
Section 17. Right Certificate Holder Not Deemed a Shareholder............................................ 24
Section 18. Concerning the Rights Agent.................................................................. 24
Section 19. Merger or Consolidation or Change of Name of Rights Agent.................................... 25
Section 20. Duties of Rights Agent....................................................................... 25
Section 21. Change of Rights Agent....................................................................... 27
Section 22. Issuance of New Right Certificates........................................................... 28
Section 23. Redemption................................................................................... 28
Section 24. Exchange..................................................................................... 29
Section 25. Notice of Certain Events..................................................................... 30
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 26. Notices..................................................................................... 31
Section 27. Supplements and Amendments.................................................................. 32
Section 28. Successors.................................................................................. 32
Section 29. Benefits of This Agreement.................................................................. 32
Section 30. Severability................................................................................ 32
Section 31. Governing Law............................................................................... 33
Section 32. Counterparts................................................................................ 33
Section 33. Descriptive Headings........................................................................ 33
Signatures............................................................................................... 33
Exhibit A Form of Certificate of Designations of Series B Junior
Participating Preferred Stock............................................................... 34
Exhibit B Form of Right Certificate................................................................... 40
Exhibit C Summary of Rights to Purchase Preferred Shares.............................................. 46
</TABLE>
ii
<PAGE>
RIGHTS AGREEMENT
THIS RIGHTS AGREEMENT ("Agreement"), dated as of ______________, 1999, is
made between PROVANTAGE HEALTH SERVICES, INC., a Delaware corporation (the
"Company"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION (the "Rights
Agent").
WHEREAS, the Board of Directors of the Company (the "Board") has authorized
and declared a dividend of one preferred share purchase right (a "Right") for
each Common Share (as hereinafter defined) of the Company outstanding on the
Record Date (as hereinafter defined), each Right representing the right to
purchase one one-thousandth of a Preferred Share (as hereinafter defined), upon
the terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right with respect to each Common
Share that shall become outstanding between the Record Date and the earliest of
the Distribution Date, the Redemption Date and the Final Expiration Date (as
such terms are hereinafter defined);
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings
indicated:
(a) "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as
such terms are hereinafter defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of 15% or more
of the Common Shares of the Company then outstanding, but shall not
include the Company, any Subsidiary (as such term is hereinafter
defined) of the Company, any employee benefit plan of the Company or
of any Subsidiary of the Company, any entity holding Common Shares for
or pursuant to the terms of any such plan or any Excluded Person.
Notwithstanding the foregoing, no Person shall become an "Acquiring
Person" as the result of an acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases
the proportionate number of shares beneficially owned by such Person
to 15% or more of the Common Shares of the Company then outstanding;
provided, however, that if a Person shall become the Beneficial Owner
of 15% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share
purchases by the Company, become the Beneficial Owner of any
additional Common Shares of the Company, then such Person shall be
deemed to be an "Acquiring Person." Notwithstanding the foregoing, if
the Board determines in good faith that a Person who would otherwise
be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this Section 1(a), has become such
<PAGE>
inadvertently, and without any plan or intention to seek or affect
control of the Company, and such Person divests as promptly as
practicable (without exercising or retaining any power, including
voting, with respect to such shares) a sufficient number of Common
Shares so that such Person would no longer be an "Acquiring Person,"
as defined pursuant to the foregoing provisions of this Section 1(a),
then such Person shall not be deemed to be an "Acquiring Person" for
any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has:
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and
selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion
rights, exchange rights, rights (other than these Rights),
warrants or options, or otherwise; provided, however, that
a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender
or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange;
or
(B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not
be deemed the Beneficial Owner of, or to beneficially own,
any security if the agreement, arrangement or understanding
to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and
in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then
reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
2
<PAGE>
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona
fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated
by the proviso to Section 1(c)(ii)(B)) or disposing of any
securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean
the number of such securities then issued and outstanding together
with the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially
hereunder.
(d) "Business Day" shall mean any day other than a Saturday, Sunday, or a
day on which banking institutions in Wisconsin are authorized or
obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00 P.M., Milwaukee,
Wisconsin time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., Milwaukee, Wisconsin time,
on the next succeeding Business Day.
(f) "Common Shares" when used with reference to the Company shall mean the
shares of common stock, $.01 par value per share, of the Company.
"Common Shares" when used with reference to any Person other than the
Company, shall mean the capital stock (or equity interest) with the
greatest voting power of such other Person or, if such other Person is
a Subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person.
(g) "Distribution Date" shall mean the earlier of (i) the tenth day after
the Shares Acquisition Date (as such term is hereinafter defined), or
(ii) the tenth business day (or such later date as may be determined
by action of the Board prior to such time as any Person becomes an
Acquiring Person) after the date of the commencement by any Person
(other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any
entity holding Common Shares for or pursuant to the terms of any such
plan) of, or the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the
terms of any such plan) to commence, a tender or exchange offer the
consummation of which would result in any Person
3
<PAGE>
becoming the Beneficial Owner of Common Shares aggregating 15% or more
of the then outstanding Common Shares (including any such date which
is after the date of this Agreement and prior to the issuance of the
Rights).
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, as in effect on the date of this Agreement.
(i) "Excluded Person" shall mean (i) ShopKo Stores, Inc., a Wisconsin
corporation ("ShopKo"), or any Affiliate or Associate of ShopKo, or
(ii) any Person to whom beneficial ownership of Common Shares is
transferred by an Excluded Person referred to in (i) above, provided
that, prior to such transfer, the transferee is not an Acquiring
Person and provided, further, that after such transfer the transferee
is the Beneficial Owner of 15% or more of the Common Shares of the
Company.
(j) "Final Expiration Date" shall mean _______________ ____, 2009.
(k) "NASDAQ" shall mean the National Association of Securities Dealers,
Inc. Automated Quotations System.
(l) "Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such
entity.
(m) "Preferred Shares" shall mean shares of Series B Junior Participating
Preferred Stock, $.01 par value per share, of the Company having the
rights and preferences set forth in the Form of Certificate of
Designations attached to this Agreement as Exhibit A.
(n) The "Purchase Price" for each one one-thousandth of a Preferred Share
purchasable pursuant to the exercise of a Right shall mean
$120.00, subject to adjustment from time to time as provided in
Sections 11 and 13 hereof.
(o) "Record Date" shall mean ______________ ____, 1999.
(p) "Redemption Date" shall mean that date, if any, on which the Board
shall redeem the Rights as provided in Section 23 hereof.
(q) "Redemption Price" shall mean $.01 per Right, appropriately adjusted
to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof.
(r) "Right Certificate" shall mean certificates evidencing ownership of
Rights in substantially the form set out in Exhibit B hereto.
4
<PAGE>
(s) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.
(t) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by
such Person.
(u) "Trading Day" shall mean a day on which the principal national
securities exchange on which a security is listed or admitted to
trading is open for the transaction of business or, if the security is
not listed or admitted to trading on any national securities exchange,
a Business Day.
SECTION 2. APPOINTMENT OF RIGHTS AGENT.
The Company hereby appoints the Rights Agent to act as agent for the
Company and the holders of the Rights (who, in accordance with Section 3 hereof,
shall prior to the Distribution Date also be the holders of the Common Shares)
in accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such Co-
Rights Agents as it may deem necessary or desirable.
SECTION 3. ISSUE OF RIGHT CERTIFICATES.
(a) Until the Distribution Date, (x) the Rights will be evidenced (subject
to the provisions of paragraph (b) of this Section 3) by the
certificates for the Common Shares registered in the names of the
holders of the Common Shares and not by separate certificates, and (y)
the Rights will be transferable only in connection with the transfer
of the underlying Common Shares (including a transfer to the Company).
(b) As promptly as practicable following the Record Date, the Company will
send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form attached hereto as Exhibit C ("Summary of
Rights"), by first class mail, postage prepaid, to each record holder
of the Common Shares as of the close of business on the Record Date,
as the address of such holder shown on the records of the Company.
With respect to certificates of the Common Shares outstanding as of
the Record Date, until the Distribution Date or the earlier surrender
for transfer thereof or the Redemption Date or Final Expiration Date,
the Rights associated with the Common Shares represented by such
certificates shall be evidenced by such certificates for the Common
Shares together with a copy of the Summary of Rights, and the
registered holders of the Common Shares shall also be the registered
holders of the associated Rights. Until the earlier of the
Distribution Date, the Redemption Date or the Final Expiration Date,
the transfer of any of the certificates for the Common Shares
outstanding on the Record Date,
5
<PAGE>
with or without a copy of the Summary of Rights attached thereto,
shall also constitute the transfer of the Rights associated with the
Common Shares represented by such certificates.
(c) Rights shall be issued in respect of all Common Shares which become
outstanding (including, without limitation, reacquired Common Shares
referred to in the last sentence of this paragraph (c)) after the
Record Date, but prior to the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date. Certificates
representing such Common Shares shall also be deemed to represent the
related Rights. After the Record Date, but prior to the earliest of
the Distribution Date, the Redemption Date or the Final Expiration
Date, certificates representing Common Shares shall have impressed on,
printed on, written on, or otherwise affixed to them the following
legend:
"This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between
ProVantage Health Services, Inc. and Norwest Bank Minnesota,
National Association, dated as of ________________ ____, 1999 (the
"Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the
principal executive offices of ProVantage Health Services, Inc.
Under certain circumstances, as set forth in the Rights Agreement,
such Rights shall be evidenced by separate certificates and shall
no longer be evidenced by this certificate. ProVantage Health
Services, Inc. shall mail to the holder of this certificate a copy
of the Rights Agreement without charge after receipt of a written
request therefor. Under certain circumstances, as set forth in the
Rights Agreement, Rights issued to any Person who becomes an
Acquiring Person or any Associate or Affiliate of an Acquiring
Person (as such terms are defined in the Rights Agreement) (or
nominee of any of them) may become null and void."
With respect to such certificates containing the foregoing legend,
until the Distribution Date, the Rights associated with the Common
Shares represented by such certificates shall be evidenced by such
certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby. In the event
that the Company purchases or acquires any Common Shares after the
Record Date, but prior to the Distribution Date, any Rights associated
with such Common Shares shall be deemed canceled and retired so that
the Company shall not be entitled to exercise any Rights associated
with the Common Shares which are no longer outstanding.
(d) As soon as practicable after the Distribution Date, the Company shall
prepare and execute, the Rights Agent shall countersign, and the
Company shall send or cause to be sent (and the Rights Agent shall, if
requested, send) by first-class, insured,
6
<PAGE>
postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Distribution Date, at the address of such
holder shown on the records of the Company, a Right Certificate
evidencing one Right for each Common Share so held. As of the
Distribution Date, the Rights shall be evidenced solely by such Right
Certificates.
SECTION 4. FORM OF RIGHT CERTIFICATES.
The Right Certificates (and the forms of election to purchase Preferred
Shares and of assignment to be printed on the reverse thereof) shall be
substantially the same as Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 22
hereof, the Right Certificates shall entitle the holders thereof to purchase
such number of one one-thousandths of a Preferred Share as shall be set forth
therein at the Purchase Price set forth therein, but the number of such one one-
thousandths of a Preferred Share and the Purchase Price shall be subject to
adjustment as provided herein.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION.
The Right Certificates shall be executed on behalf of the Company by any of
its Chairman of the Board, its President, or any Vice President, and attested by
any of its by Secretary or any Assistant Secretary, either manually or by
facsimile signature. The Right Certificates shall not be valid for any purpose
unless countersigned by the Rights Agent. In case any officer of the Company
who shall have signed any of the Right Certificates shall cease to be such
officer of the Company before countersignature by the Rights Agent and issuance
and delivery by the Company, such Right Certificates, nevertheless, may be
countersigned by the Rights Agent, and issued and delivered by the Company with
the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who holds any
such office at the actual date of the execution of such Right Certificate,
although at the date of the execution of this Rights Agreement such person was
not such an officer.
Following the Distribution Date, the Rights Agent shall keep or cause to be
kept, at its shareholder services offices, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates, and the date of
each of the Right Certificates.
7
<PAGE>
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
Subject to the provisions of Section 14 hereof, at any time after the close
of business on the Distribution Date and at or prior to the close of business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or other Right Certificates,
entitling the registered holder to purchase a like number of one one-thousandths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company shall make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the
Right Certificate (with the form of election to purchase on the
reverse side thereof duly executed) to the Rights Agent at the
principal office of the Rights Agent, together with payment of the
Purchase Price for each one one-thousandth of a Preferred Share as to
which the Rights are exercised, at or prior to the earliest of
(i) the close of business on the Final Expiration Date,
(ii) the Redemption Date, or
8
<PAGE>
(iii) the time at which such Rights are exchanged as provided in
Section 24 hereof.
(b) The Purchase Price shall be payable in lawful money of the United
States of America in accordance with Section 7(c).
(c) Upon receipt of a Right Certificate representing exercisable Rights
(with the form of election to purchase duly executed), accompanied by
payment (by certified check, cashier's check, or money order payable
to the order of the Company) of the Purchase Price for the shares to
be purchased and an amount equal to any applicable transfer tax
required to be paid by the holder of such Right Certificate in
accordance with Section 9 hereof, the Rights Agent shall thereupon
promptly
(i) (A) requisition from any transfer agent of the Preferred Shares
certificates for the number of Preferred Shares to be
purchased, and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or
(B) requisition from the depositary agent depositary receipts
representing such number of one one-thousandths of a
Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such
receipts shall be deposited by the transfer agent with the
depositary agent) and the Company hereby directs the
depositary agent to comply with such request; and
(ii) when appropriate, requisition from the Company the amount of
cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof; and
(iii) promptly after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of
the registered holder of such Right Certificate, registered in
such name or names as may be designated by such holder; and
(iv) when appropriate, after receipt, promptly deliver such cash to
or upon the order of the registered holder of such Right
Certificate.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall
be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the
provisions of Section 14 hereof.
9
<PAGE>
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES.
All Right Certificates surrendered for the purpose of exercise, transfer,
split up, combination or exchange shall, if surrendered to the Company or to any
of its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
SECTION 9. AVAILABILITY OF PREFERRED SHARES.
The Company covenants and agrees that it shall cause to be reserved and
kept available out of its authorized and unissued Preferred Shares, the number
of Preferred Shares that shall be sufficient to permit the exercise in full of
all outstanding Rights in accordance with Section 7 hereof.
The Company covenants and agrees that it shall take all such actions as may
be necessary to ensure that all Preferred Shares delivered upon exercise of the
Rights shall, at the time of delivery of the certificates for such Preferred
Shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
The Company covenants and agrees that it shall pay when due and payable any
and all federal and state transfer taxes and charges which may be payable in
respect of the issuance or delivery of the Right Certificates or of any
Preferred Shares upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Shares in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise, or to issue or to deliver any
certificates or depositary receipts for Preferred Shares upon the exercise of
any Rights until any such tax shall have been paid (any such tax being payable
by the holder of such Right Certificate at the time of surrender) or until it
has been established to the Company's reasonable satisfaction that no such tax
is due.
SECTION 10. PREFERRED SHARES RECORD DATE.
Each person in whose name any certificate for Preferred Shares is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Preferred Shares represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
10
<PAGE>
surrender and payment is a date upon which the Preferred Shares transfer books
of the Company are closed, such person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares transfer books of the
Company are open.
Prior to the issuance of Preferred Shares upon the exercise of the Rights
evidenced thereby, the holder of a Right Certificate shall not be entitled to
any rights of a holder of Preferred Shares for which the Rights shall be
exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions, or to exercise any preemptive rights, and
shall not be entitled to receive any notice of any proceedings of the Company,
except as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS.
The Purchase Price, the number of Preferred Shares covered by each Right,
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of this
Agreement
(A) declare a dividend on the Preferred Shares payable in
Preferred Shares,
(B) subdivide the outstanding Preferred Shares,
(C) combine the outstanding Preferred Shares into a smaller
number of Preferred Shares, or
(D) issue any shares of its capital stock in a reclassification
of the Preferred Shares (including any such reclassification
in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a), the Purchase
Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which,
if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books
of the Company were open, the holder would have owned upon
such exercise and been entitled to
11
<PAGE>
receive by virtue of such dividend, subdivision, combination
or reclassification; provided, however, that in no event
shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of
capital stock of the Company issuable upon exercise of one
Right. If an event occurs which would require an adjustment
under both Section 11(a)(i) and Section 11(a)(ii), the
adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, each holder of a Right shall
thereafter have a right to receive, upon exercise thereof at a
price equal to the then current Purchase Price multiplied by the
number of one one-thousandths of a Preferred Share for which a
Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of Common
Shares of the Company as shall equal the result obtained by
multiplying
(A) the then current Purchase Price by the number of one one-
thousandths of a Preferred Share for which a Right is then
exercisable and dividing that product by
(B) 50% of the then current per share market price of the
Company's Common Shares (determined pursuant to Section
11(d) hereof) on the date of the occurrence of such event.
In the event that any Person shall become an Acquiring Person and
the Rights shall then be outstanding, the Company shall not take
any action which would eliminate or diminish the benefits
intended to be afforded by the Rights.
From and after the occurrence of such event, any Rights that are
or were acquired or beneficially owned by any Acquiring Person
(or any Associate or Affiliate thereof, or nominee of any of
them) shall be void and any holder of such Rights shall
thereafter have no right to exercise such Rights under any
provision of this Agreement. No Right Certificate shall be
issued pursuant to Section 3 hereof or otherwise that represents
Rights beneficially owned by an Acquiring Person whose Rights
would be void pursuant to the preceding sentence (or any
Associate or Affiliate thereof, or nominee of any of them); no
Right Certificate shall be issued at any time upon the transfer
of any Rights to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence (or any Associate or Affiliate
thereof or any nominee of any of them); and any Right Certificate
12
<PAGE>
delivered to the Rights Agent for transfer to an Acquiring
Person whose Rights would be void pursuant to the preceding
sentence (or any Associate or Affiliate thereof, or nominee of
any of them) shall be canceled. In addition, any Right
Certificate issued pursuant to Section 3 hereof that represents
Rights beneficially owned by an Acquiring Person (or any
Associate or Affiliate thereof, or nominee of any of them) and
any Right Certificate issued at any time upon the transfer of
any Rights to an Acquiring Person (or any Associate or
Affiliate thereof, or nominee of any of them) and any Right
Certificate issued pursuant to Sections 6, 7(d), 11, or 22
hereof upon transfer, exchange, replacement or adjustment of
any other Right Certificate referred to in this sentence, shall
contain the following legend:
"The Rights represented by this Right Certificate were
issued to a Person who was an Acquiring Person or an
Affiliate or an Associate of an Acquiring Person (as such
terms are described in the Rights Agreement) or a nominee
of one of them. This Right Certificate and the Rights
represented hereby may become void in the circumstances
specified in the Rights Agreement."
(iii) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit
the exercise in full of the Rights in accordance with the
foregoing Section 11(a)(ii), the Company shall take all such
actions as may be necessary to authorize additional Common
Shares for issuance upon exercise of the Rights. In the event
the Company, after good faith effort, shall be unable to take
all such actions as may be necessary to authorize such
additional Common Shares, the Company shall substitute, for
each Common Share that would otherwise be issuable upon
exercise of a Right, a number of Preferred Shares or fraction
thereof such that the current per share market price of one
Preferred Share multiplied by such number or fraction is equal
to the current per share market price of one Common Share as of
the date of issuance of such Preferred Shares or fraction
thereof.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after
such record date) to subscribe for or purchase Preferred Shares (or
shares having the same rights, privileges and preferences as the
Preferred Shares ("Equivalent Preferred Shares")) or securities
convertible into Preferred Shares or Equivalent Preferred Shares at a
price per share (or having a conversion price per share, if a security
convertible into Preferred Shares or Equivalent Preferred Shares) less
than the then current per share market price of the Preferred Shares
on such record date, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in
effect
13
<PAGE>
immediately prior to such record date by a fraction, the numerator of
which shall be the number of Preferred Shares outstanding on such
record date plus the number of Preferred Shares which the aggregate
offering price of the total number of Preferred Shares and/or
Equivalent Preferred Shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the
denominator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of additional
Preferred Shares and/or Equivalent Preferred Shares to be offered for
subscription or purchase (or into which the convertible securities so
to be offered are initially convertible); provided, however, that in
no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital
stock of the Company issuable upon the exercise of one Right. In case
such subscription price may be paid in a consideration part or all of
which shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the
Rights Agent and holders of the Rights. Preferred Shares owned by or
held for the account of the Company shall not be deemed outstanding
for the purpose of any such computation.
Such adjustment shall be made successively whenever such a record date
is fixed; and in the event that such rights, options or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase
Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any
such distribution made in connection with a consolidation or merger in
which the Company is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than a regular quarterly
cash dividend or a dividend payable in Preferred Shares) or
subscription rights or warrants (excluding those referred to in
Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the
numerator of which shall be the then current per share market price of
the Preferred Shares on such record date, less the fair market value
(as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent and holders of
the Rights) of the portion of the assets or evidences of indebtedness
so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall
be such current per share market price of the Preferred Shares;
provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company to be issued upon the
exercise of one Right.
14
<PAGE>
Such adjustments shall be made successively whenever such a record
date is fixed; and in the event that such distribution is not so made,
the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the
average of the daily closing prices per share of such Security
for the 30 consecutive Trading Days immediately prior to such
date; provided, however, that in the event that the current per
share market price of the Security is determined during a period
following the announcement by the issuer of such Security of a
dividend or distribution on such Security payable in shares of
such Security or securities convertible into such shares, or any
subdivision, combination or reclassification of such Security,
and prior to the expiration of 30 Trading Days after the ex-
dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then,
and in each such case, the current per share market price shall
be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day
shall be
(A) the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the
New York Stock Exchange or,
(B) if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to
securities listed on the principal national securities
exchange on which the Security is listed or admitted to
trading or,
(C) if the Security is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use, or,
(D) if the Security is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by
a professional market maker making a market in the Security
selected by the Board.
15
<PAGE>
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Shares shall be determined
in accordance with the method set forth in Section 11(d)(i). If
the Preferred Shares are not publicly traded, the "current per
share market price" of the Preferred Shares shall be conclusively
deemed to be the current per share market price of the Common
Shares as determined pursuant to Section 11(d)(i) (appropriately
adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the Record Date), multiplied by one
thousand. If neither the Common Shares nor the Preferred Shares
are publicly held or so listed or traded, "current per share
market price" shall mean the fair value per share as determined
in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by
reason of this Section 11(e) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one ten-millionth of a Preferred Share or one
ten-thousandth of any other share or security as the case may be.
Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the
earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the date of the expiration of the
right to exercise any Rights.
(f) If, as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock of the Company other
than Preferred Shares, thereafter the number of such other shares so
receivable upon exercise of any Right shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Shares
contained in Sections 11(a) through (c), inclusive, and the provisions
of Sections 7, 9, 10 and 13 hereof with respect to the Preferred
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the
right to purchase, at the adjusted Purchase Price, the number of one
one-thousandths of a Preferred Share purchasable from time to time
hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
16
<PAGE>
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result
of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase
Price, that number of one one-thousandths of a Preferred Share
(calculated to the nearest one ten-millionth of a Preferred Share)
obtained by
(i) multiplying the number of one one-thousandths of a share covered
by a Right immediately prior to this adjustment by the Purchase
Price in effect immediately prior to such adjustment of the
Purchase Price and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-thousandths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights
outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one one-thousandths of a Preferred Share
for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the
nearest one ten-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election
to adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to
be made. This record date may be the date on which the Purchase Price
is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the
public announcement.
If Right Certificates have been issued, upon each adjustment of the
number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates
evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment,
or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner
provided for herein and shall be registered in the names of the
holders of record of Right Certificates on the record date specified
in the public announcement.
17
<PAGE>
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-thousandths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price and the
number of one one-thousandths of a Preferred Share which were
expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below one one-thousandth of the then par value, if any,
of the Preferred Shares issuable upon exercise of the Rights, the
Company shall take any corporate actions which may, in the opinion of
its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable Preferred Shares at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence
of such event the issuing to the holder of any Right exercised after
such record date of the Preferred Shares and other capital stock or
securities of the Company, if any, issuable upon such exercise over
and above the Preferred Shares and other capital stock or securities
of the Company, if any, issuable upon such exercise on the basis of
the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive
such additional shares upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase
Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall
determine to be advisable in order that any consolidation or
subdivision of the Preferred Shares, issuance wholly for cash of any
Preferred Shares at less than the current market price, issuance
wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends
on Preferred Shares payable in Preferred Shares, or issuance of
rights, options or warrants referred to herein above in Section 11(b),
hereafter made by the Company to holders of its Preferred Shares shall
not be taxable to such shareholders.
(n) In the event that at any time after the Record Date and prior to the
Distribution Date, the Company shall
(i) declare or pay any dividend on the Common Shares payable in
Common Shares, or
18
<PAGE>
(ii) effect a subdivision, combination or consolidation of the Common
Shares (by reclassification or otherwise than by payment of
dividends in Common Shares) into a greater or lesser number of
Common Shares,
then in any such case,
(A) the number of one one-thousandths of a Preferred Share
purchasable after such event upon proper exercise of each
Right shall be determined by multiplying the number of one
one-thousandths of a Preferred Share so purchasable
immediately prior to such event by a fraction, the numerator
of which is the number of Common Shares outstanding
immediately before such event and the denominator of which
is the number of Common Shares outstanding immediately after
such event, and
(B) each Common Share outstanding immediately after such event
shall have issued with respect to it that number of Rights
which each Common Share outstanding immediately prior to
such event had issued with respect to it.
The adjustments provided for in this Section 11(n) shall be made
successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected. If an event
occurs which would require an adjustment under Section 11(a)(ii) and
this Section 11(n), the adjustments provided for in this Section 11(n)
shall be in addition and prior to any adjustment required pursuant to
Section 11(a)(ii).
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly
(a) prepare a certificate setting forth such adjustment, and a brief
statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate, and
(c) mail a brief summary thereof to each holder of a Right Certificate in
accordance with Section 25 hereof.
The Rights Agent shall be fully protected in relying on the terms of any such
certificate.
19
<PAGE>
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.
In the event, directly or indirectly, at any time after a Person has become
an Acquiring Person,
(a) the Company shall consolidate with, or merge with and into, any other
Person,
(b) any Person shall consolidate with the Company, or merge with and into
the Company and the Company shall be the continuing or surviving
corporation of such merger and, in connection with such merger, all or
part of the Common Shares shall be changed into or exchanged for stock
or other securities of any other Person (or the Company) or cash or
any other property, or
(c) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any other Person other than the Company or one or more of
its wholly owned Subsidiaries, then, and in each such case, proper
provision shall be made so that
(i) each holder of a Right (except as otherwise provided herein)
shall thereafter have the right to receive, upon the exercise
thereof at a price equal to the then current Purchase Price
multiplied by the number of one-thousandths of a Preferred
Share for which a Right is then exercisable, in accordance with
the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including
the Company as successor thereto or as the surviving
corporation) as shall equal the result obtained by multiplying
the then current Purchase Price by the number of one-
thousandths of a Preferred Share for which a Right is then
exercisable and dividing that product by 50% of the then
current per share market price of the Common Shares of such
other Person (determined pursuant to Section 11(d) hereof) on
the date of consummation of such consolidation, merger, sale or
transfer;
(ii) the issuer of such Common Shares shall thereafter be liable
for, and shall assume, by virtue of such consolidation, merger,
sale or transfer, all the obligations and duties of the Company
pursuant to this Agreement;
(iii) the term "Company" shall thereafter be deemed to refer to such
issuer; and
20
<PAGE>
(iv) such issuer shall take such steps (including, but not limited
to, the reservation of a sufficient number of its Common Shares
in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions
hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to the Common Shares thereafter deliverable
upon the exercise of the Rights.
The Company shall not consummate any such consolidation, merger, sale or
transfer unless prior thereto the Company and such issuer shall have executed
and delivered to the Rights Agent a supplemental agreement so providing.
The Company shall not enter into any transaction of the kind referred to in
this Section 13 if at the time of such transaction there are any rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights.
The provisions of this Section 13 shall similarly apply to successive
consolidations, mergers, sales, or other transfers.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered
holders of the Right Certificates with regard to which such fractional
Rights would otherwise be issuable, an amount in cash equal to the
same fraction of the current market value of a whole Right. For the
purposes of this Section 14(a), the current market value of a whole
Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be
the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use or, if
on any such date the Rights are not quoted by any such organization,
the average of the closing bid and asked prices as furnished
21
<PAGE>
by a professional market maker making a market in the Rights selected
by the Board. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-
thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares
(other than fractions which are integral multiples of one one-
thousandth of a Preferred Share). Fractions of Preferred Shares in
integral multiples of one one-thousandth of a Preferred Share may, at
the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide
that the holders of such depositary receipts shall have all the
rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such
depositary receipts. In lieu of fractional Preferred Shares that are
not integral multiples of one one-thousandth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in
cash equal to the same fraction of the current market value of one
Preferred Share. For the purposes of this Section 14(b), the current
market value of a Preferred Share shall be the closing price of a
Preferred Share (as determined pursuant to the second sentence of
Section 11(d)(i) hereof) for the Trading Day immediately prior to the
date of such exercise.
(c) The holder of a Right, by the acceptance thereof, expressly waives his
right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
SECTION 15. RIGHTS OF ACTION.
All rights of action in respect of this Agreement, excepting the rights of
action given to the Rights Agent under Section 18 hereof, are vested in the
respective registered holders of the Right Certificates (and, prior to the
Distribution Date, the registered holders of the Common Shares). Any registered
holder of any Right Certificate (or, prior to the Distribution Date, of the
Common Shares), without the consent of the Rights Agent or of the holder of any
other Right Certificate (or, prior to the Distribution Date, of the Common
Shares), may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
22
<PAGE>
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to this Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS.
Every holder of a Right, by accepting the same, consents and agrees with
the Company and the Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights shall be transferable only
in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the
principal office of the Rights Agent, duly endorsed or accompanied by
a proper instrument of transfer;
(c) the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date,
the Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Right Certificate or the
Common Shares certificate made by anyone other than the Company or the
Rights Agent) for all purposes whatsoever, and neither the Company nor
the Rights Agent shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary, neither
the Company nor the Rights Agent shall have any liability to any
holder of a Right or other Person as a result of its inability to
perform any of its obligations under this Agreement by reason of any
preliminary or permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute,
rule, regulation or executive order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must
use its best efforts to have any such order, decree or ruling lifted
or otherwise overturned as soon as possible.
SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER.
No holder, as such, of any Right Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or any other securities of the Company which may at any time be issuable
on the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of any
Right Certificate, as such, any of the rights of a shareholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any
23
<PAGE>
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Right Certificate
shall have been exercised in accordance with the provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT.
The Company agrees to pay to the Rights Agent reasonable compensation for
all services rendered by it hereunder and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and other disbursements
incurred in the administration and execution of this Agreement and the exercise
and performance of its duties hereunder.
The Company also agrees to indemnify the Rights Agent for, and to hold it
harmless against, any loss, liability, or expense, incurred without negligence,
bad faith or willful misconduct on the part of the Rights Agent, for anything
done or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of defending
against any claim of such liability.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper person or persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the stock
transfer or corporate trust powers of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case, at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been
24
<PAGE>
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
In case, at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case, at that time any
of the Right Certificates shall not have been countersigned, the Rights Agent
may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases, such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT.
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company
and the holders of Right Certificates, by their acceptance thereof, shall be
bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as
to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever, in the performance of its duties under this Agreement, the
Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate
signed by any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of
this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be
required to verify the same, but all such statements and recitals are
and shall be deemed to have been made by the Company only.
25
<PAGE>
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach
by the Company of any covenant or condition contained in this
Agreement or in any Right Certificate; nor shall it be responsible for
any change in the exercisability of the Rights (including the Rights
becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment
in the terms of the Rights (including the manner, method or amount
thereof) provided for in Sections 3, 11, 13, 23, or 24 hereof, or the
ascertaining of the existence of facts that would require any such
change or adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after actual notice that such change
or adjustment is required); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization
or reservation of any Preferred Shares to be issued pursuant to this
Agreement or any Right Certificate or as to whether any Preferred
Shares shall, when issued, be validly authorized and issued, fully
paid and nonassessable.
(f) The Company agrees that it shall perform, execute, acknowledge and
deliver (or cause to be performed, executed, acknowledged and
delivered) all such further and other acts, instruments and assurances
as may reasonably be required by the Rights Agent for the carrying out
or performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder
from any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Secretary, Assistant
Secretary or the Treasurer of the Company, and to apply to such
officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good
faith in accordance with instructions of any such officer or for any
delay in acting while waiting for those instructions.
(h) The Rights Agent and any shareholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company, or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with
or lend money to the Company, or otherwise act fully and freely as
though it were not Rights Agent under this Agreement. Nothing herein
shall preclude the Rights Agent from acting in any other capacity for
the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable
26
<PAGE>
for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act,
default, neglect or misconduct, provided reasonable care was exercised
in the selection and continued employment thereof.
SECTION 21. CHANGE OF RIGHTS AGENT.
The Rights Agent or any successor Rights Agent may resign and be discharged
from its duties under this Agreement upon 30 days' notice in writing mailed to
the Company and to each transfer agent of the Common Shares or Preferred Shares
by registered or certified mail, and to the holders of the Right Certificates by
first-class mail.
The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail.
If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Company), then the registered holder of
any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or of any state of the United
States in good standing, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million.
After appointment, the successor Rights Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
as Rights Agent, without further act or deed. The predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares or
Preferred Shares, and mail a notice thereof in writing to the registered holders
of the Right Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
27
<PAGE>
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES.
Notwithstanding any of the provisions of this Agreement or of the Rights
Certificates to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by the Board to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
SECTION 23. REDEMPTION.
(a) The Board may, at its option, at any time prior to such time as any
Person becomes an Acquiring Person, redeem all but not less than all
of the then outstanding Rights at the Redemption Price; provided,
however, that in connection with a transaction to be accounted for as
a pooling of interests, the Board shall have the option to pay the
Redemption Price in securities or other property with an equivalent
value per Right. The redemption of the Rights by the Board may be
made effective at such time on such basis and with such conditions as
the Board in its sole discretion may establish.
(b) Immediately upon the action of the Board ordering the redemption of
the Rights pursuant to Section 23(a), and without any further action
and without any notice, the right to exercise the Rights shall
terminate and the only right thereafter of the holders of Rights shall
be to receive the Redemption Price. The Company shall promptly give
public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect
the validity of such redemption. Within 10 days after such action of
the Board ordering the redemption of the Rights, the Company shall
mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books
of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such
notice of redemption shall state the method by which the payment of
the Redemption Price shall be made. Neither the Company nor any of
its Affiliates or Associates may redeem, acquire or purchase for value
any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in
connection with the purchase of Common Shares prior to the
Distribution Date.
28
<PAGE>
SECTION 24. EXCHANGE.
(a) The Board may, at its option, at any time after any Person becomes an
Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become
void pursuant to the provisions of Section 11(a)(ii) hereof) for
Common Shares at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board shall not be empowered to
effect such exchange at any time after any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of
the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with
all Affiliates and Associates of such Person, becomes the Beneficial
Owner of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board ordering the exchange of any
Rights pursuant to Section 24(a), and without any further action and
without any notice, the right to exercise such Rights shall terminate
and the only right thereafter of a holder of such Rights shall be to
receive that number of Common Shares equal to the number of such
Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the
holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange shall state
the method by which the exchange of the Common Shares for Rights shall
be effected and, in the event of any partial exchange, the number of
Rights which shall be exchanged. Any partial exchange shall be
effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section 11(a)(ii)
hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit any exchange
of Rights as contemplated in accordance with this Section 24, the
Company shall take all such actions as may be necessary to authorize
additional Common Shares for issuance upon exchange of the Rights. In
the event the Company shall, after good faith effort, be unable to
take all such actions as may be necessary to authorize such additional
Common Shares, the Company shall substitute, for each Common Share
that would otherwise be issuable upon exchange of a Right, a number of
Preferred Shares or fraction thereof such that the current per share
market price of one Preferred Share multiplied by such number or
fraction is equal to the current
29
<PAGE>
per share market price of one Common Share as of the date of issuance
of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of Common Shares
or to distribute certificates which evidence fractional Common Shares.
In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole
Common Share. For the purposes of this Section 24(d), the current
market value of a whole Common Share shall be the closing price of a
Common Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
SECTION 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose
(i) to pay any dividend payable in stock of any class to the
holders of its Preferred Shares or to make any other
distribution to the holders of its Preferred Shares (other than
a regular quarterly cash dividend),
(ii) to offer to the holders of its Preferred Shares rights or
warrants to subscribe for or to purchase any additional
Preferred Shares or shares of stock of any class or any other
securities, rights or options,
(iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of
outstanding Preferred Shares),
(iv) to effect any consolidation or merger into or with, or to
effect any sale or other transfer (or to permit one or more of
its Subsidiaries to effect any sale or other transfer), in one
or more transactions, of 50% or more of the assets or earning
power of the Company and its Subsidiaries (taken as a whole)
to, any other Person,
(v) to effect the liquidation, dissolution or winding up of the
Company, or
(vi) to declare or pay any dividend on the Common Shares payable in
Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares),
30
<PAGE>
then, in each such case, the Company shall give to each holder
of a Right Certificate, in accordance with Section 26 hereof, a
notice of such proposed action, which shall specify the record
date for the purposes of such stock dividend, or distribution
of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and
the date of participation therein by the holders of the Common
Shares and/or Preferred Shares, if any such date is to be
fixed, and such notice shall be so given in the case of any
action covered by Section 25(a)(i) or (ii) above at least 10
days prior to the record date for determining holders of the
Preferred Shares for purposes of such action, and in the case
of any such other action, at least 10 days prior to the date of
the taking of such proposed action or the date of participation
therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.
(b) In case an event set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter
give to each holder of a Right Certificate, in accordance with
Section 26 hereof, a notice of the occurrence of such event,
which notice shall describe such event and the consequences of
such event to holders of Rights under Section 11(a)(ii) hereof.
SECTION 26. NOTICES.
Notices or demands authorized by this Agreement to be given or made by the
Rights Agent or by the holder of any Right Certificate to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
ProVantage Health Services, Inc.
13555 Bishops Court, Suite 208
Brookfield, Wisconsin 53005
Attention: Secretary
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Right Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows
Norwest Bank Minnesota, National Association
Stock Transfer Department
161 North Concord Exchange
P.O. Box 738
South St. Paul, Minnesota 55075-0738
31
<PAGE>
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
SECTION 27. SUPPLEMENTS AND AMENDMENTS.
The Company may from time to time supplement or amend this Agreement
without the approval of any holders of Right Certificates in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein, or to make any other
provisions with respect to the Rights which the Company may deem necessary or
desirable, any such supplement or amendment to be evidenced by a writing signed
by the Company and the Rights Agent; provided, however, that from and after such
time as any Person becomes an Acquiring Person, this Agreement shall not be
amended in any manner which would adversely affect the interests of the holders
of Rights.
SECTION 28. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the benefit of
the Company or the Rights Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
SECTION 29. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company, the Rights Agent and the registered holders
of the Right Certificates (and, prior to the Distribution Date, the Common
Shares) any legal or equitable right, remedy or claim under this Agreement; but
this Agreement shall be for the sole and exclusive benefit of the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares).
SECTION 30. SEVERABILITY.
If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
32
<PAGE>
SECTION 31. GOVERNING LAW.
This Agreement and each Right Certificate issued hereunder shall be deemed
to be a contract made under the laws of the State of Delaware and for all
purposes shall be governed by and construed in accordance with the laws thereof
applicable to contracts to be made and performed entirely within Delaware.
SECTION 32. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
SECTION 33. DESCRIPTIVE HEADINGS.
Descriptive headings of the several Sections of this Agreement are inserted
for convenience only and shall not control or affect the meaning or construction
of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PROVANTAGE HEALTH SERVICES, INC. NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: ________________________ By:_____________________________
Name: Name:
Title: Title:
33
<PAGE>
EXHIBIT A
---------
FORM OF CERTIFICATE OF DESIGNATIONS OF SERIES B JUNIOR
PARTICIPATING PREFERRED STOCK
$.01 Par Value
of
PROVANTAGE HEALTH SERVICES, INC.
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
We, Jeffrey A. Jones, President and Chief Executive Officer, and
_____________, Secretary, of ProVantage Health Services, Inc., a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Restated Certificate of Incorporation of the said Corporation, the said Board of
Directors on _________ ____, 1999, adopted the following resolution creating a
series of One Hundred Thousand (100,000) shares of Preferred Stock designated as
Series B Junior Participating Preferred Stock, $.01 Par Value:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Corporation be,
and it hereby is, created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as Series B Junior Participating Preferred Stock, $.01 Par Value (the
"Series B Preferred Stock") and the number of shares constituting such series
shall be 100,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series B Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series B Preferred Stock.
34
<PAGE>
2. Dividends and Distributions.
---------------------------
(a) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series B Preferred Stock with respect to dividends, the holders of shares of
Series B Preferred Stock, in preference to the holders of Common Stock, par
value $0.01 per share (the "Common Stock") of the Corporation and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series B Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (i) $10 or (ii) subject to the provision for adjustment hereinafter set
forth, 1,000 times the aggregate per share amount of all cash dividends, and
1,000 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series B Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount to which
holders of shares of Series B Preferred Stock were entitled immediately prior to
such event under clause (ii) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series B Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the
Series B Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series B Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend
35
<PAGE>
Payment Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series B
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series B Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series B Preferred Stock shall
-------------
have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each
share of Series B Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the shareholders of the Corporation.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series B
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in any Restated Certificate of
Incorporation or such other similar document creating a series of Preferred
Stock or any similar stock, or by law, the holders of shares of Series B
Preferred Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote together as one
class on all makers submitted to a vote of shareholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by law, holders
of Series B Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
4. Certain Restrictions.
--------------------
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series B Preferred Stock are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series B Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
36
<PAGE>
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred Stock, except dividends
paid ratably on the Series B Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up), to the Series B Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series B Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares
of Series B Preferred Stock, or any shares of stock ranking on a parity with the
Series B Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series B Preferred Stock purchased or
-----------------
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Restated
Certificate of Incorporation, or in any certificate of designation creating a
series of Preferred Stock or any similar stock or as otherwise required by law.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
--------------------------------------
dissolution or winding up of the Corporation, no distribution shall be made (a)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred Stock unless,
prior thereto, the holders of shares of Series B Preferred Stock shall have
received $1,000 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the
37
<PAGE>
holders of shares of Series B Preferred Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 1,000 times the aggregate amount to be distributed per share
to holders of shares of Common Stock, or (b) to the holders of shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Preferred Stock, except distributions made ratably
on the Series B Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series B Preferred Stock were entitled immediately prior to
such event under the proviso in clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
7. Consolidation, Merger, etc. In case the Corporation shall enter into
---------------------------
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each share of Series B
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of
Series B Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
8. No Redemption. The shares of Series B Preferred Stock shall not be
-------------
redeemable.
9. Rank. Unless otherwise provided in the Restated Certificate of
----
Incorporation of the Corporation or a Certificate of Designation relating to a
subsequent series of preferred stock of the Corporation, the Series B Preferred
Stock shall rank, with respect to the payment of dividends and the distribution
of assets, junior to all series of any other class of the Corporation's
Preferred Stock.
38
<PAGE>
10. Amendment. The Restated Certificate of Incorporation of the
---------
Corporation, as amended, shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series B Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of at least two-thirds of the outstanding shares of Series B
Preferred Stock, voting together as a single series.
11. Fractional Shares. Series B Preferred Stock may be issued in
-----------------
fractions of a share (in one one-thousandths(1/1000) of a share and integral
multiples thereof) which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series B Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation by its President and attested by its Secretary this _____ day
of _______________.
__________________________________________
Jeffrey A. Jones, President and
Chief Executive Officer
ATTEST:
__________________________________________
Secretary
39
<PAGE>
EXHIBIT B
Form of Right Certificate - Front Side
Certificate No. R-_______________ _______________ Rights
NOT EXERCISABLE AFTER _________________ ____, 2009, OR EARLIER REDEMPTION
OR EXCHANGE. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO
EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS, ASSOCIATES OR
AFFILIATES OF ACQUIRING PERSONS (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) (OR NOMINEE OF ANY OF THEM) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS
MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHT CERTIFICATE
WERE ISSUED TO A PERSON WHO WAS AN ACQUIRING PERSON OR AN AFFILIATE OR AN
ASSOCIATE OF AN ACQUIRING PERSON (OR A NOMINEE OF ONE OF THEM). THIS RIGHT
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID IN THE
CIRCUMSTANCES SPECIFIED IN THE RIGHTS AGREEMENT.]/1/
Right Certificate
PROVANTAGE HEALTH SERVICES, INC.
This certifies that _______________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of ________________ ____, 1999 (the "Rights Agreement"),
between ProVantage Health Services, Inc., a Delaware corporation (the
"Company"), and Norwest Bank Minnesota, National Association (the "Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 P.M.,
Milwaukee, Wisconsin time, on ________________, 1999, at the principal office of
the Rights Agent, or at the office of its successor as Rights Agent, one one-
thousandth of a fully paid non-assessable share of Series B Junior Participating
Preferred Stock, $.01 par value (the "Preferred Shares"), of the Company, at a
purchase price of $________ per one one-thousandth of a Preferred Share (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase duly executed.
The number of Rights evidenced by this Right Certificate (and the number of
one one-thousandths of a Preferred Share which may be purchased upon exercise
hereof) and the Purchase Price set forth above are the number and Purchase Price
as of _________________, 1999, based on the Preferred Shares as constituted at
such date. As provided in the Rights
_____________________
/1/ The portion of the legend in brackets shall be inserted only if applicable.
40
<PAGE>
Agreement, the Purchase Price and the number of one one-thousandths of a
Preferred Share which may be purchased upon the exercise of the Rights evidenced
by this Right Certificate are subject to modification and adjustment upon the
happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and reference is
hereby made to the Rights Agreement for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Rights Agent,
the Company, and the holders of the Right Certificates. Copies of the Rights
Agreement are on file at the principal executive offices of the Company and the
above-mentioned offices of the Rights Agent.
This Right Certificate, upon surrender at the principal office of the
Rights Agent, may be exchanged for another Right Certificate of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for shares of the
Company's Common Stock, par value $.01 per share, or Preferred Shares.
No fractional Preferred Shares shall be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-thousandth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment shall be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it has been countersigned by the Rights Agent.
41
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company,
dated as of ______________________ ____, ______.
ATTEST: PROVANTAGE HEALTH SERVICES, INC.
By:____________________________ By:_____________________________
Secretary
Countersigned (for purposes of authentication):
By:____________________________
Authorized Signature
42
<PAGE>
Form of Right Certificate - Reverse Side
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase, as
the case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth below in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
43
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder to transfer the Right Certificate.)
FOR VALUE RECEIVED, __________________, hereby sells, assigns and transfers
unto
_____________________________________________________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _____________________________
Attorney, to transfer the within Right Certificate on the books of the within-
named Company, with full power of substitution.
Signature:_____________________________ Dated:____________________________
Signature Guaranteed:
(Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.)
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
Signature:___________________________________
44
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by registered holder to exercise Rights
represented by the Right Certificate.)
To: PROVANTAGE HEALTH SERVICES, INC.
The undersigned hereby irrevocably elects to exercise ________ Rights
represented by this Right Certificate to purchase the Preferred Shares issuable
upon the exercise of such Rights and requests that certificates for such
Preferred Shares be issued in the name of:
___________________________________________________________________________
___________________________________________________________________________
(Please print name and address)
Social security or taxpayer identification number:____________________
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:
___________________________________________________________________________
___________________________________________________________________________
(Please print name and address)
Social security or taxpayer identification number:____________________
Signature:____________________________ Dated:______________________________
Signature Guaranteed:
(Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.)
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
Signature:___________________________________
45
<PAGE>
EXHIBIT C
Summary of Rights to Purchase Preferred Shares
On ________________ ____, 1999, the Board of Directors (the "Board") of
ProVantage Health Services, Inc. (the "Company") declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of common
stock, par value $.01 per share (the "Common Shares") of the Company. The
dividend was payable on __________________ ____, 1999, to the shareholders of
record on that date.
Each Right entitles the holder to purchase from the Company one one-
thousandth of a share of Series B Junior Participating Preferred Stock, $.01 par
value (the "Preferred Shares") of the Company at a price of $_________ per one
one-thousandth of a Preferred Share (the "Purchase Price").
A complete description of the Rights is set forth in the Amended and
Restated Rights Agreement (the "Rights Agreement") between the Company and
Norwest Bank Minnesota, National Association, the Rights Agent, and this Summary
is qualified in its entirety by reference to the Rights Agreement. A copy of
the Rights Agreement was filed with the Securities and Exchange Commission as an
exhibit to a Registration Statement on Form 8-A, and copies are available from
the Company free of charge on request.
The Rights Agreement provides that the Rights will not be exercisable until
the Distribution Date, which will be the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired beneficial ownership of 15% or more of the
Company's outstanding Common Shares, or (ii) 10 business days (or such later
date as is established by the Board before any person or group becomes an
Acquiring Person) following the commencement of, or the announcement of an
intention to make, a tender offer or exchange offer which, if consummated, would
result in the beneficial ownership by a person or group of 15% or more of the
Company's outstanding Common Shares. Ownership of the Company's Common Shares
by ShopKo or any transferee of ShopKo's interest will not trigger the Rights.
Until the Distribution Date (or the earlier redemption or expiration of the
Rights), the Rights will be transferred with, and only with, the Common Shares.
For Common Shares outstanding as of ___________________ ____, 1999, the Rights
will be evidenced by the certificates for such Common Shares. For Common Shares
issued thereafter, the Rights will be evidenced by a notation on the certificate
incorporating the Rights Agreement by reference. In either case, until the
Distribution Date (or the earlier redemption or expiration of the Rights), the
surrender for transfer of any certificate for Common Shares, even without the
notation or an attached copy of this Summary, will constitute the transfer of
the Rights associated with the Common Shares represented by the certificate. As
soon as practicable after the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders
46
<PAGE>
of record of the Common Shares as of the close of business on the Distribution
Date, and thereafter such separate Right Certificates alone will evidence the
Rights.
If any person or group of affiliated or associated persons becomes an
Acquiring Person, each holder of a Right (other than the Acquiring Person, whose
Rights will have become void) will be entitled, upon the exercise of the Right,
to receive that number of Common Shares having a market value of two times the
exercise price of the Right. In addition, if, after a person or group has become
an Acquiring Person, the Company is acquired in a merger or other business
combination transaction or if 50% or more of its consolidated assets or earning
power are sold, each holder of a Right will be entitled to receive, upon the
exercise of the Right at its then current exercise price, that number of shares
of common stock of the acquiring company having a market value at the time of
such event of two times the exercise price of the Right.
At any time before an Acquiring Person acquires beneficial ownership of 15%
or more of the Company's outstanding Common Shares, the Board may redeem the
Rights in whole, but not in part, at a price of $.01 per Right, on such terms as
the Board may establish in its sole discretion. Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the holders
will be entitled only to receive the foregoing redemption price.
At any time after any person or group becomes an Acquiring Person, but
before the Acquiring Person acquires 50% or more of the Company's outstanding
Common Shares, the Board may exchange the Rights (other than those held by the
Acquiring Person, which will have become void), in whole or part, at an exchange
ratio of one Common Share or one one-thousandth of a Preferred Share (or of a
share of a class or series of the Company's preferred stock having equivalent
rights, preferences and privileges) per Right.
The number of outstanding Rights and the number of one one-thousandths of a
Preferred Share issuable upon exercise of each Right are subject to adjustment
if, prior to the Distribution Date, there is a stock split of the Common Shares;
a stock dividend on the Common Shares payable in Common Shares; or a
subdivision, consolidation or combination of the Common Shares.
The Purchase Price and the number of Preferred Shares or other securities
or property issuable upon exercise of the Rights are also subject to adjustment
to prevent dilution: in the event of a stock dividend or of a subdivision,
combination or reclassification of the Preferred Shares; upon the grant to the
Preferred Share holders of certain rights or warrants to subscribe for or
purchase Preferred Shares at a price less than the then-current market price or
securities convertible into Preferred Shares with a conversion price less than
the then-current market price for the Preferred Shares; or upon the distribution
to the Preferred Share holders of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of earnings or retained earnings or
dividends payable in Preferred Shares) or of subscription rights or warrants
other than those referred to above. With certain exceptions, no adjustment in
the Purchase Price will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price.
47
<PAGE>
The holder of a Right, as such, will have no rights as a shareholder of the
Company (including, without limitation, the right to vote or to receive
dividends) until the Right is exercised. The terms of the Rights may be amended
by the Board without the consent of the holders of the Rights, provided that no
amendment adversely affects the interests of the holders.
If not exercised, redeemed or exchanged sooner, the Rights will expire on
___________________ ____, 2009, unless such expiration date is extended.
The Company's Articles of Incorporation set forth the terms of the
Preferred Shares. If issued, the Preferred Shares will be entitled to a
cumulative preferential quarterly dividend per share equal to the greater of $10
or 1,000 times the dividend declared on the Company's Common Shares. In the
event of liquidation, the holders of the Preferred Shares will be entitled to
receive an amount equal to accrued and unpaid dividends, plus an amount per
share equal to the greater of $1,000 or 1,000 times the payment made per share
to holders of Common Shares. Each Preferred Share will be entitled to 1,000
votes, voting together with the holders of the Common Shares on all matters
submitted to the vote of shareholders. In the event of any merger,
consolidation or other transaction in which Common Shares are exchanged, the
holder of each Preferred Share will be entitled to receive 1,000 times the
amount and type of consideration paid per Common Share. The rights of the
holders of Preferred Shares as to dividends and liquidations, their voting
rights, and their rights in the event of mergers and consolidations, are
protected by customary anti-dilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-thousandth of a Preferred Share
purchasable upon the exercise of each Right should approximate the value of one
Common Share.
No fractional Preferred Shares will be issued (other than fractions which
are integral multiples of one one-thousandth of a Preferred Share, which may, at
the election of the Company, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
48
<PAGE>
EXHIBIT 4.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR EXEMPTION THEREFROM UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS.
$115,000,000 _______________, 1999
Milwaukee, Wisconsin
DEMAND PROMISSORY NOTE
----------------------
FOR VALUE RECEIVED, the undersigned, ProVantage Health Services, Inc., a
Delaware corporation, hereby promises to pay to the order of ProVantage
Holdings, Inc., a Delaware corporation ("ProVantage Holdings"), the principal
sum of One Hundred Fifteen Million Dollars ($115,000,000), together with
interest from the date hereof on the unpaid principal balance of this Note at
the rate of five percent (5.0%) per annum. All interest shall be computed on the
basis of a 360-day year. The entire principal amount of this Note, together with
accrued interest hereon, shall be due and payable on the demand of ProVantage
Holdings.
The principal amount of this Note and accrued interest shall be due and
payable within 24 hours after demand for payment from ProVantage Holdings. Such
demand may be given either orally or in writing. All payments hereunder shall be
payable in lawful money of the United States of America at the offices of
ProVantage Holdings, 700 Pilgrim Way, Green Bay, Wisconsin 54307, or such other
address as the holder hereof may from time to time designate in writing to the
undersigned.
The principal indebtedness evidenced hereby may be prepaid in whole or in
part at any time or from time to time, without penalty or premium.
If suit or action is instituted to collect this Note or any part thereof,
the undersigned promises and agrees to pay attorneys' fees incurred by the
holder hereof in the enforcement of this Note and obligation or any part
thereof.
The undersigned, for itself and on behalf of all endorsers, guarantors,
sureties, accommodation parties, successors, transferees, assigns and other
persons liable or to become liable for all or any part of this indebtedness,
waives diligence, presentment, and also notice of protest, of nonpayment, of
dishonor and of maturity, lack of diligence or delays in collection or
enforcement of this Note, the release of any security for the payment of this
Note, the taking of any security and any other indulgence or forbearance and
also recourse to suretyship defenses generally. Further, the undersigned, for
itself and on behalf of all the foregoing, hereby consents
<PAGE>
to any and all renewals, extensions or modifications of the terms hereof,
including time for payment, and further agrees that any such renewal, extension
or modification of the terms hereof or any other indulgences shall not affect
the liability of any said parties for the indebtedness evidenced by this Note.
Any such renewals, extensions or modifications may be made without notice to any
of said parties. The foregoing waiver and consent shall be deemed joint and
several on the part of the undersigned and the persons on whose behalf the
undersigned has given said waiver and consent.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Wisconsin. Every provision hereof is intended to
be severable. If any clause, phrase, provision or portion of this Note or the
application thereof is determined by a court of competent jurisdiction to be
invalid or unenforceable under applicable law, the remaining clauses, phrases,
provisions and portions of this Note shall not be affected or impaired thereby,
but each such remaining clause, phrase, provision and portion shall be valid and
be enforced to the fullest extent permitted by law.
PROVANTAGE HEALTH SERVICES, INC.
By:_______________________
Title:____________________
2
<PAGE>
Exhibit 10.1
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") dated as of
____________________, 1999, is entered into by SHOPKO STORES, INC., a Wisconsin
corporation ("ShopKo") and PROVANTAGE HEALTH SERVICES, INC., a Delaware
corporation ("ProVantage").
RECITALS
WHEREAS, ProVantage provides health benefit management and health
information technology products and services to the health care industry (the
"ProVantage Business"); and
WHEREAS, this Agreement is entered into in conjunction with an initial
public offering of ProVantage's common stock, $.01 par value per share (the
"ProVantage IPO"); and
WHEREAS, after the ProVantage IPO, ProVantage will continue to need certain
administrative services to be provided by ShopKo to ProVantage with respect to
the operation of the ProVantage Business for a period of time from and after the
Closing Date (as hereafter defined); and
WHEREAS, the parties desire to enter into an agreement to provide for such
services.
NOW, THEREFORE, in consideration of the premises and the mutual promises of
the parties contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the indicated
meanings:
"Base Fee" means the amount identified on Exhibit A attached hereto. The
Base Fee shall be paid for the Services described hereunder, exclusive of any
Service Upgrades.
"Closing Date" means the date the ProVantage IPO is closed.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder.
"Services" means those corporate, administrative and technical services to
be provided by ShopKo to ProVantage as set forth in Exhibit A attached hereto,
and as the same may be amended and revised from time to time in accordance with
the terms hereof.
<PAGE>
ARTICLE II
SERVICES
Section 2.1. Scope of Services. In consideration of the Base Fee, ShopKo
shall continue to provide the various administrative support services currently
provided by ShopKo, as listed on Exhibit A to this Agreement currently provided
to ProVantage.
Section 2.2. Service Upgrades. The parties acknowledge that
modifications, upgrades, and additions to the administrative services described
herein may be necessary to adequately service the ProVantage Business
(collectively, "Service Upgrades"). Charges for Service Upgrades are not
included in the Base Fee. The parties agree to negotiate in good faith
regarding any Service Upgrades. It is the intention of the parties that to the
extent practicable, ShopKo will use reasonable efforts to provide ProVantage
with any reasonable Service Upgrades requested by ProVantage, and that the
parties will negotiate reasonable fees, reimbursement rates or other charges to
adequately compensate ShopKo for the Service Upgrades.
Section 2.3. Limitations. Notwithstanding the foregoing, the nature and
scope of the Services shall not be greater than that which ShopKo provided to
ProVantage prior to the Closing Date and shall not be greater than, or interfere
with, those services which ShopKo provides during the term of this Agreement to
its own internal organization. Any upgrades and improvements of such services
that ShopKo provides to its own internal organization will be made available to
ProVantage at ShopKo's election. ProVantage agrees that its requests for
Services shall be reasonable, as to both the nature and the timing of the
Services to be provided.
Section 2.4. Location of Services. Except as expressly contemplated by
the terms of this Agreement, the Services to be performed are contemplated to be
performed by ShopKo from Green Bay, Wisconsin, or such other location as
determined by ShopKo in its sole discretion.
Section 2.5. Staffing. In consultation with ProVantage, ShopKo shall
determine both the staffing required and particular personnel assigned to
perform the Services, including but not limited to clerical staff, technicians,
professionals or otherwise.
Section 2.6. Access. ProVantage agrees to grant access to representatives
of ShopKo to ProVantage's facilities and its employees, agents and consultants
to provide the Services provided for under this Agreement, as necessary.
Section 2.7. Subsidiaries. The parties hereto agree that (i) the Services
to be provided to ProVantage under this Agreement will, at ProVantage's request,
be provided to subsidiaries of ProVantage and (ii) ShopKo may satisfy its
obligation to provide or procure the Services hereunder by causing one or more
of its subsidiaries to provide or procure such Services. With respect to
Services provided to, or procured on behalf of, any subsidiary of ProVantage,
(i) ProVantage agrees to pay on behalf of such subsidiary all amounts payable by
or in respect of such Services and (ii) references in this Agreement to
ProVantage shall be deemed to include such subsidiary.
<PAGE>
Section 2.8. Subcontractors. ShopKo may hire or engage one or more
subcontractors to perform any or all of its obligations under this Agreement.
ShopKo shall require such subcontractors, as a condition to their engagement, to
agree to be bound by the provisions substantially identical to those included in
this Agreement. Subject to Section 5.5 hereof, ShopKo shall in all cases remain
primarily responsible for all obligations undertaken by it in this Agreement
with respect to the scope, quality and nature of the Services provided to
ProVantage.
Section 2.9. Reports; Books and Records. ShopKo shall maintain for and
provide ProVantage with or shall cause to be maintained for and provided to
ProVantage data or reports requested by ProVantage relating to (i) benefits paid
to or on behalf of ProVantage employees under ShopKo employee benefit plans,
including, but not limited to, financial statements, claims history and census
information, (ii) information relating to the Services that is required to
satisfy any reporting or disclosure requirement, and (iii) other information,
including accounting reports, relating to the Services, as may be kept by ShopKo
in the ordinary course of its business. ShopKo shall provide such reports, or
cause such reports to be provided, to ProVantage within a reasonable period of
time after it is requested.
Section 2.10. Delegation. ProVantage hereby delegates to ShopKo final,
binding, and exclusive authority, responsibility, and discretion to interpret
and construe the provisions of employee benefit plans in which ProVantage has
elected to participate and which are administered by ShopKo under this Agreement
(collectively, the "Employee Plans"). ShopKo may further delegate such
authority to plan administrators to:
(i) provide administrative and other services;
(ii) reach factually supported conclusions consistent with the terms of
the Employee Plans;
(iii) make a full and fair review of each claim, denial, and decision
related to the provision of benefits provided or arranged for under the Employee
Plans, pursuant to the requirements of ERISA, if within sixty (60) days after
receipt of the notice of denial, a claimant requests in writing a review for
reconsideration of such decisions. The administrator shall notify the claimant
in writing of its decision on review. Such notice shall satisfy all ERISA
requirements relating thereto; and
(iv) notify the claimant in writing of its decision on review.
ARTICLE III
FEES, BILLING AND PAYMENT
Section 3.1. Fees. ProVantage agrees that in consideration of the
Services described in this Agreement, ProVantage shall pay ShopKo the Base Fee
as amended and revised from time to time. The entire Base Fee shall be paid by
ProVantage for each period, regardless of whether any particular services were
performed by ShopKo during such period. ProVantage shall also pay ShopKo for
all Service Upgrades in accordance with agreed upon rates and fees.
<PAGE>
In addition, ProVantage shall reimburse ShopKo for all direct and
identifiable costs and third-party disbursements incurred by ShopKo in
performing the Services. In the event that any Services are terminated during a
fiscal year, payments shall be made for such Services through the effective date
of cancellation, said payments to be a pro rata portion of the charges for such
Services. ProVantage shall also pay ShopKo for any reimbursable costs incurred
with respect to such Services prior to cancellation of such Services, plus
ProVantage shall compensate ShopKo for any long-term commitments or investments
made by ShopKo in reliance upon this Agreement, provided ProVantage has approved
any such costs, commitments or investments in advance. The parties acknowledge
that no such costs, commitments or investments exist as of the date of this
Agreement.
Section 3.2. Billing. ProVantage shall pay the Base Fee for Services
rendered within each month during the term of this Agreement. No invoices for
the Base Fee shall be sent, and no backup documentation shall be required for
the Services included in the Base Fee. The fees for Service Upgrades shall be
invoiced monthly by the thirtieth (30th) calendar day of the calendar month next
following the calendar month in which the Service Upgrades were performed. Such
invoices shall specify the value of Service Upgrades determined in accordance
with the agreed upon arrangements, and shall be accompanied by supporting detail
for all Reimbursable Costs and Service Upgrades.
Section 3.3. Payment. Payment for all Services provided hereunder shall
be as follows:
(a) For so long as ShopKo beneficially owns directly or indirectly at
least 51% of the combined voting power of ProVantage, ShopKo may bill
and charge ProVantage's intercompany account at the end of each four
or five week accounting period for all fees and Reimbursable Costs
hereunder.
(b) At such time as ShopKo no longer beneficially owns directly or
indirectly at least 51% of the combined voting power of ProVantage,
ProVantage shall pay for all amounts incurred during each four or five
week accounting period within ten (10) days following the end of each
such period. In the event a written statement is sent by ShopKo,
payment shall be made within ten (10) days following receipt of such
statement.
Section 3.4. Taxes. ProVantage will reimburse ShopKo for all sales, use
or excise taxes levied on amounts payable by ProVantage to ShopKo pursuant to
this Agreement, provided that ProVantage shall not be responsible for remittance
of such taxes to applicable tax authorities. ProVantage shall not be
responsible for any ad valorem, income, franchise, privilege, value added or
occupational taxes of ShopKo. ShopKo shall cooperate with ProVantage's efforts
to identify taxable and nontaxable portions of amounts payable pursuant to this
Agreement (including segregation of such portions on invoices) and to obtain
refunds of taxes paid, where appropriate. ProVantage may furnish ShopKo with
certificates or other evidence supporting applicable exemptions from sales, use
or excise taxation.
<PAGE>
ARTICLE IV
TERM OF AGREEMENT
Section 4.1. Effective Date and Term. The initial term of this Agreement
shall commence on the Closing Date and, except as otherwise provided below,
continue until January 31, 2001. This Agreement will be renewed automatically
thereafter for successive one-year terms unless either ProVantage or ShopKo
elects not to renew this Agreement by giving the other party written notice of
its intention not to renew the Agreement not less than ninety (90) days prior to
the end of the then current term. Either party may terminate any specified
Service under the prior notice provision in Section 4.3(c).
Section 4.2. Annual and Interim Reviews. On or about the first
anniversary of the Closing Date and annually thereafter until termination,
ShopKo and ProVantage agree that they will review the scope and pricing of the
Services being provided as of the applicable annual review date. Interim
reviews may also be scheduled by either party upon providing 30 days advance
written notice. Each such review and any resulting amendment of this Agreement
will be undertaken in good faith and with as much advance notification, lead
time and discussion as is reasonable under the circumstances, in the spirit of
providing appropriate services to ProVantage at a fair cost and without undue
burden to ShopKo. Accordingly, before any termination or significant alteration
of the scope of Services is made, the parties shall take into account all
elements of cost, inconvenience and other direct and indirect impact on both
parties of terminating or altering the Services.
Section 4.3. Termination. This Agreement and the scope of the Services
may be reduced, suspended, or terminated as follows:
(a) Either party hereto may terminate this Agreement immediately upon
written notice to the other party (i) in the event of the other party's
voluntary bankruptcy or insolvency, (ii) in the event that the other party
shall make an assignment for the benefit of creditors, or (iii) in the
event that a petition shall have been filed against the other party under a
bankruptcy law, a corporate reorganization law or any other law for relief
of debtors (or other law similar in purpose or effect).
(b) If either party hereto (the "Defaulting Party") shall fail
adequately to perform in any material respect any of its material
obligations under this Agreement, whether voluntarily or involuntarily or
as a result of any law or regulation or otherwise, the other party hereto
shall have the option to terminate this Agreement upon sixty (60) days'
written notice (which shall be reduced to thirty (30) days' written notice
in the event of a failure to make payment in accordance with the terms
hereof) to the Defaulting Party specifying the respects in which the
Defaulting Party has so failed to perform its obligations under this
Agreement, unless during such period the Defaulting Party shall have
substantially remedied the default therein specified.
(c) Either party may, at any time prior to the expiration of this
Agreement or any extension thereof, terminate any of the Services upon one
hundred twenty (120) days'
<PAGE>
prior written notice from the party desiring such termination. For purposes
of this Section 4.3(c), Services may only be terminated as to a category
for which there is a specified charge on Exhibit A unless the other party
agrees to a partial Services reduction and a corresponding reduction in the
appropriate charge is agreed between the parties.
Section 4.4. Transition Assistance. Prior to and following the
termination of this Agreement or the provisions of any of the Services,
including any Service terminated pursuant to Section 4.3(c), ShopKo shall
provide, at ProVantage's request and expense, transition services for a period
of 180 days with respect to the terminated Services and assistance in engaging
or training another person or persons to provide such Services or their
equivalent. ShopKo shall provide ProVantage full access to all records and other
information relating to the Services provided by ShopKo immediately preceding
such termination.
ARTICLE V
MISCELLANEOUS
Section 5.1. Independent Contractor Status. ShopKo shall perform the
Services hereunder as an independent contractor. Nothing in this Agreement
shall constitute or be deemed to constitute a partnership or joint venture
between the parties hereto, or, except to the extent provided in Section 2.11,
constitute or be deemed to constitute any party as the agent or employee of the
other party for any purpose whatsoever and neither party shall have authority or
power to bind the other or to contract in the name of, or create a liability
against, the other in any way or for any purpose. Each party shall be
responsible for any injury or death to its own employees, including all workers'
compensation claims or liabilities resulting therefrom, and each such party
shall remain responsible for reporting its income and paying its own taxes.
Section 5.2. Confidentiality. The parties each agree that they will not
divulge to any third party, or to any person within each respective corporation
who does not have a need to know, any confidential matters relating to each
other's business and the businesses of the other party's customers, vendors,
employees or competitors which may become known by reason of performance of the
Services described in this Agreement; provided, however, that the obligations of
either party under this section shall not apply to information which has been in
the public domain or becomes in the public domain without breach of this
Agreement or which a party is legally obligated to disclose. The obligations of
the parties hereto set forth in this section shall survive the expiration or
termination of this Agreement for a period of one (1) year.
Section 5.3 Key Employees. During the term of this Agreement and for a
period of two years thereafter:
<PAGE>
(a) neither ProVantage nor any of its direct or indirect subsidiaries
(whether now owned or hereafter acquired) shall solicit for hire any
employees of ShopKo or any of ShopKo's direct or indirect subsidiaries
(other than ProVantage and its subsidiaries), and
(b) neither ShopKo nor any of its direct or indirect subsidiaries
(other than ProVantage and its subsidiaries) shall solicit for hire any
employees of ProVantage or any of its direct or indirect subsidiaries.
This covenant may be waived only with the prior written consent of the other
party.
Nothing in this Section 5.3 shall be deemed or construed to prevent
solicitation, recruitment or hiring of any employee of the other party who first
initiates contact with the soliciting, recruiting or hiring party, provided that
neither party shall engage in any activity intended to encourage the other
party's employees to initiate such contact. General advertisements shall not be
deemed violative of this restriction.
Section 5.4. Force Majeure. Each party shall be excused for failure to
perform any part of this Agreement due to events beyond its control, including
but not limited to fire, storm, flood, earthquake, explosion, accident, riots
and other civil disturbances, sabotage, strikes or other labor disturbances,
injunctions, transportation embargoes or delays, failure of performance of third
parties necessary for the parties' performance under this Agreement, or the
laws or regulations of the federal, state or local government or breach or
agency thereof; provided, however, no force majeure event shall excuse the
obligation of the party claiming the benefit of a force majeure event from
paying the applicable fees for any services provided by the other party.
Section 5.5. Standard of Performance; Remedies; Consequential Damages. In
performing its obligations under this Agreement, ShopKo represents that it will
use the same standard of care and good faith as it uses in performing services
for its own account. ShopKo agrees to exercise reasonable diligence to correct
errors or deficiencies in the Services provided by it hereunder. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, SHOPKO MAKES NO REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY
REPRESENTATION OR WARRANTY AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, ARISING OUT OF THIS AGREEMENT AND THE SERVICES TO BE PROVIDED
HEREUNDER. The sole remedy of ProVantage for any claim relating to the
performance or nonperformance of the Services shall be a refund by ShopKo to
ProVantage of any charges or fees paid for the applicable Services. In
addition, in no event shall either party be liable to the other for special,
punitive, incidental or consequential damages arising out of this Agreement.
Section 5.6. Notice. Any notice, request, designation, direction, demand,
election, acceptance or other communication shall be in writing and shall be
effective and deemed to have been given when it is (i) mailed postage prepaid,
by certified first class mail, return receipt requested, addressed to a party
and received by such party; (ii) hand or courier delivered; or (iii) sent by
telecopy with receipt confirmed, as follows:
<PAGE>
If to ShopKo,
ShopKo Stores, Inc.
700 Pilgrim Way
Green Bay, WI 54307
Telecopy: (920) 429-4225
Attention: General Counsel
If to ProVantage,
ProVantage Health Services, Inc.
13555 Bishops Court, Suite 201
Brookfield, WI 53005
Telecopy: (414) 641-3770
Attention: Vice President, Legal Affairs
Any party may from time to time designate another address to which notice
or other communication shall be addressed or delivered to such party and such
new designation shall be effective on the later of (i) the date specified in the
notice or (ii) receipt of such notice by the intended recipient.
Section 5.7. Assignability; Successor and Assigns. Neither party hereto
shall assign this Agreement in whole or in part without the prior written
consent of the other party hereto, which consent shall not be unreasonably
withheld. This Agreement shall inure to the benefit of and shall be binding
upon the successor and permitted assigns of the parties hereto.
Section 5.8. No Third Party Beneficiaries. Each of the provisions of this
Agreement is for the sole and exclusive benefit of the parties hereto
respectively, as their interests may appear, and shall not be deemed for the
benefit of any other person or entity or group of persons or entities.
Section 5.9. Severability. If any term or condition of this Agreement
shall be held invalid in any respect, such invalidity shall not affect the
validity of any other term or condition hereof.
Section 5.10. Applicable Law. This Agreement shall be construed under the
laws of the State of Wisconsin and the rights and obligations of the parties
shall be determined under the substantive law of Wisconsin, without giving
effect to Wisconsin's conflict of law rules or principles.
Section 5.11. Amendment or Modification. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties, or in the case of a waiver, by the party waiving compliance. Any
waiver by either party hereto of any condition, or of the breach of any
provision or term in any one or more instances shall not be deemed to be nor
construed as a
<PAGE>
further or continuing waiver of any such condition, or of the breach of any
other provision or term of this Agreement.
Section 5.12. Construction. Descriptive headings to sections and
paragraphs are for convenience only and shall not control or affect the meaning
or construction of any provisions in this Agreement.
Section 5.13. Counterparts. This Agreement may be executed in two
counterparts, each of which shall constitute an original, and both of which,
when taken together, shall constitute one and the same instrument.
Section 5.14. Look-Back. The parties acknowledge that the intent of this
Agreement is to accurately capture the scope and nature of the administrative
services provided to ProVantage by ShopKo as of the date hereof, so that such
services may continue uninterrupted for the term of this Agreement. Both
parties have made a good faith attempt to identify all of the administrative
services provided to ProVantage by ShopKo as of the date hereof. If, however,
it is later determined that the parties unintentionally omitted a description of
services or charges therefor, both parties shall negotiate in good faith to
amend this Agreement to include such services and charges, and charges and
credits for such additional services shall be retroactive back to the
commencement date of this Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties as of the date first written above.
SHOPKO STORES, INC.
By: ___________________________________________
William J. Podany
President and Chief Executive Officer
Attest:
_______________________________________________
Richard D. Schepp, Sr. Vice President,
General Counsel/Secretary
PROVANTAGE HEALTH SERVICES, INC.
By: ___________________________________________
Jeffrey A. Jones
Executive Vice President and Chief
Operating Officer
Attest:
_______________________________________________
Richard D. Schepp, Secretary
<PAGE>
Exhibit A
---------
Services
--------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Fiscal Year Fiscal Period Base Fee
1999 Base Fee For Fiscal 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Chief Financial Officer
- ------------------------------------------------------------------------------------------
Treasury Services 20,000 1,667
- ------------------------------------------------------------------------------------------
- Payroll processing
- ------------------------------------------------------------------------------------------
- Insurance administration
- ------------------------------------------------------------------------------------------
- Cash management
- ------------------------------------------------------------------------------------------
Accounting Services 80,000 6,666
-------- -------
- ------------------------------------------------------------------------------------------
- Monthly general ledger
processing and financial
statement preparation
- ------------------------------------------------------------------------------------------
- Accounts payable
processing
- ------------------------------------------------------------------------------------------
- Income, sales and use and
property tax preparation
- ------------------------------------------------------------------------------------------
- Appropriation and fixed
asset processing
- ------------------------------------------------------------------------------------------
- Assistance in financial and
capital planning
- ------------------------------------------------------------------------------------------
100,000 8,333
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
General Corporate Services 100,000 8,333
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Sr. Vice President Human Resources
- ------------------------------------------------------------------------------------------
Personnel 50,000 4,167
- ------------------------------------------------------------------------------------------
Legal Affairs 25,000 2,033
-------- -------
- ------------------------------------------------------------------------------------------
75,000 6,250
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Overhead cost related to above (payroll taxes
& benefits, insurance, 401(k), profit sharing, 100,000 8,334
etc) -------- -------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
TOTAL $375,000 $31,250
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.2
I. T. SUPPORT AGREEMENT
THIS I. T. SUPPORT AGREEMENT ("Agreement") dated as of
____________________, 1999, is entered into by SHOPKO STORES, INC., a Wisconsin
corporation ("ShopKo"), and PROVANTAGE HEALTH SERVICES, INC., a Delaware
corporation ("ProVantage").
RECITALS
WHEREAS, ShopKo, through its indirect, wholly-owned subsidiary ProVantage,
provides health benefit management and health information technology products
and services to the health care industry (the "ProVantage Business"); and
WHEREAS, this Agreement is entered into in conjunction with an initial
public offering of ProVantage's Class A common stock, $.01 par value per share
(the "ProVantage IPO"); and
WHEREAS, after the ProVantage IPO, ProVantage will continue to need certain
information technology services, products and support to be provided by ShopKo
to ProVantage with respect to the operation of the ProVantage Business for a
period of time from and after the Closing Date (as hereafter defined); and
WHEREAS, the parties desire to enter into an agreement to provide for such
services.
NOW, THEREFORE, in consideration of the premises and the mutual promises of
the parties contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the indicated
meanings:
"Affiliate" means, with respect to a specified Person, any Person that,
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, the specified Person.
"Base Fee" means the amount identified on Exhibit A attached hereto. The
Base Fee shall be paid for the Services described hereunder, exclusive of any
Service Upgrades.
"Closing Date" means the date the ProVantage IPO is consummated.
"Data" means all data used in the ProVantage Business, whether owned by
ProVantage or by a ProVantage customer, which is provided to ShopKo in
connection with the Services.
<PAGE>
"FTE" means the equivalent of a full time employee. For purposes of this
Agreement, an FTE shall be equal to 154 work hours per month.
"Person" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization, limited liability company or other business
entity.
"ProVantage Confidential Information" means Data and other confidential
data provided by ProVantage or ProVantage's customers to ShopKo in accordance
with this Agreement; and any information with respect to ProVantage's
information systems operations, including without limitation all information
with respect to the ProVantage Hardware and the ProVantage Software.
"ProVantage Hardware" means the computer equipment and telecommunications
equipment owned or leased by ProVantage from time to time during the term of
this Agreement and used by ShopKo to provide the Services to ProVantage.
"ProVantage Software" means the software owned or licensed by ProVantage
from time to time during the term of this Agreement and used by ShopKo to
provide the Services to ProVantage.
"Services" means those data processing and related information technology
services to be conducted by ShopKo on behalf of ProVantage as set forth on
Exhibit B attached hereto, and as the same may be amended and revised from time
to time.
"ShopKo Confidential Information" means any and all information with
respect to ShopKo's information systems operations, including without limitation
all information with respect to the ShopKo Hardware and the ShopKo Software.
"ShopKo Hardware" means the computer equipment and telecommunications
equipment owned or leased by ShopKo from time to time during the term of this
Agreement and used to provide the Services to ProVantage. The current ShopKo
Hardware is identified on Exhibit A attached hereto.
"ShopKo I.S. Employees" means the data base administrators, computer
operators, operating systems technicians, help desk staff, end user support
staff, LAN administrators, telecom analysts and other individuals who are
employed or contracted by ShopKo and who are made available to provide the
Services to ProVantage. The number of ShopKo I.S. Employees in the various areas
who will provide Services hereunder for and in consideration of the Base Fee are
identified on Exhibit A attached hereto.
"ShopKo Software" means the software owned or licensed by ShopKo from time
to time during the term of this Agreement and used to provide the Services to
ProVantage. The current ShopKo Software is identified on Exhibit A attached
hereto.
2
<PAGE>
"Transition Period" means the 180 day period following the date on which
(i) this Agreement expires or is terminated, or (ii) any of the Services are
terminated pursuant to Section 15.1(c) of this Agreement.
ARTICLE II
TERM
The initial term of this Agreement shall commence on the Closing Date and,
except as otherwise provided below, continue until January 31, 2001. This
Agreement shall be renewed automatically thereafter for successive one-year
terms unless either ProVantage or ShopKo elects not to renew this Agreement by
giving the other party written notice of its intention not to renew the
Agreement not less than one hundred eighty (180) days prior to the end of the
then current term. Either party may terminate any specified Service under the
prior notice provision in Section 15.1(c).
ARTICLE III
SERVICES
Section 3.1. Provision of Services. In consideration of the Base Fee,
ShopKo agrees to provide to ProVantage the Services during the term of this
Agreement. The entire Base Fee shall be charged regardless of whether all of the
Services have been utilized in any given period.
Section 3.2 Hardware and Software. In providing the Services to ProVantage,
ShopKo shall utilize the ProVantage Hardware, ShopKo Hardware, ProVantage
Software, and ShopKo Software to the same extent such hardware and the software
have been utilized prior to the date of this Agreement; provided, however, that
ShopKo may provide the Services with different or additional computer equipment
and/or software.
Section 3.3 ShopKo I.S. Employees. ShopKo shall make the ShopKo I.S.
Employees available to provide the Services to ProVantage to the same extent
such employees were made available to ProVantage prior to the date of this
Agreement provided, however, that ShopKo shall only be required to provide the
number of FTEs of each of these ShopKo I.S. Employees as set forth on Exhibit A.
ShopKo and ProVantage acknowledge that the employees constituting the "ShopKo
I.S. Employees" are likely to change from time to time, and that at certain
times it is possible that staffing shortages may exist. ProVantage acknowledges
that some of the ShopKo I.S. employees may be independent contractors or
subcontractors.
Section 3.4. Access. ProVantage shall provide ShopKo and its employees and
agents access to ProVantage's facilities as necessary to provide ProVantage with
the Services. ShopKo shall provide ProVantage and its employees and agents
access to ShopKo's facilities on a basis consistent with past practices.
3
<PAGE>
Section 3.5. Modifications, Upgrades, etc. The parties acknowledge that
modifications, upgrades, and additions to the ShopKo Hardware, the ProVantage
Hardware, the ShopKo Software and the ProVantage Software and additional ShopKo
I.S. Employees may be necessary to adequately service the ProVantage Business
due to additional customers, new services, acquisitions, technological changes,
competitive pressures or otherwise (collectively, "Service Upgrades"). Charges
for Service Upgrades are not included in the Base Fee. The parties agree to
negotiate in good faith regarding any Service Upgrades. It is the intention of
the parties that to the extent practicable, ShopKo will use reasonable efforts
to provide ProVantage with any reasonable Service Upgrades requested by
ProVantage, and that the parties will negotiate reasonable fees, reimbursement
rates or other charges to adequately compensate ShopKo for the Service Upgrades.
The rates and fees listed on Exhibit A as components of the Base Fee were
derived as incremental costs to ShopKo only, and many of these rates and fees do
not reflect capitalization, or other amortization allocation of significant
initial investments made by ShopKo. Accordingly, rates and fees for Service
Upgrades could vary significantly from those set forth on Exhibit A.
Unless otherwise expressly agreed by ProVantage and ShopKo, ProVantage
shall have sole financial responsibility for any modifications, upgrades or
additions to the ProVantage Hardware and the ProVantage Software.
Section 3.6. Subsidiaries. The parties hereto agree that (i) the Services
to be provided to ProVantage under this Agreement will, at ProVantage's request,
be provided to subsidiaries of ProVantage and (ii) ShopKo may satisfy its
obligation to provide or procure the Services hereunder by causing one or more
of its subsidiaries to provide or procure such Services. With respect to
Services provided to, or procured on behalf of, any subsidiary of ProVantage,
(i) ProVantage agrees to pay on behalf of such subsidiary all amounts payable by
or in respect of such Services and (ii) references in this Agreement to
ProVantage shall be deemed to include such subsidiary.
ARTICLE IV
PERFORMANCE
Section 4.1. Standard of Performance; Remedies; Consequential Damages. In
performing its obligations under this Agreement, ShopKo represents that it will
use the same standard of care and good faith as it uses in performing services
for its own account. ShopKo agrees to exercise reasonable diligence to correct
errors or deficiencies in the Services provided by it hereunder. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, SHOPKO MAKES NO REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY
REPRESENTATION OR WARRANTY AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, ARISING OUT OF THIS AGREEMENT AND THE SERVICES TO BE PROVIDED
HEREUNDER. The sole remedy of ProVantage for any claim relating to the
performance or nonperformance of the Services shall be a refund by ShopKo to
ProVantage of any charges or fees paid for the applicable Services. In addition,
in no event shall either party be
4
<PAGE>
liable to the other for special, punitive, incidental or consequential damages
arising out of this Agreement.
Section 4.2. Annual and Interim Reviews. On or about the first anniversary
of the Closing Date and annually thereafter until termination, ShopKo and
ProVantage agree that they will review the scope and pricing of the Services
being provided as of the applicable annual review date. Interim reviews may also
be scheduled by either party upon providing 30 days advance written notice. Each
such review and any resulting amendment of the Services and the fees therefor
will be undertaken in good faith and with as much advance notification, lead
time and discussion as is reasonable under the circumstances, in the spirit of
providing appropriate services to ProVantage at a fair cost and without undue
burden to ShopKo. Accordingly, before any termination or significant alteration
of the scope of Services is made, the parties shall take into account all
elements of cost, inconvenience and other direct and indirect impact on both
parties of terminating or altering the Services. Consent to terminate or alter
the scope of the Services will not be unreasonably withheld by either party.
ARTICLE V
SUBCONTRACTING
Section 5.1. Subcontractors. ShopKo may hire or engage one or more
subcontractors to perform any or all of its obligations under this Agreement.
ShopKo shall promptly notify ProVantage of its intent to enter into any
subcontract. ShopKo is responsible for monitoring and managing the performance
of all subcontractors. ShopKo shall require such subcontractors, as a condition
to their engagement, to agree to be bound by the provisions substantially
identical to those included in this Agreement. Subject to Section 4.1 hereof,
ShopKo shall in all cases remain primarily responsible for all obligations
undertaken by it in this Agreement with respect to the scope, quality and nature
of the Services provided to ProVantage. If, as the result of ShopKo's
subcontracting any Service, the performance of that Service falls below the
level of ShopKo's previous actual, typical performance, then ShopKo shall work
with the subcontractor to restore the performance of that Service to such
previous actual, typical performance level. Even if an inadequacy in a
subcontractor's performance does not amount to a breach of this Agreement or
inadequate performance, if ProVantage is dissatisfied with the performance of
any subcontractor, ProVantage shall promptly notify ShopKo and ShopKo and
ProVantage shall discuss means to resolve ProVantage's dissatisfaction.
ARTICLE VI
FEES
Section 6.1. Payment. ProVantage agrees that in consideration of the
Services described in this Agreement, ProVantage shall pay ShopKo the Base Fee
as amended and revised from time to time by mutual agreement. ProVantage shall
also pay ShopKo for all Service Upgrades in accordance with agreed upon rates
and fees. In addition, ProVantage shall reimburse ShopKo for all direct and
identifiable costs and third-party disbursements incurred by ShopKo in
5
<PAGE>
performing the Services, provided ProVantage has approved any such costs and
disbursements in advance. In the event that any Services are terminated during a
fiscal year, payments shall be made for such Services through the effective date
of cancellation, said payments to be a pro rata portion of the charges for such
Services. ProVantage shall also pay ShopKo for any pre-approved costs or
disbursements, plus costs associated with ShopKo Hardware or ShopKo Software
purchases or other long-term commitments or investments made by ShopKo in
reliance upon this Agreement, provided ProVantage has approved any such costs,
commitments or investments in advance. The parties acknowledge that no such
costs, commitments or investments exist as of the date of this Agreement.
Section 6.2. Payments For Third Party Software Upon Disaffiliation. If
ProVantage and ShopKo cease to be Affiliates, ProVantage shall pay such license
fees, and any applicable or related taxes, for the Software as are required by
the third party to enable ShopKo to continue to provide the Services.
ARTICLE VII
INVOICES AND PAYMENT
Section 7.1. Billing and Payment. ProVantage shall pay the Base Fee for
Services rendered within each month during the term of this Agreement within
thirty (30) calendar days after the end of each such month. No invoices for the
Base Fee shall be sent, and no backup documentation shall be required for the
Services included in the Base Fee.
The fees for Service Upgrades shall be invoiced monthly by the thirtieth
(30th) calendar day of the calendar month next following the calendar month in
which the Service Upgrades were performed. Such invoices shall specify the value
of Service Upgrades determined in accordance with the agreed upon arrangements,
and shall be accompanied by supporting detail, and shall be due and payable
thirty (30) days from receipt thereof.
ARTICLE VIII
TRANSFER AND PROPERTY TAXES
Section 8.1. Allocation Of Responsibility For Certain Taxes. ProVantage
will reimburse ShopKo for all sales, use or excise taxes levied on amounts
payable by ProVantage to ShopKo pursuant to this Agreement, provided that
ProVantage shall not be responsible for remittance of such taxes to applicable
tax authorities. ProVantage shall not be responsible for any ad valorem, income,
franchise, privilege, value added or occupational taxes of ShopKo. ShopKo shall
cooperate with ProVantage's efforts to identify taxable and nontaxable portions
of amounts payable pursuant to this Agreement (including segregation of such
portions on invoices) and to obtain refunds of taxes paid, where appropriate.
ProVantage may furnish ShopKo with certificates or other evidence supporting
applicable exemptions from sales, use or excise taxation.
6
<PAGE>
ARTICLE IX
OWNERSHIP OF DATA
Section 9.1. Ownership Of Data. The Data is the exclusive property of
ProVantage or its customers. Any data about which there is an ambiguity as to
ownership shall be treated as Data and subject to the provisions of this
Agreement until its ownership is resolved. This Agreement does not purport to
address the ownership of any data other than Data.
Section 9.2. Use of Data. ShopKo shall use the Data only in providing
Services pursuant to this Agreement. Except as otherwise expressly agreed in
writing, ShopKo shall not and shall not attempt to sell, license, provide,
disclose, use, pledge, hypothecate, and/or in any other way transfer the Data.
All such attempts shall be void and without legal effect. ShopKo may use the
Data for such other purposes as ProVantage and ShopKo may agree in writing.
Section 9.3. Risk of Data Loss. When Data is in ShopKo's possession or
under ShopKo's control and an event occurs that prevents or hinders the access
to or reliable use of such data, ShopKo shall use reasonable efforts to cure and
re-create or restore such data as promptly as practicable.
Section 9.4. Data Security. ShopKo shall maintain safeguards for protecting
against the loss and disclosure of the Data no less rigorous than such
safeguards as are in effect on the Closing Date. ShopKo acknowledges that as a
holder or recipient of health care claims information, ProVantage is and shall
continue to be subject to special restrictions regarding the treatment and
handling of the data. ShopKo agrees to comply with all reasonable requests made
by ProVantage in this regard, provided that any incremental costs incurred by
ShopKo associated with such requests shall be billed to ProVantage as costs of
Service Upgrades.
Section 9.5. Media Containing Data. As between ProVantage and ShopKo,
ProVantage is the exclusive owner of all Data recorded on any media irrespective
of which party owns the media.
ARTICLE X
SOFTWARE PROTECTION
Section 10.1. Protection of Software Rights Against Third Parties. If
either party to this Agreement shall become aware of any infringement or
misappropriation by any third party of the intellectual property rights of the
other party, it shall promptly give notice to the other party of such
infringement or misappropriation. The owner of such intellectual property may,
at its expense, institute suit against such third party, and the other party
shall fully cooperate with the owner to enjoin such infringement or
misappropriation and if reasonably necessary, shall, if requested, join with the
owner as a party to any action brought by the owner for such purpose. The owner
shall bear all expenses connected with such suit, provided, however, that if the
other party desires to retain its own counsel, it shall do so at its own cost
and expense. Each party hereby agrees to defend, indemnify and hold harmless the
other party for any costs, losses, or
7
<PAGE>
expenses related to any claim of infringement or misappropriation of the
indemnifying party's intellectual property.
ARTICLE XI
SOFTWARE OWNERSHIP
Section 11.1. Software Ownership. ShopKo acknowledges that is has no
ownership interest in the ProVantage Software. ProVantage acknowledges that it
has no ownership interest in the ShopKo Software. If during the term of this
Agreement ShopKo or ProVantage develops, purchases or licenses software which is
utilized by ShopKo to provide the Services to ProVantage, such software shall be
the property of ShopKo or ProVantage, respectively and shall be considered
"ShopKo Software" or "ProVantage Software", respectively for purposes of this
Agreement unless ShopKo and ProVantage agree otherwise in writing.
ARTICLE XII
CONFIDENTIAL INFORMATION
Section 12.1. Confidential Information. Except as otherwise provided in
this Agreement, the ProVantage Confidential Information and the ShopKo
Confidential Information (collectively, the "Confidential Information") is
proprietary to ProVantage and ShopKo, respectively, and may not be used by the
other party hereto except to carry out the parties' respective obligations under
this Agreement.
Section 12.2. Excluded Information. Information is not considered
Confidential Information to the extent that such information:
(a) is or becomes publicly available other than as a result of any
breach of this Agreement;
(b) is or becomes available to a party from a source that, to that
party's knowledge, is lawfully in possession of that information and is not
subject to a duty of confidentiality, which is violated by that disclosure;
or
(c) is independently developed without reference to the Confidential
Information.
Section 12.3. Standard Of Care. Except as otherwise set herein, each party
shall use at least the same degree of care in maintaining the confidentiality of
the other party's Confidential Information as is normally used with respect to
its own proprietary or confidential information.
8
<PAGE>
Section 12.4. Permitted Disclosures. Either party may disclose Confidential
Information to its respective employees or agents, on a need-to-know basis, in
order to fulfill its obligations under this Agreement.
Section 12.5. Required Disclosures. Either party may disclose Confidential
Information in response to a request for disclosure by a court or another
governmental authority, including a subpoena, court order, or audit-related
request by a taxing authority. Either party may also make disclosures of
Confidential Information as may be required under applicable securities laws or
the rules and regulations of each party's respective stock exchange. Prior to
any disclosure of Confidential Information pursuant to this Section, however,
the disclosing party shall make a good faith attempt to notify the other party
in advance to allow the non-disclosing party the opportunity to seek a
protective order or other injunctive relief.
Section 12.6. Confidentiality And Third Parties. If ShopKo engages a
subcontractor to perform any of its obligations under this Agreement and such
subcontractor has access to ProVantage Confidential Information, ShopKo shall
advise such subcontractor of the confidentiality requirements of this Agreement.
Section 12.7. Irreparable Harm. The parties acknowledge that any disclosure
or misappropriation of Confidential Information in violation of this Agreement
could cause irreparable harm, the amount of which may be extremely difficult to
estimate, thus making any remedy at law or in damages inadequate. Each party
therefore agrees that the other party shall have the right to apply to any court
of competent jurisdiction for a temporary or provisional order restraining any
breach or impending breach of this Article XII. This right shall be in addition
to any other remedy available under this Agreement.
9
<PAGE>
ARTICLE XIII
KEY EMPLOYEES
Section 13.1 Employees. During the term of this Agreement and for a period
of two years thereafter:
(a) neither ProVantage nor any of its direct or indirect subsidiaries
(whether now owned or hereafter acquired) shall solicit for hire any
employees of ShopKo or any of ShopKo's direct or indirect subsidiaries
(other than ProVantage and its subsidiaries), and
(b) neither ShopKo nor any of its direct or indirect subsidiaries
(other than ProVantage and its subsidiaries) shall solicit for hire any
employees of ProVantage or any of its direct or indirect subsidiaries.
This covenant may be waived only with the prior written consent of the other
party.
Nothing in this Article XIII shall be deemed or construed to prevent
solicitation, recruitment or hiring of any employee of the other party who first
initiates contact with the soliciting, recruiting or hiring party, provided that
neither party shall engage in any activity intended to encourage the other
party's employees to initiate such contact. General advertisements shall not be
deemed violative of this restriction.
ARTICLE XIV
FORCE MAJEURE AND DISASTER RECOVERY
Section 14.1. Force Majeure. Each party shall be excused for failure to
perform any part of this Agreement due to events beyond its control, including
but not limited to fire, storm, flood, earthquake, explosion, accident, riots
and other civil disturbances, sabotage, strikes or other labor disturbances,
injunctions, transportation embargoes or delays, failure of performance of third
parties necessary for the parties' performance under this Agreement (other than
third parties engaged by ShopKo pursuant to Article V), or the laws or
regulations of the federal, state or local government or breach or agency
thereof; provided, however, no force majeure event shall excuse the obligation
of the party claiming the benefit of a force majeure event from paying the
applicable fees for any services provided by the other party.
ARTICLE XV
TERMINATION
Section 15.1. Termination. This Agreement and the scope of the Services may
be reduced, suspended, or terminated as follows:
(a) Either party hereto may terminate this Agreement immediately upon
written notice to the other party (i) in the event of the other party's
voluntary bankruptcy or
10
<PAGE>
insolvency, (ii) in the event that the other party shall make an assignment
for the benefit of creditors, or (iii) in the event that a petition shall
have been filed against the other party under a bankruptcy law, a corporate
reorganization law or any other law for relief of debtors (or other law
similar in purpose or effect).
(b) If either party hereto (the "Defaulting Party") shall fail
adequately to perform in any material respect any of its material
obligations under this Agreement, whether voluntarily or involuntarily or
as a result of any law or regulation or otherwise, the other party hereto
shall have the option to terminate this Agreement upon sixty (60) days'
written notice (which shall be reduced to thirty (30) days' written notice
in the event of a failure to make payment in accordance with the terms
hereof) to the Defaulting Party specifying the respects in which the
Defaulting Party has so failed to perform its obligations under this
Agreement, unless during such period the Defaulting Party shall have
substantially remedied the default therein specified.
(c) Either party may, at any time prior to the expiration of this
Agreement or any extension thereof, terminate any of the Services upon one
hundred twenty (120) days' prior written notice from the party desiring
such termination. For purposes of this Section 15.1(c), Services may only
be terminated to the extent such Services can reasonably be discontinued
without additional cost to ShopKo. If this Agreement is terminated by
ProVantage pursuant to this Section 15.1(c), ProVantage shall reimburse
ShopKo for any costs associated with ShopKo Hardware or ShopKo Software
purchases or other long-term commitments made by ShopKo in reliance upon
the existence of this Agreement. Additionally, ProVantage shall be
responsible for all costs related to any commitments made by ShopKo with
respect to all previously agreed upon Service Upgrades.
ARTICLE XVI
TRANSITION ASSISTANCE; SURVIVAL
Section 16.1. Transition Assistance By ShopKo. Upon expiration or
termination of this Agreement for any reason whatsoever, or upon termination of
any of the Services pursuant to Section 15.1(c) above, ProVantage and ShopKo
agree that ShopKo shall provide assistance to ProVantage to obtain services to
replace the affected Services in accordance with this Section 16.1.
A. During the Transition Period, ShopKo shall provide to ProVantage
all assistance reasonably requested by ProVantage to allow the Services to
continue without interruption or adverse effect and to facilitate the
orderly transfer of responsibility for the Services. Services provided
during the Transition Period will be provided by ShopKo at the rates then
in effect pursuant to this Agreement.
B. ShopKo may provide transition assistance after the Transition
Period at market rates. ShopKo shall endeavor to utilize any existing
ShopKo resources and personnel to provide this assistance and the services
in Subsection C below, to the extent reasonably
11
<PAGE>
possible. If the assistance requires resources in addition to those
regularly used in the daily performance of Services, ProVantage will pay
ShopKo for such assistance on a time and materials basis.
C. Upon expiration or termination of this Agreement or with respect
to any particular Data, on such earlier date that the same shall be no
longer required by ShopKo in order for it to render the Services hereunder,
such Data shall be, at ProVantage's election and expense, (i) erased from
the data files maintained by ShopKo, or (ii) returned to ProVantage by
ShopKo in a form reasonably requested by ProVantage.
Section 16.2. Survival. Articles IX, X, XI, XII and XVI of this Agreement
shall survive the termination or expiration of this Agreement.
ARTICLE XVII
AUDITING RIGHTS
Section 17.1. Operational Audit. ProVantage and its representatives, at
ProVantage's expense and upon reasonable notice to ShopKo, shall have the right
to conduct an audit of ShopKo's operations used in providing the Services (i) on
an annual basis and (ii) more frequently as reasonably requested by ProVantage
to the extent that such audit will not unreasonably disrupt the operations of
ShopKo, in order to verify that ShopKo is exercising reasonable operational
procedures in accordance with the customary standards of the health benefit
management and healthcare information technology industries in its performance
of the Services. ShopKo will provide ProVantage and its representatives access
to the ShopKo facilities at which ShopKo is performing the Services, to ShopKo's
personnel engaged in performing the Services, to existing Data and work product
located at ShopKo facilities and to reasonably related documentation. ShopKo
will provide to ProVantage and its representatives any assistance that they
reasonably require in connection therewith at no additional charge to
ProVantage, provided, however, that ProVantage shall pay ShopKo, at rates then
in effect pursuant to this Agreement, for any technical resources and
application development time used by ShopKo and any other reasonable additional
costs of ShopKo necessary for the audit and not otherwise provided to ProVantage
hereunder.
Section 17.2. Record-Keeping Audits of Charges. ShopKo shall maintain
complete and accurate books, records and accounts to support and document all
charges to ProVantage for Service Upgrades. ShopKo shall retain such records for
three (3) years after creation, or for such longer period as required to comply
with government requirements, as directed in writing by ProVantage. ShopKo shall
permit ProVantage or its representatives access to ShopKo's facilities to
perform an audit of ShopKo's records to the extent necessary to verify ShopKo's
charges billed to ProVantage (i) on an annual basis and (ii) more frequently as
reasonably requested by ProVantage if and to the extent that such audit will not
unreasonably disrupt the operations of ShopKo.
12
<PAGE>
ARTICLE XVIII
NOTICES AND OTHER COMMUNICATIONS
Section 18.1. Notice. Any notice, request, designation, direction, demand,
election, acceptance or other communication shall be in writing and shall be
effective and deemed to have been given when it is (i) mailed postage prepaid,
by certified first class mail, return receipt requested, addressed to a party
and received by such party; (ii) hand or courier delivered; or (iii) sent by
telecopy with receipt confirmed, as follows:
If to ShopKo,
ShopKo Stores, Inc.
700 Pilgrim Way
Green Bay, WI 54307
Telecopy: (920) 429-4225
Attention: Chief Information Officer
cc: General Counsel
If to ProVantage,
ProVantage Health Services, Inc.
13555 Bishops Court, Suite 201
Brookfield, WI 53005
Telecopy: (414) 641-3770
Attention: Chief Information Officer
cc: Legal Department
Any party may from time to time designate another address to which notice
or other communication shall be addressed or delivered to such party and such
new designation shall be effective on the later of (i) the date specified in the
notice or (ii) receipt of such notice by the intended recipient.
ARTICLE XIX
MISCELLANEOUS PROVISIONS
Section 19.1. Independent Parties. ShopKo shall perform the Services
hereunder as an independent contractor. Nothing in this Agreement shall
constitute or be deemed to constitute a partnership or joint venture between the
parties hereto, constitute or be deemed to constitute any party as the agent or
employee of the other party for any purpose whatsoever and neither party shall
have authority or power to bind the other or to contract in the name of, or
create a liability against, the other in any way or for any purpose. Each party
shall be responsible for any injury or death to its own employees, including all
workers' compensation claims or liabilities resulting
13
<PAGE>
therefrom, and each such party shall remain responsible for reporting its income
and paying its own taxes.
Section 19.2. Assignment. Except as otherwise provided in this Section
19.2, neither party may assign any of its rights or delegate any of its duties
or obligations under this Agreement without the other party's consent.
ProVantage may assign its rights and delegate its duties and obligations under
this Agreement as a whole or as part of the sale or transfer of all or
substantially all of its assets and business, including by merger or
consolidation, to a Person (i) that assumes and has the ability to perform
ProVantage's duties and obligations under this Agreement; and (ii) the core or a
principal part of the business of which is not competitive with the core or a
principal part of the business of ShopKo. ShopKo may assign its rights and
delegate its duties and obligations under this Agreement as a whole or as part
of the sale or transfer of all or substantially all of its assets and business
involved in any manner in providing Services, including by merger or
consolidation, to a Person (a) that assumes and has the ability to perform
ShopKo's duties and obligations under this Agreement; and (b) the core or a
principal part of the business of which is not competitive with the core or a
principal part of the business of ProVantage. Any attempted assignment or
delegation of any rights, duties, or obligations in violation of this Section
19.2 shall be void and without effect. Nothing in this Section 19.2, however,
precludes ShopKo from subcontracting the performance of any of the Services as
permitted by this Agreement or precludes ProVantage from extending the right to
receive the Services to its Affiliates.
Section 19.3. Amendment And Waiver. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties, or in the case of a waiver, by the party waiving compliance. Any waiver
by either party hereto of any condition, or of the breach of any provision or
term in any one or more instances shall not be deemed to be nor construed as a
further or continuing waiver of any such condition, or of the breach of any
other provision or term of this Agreement.
Section 19.4. Integration. This Agreement supersedes any and all prior or
contemporaneous oral agreements or understandings between the parties regarding
the subject matter of this Agreement.
Section 19.5. Severability. If any term or condition of this Agreement
shall be held invalid in any respect, such invalidity shall not affect the
validity of any other term or condition hereof.
Section 19.6. Successors. This Agreement binds and inures to the benefit of
the parties and their respective legal representatives, successors, and
permitted assigns.
Section 19.7. Applicable Law. This Agreement shall be construed under the
laws of the State of Wisconsin and the rights and obligations of the parties
shall be determined under the substantive law of Wisconsin, without giving
effect to Wisconsin's conflict of law rules or principles.
14
<PAGE>
Section 19.8. Reasonableness. As concerns every provision of this
Agreement, ShopKo and ProVantage agree to act reasonably and in good faith
unless a provision expressly states that ProVantage or ShopKo may act in its
sole discretion.
Section 19.9. Counterparts. This Agreement may be executed in two
counterparts, each of which shall constitute an original, and both of which,
when taken together, shall constitute one and the same instrument.
Section 19.10. Further Assurances. Each party shall take such actions, upon
request of the other party and in addition to the actions specified in this
Agreement, as may be necessary or reasonably appropriate to implement or give
effect to this Agreement.
Section 19.11. No Third Party Beneficiaries. Each of the provisions of this
Agreement is for the sole and exclusive benefit of the parties hereto
respectively, as their interests may appear, and shall not be deemed for the
benefit of any other person or entity or group of persons or entities.
Section 19.12. Construction. Descriptive headings to sections and
paragraphs are for convenience only and shall not control or affect the meaning
or construction of any provisions in this Agreement.
Section 19.13. Look-Back. The parties acknowledge that the intent of this
Agreement is to accurately capture the scope and nature of the information
technology services being performed as of the date hereof, so that such services
may continue uninterrupted for the term of this Agreement. Both parties have
made a good faith attempt to identify all of the information technology services
provided to ProVantage by ShopKo. If, however, it is later determined that the
parties unintentionally omitted a description of services or charges therefor,
both parties shall negotiate in good faith to amend this Agreement to include
such services and charges, and charges and credits for such additional services
shall be retroactive back to the commencement date of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties as of the date first written above.
15
<PAGE>
SHOPKO STORES, INC.
By:
-----------------------
William J. Podany
President and Chief
Executive Officer
Attest:
-------------------
Richard D. Schepp,
Sr. Vice President,
General Counsel/Secretary
PROVANTAGE HEALTH SERVICES, INC.
By:
-----------------------
Jeffrey A. Jones
Executive Vice
President and Chief
Operating Officer
Attest:
-------------------
Richard D. Schepp,
Secretary
16
<PAGE>
Exhibit A
Base Fee
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Monthly Annual
Fee in $'s Fee in $'s
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ShopKo IS Employees
Job Category FTE
--------------------------------------------------------------------------------------------------------
Telecommunications 0.50 2,684 32,213
Technical Services - MVS 0.15 930 11,165
Technical Services - RS/6000 SP 0.50 3,253 39,041
Technical Services - AS/400 2.00 9,375 112,503
Technical Services - Internet/Intranet 0.50 3,253 39,041
Technical Services - DBA TBD TBD TBD
Technical Services - Security 0.30 1,287 15,439
Production Control & Operations 0.75 2,198 26,372
Help Desk 0.25 698 8,372
End User Service Analyst 1.50 7,360 88,320
--------------------------------------------------------------------------------------------------------
Total ShopKo IS Employees TBD TBD
------------------------
ShopKo Hardware Description
- -------------------------------------------------------------------------------------------------------------
IBM RS/6000 43P External Firewall 4 44
IBM RS/6000 E20 Primary public webserver 4 44
IBM RS/6000 360 Internal Firewall 4 44
IBM RS/6000 360 Internal ACEServer 56 678
Nortel Option 81C GO/ProVantage-North telephone system 56 667
Centigram Series 6 Model 640 GO/ProVantage-North voice mail system 35 417
MultiLink System 70 Audio conference bridge 69 833
Cisco 7000 Client router 1,333 16,000
Cisco 2501 GO Internet router 1 10
Cisco 7513 Core router 192 2,300
IBM 9672-R44 Mainframe 156 1,878
Proliant 1600 Netware file server 42 500
---------------------------------------------------------------------------------------------------------
Total ShopKo Hardware $ 1,951 $ 23,415
-------------------------
ShopKo Software
---------------------------------------------------------------------------------------------------------
Computer Associates
- CA-Prevail/XP-Jobtrac remote AIX - SP2 9 102
- CA-Prevail/XP-Jobtrac remote AIX - 370 0 6
- CA-View VTAM interface 1 17
- CA-View - ERO option 3 40
- CA-Deliver MVS 11 134
- CA-Deliver VTAM interface 1 17
- CA-View MVS 7 87
VPS
- VPS base 5 58
- VPS VMCF/VTAM 1 14
- VPS Report Browse 2 19
- VPS PC 0 6
- VPS/TCPIP 3 33
Oracle
- Oracle DB 3,750 45,000
- Oracle 7.1 development 4 45
Others
- Security Dynamics - Secur-id 47 563
- Walker 280 3,360
- Integral 33 394
- Ab initio 41 495
- SQL Backtrac 482 5,781
- MicroStrategy DSS Agent/Server/Web 2,667 32,000
- IBM Operating System Software 353 4,230
- Groupwise 2,479 29,750
- Netware 4,083 49,000
---------------------------------------------------------------------------------------------------------
Total ShopKo Software $14,263 $171,151
-------------------------
Other Services
---------------------------------------------------------------------------------------------------------
Tape Vaulting 210 2,520
Business Recovery Service 5,100 61,200
AIX Support line 3,333 40,000
---------------------------------------------------------------------------------------------------------
Total Other Services $ 8,643 $103,720
-------------------------
- --------------------------------------------------------------------------------------------------------------
Base Fee TBD TBD
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
Operating, Monitoring, And Communicating The Status Of Systems
. Monitor claims processing
. 1st shift daily sign on to AS/400 and AMS to verify communication
. Ping ProVantage benefits, 1st shift each day
. Verify ProVantage mail order programs are running
. Track disk usage
. Track system up time
. Verify on-line systems are up
. Execute production schedule for ProVmed, ProVRx and other HIT systems
. Operate Data Center hardware
. Operate BBS for ProVantage
Database (DBA) and Storage Administration Services
. Build databases
. Load databases
. Configure disk
. DDL management
. Define VSDs
. Support development database requests
. Consult with applications development on design and implementation of
software
Administering Information, Systems, And Services
. Maintain shrink wrapped/turnkey applications
. Maintain AS/400 & OS/400
. Maintain DOS with VPS-PC
. Maintain Openview
. Work with vendors to apply fixes to OS and turnkey software
. Maintain long distance dialing plan and access codes
. Loaner PC checkout/administration
. Loaner pager checkout/administration
. Loaner cell phone checkout/administration
. Administer operations inventory IS equipment
. Order, distribute, and maintain calling cards
B-1
<PAGE>
. Crystal information administration
. Provide call detail reporting on request
. Track and verify accuracy of Telecom billings
. Track software licenses
. Report/audit calling card usage
. Voice system administration
. Maintain NOS Novell
. Maintain OS/390
. Maintain Windows NT-NOS
. Maintain AIX Unix
. Maintain BBS for ProVantage
. Maintain SNA software, VTAM, NCP, and SNA/server
Securing Information Assets
. Backup file servers
. Tape library administration
. Restore files
. Manage firewalls
. Security setup
. Audit security access to data and systems
. Protect data access control
. User ID administration
. Performance of Y2K Activities substantially as outlined and detailed in
ShopKo's and ProVantage's respective Year 2000 Charters
. Maintain disaster recovery capability in accordance with past practices, but
in no event less reliable than those disaster recovery capabilities in place
to protect ShopKo's own systems.
Tracking, Escalating, And Resolving IT Problems
. 2nd level support for ProVantage Support Desk
. Trouble shoot remote client access
. Support ProVantage mail services IVR
. Troubleshoot communications problems
. Support ProVantage vision IVR
. Respond to on-call pages and calls
. Identify production problems, escalate or fix
. Support all IS hardware in all locations. Assume responsibility until
problems are resolved. (All equipment whether in-house supported or
contracted)
. Trouble shoot hardware/software problems
B-2
<PAGE>
Managing IS Fixed Assets
. Dispose of obsolete equipment
. Manage UPS and dual power feed
. Dispose of hardware
Installing And Maintaining Equipment
. Install data communication facilities
. Install voice communication facilities
. Install data communication equipment
. Install voice communication equipment
. Install Routers
. Install file servers
. Install Data Center equipment
. Install firewall
. Install Internet/Intranet
. Install shrink-wrapped turnkey applications
. Install AS/400, AIX Unix, OS/390, and other OS utilities or software packages
as needed
. Order printers, file servers, workstations, software, data center supplies,
paging service and equipment, and cellular service and equipment
. Order data communication equipment
. Order data communication facilities
. Order voice communication facilities
. Order voice communication equipment
. VPS administration setup printers
. Define terminals, printers to system software
. Manage technical hardware/software for optimal use
. Maintain paging service and equipment
. Maintain cellular service and equipment
. Maintain wiring
. Maintain voice equipment
. Maintain data communications equipment
. File server maintenance
. Maintain data center environmental equipment
. Maintain firewall
Planning For System Capacity Growth And Technological Change
. Capacity planning for voice network
. Capacity planning for data network
B-3
<PAGE>
. Recommend capacity or configurations of hardware/software to applications and
business
Defining And Engineering Information Technology Platforms
. Consult with applications development on design and implementation of
software
. Provide solutions to business
. Specify voice communication facilities
. Specify voice communication equipment
. Design technical architectures
. Design Intranet/Internet
. Specify data communications equipment
. Specify data communications facilities
B-4
<PAGE>
Exhibit 10.3
CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("Agreement") is made and entered into as of the ___
day of _______, 1999, by SHOPKO STORES, INC., a Wisconsin corporation
(hereinafter called the "Lender"), and PROVANTAGE HEALTH SERVICES, INC., a
Delaware corporation (hereinafter called the "Company").
WHEREAS, the Company is presently an indirect, wholly-owned subsidiary of
the Lender;
WHEREAS, the parties hereto anticipate that the Company will sell shares of
its common stock in an initial public offering; and
WHEREAS, the Company has requested that, following the date of such initial
public offering, the Lender make a $25.0 million line of credit available to the
Company for working capital purposes and for capital expenditures, and the
Lender has agreed to extend such line of credit on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions set forth below, the parties hereto agree as follows:
Section 1. Definitions.
1.01. Specific Definitions: As used herein, the following terms shall have
the indicated meanings:
"Account Balancing Loan": as such term is defined in Section 2.
"Account Balancing Loan Rate": means, for any day, a rate per annum equal
to the higher of (i) the "prime rate" for such day as published by Bankers Trust
Company in New York City, and (ii) the sum of (x) 1/2 of 1% and (y) the Federal
Funds Rate on overnight federal funds transactions for such day as published by
the Federal Reserve Bank of New York.
"Business Day": a day of the year on which national banks are open for
business in Green Bay, Wisconsin.
"Code": the Internal Revenue Code of 1986, as amended.
"Commitment": the Lender's obligation to make Loans pursuant to Section
2.01 of this Agreement.
"Effective Date": the date on or after the execution and delivery of this
Agreement by the Company and the Lender on which all of the conditions precedent
set forth in Section 4.01 shall have been satisfied.
<PAGE>
"Event of Default": as such term is defined in Section 6.
"Indebtedness": with respect to any Person at any time, without
duplication: (a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (c) all obligations of such Person upon which interest
charges are customarily paid (other than accounts payable on normal payment
terms to suppliers incurred in the ordinary course of business), (d) all
obligations of such Person under leases that are required to be reported as a
liability under generally accepted accounting principles, (e) all obligations of
such Person for the deferred purchase price of property or services (other than
accounts payable on normal payment terms to suppliers incurred in the ordinary
course of business), (f) all obligations of others secured by any Lien on
property owned or acquired by such Person, whether or not the obligation secured
thereby has been assumed and (g) all guarantees by such Person of Indebtedness
of others.
"Initial Public Offering": the initial public offering of the Company's
Common Stock as described in the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission.
"Lien": any security interest, mortgage, pledge, lien, charge, encumbrance,
title retention agreement or analogous instrument, in, of, or on any of the
assets or properties, whether now owned or hereafter acquired, of the Company or
any Subsidiary, whether arising by agreement or operation of law.
"Loan": as defined in Section 2.01.
"Loan Documents": this Agreement and all agreements, instruments and
documents heretofore, herewith or hereafter executed and delivered by the
Company or any other Person pursuant to, or in connection with, this Agreement.
"Maximum Commitment": Twenty Five Million Dollars ($25,000,000).
"Person": any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether acting
in an individual, fiduciary or other capacity.
"Request Loan": as such term is defined in Section 2.
"Request Loan Rate": means, for any day, a rate per annum equal to the
interest rate applicable to Euro-Dollar Loans under the ShopKo Credit Agreement.
"ShopKo Credit Agreement": the Credit Agreement dated as of July 8, 1997
among the Lender, the Banks named therein and Bankers Trust Company as Agent, as
the same may be amended from time to time.
"Subsidiary": means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or
2
<PAGE>
other persons performing similar functions are at the time directly or
indirectly owned by the Company.
"Termination Date": the earliest of (i) January 31, 2001, (ii) the date on
which the Commitment is terminated pursuant to Section 6, or (iii) the date on
which the Commitment is terminated pursuant to Sections 2.07 or 2.13.
1.02. Certain Other Terms. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to them in
conformity with generally accepted accounting principles.
Section 2. The Loans.
2.01. The Commitment. On the terms and subject to the conditions hereof,
the Lender agrees to make loans (each, a "Loan" and, collectively, the "Loans")
to the Company on a revolving basis at any time and from time to time from and
including the Effective Date through and including the last Business Day
preceding the Termination Date, during which period the Company may borrow,
repay and reborrow in accordance with the provisions hereof; provided, however,
that the unpaid principal amount of outstanding Loans shall not at any time
exceed the Maximum Commitment. Loans made hereunder shall be either Request
Loans or Account Balancing Loans.
2.02. Procedure for Loans.
(a) Request Loans. Any request by the Company for a Request Loan
shall be in writing, or by telephone promptly confirmed in writing, and
must be given so as to be received by the Lender not later than 12:00 noon
(Green Bay time) on the date five Business Days prior to the date of the
requested Request Loan. Each request for a Request Loan shall be
irrevocable and shall be deemed a representation by the Company that on the
date of the requested Request Loan and after giving effect to such Request
Loan the applicable conditions specified in Section 3 have been and will be
satisfied. Each request for a Request Loan shall specify (a) the date of
the requested Request Loan, and (b) the amount of such Request Loan, which
shall be in integral multiples of $1,000,000. Unless the Lender determines
that any applicable condition specified in Section 3 has not been
satisfied, the Lender will make available to the Company by deposit into an
account designated in writing by the Company to the Lender not later than
2:00 p.m. (Green Bay time) on the date of the requested Request Loan the
amount of the requested Request Loan. Without in any way limiting the
Company's obligation to confirm in writing any telephone request for a
Request Loan, the Lender may rely on any such request which it believes in
good faith to be genuine, and the Company hereby waives the right to
dispute the Lender's record of the terms of such telephone request for a
Request Loan, absent manifest error.
(b) Account Balancing Loans. Account Balancing Loans will be made to
cover the Company's daily cash needs. Each day the Lender's Cash Management
Department will reconcile the Company's cash disbursements with its cash
receipts. If cash
3
<PAGE>
disbursements exceed cash receipts, an Account Balancing Loan will be made
by Lender to cover this excess.
2.03. Requirement to Borrow. The Company shall not borrow any funds from
any person other than the Lender in order to satisfy its short-term financial
requirements unless such borrowing is either consented to by the Lender in
writing or the Lender has not provided the funds it is required to provide under
this Agreement within ten (10) Business Days after the Company makes an
appropriate request hereunder and complies with all terms provided for herein.
If the Company has borrowed any funds from any person other than the Lender in
accordance with the preceding sentence, (a) it will borrow funds from the Lender
under this Agreement to repay such borrowings as soon as the Lender makes funds
available and (b) it will seek to borrow any additional funds from the Lender
pursuant to the terms of this Agreement before it seeks to obtain funds from any
person other than the Lender.
2.04. Interest Rate, Interest Payments and Default Interest.
(a) Each Request Loan shall bear interest on the unpaid principal
amount thereof at a varying rate per annum equal to the Request Loan Rate.
(b) Each Account Balancing Loan shall bear interest on the unpaid
principal amount thereof at a varying rate per annum equal to the Account
Balancing Loan Rate.
(c) Interest shall be calculated daily based on the outstanding
principal amount of the Loans at the close of business on each day after
application of payments pursuant to Section 2.06(b) hereof and payable (i)
for each month on the last day of such month, (ii) upon any permitted
prepayment in full and (iii) on the Termination Date; provided, however,
that interest on any Loan not paid when due shall be payable on demand. Any
Loan not paid when due, whether at the date scheduled therefor or earlier
upon acceleration, shall bear interest until paid in full at a rate per
annum equal to the sum of the applicable interest rate plus 2.0%.
(d) The interest rates provided in this Section 2.04 are predicated
upon the continued existence of the ShopKo Credit Agreement in its current
form. Lender hereby expressly reserves the right to increase the interest
rates set forth herein if the ShopKo Credit Agreement is amended or
replaced, provided, however, that the interest rates charged to the Company
hereunder shall not exceed those set forth in Lender's then-current primary
revolving credit agreement.
2.05. Repayment. The principal of the Loans, together with all accrued
and unpaid interest thereon, shall be due and payable on the Termination Date.
2.06. Prepayments.
(a) Optional Prepayments. The Company may prepay the Loans in
whole or in part, at any time upon two Business Days' notice to the Lender,
without premium or penalty. Any prepayment in full must be accompanied by
accrued and unpaid interest on
4
<PAGE>
the amount prepaid. Any partial prepayment need not be accompanied by
accrued and unpaid interest. Each partial prepayment shall be in an amount
of $1,000,000 or an integral multiple thereof.
(b) Automatic Prepayments. If, upon Lender's reconciliation of the
Company's cash disbursements and cash receipts as set forth in Section
2.02(b), the Company's cash receipts exceed the Company's cash
disbursements, such excess cash will automatically be applied by Lender as
a prepayment of Loans made hereunder. Such prepayments will be applied
first to any outstanding Account Balancing Loans, then to any outstanding
Request Loans.
(c) Revolving Borrowing. Amounts paid (unless following an
acceleration or upon termination of the Commitment) or prepaid under this
Section 2.06 may be reborrowed upon the terms and subject to the conditions
and limitations of this Agreement.
2.07. Optional Reduction of Maximum Commitment or Termination of
Commitment. The Company may, at any time, upon not less than two Business Days'
prior written notice to the Lender, reduce the Maximum Commitment, with any such
reduction in an amount equal to $1,000,000 or an integral multiple thereof. Upon
any reduction in the Maximum Commitment pursuant to this Section, the Company
shall pay to the Lender the amount, if any, by which the aggregate unpaid
principal amount of outstanding Loans exceeds the Maximum Commitment as so
reduced. Amounts so paid may not be reborrowed. The Company may, at any time,
upon not less than two Business Days' prior written notice to the Lender,
terminate the Commitment in its entirety. Upon termination of the Commitment
pursuant to this Section, the Company shall pay to the Lender the full amount of
all outstanding Loans, all accrued and unpaid interest thereon, all unpaid
Facility Fees accrued to the date of such termination, and all other unpaid
obligations of the Company to the Lender hereunder.
2.08. Computation. Interest on the Loans and the Facility Fee shall be
computed on the basis of actual days elapsed and a year of 365 days (or 366 days
in a leap year) and paid for the actual number of days elapsed (including the
first day but excluding the last day).
2.09. Payments. Payments and prepayments of principal of, and interest
on, the Loans and all fees, expenses and other obligations under this Agreement
payable to the Lender shall be made without setoff or counterclaim in
immediately available funds not later than 12:00 noon (Green Bay time) on the
dates called for under this Agreement by deposit into Lender's account number
_________________ with _______________________________, ___________ office.
Funds received on any day after such time shall be deemed to have been received
on the next Business Day. Whenever any payment to be made hereunder or on the
Loans shall be stated to be due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and such extension of
time, in the case of a payment of principal, shall be included in the
computation of any interest on such principal.
2.10. Use of Proceeds. The proceeds of the initial Loan shall be used in
a manner not in conflict with any of the Company's covenants in this Agreement
and not for any other purpose
5
<PAGE>
prohibited under the ShopKo Credit Agreement. No part of such proceeds shall be
used, directly or indirectly, to purchase or carry any margin stock (as defined
in Regulation U of the Board of Governors of the Federal Reserve System) or to
extend credit to others for the purpose of purchasing or carrying such margin
stock.
2.11. Setoff. If the unpaid principal amount of the Loans, interest
accrued thereon or any other amount owing by the Company under the Loan
Documents shall have become due and payable (by demand, acceleration or
otherwise), the Lender shall have the right, in addition to all other rights and
remedies available to it, without notice to the Company, to set off against, and
to appropriate and apply to such due and payable amounts any debt owing to, and
any other funds held in any manner for the account of, the Company. Such right
shall exist whether or not the Lender shall have made any demand hereunder or
under any other Loan Document, whether or not such debt owing to or funds held
for the account of the Company is or are matured or unmatured, and regardless of
the existence or adequacy of any collateral, guaranty or any other security,
right or remedy available to the Lender.
2.12. Facility Fee. The Company shall pay to the Lender a Facility Fee
(the "Facility Fee") in an amount determined by applying a rate of 0.2% per
annum to the Maximum Commitment for the period from the Effective Date to the
Termination Date. Such Facility Fee is payable in arrears quarterly on the last
day of each March, June, September and December, and on the Termination Date. If
the Maximum Commitment is reduced pursuant to Section 2.07, the Maximum
Commitment as so reduced shall be used for calculating the Facility Fee from the
date of such reduction. The Facility Fee rate is subject to increases to the
extent the facility fee rate set forth in Lender's primary revolving credit
facility is increased beyond the 2% per annum rate currently required in the
ShopKo Credit Agreement.
2.13. Term of the Agreement. This Agreement commences on the date of this
Agreement first set forth above and will continue until the Termination Date.
Notwithstanding the foregoing, this Agreement may be sooner terminated, without
liability to the terminating party:
(a) by either party, upon 30 days' notice to the other, if the
Lender ceases to beneficially own 50% or more of the combined voting power of
the Common Stock of the Company;
(b) by either party, immediately upon notice to the other party, if
that other party's material breach of this Agreement continues uncured or
uncorrected for 30 days after both the nature of that breach and the necessary
cure or correction has been agreed upon by the parties.
Section 3. Representations and Warranties of the Company. The Company
represents and warrants that:
3.01. Organization, Corporate Powers, Etc. (a) The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated; (b) the Company has the
corporate power and authority to own its properties and
6
<PAGE>
assets and to carry on its business as now being conducted and is qualified to
do business in every jurisdiction wherein such qualification is necessary; and
(c) the Company has the corporate power to execute, deliver and perform the Loan
Documents to which it is a party.
3.02. Authorization of Borrowing, Etc. The execution, delivery and
performance of the Loan Documents to which the Company is a party and the
borrowings hereunder have been duly authorized by all requisite corporate action
and will not violate any provision of law, any order of any court or other
agency of government, the Certificate of Incorporation or Bylaws of the Company,
any provisions of any indenture, agreement or other instrument to which the
Company is a party or by which it or any of its properties is bound, or result
in the creation or imposition of any Lien upon any of the properties or assets
of the Company other than Liens in favor of the Lender. The Loan Documents
constitute the legal, valid and binding obligations of the Company enforceable
against them in accordance with their respective terms.
Section 4. Conditions Precedent.
4.01. Effectiveness of Agreement. This Agreement shall become effective
upon its execution and delivery by the parties hereto and when (i) the Lender
shall have received in form and substance satisfactory to it:
(a) a copy of the Certificate of Incorporation of the Company,
certified by the Secretary of the State of Delaware;
(b) a currently dated long-form certificate of the Secretary of
State of Delaware, certifying as to the legal existence and good standing
of the Company;
(c) a copy of the by-laws of the Company, certified by the
Secretary or Assistant Secretary of the Company;
(d) a copy of resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance of the Loan Documents
to be executed by it, certified by the Secretary or Assistant Secretary of
the Company; and
(e) a certificate signed by the Secretary or Assistant Secretary of
the Company, as to the incumbency and signature of the person or persons
authorized to execute and deliver the Loan Documents to be delivered by the
Company, and (ii) the Initial Public Offering shall have closed.
4.02. Conditions Precedent to all Loans. The obligation of the Lender to
make each Loan hereunder (including the initial Loan) shall be subject to the
fulfillment of the following conditions:
(a) The representation and warranties contained in Section 3 shall
be true and correct on and as of the date of such Loan, with the same force
and effect as if made on such date.
7
<PAGE>
(b) No Event of Default or event that could, with the passage of
time, the giving of notice or both, become an Event of Default shall have
occurred and be continuing on the date of such Loan or will exist after
giving effect to such Loan.
(c) The Lender shall have received the Company's request for any
Request Loan in accordance with the terms set forth in Section 2.02(a).
Section 5. Covenants.
The Company covenants and agrees that from the date hereof until payment in
full of the principal of and interest on the Loans and the expiration or
termination of the Commitment, unless the Lender shall otherwise consent in
writing, the Company will:
5.01. Corporate Existence. Do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights and
franchises, and continue to conduct and operate its business substantially as
currently conducted and operated.
5.02. Payments of Indebtedness, Taxes, Etc. (a) Pay all of its
Indebtedness and obligations promptly and in accordance with normal terms, and
(b) pay and discharge or cause to be paid and discharged promptly all taxes,
assessments, and governmental charges or levies imposed upon it or upon its
income and profits, or upon any of its property, before the same shall become in
default, as well as all lawful claims for labor, materials and supplies or
otherwise which, if unpaid, might become a lien or charge upon any of such
properties; provided, however, that the Company shall not be required to pay and
discharge or to cause to be paid and discharged any such tax, assessment,
charge, levy or claim so long as the validity thereof shall be contested in good
faith by appropriate proceedings and the Company shall have set aside on its
books adequate reserves with respect to any such tax, assessment, charge, claim
or levy.
5.03. Financial Statements, Etc. Furnish to the Lender:
(a) within 90 days after the end of each fiscal year of the Company,
balance sheets and statements of income and surplus, together with
supporting schedules, all audited by independent certified public
accountants of recognized standing selected by the Company and acceptable
to the Lender, showing the financial condition of the Company at the close
of such year and the results of operations of the Company during such year;
(b) within 45 days after the end of each fiscal quarter, similar
financial statements to those referred to in clause (a) above, unaudited
but certified by the chief financial officer or the controller of the
Company, such balance sheets to be as of the end of such period and such
statements of income and surplus to be for the period from the beginning of
the fiscal year to the end of such period, in each case subject to audit
and year-end adjustments;
(c) with the statements submitted under clauses (a) and (b) above,
a certificate signed by the chief financial officer or the controller of
the Company stating that no
8
<PAGE>
Event of Default or event that could, with the passage of time, the giving
of notice or both, become an Event of Default has occurred;
(d) with the statements submitted under clause (a) above, a
certificate of the accountants auditing such financial statements stating
that, in making the audit necessary to the certification of such financial
statements, they have obtained no knowledge of any Event of Default or
event that would, with the passage of time, the giving of notice or both,
become an Event of Default, or, if any such Event of Default or event
exists, specifying the nature and period of existence thereof;
(e) within two Business Days after any executive officer of the
Company becomes aware of the existence of any Event of Default or event
that could, with the passage of time, the giving of notice or both, become
an Event of Default, a telephonic or telecopy notice specifying the nature
thereof, the period of existence thereof and what action the Company
intends to take with respect thereto, which notice shall be promptly
confirmed in writing; and
(f) promptly, from time to time, such other information regarding
the operations, business, affairs and financial condition of the Company as
the Lender may reasonably request.
5.04. Inspection and Audits. Permit any persons designated by the Lender
to visit and inspect any of its properties, to examine and copy its corporate
books and financial records, to conduct audits of its accounts receivable, and
to discuss its affairs and finances with its principal officers, all at such
times as the Lender may reasonably request.
5.05. Compliance with Laws, Etc. Comply with all applicable laws, rules,
regulations and orders in all material respects, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its property except
to the extent contested in good faith by appropriate proceedings and with
respect to which appropriate reserves have been established.
5.06. Notice of Litigation. The Company will give prompt written notice to
the Lender of the commencement of any action, suit or proceeding before any
court or arbitrator or any governmental department, board, agency or other
instrumentality affecting the Company or any property of the Company or to which
the Company is a party in which an adverse determination or result could have a
material adverse effect on the business, operations, property or condition
(financial or otherwise) of the Company or on the ability of the Company to
perform its obligations under this Agreement and the other Loan Documents,
stating the nature and status of such action, suit or proceeding.
5.07. Compliance with the ShopKo Credit Agreement. For so long as the
Company falls within the definition of a "subsidiary" of the Lender for purposes
of the ShopKo Credit Agreement, the Company and its Subsidiaries:
9
<PAGE>
(a) shall provide the Lender with all information and notices
necessary to permit the Lender to comply with the ShopKo Credit Agreement,
including, without limitation, Section 5.01 and Article VI of the ShopKo
Credit Agreement;
(b) shall comply, to the extent applicable to the Company and its
Subsidiaries, with Sections 5.02 (Maintenance of Property; Insurance), 5.03
(Conduct of Business and Maintenance of Existence) and 5.04 (Compliance
with Laws) of the ShopKo Credit Agreement;
(c) shall not incur or suffer to exist any "lien" on the
"restricted assets" (as those terms are defined in the ShopKo Credit
Agreement) of the Company or any of its Subsidiaries without the Lender's
prior written consent;
(d) shall not sell, lease (as lessor) or otherwise transfer,
directly or indirectly any "operating property" (as those terms are defined
in the ShopKo Credit Agreement) of the Company or any of its Subsidiaries
without the Lender's prior written consent;
(e) shall not enter into any "sale and leaseback transaction" (as
those terms are defined in the ShopKo Credit Agreement) without the
Lender's prior written consent;
(f) shall not incur any "debt" (as that term is defined in the
ShopKo Credit Agreement) except (i) as permitted by Sections 5.12(a) and
(b) of the ShopKo Credit Agreement, and (ii) as approved in advance in
writing by Lender; and
(g) shall not enter into any agreement in violation of Section 5.13
(Limitation on Certain Covenants and Restrictions) of the ShopKo Credit
Agreement.
Section 6. Events of Default.
Upon the occurrence of any of the following events (hereinafter called
Events of Default):
(a) any representation or warranty made herein or any report,
certificate, financial statement or other instrument furnished in
connection with this Agreement shall prove to be false or misleading in any
material respect;
(b) default in the payment of the principal of or interest on the
Loans or in any other obligation of the Company under any of the Loan
Documents;
(c) default in the payment of any other Indebtedness of the Company
when due, or default in the performance of any other obligation incurred in
connection with any Indebtedness for borrowed money of the Company, if the
outstanding principal amount of such Indebtedness exceeds $1,000,000 and
the effect of such default is to accelerate the maturity of such
Indebtedness or to permit the holder thereof to cause such Indebtedness to
be accelerated;
(d) default in the due observance or performance of any covenant,
condition or agreement on the part of the Company to be observed or
performed pursuant to the terms
10
<PAGE>
of any Loan Document if such default is not remedied within thirty (30)
days after the Lender shall have given the Company notice thereof;
(e) the Company shall (i) apply for or consent to the appointment
of a receiver, trustee or liquidator of it or any of its properties or
assets, (ii) admit in writing its inability to pay its debts as they
mature, (iii) make a general assignment for the benefit of creditors, (iv)
file a voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors to take advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution
or liquidation law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such
law, or (v) take any corporate action for the purpose of effecting any of
the foregoing;
(f) an order, judgment or decree shall be entered, without the
application, approval or consent of the Company by any court of competent
jurisdiction approving a petition seeking the reorganization, liquidation
or dissolution of the Company or of all or a substantial part of the
properties or assets of the Company, or appointing a receiver, trustee or
liquidator of the Company, unless such order, judgment or decree is stayed,
reversed or rescinded within 60 days after its entry; or
(g) final judgment for the payment of money in excess of $500,000
shall be rendered against the Company, and the same shall remain
undischarged for a period of 30 days when execution thereof is effectively
stayed;
then, if (x) any Event of Default described in Sections 6(e) or 6(f) shall
occur, the Commitment shall automatically be terminated and the outstanding
principal of the Loans, the accrued interest thereon and all other obligations
of the Company to the Lender under the Loan Documents shall automatically become
immediately due and payable, or (y) any other Event of Default shall occur and
be continuing, then the Lender may, by written notice to the Company, (i)
terminate the Commitment, whereupon the Commitment shall be terminated and (ii)
declare the outstanding principal of the Loans, the accrued interest thereon and
all other obligations of the Company to the Lender under the Loan Documents to
be forthwith due and payable, whereupon the Loans, all accrued interest thereon
and all such obligations shall immediately become due and payable, in each case
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, anything any Loan Document to the contrary
notwithstanding. In addition, the Lender may enforce any and all rights under
the Loan Documents.
Section 7. Representations and Warranties of the Lender. The Lender
represents and warrants that:
7.01. Organization: Corporate Powers. The Lender is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, and has the corporate power and
authority to execute, deliver and perform this Agreement.
11
<PAGE>
7.02. Authorization of Lending, Etc. The execution, delivery and
performance of this Agreement and the lending of funds hereunder have been duly
authorized by all requisite corporate action and will not violate any provision
of law, any order of any court or other agency of government, the Articles of
Incorporation or Bylaws of the Lender, or any provision of any indenture,
agreement or other instrument to which the Lender is a party or by which it or
any of its property is bound. This Agreement constitutes the legal, valid and
binding obligation of the Lender enforceable against it in accordance with its
terms.
Section 8. Miscellaneous.
8.01. No Waiver. No failure on the part of the Lender to exercise and no
delay in exercising any right, power or privilege under any Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any Loan Document preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
8.02. Accounting. All financial statements furnished to the Lender under
this Agreement and all computations and determinations required to be made
pursuant to this Agreement shall be made in accordance with generally accepted
accounting principles, applied on a basis consistent with the financial
statements for the fiscal year ended January 31, 1998.
8.03. Notices. Except as otherwise specifically provided for herein, all
notices and other communications provided for herein shall be in writing and
telecopied, mailed or delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof or, as to any
party, at such other address as shall be designated by such party in a notice to
the other parties. All notices and other communications hereunder shall be
deemed to have been duly given when transmitted by telecopier, personally
delivered or, in the case of a mailed notice, three Business Days after the date
deposited in the mails, postage prepaid, in each case given or addressed as
aforesaid.
8.04. Expenses; Taxes; Attorneys' Fees; Etc. The Company agrees to pay or
cause to be paid and to save the Lender harmless against liability for the
payment of all reasonable out-of-pocket expenses, whether incurred by the Lender
before or after the Effective Date, including but not limited to fees and
expenses of counsel for the Lender incurred from time to time, in connection
with the preparation, execution, delivery and performance of the Loan Documents,
any requested amendments, waivers or consents to the Loan Documents, and the
Lender's enforcement or preservation of rights under the Loan Documents or any
other such documents or instruments, including but not limited to such expenses
as may be incurred by the Lender in the collection of the Loans. The Company
agrees to pay all stamp, document, transfer, recording or filing taxes or fees
and similar impositions now or hereafter reasonably determined by the Lender to
be payable in connection with the Loan Documents, or any other documents,
instruments or transactions pursuant to or in connection herewith or therewith,
and the Company agrees to save the Lender harmless from and against any and all
present or future claims liabilities or losses with respect to or resulting from
any omission to pay or delay in paying any such taxes, fees or
12
<PAGE>
impositions. All such expenses, taxes or attorneys' fees shall, to the extent
paid or payable by the Lender, be payable to the Lender by the Company on
demand.
8.05. Entire Agreement. This Agreement and the other Loan Documents embody
the entire agreement and understanding between the Company and the Lender with
respect to the subject matter hereof and thereof. This Agreement supersedes all
prior agreements and understandings relating to the subject matter hereof.
8.06. Amendments, Etc. No amendment, modification or waiver of any
provision of the Loan Documents and no consent to any departure therefrom shall
in any event be effective unless the same shall be in writing and signed by, in
the case of amendments and modifications, the Lender and the Company or, in the
case of waivers and consents, the Lender, and then such amendment, modification,
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.
8.07. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Company may not assign its rights or obligations
hereunder without the prior written consent of the Lender.
8.08. Marshalling; Payments Set Aside. The Lender shall be under no
obligation to marshall any assets in favor of the Company or any other Person or
against or in payment of the Loans and other Indebtedness of the Company to the
Lender. To the extent that the Company makes a payment or payments to the Lender
or the Lender exercises its rights of setoff, and such payment or payments or
the proceeds of such setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or federal law, common law or equitable cause, then to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
8.09. Section Titles. The section titles contained in this Agreement shall
be without substantive meaning or content of any kind whatsoever and shall not
govern the interpretation of any of the provisions of this Agreement.
8.10. Reliance by the Lender. All covenants, agreements, representations
and warranties made herein and in any Loan Document by the Company shall,
notwithstanding any investigation by the Lender, be deemed to be material to and
to have been relied upon by the Lender and shall survive the execution and
delivery of this Agreement.
8.11. Survival. The agreements and obligations of the Company under
Sections 8.04, 8.08 and 8.13 shall survive the repayment of the Loans.
8.12. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
13
<PAGE>
8.13. Governing Law and Construction. The Loan Documents shall be governed
by, and construed in accordance with, the internal law, and not the law of
conflicts, of the State of Wisconsin. Whenever possible, each provision of the
Loan Documents and any other statement, instrument or transaction contemplated
hereby or thereby or relating hereto or thereto shall be interpreted in such
manner as to be effective and valid under such applicable law, but, if any
provision of the Loan Documents or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be held to be prohibited or invalid under such applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of the Loan Documents or any other statement, instrument or transaction
contemplated hereby or thereby or relating hereto or thereto. The parties shall
endeavor in good-faith negotiations to replace any invalid, illegal or
unenforceable provisions with a valid provision the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provision. In the event of any conflict within, between or among the provisions
of any of the Loan Documents or any other statement, instrument or transaction
contemplated hereby or thereby or relating hereto or thereto, those provisions
giving the Lender the greater right shall govern.
8.14. Limitations on Liability. Neither party shall have any liability
under this Agreement (including any liability for its own negligence) for
damages, losses or expenses (including expenses or higher interest rates
incurred in order to obtain alternative financing sources) suffered by the other
party or its subsidiaries as a result of the performance or non-performance of
such party's obligations hereunder, unless such damages, losses or expenses are
caused by or arise out of the willful misconduct or gross negligence of such
party or a breach by such party. In no event shall either party have any
liability to the other party for indirect, incidental or consequential damages
that such other party or its subsidiaries or any third party may incur or
experience on account of the performance or non-performance of such party's
obligations hereunder. The provisions of this Section 8.14 shall survive any
termination of this Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SHOPKO STORES, INC.
By:
----------------------------------------
Name: William J. Podany
Title: President and Chief Executive Officer
ATTEST:
By:
----------------------------------------
Name: Richard D. Schepp
Title: Sr. Vice President,
General Counsel/Secretary
Address for Notices:
700 Pilgrim Way
Green Bay, Wisconsin 54307-9060
Attention: Controller
cc: General Counsel
Facsimile Number: (920) 429-4720
PROVANTAGE HEALTH SERVICES, INC.
By:
----------------------------------------
Name: Jeffrey A. Jones
Title: Executive Vice President and Chief
Operating Officer
ATTEST:
By:
----------------------------------------
Name: Richard D. Schepp
Title: Secretary
Address for Notices:
ProVantage Health Services, Inc.
500 Elm Grove Road
Suite 200
Elm Grove, WI 53122
Attention: Controller
cc: Legal Department
Facsimile Number: (414) 641-3770
15
<PAGE>
EXHIBIT 10.4
INDEMNIFICATION AND HOLD HARMLESS AGREEMENT
THIS INDEMNIFICATION AND HOLD HARMLESS AGREEMENT is dated as of
___________________, 1999, by PROVANTAGE HEALTH SERVICES, INC., a Delaware
corporation ("ProVantage"), and SHOPKO STORES, INC., a Wisconsin corporation
("ShopKo").
WHEREAS, ProVantage is currently an indirect, wholly-owned subsidiary of
ShopKo and the parties anticipate that ProVantage's common stock may be issued
in an initial public offering (the "IPO"); and
WHEREAS, ProVantage and ShopKo desire to enter into an agreement relating
to the indemnification against certain liabilities that each party hereto shall
extend to the other party hereto from and after the date the IPO is completed
(the "IPO Date").
NOW, THEREFORE, the parties hereto agree as follows:
1. Effectiveness. This Agreement shall become effective on and only as of
the IPO Date.
2. Definitions. As used in this Agreement, the following terms shall have
the indicated meanings.
Action: any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
Affiliate: with respect to any specified person, a person that, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such specified person; provided, however, that
for purposes of this Agreement (i) Affiliates of ProVantage shall not be deemed
to include ShopKo or any of its direct or indirect subsidiaries other than
ProVantage and any of ProVantage's subsidiaries, and (ii) Affiliates of ShopKo
shall not be deemed to include ProVantage or any of its direct or indirect
subsidiaries.
Code: the Internal Revenue Code of 1986, as amended.
Environmental Law: any federal, state or local law (including common law),
statute, ordinance, regulation, rule, policy, order (judicial or
administrative), decree judgment, decision, ruling, permit or authorization
(each as may be in effect from time to time) relating or applicable to
pollution, human health or safety associated with the environment, or the
environment, including, without limitation, any of the foregoing relating or
applicable to emissions, discharges, spills, releases or threatened releases of,
or human exposure to, Materials of
<PAGE>
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
Materials of Environmental Concern.
Environmental Liability: any liability or obligation (including, without
limitation, liability for investigatory costs, oversight costs, cleanup costs,
governmental or private response costs, natural resource damages, property
damages, personal injuries, consequential economic damages, civil or criminal
penalties or forfeitures, and attorneys' fees or other costs of defending a
claim of Environmental Liability) under any Environmental Law.
Exchange Act: the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
Indemnifiable Losses: with respect to any claim by an Indemnitee for
indemnification authorized pursuant to this Agreement, any and all losses,
liabilities, claims, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all Actions,
demands, claims, assessments, judgments, settlements and compromises relating
thereto and reasonable attorneys' fees and expenses in connection therewith)
suffered by such Indemnitee with respect to such claim except as may arise in
connection with the performance of the Administrative Services Agreement, the
Registration Rights Agreement, the Lease Agreement, the Credit Agreement, the
Tax Matters Agreement, and the Information Technology Services Agreement , each
of which has been or will be entered into by ShopKo (or one of its subsidiaries)
and ProVantage which shall, in each such case, be governed by the terms of such
agreement.
Indemnifying Party: any party who is required to pay any other person
pursuant to Sections 3 and 4 hereof.
Indemnitee: any party who is entitled to receive payment from an
Indemnifying Party pursuant to Sections 3 and 4 hereof.
Indemnity Payment: the amount an Indemnifying Party is required to pay an
Indemnitee pursuant to Sections 3 and 4 hereof.
Material of Environmental Concern: (i) any substance, the presence of which
requires investigation or remediation under any Environmental Law or under
common law; (ii) any dangerous, toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous
substance which is regulated by any Environmental Law; (iii) any substance, the
presence of which causes or threatens to cause a nuisance upon the property
where it is located, or to adjacent properties or poses or threatens to pose a
hazard to the health or safety of persons on or about the property where it is
located; and (iv) urea-formaldehyde, polychlorinated biphenyls, asbestos or
asbestos-containing materials, petroleum and petroleum products.
2
<PAGE>
Preliminary Prospectus: the meaning ascribed to such term in that certain
Underwriting Agreement, dated ______________________, (the "Underwriting
Agreement") between ProVantage and the representatives of the several
underwriters named in Schedule I thereto.
Prospectus: the meaning ascribed to such term in the Underwriting
Agreement.
Registration Statement: the meaning ascribed to such term in the
Underwriting Agreement.
Securities Act: the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
3. Indemnification.
(a) ProVantage shall indemnify, defend and hold harmless ShopKo and its
Affiliates and each of their respective directors, officers, employees and
agents from and against any and all Indemnifiable Losses arising out of or based
upon, directly or indirectly, the operation of the business of ProVantage or any
of its Affiliates (except for those operations under the day to day direction of
ShopKo or its Affiliates) whether before or after the IPO Date. Without limiting
the generality of the foregoing sentence, ProVantage shall indemnify, defend and
hold harmless ShopKo and its Affiliates and each of their respective directors,
officers, employees and agents from and against any and all Indemnifiable
Losses:
(i) arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment
or supplement thereto, or any other filing made by ProVantage or any of its
Affiliates under the Securities Act or the Exchange Act, or arising out of
or based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that ProVantage shall not be
liable in any such case to the extent that any such Indemnifiable Loss
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement, or any such other filing made by ProVantage or any
of its Affiliates under the Securities Act or the Exchange Act, in reliance
upon and in conformity with written information regarding ShopKo or any of
its Affiliates furnished to ProVantage or any of its Affiliates by ShopKo
or any of its Affiliates expressly for use therein;
(ii) arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any filing made by ShopKo
or any of its Affiliates under the Securities Act or the Exchange Act, or
arising out of or based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in any such filing made by ShopKo or
such Affiliate under the Securities Act or the Exchange Act, in reliance
upon and in conformity with written
3
<PAGE>
information regarding ProVantage or any of its Affiliates furnished to
ShopKo or any of its Affiliates by ProVantage or any of its Affiliates
expressly for use therein;
(iii) arising out of or based upon any Environmental Liability which
is alleged to be, or which is, directly or indirectly, caused by, related
to or a result of, the operation of the business of ProVantage or any of
its Affiliates or the ownership of property by ProVantage or any of its
Affiliates; or
(iv) arising out of or based upon any agreement to which ProVantage
or any of its Affiliates is a party or relating to the operation of the
business of ProVantage or any of its Affiliates, including, without
limitation, any requirement that ShopKo or any of its Affiliates make any
payments pursuant to the terms of such agreements or any requirement that
ShopKo or any of its Affiliates guarantee the performance by ProVantage or
any of its Affiliates of any of their obligations thereunder.
(b) ShopKo shall indemnify, defend and hold harmless ProVantage and its
Affiliates and each of their respective directors, officers, employees and
agents from and against any and all Indemnifiable Losses arising out of or based
upon, directly or indirectly, the operation of the business of ShopKo or any of
its Affiliates (except for those operations under the day to day direction of
ProVantage or its Affiliates, and not related in any way to, the operations of
ProVantage or any of its Affiliates which are not under the day to day direction
of ShopKo or its Affiliates) whether before or after the IPO Date. Without
limiting the generality of the foregoing sentence, ShopKo shall indemnify,
defend and hold harmless ProVantage and its Affiliates and each of their
respective directors, officers, employees and agents from and against any and
all Indemnifiable Losses:
(i) arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any filing made by ShopKo
or any of its Affiliates under the Securities Act or the Exchange Act, or
arising out of or based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided, however, that ShopKo shall
not be liable in any such case to the extent that any such Indemnifiable
Loss arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any such filing made by
ShopKo or any of its Affiliates under the Securities Act or the Exchange
Act, in reliance upon and in conformity with written information regarding
ProVantage or any of its Affiliates furnished to ShopKo or any of its
Affiliates by ProVantage or any of its Affiliates expressly for use
therein; or
4
<PAGE>
(ii) arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment
or supplement thereto, or any other filing made by ProVantage or any of its
Affiliates under the Securities Act or the Exchange Act, or arising out of
or based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement, or any
such other filing made by ProVantage or any of its Affiliates under the
Securities Act or the Exchange Act, in reliance upon and in conformity with
written information regarding ShopKo or any of its Affiliates (but not
related in any way to ProVantage or its Affiliates), furnished to
ProVantage or any of its Affiliates by ShopKo or any of its Affiliates
expressly for use therein;
(iii) arising out of or based upon any agreement to which ShopKo or
any of its Affiliates is a party or relating to the operation of the
business of ShopKo or any of its Affiliates, including, without limitation,
any requirement that ProVantage or any of its Affiliates make any payments
pursuant to the terms of such agreements or any requirement that ProVantage
or any of its affiliates guarantee the performance by ShopKo or any of its
Affiliates of any of their obligations thereunder;
(iv) arising out of or based upon any Environmental Liability which
is alleged to be, or which is, directly or indirectly, caused by, related
to or a result of, the operation of the business of ShopKo or any of its
Affiliates (other than, and not related in any way to, the business of
ProVantage or any of its Affiliates) or the ownership of property by ShopKo
or any of its Affiliates (other than, and not related in any way to,
property owned by ProVantage or any of its Affiliates); or
(v) arising out of or based upon any currently existing written
agreement between ProVMed, LLC ("ProVMed") and ThinkMed LLC ("ThinkMed")
entered into in conjunction with ProVMed's May, 1997 equity investment in
ThinkMed.
4. Procedure for Indemnification.
(a) If an Indemnitee shall receive notice of the assertion by a person who
is not a party to this Agreement of any claim or of the commencement by any such
person of any Action (a "Third Party Claim") with respect to which an
Indemnifying Party is or may be obligated to make an Indemnity Payment, such
Indemnitee shall give such Indemnifying Party prompt notice thereof after
becoming aware of such Third Party Claim, specifying in reasonable detail the
nature of such Third Party Claim and the amount or estimated amount thereof to
the extent then feasible (which estimate shall not be conclusive of the final
amount of such claim); provided, however, that the failure of any Indemnitee to
give notice as provided in this Section 4 shall not relieve the related
Indemnifying Party of its obligations under this Agreement, except to the extent
that such Indemnifying Party is actually prejudiced by such failure to give
notice.
(b) An Indemnifying Party may elect to defend, at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel, any Third
Party Claim. If an Indemnifying Party elects to defend a Third Party Claim, it
shall, within 10 days of notice of such Third Party Claim (or sooner, if the
nature of such Third Party Claim so requires), notify the related Indemnitee of
its intent to do so, and such Indemnitee shall cooperate in the defense of such
Third Party Claim. Such Indemnifying Party shall pay such Indemnitee's actual
out-of-
5
<PAGE>
pocket expenses (other than officers' or employees' salaries) reasonably
incurred in connection with such cooperation as such expenses are incurred.
After notice from an Indemnifying Party to an Indemnitee of its election to
assume the defense of a Third Party Claim, such Indemnifying Party shall not be
liable to such Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by such Indemnitee in connection with the defense thereof;
provided, however, that such Indemnitee shall have the right to employ separate
counsel to represent such Indemnitee if, in such Indemnitee's reasonable
judgment, a conflict of interest between such Indemnitee and such Indemnifying
Party exists in respect of such claim, and in that event the reasonable fees and
expenses of such separate counsel shall be paid by such Indemnifying Party as
such fees and expenses are incurred. Except as so provided, if an Indemnitee
desires to participate in the defense of a Third Party Claim, it may do so but
it shall not control the defense and such participation shall be at its sole
cost and expense. If an Indemnifying Party elects not to defend against a Third
Party Claim, or fails to notify an Indemnitee of its election as provided in
this Section 4, such Indemnitee may defend, compromise and settle such Third
Party Claim; provided, however, that no such Indemnitee may compromise or settle
any such Third Party Claim without prior written notice to such Indemnifying
Party and except by payment of monetary damages or other money payments. No
Indemnifying Party shall consent to entry of any judgment or enter into any
compromise or settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnitee of a release from all
liability in respect to such Third Party Claim.
(c) If any Indemnifying Party chooses to defend any claim, the Indemnitee
shall make available to such Indemnifying Party any personnel or any books,
records or other documents within its control that are necessary or appropriate
for such defense (the cost of copying thereof to be paid by the Indemnifying
Party).
(d) Upon any final determination of a Third Party Claim pursuant to this
Section 4, the Indemnifying Party shall pay promptly on behalf of the
Indemnitee, or to the Indemnitee in reimbursement of any amount theretofore
required to be paid by it, the amount so determined. Upon the payment in full by
the Indemnifying Party of any such amount, the Indemnifying Party shall be
subrogated to the rights of such Indemnitee, to the extent not waived in
settlement, against the person who made such Third Party Claim with respect to
the subject matter of such claim.
(e) Except to the extent expressly provided otherwise herein, the
indemnification provided for by this Agreement shall not inure to the benefit of
any third party or parties and shall not relieve any insurer who would otherwise
be obligated to pay any claim of the responsibility with respect thereto or,
solely by virtue of the indemnification provisions hereof, provide any
subrogation rights with respect thereto.
(f) Any claim on account of an Indemnifiable Loss which does not result
from a Third Party Claim shall be asserted by written notice given by the
related Indemnitee to the related Indemnifying Party. Such Indemnifying Party
shall have a period of 30 days within which to respond thereto. If such
Indemnifying Party does not respond within such 30-day period, such Indemnifying
Party shall be deemed to have accepted responsibility to make payment and shall
6
<PAGE>
have no further right to contest the validity of such claim. If such
Indemnifying Party does respond within such 30-day period and rejects such claim
in whole or in part, such Indemnitee shall be free to pursue all available legal
actions.
(g) If the indemnification provided for in this Agreement is unavailable
or insufficient to hold harmless an Indemnitee in respect of any Indemnifiable
Loss, then the Indemnifying Party shall contribute to the amount paid or payable
by such Indemnitee as a result of such Indemnifiable Loss, in such proportion as
is appropriate to reflect the relative fault of the Indemnitee on the one hand
and the Indemnifying Party on the other hand in connection with the
circumstances which resulted in such Indemnifiable Loss. The amount paid or
payable by an Indemnitee as a result of the Indemnifiable Loss referred to above
in this subsection (g) shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnitee in connection with investigating or
defending any such action or claim.
5. Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
(i) on the date of service if served personally on the party to whom notice is
to be given, (ii) on the day of transmission if sent via facsimile transmission
to the facsimile number given below, and telephonic confirmation of receipt is
obtained promptly after completion of transmission, (iii) on the day after
delivery to Federal Express or similar overnight courier or the Express Mail
service maintained by the United States Postal Service or (iv) on the fifth day
after mailing, if mailed to the party to whom notice is to be given, by first
class mail, registered or certified, postage prepaid and properly addressed, to
the party as follows:
If to ShopKo: ShopKo Stores, Inc.
700 Pilgrim Way
Green Bay, WI 54307
Attention: President
cc: General Counsel
Telecopy: (920) 429-4225
If to ProVantage: ProVantage Health Services, Inc.
13555 Bishops Court, Suite 208
Brookfield, WI 53005
Attention: President
cc: Legal Department
Telecopy: (414) 641-3770
Any party may change its address for the purpose of this Section by giving
the other party written notice of its new address in the manner set forth above.
6. General.
(a) Except as otherwise provided in this Agreement, no party hereto shall
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other
7
<PAGE>
party hereto and any such attempted assignment without such prior written
consent shall be void and of no force and effect. This Agreement shall be
binding upon, and inure solely to the benefit of, the parties hereto and, to the
extent provided herein, their respective Affiliates and the directors, officers,
employees and agents of the parties hereto and their respective Affiliates, and
their heirs, personal representatives, successors and permitted assigns.
(b) This Agreement may be amended or modified and any of the terms and
conditions hereof may be waived, only by a written instrument executed by the
parties hereto, or in the case of a waiver, by the party waiving compliance. Any
waiver by either party hereto of any condition, or of the breach of any
provision or term in any one or more instances, shall not be deemed to be nor
construed as further or continuing waiver of any such condition, or of the
breach of any other provision or term of this Agreement.
(c) This Agreement and other documents referred to herein contain the
entire understanding between the parties hereto with respect to the matters
specified herein and supersedes and replaces all prior and contemporaneous
agreements and understandings, oral or written, with regard to such matters.
(d) In the event that any provision of this Agreement is declared by any
court or other judicial or administrative body to be null, void or
unenforceable, such provision shall survive to the extent it is not so declared,
and all of the other provisions of this Agreement shall remain in full force and
effect.
(e) Nothing in this Agreement is intended to confer any rights or remedies
under or by reason of this Agreement on any persons other than ShopKo or
ProVantage and, to the extent provided herein, ShopKo's and ProVantage's
respective directors, officers, employees, agents and Affiliates and their
respective heirs, executors, administrators, successors and permitted assigns.
Nothing in this Agreement is intended to relieve or discharge the obligations or
liability of any third persons to ShopKo or ProVantage. No provision of this
Agreement shall give any third persons any right of subrogation or action over
or against ShopKo or ProVantage or their respective directors, officers,
employees, agents and Affiliates.
(f) This Agreement shall be construed, performed and enforced in
accordance with, and governed by, the internal laws of the State of Wisconsin,
without giving effect to the principles of conflicts of laws thereof.
(g) The section and paragraph headings in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
(h) This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which shall constitute the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties as of the date first written above.
SHOPKO STORES, INC.
By:
---------------------------------------
William J. Podany
President and Chief Executive Officer
Attest:
-----------------------------------
Richard D. Schepp, Sr. Vice President,
General Counsel/Secretary
PROVANTAGE HEALTH SERVICES, INC.
By:
---------------------------------------
Jeffrey A. Jones
Executive Vice President and Chief
Operating Officer
Attest:
------------------------------------
Richard D. Schepp, Secretary
9
<PAGE>
Exhibit 10.5
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") dated as of
___________________, 1999, is entered into by PROVANTAGE HEALTH SERVICES, INC.,
a Delaware corporation (the "Company"), and PROVANTAGE HOLDINGS, INC., a
Delaware corporation (the "Shareholder").
This Agreement is made in connection with the registration for sale to the
public of shares of Common Stock (as hereinafter defined) pursuant to a
registration statement on Form S-1 and any amendments thereto (the "Registration
Statement") filed with the Securities and Exchange Commission (the "Commission")
(the "Initial Public Offering").
The Shareholder owns ___% of the issued and outstanding shares of Common
Stock (as hereinafter defined). The Shareholder or any Affiliate (as
hereinafter defined) that may acquire shares of Common Stock from the
Shareholder has the right to cause the Company, upon request, to register with
the Commission an offering and sale of shares of Common Stock owned by the
Shareholder or any such Affiliate, subject to the terms of this Agreement.
The parties to this Agreement agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
terms shall have the indicated meanings:
Affiliate - ShopKo Stores, Inc., a Wisconsin corporation ("ShopKo"), and
any Person that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, ShopKo.
Common Stock - The common stock, $.01 par value per share, of the Company.
Exchange Act - The Securities Exchange Act of 1934, as amended, or any
similar federal statute then in effect, and a reference to a particular section
thereof shall be deemed to include a reference to the comparable section, if
any, of any such similar federal statute.
Holder - The Shareholder and any Affiliate which owns Registrable
Securities on the date hereof or to which Registrable Securities are transferred
after the date hereof.
Officers' Certificate - A certificate signed by the Chairman of the Board,
the President or a Vice President and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company.
Person - Any individual, partnership, joint venture, corporation, trust,
unincorporated organization, limited liability company, or other business
entity.
<PAGE>
Registrable Securities - The Common Stock owned by the Holders and any
Common Stock which may be issued or distributed in respect thereof by way of a
stock dividend or a stock split or other distribution, recapitalization or
reclassification. As to any particular Registrable Securities, such Registrable
Securities shall cease to be Registrable Securities when they cease to be owned
by a Holder.
Rule 144 - Rule 144 promulgated under the Securities Act, as such rule may
be amended from time to time, or any successor rule.
Securities Act - The Securities Act of 1933, as amended, or any similar
federal statute then in effect, and a reference to a particular section thereof
shall be deemed to include a reference to the comparable section, if any, of any
similar federal statute.
2. (a) Demand Registration. In the event that following the period the
Holder is prohibited from selling the Registrable Securities by the provisions
of the underwriting agreement relating to the Initial Public Offering, any
Holder or Holders (i) desire to sell shares of Registrable Securities owned by
such Holder or Holders and (ii) an exemption from registration under the
Securities Act or the rules and regulations promulgated thereunder, including,
without limitation, Rule 144 (or any successor rules or regulation thereto), is
not available to enable the Holder or Holders to dispose of the number of shares
of Registrable Securities it desires to sell at the time and in the manner it
desires to do so, then upon the written request of any Holder or Holders
requesting that the Company effect the registration under the Securities Act of
all or part of such Holder's or Holders' Registrable Securities and specifying
the intended method of disposition thereof, but subject to the limitations set
forth herein, the Company will promptly give written notice of such requested
registration to all other Holders of Registrable Securities, and the Company
shall file with the Commission as promptly as practicable after sending such
notice, and use its best efforts to cause to become effective, a registration
statement under the Securities Act registering the offering and sale of:
(i) the Registrable Securities which the Company has been so
requested to register by such Holder or Holders; and
(ii) all other Registrable Securities which the Company has been
requested to register by any other Holder thereof by written request given
to the Company within 15 days after the giving of such written notice by
the Company (which request shall specify the intended method of disposition
of such Registrable Securities),
all to the extent necessary to permit the disposition (in accordance with the
intended method thereof as aforesaid) of the Registrable Securities so to be
registered; provided, that the Company shall not be obligated to file a
registration statement relating to any registration request under this Section
2(a) (A) unless the aggregate requests by the Holder or Holders for such
registration cover not less than 5.0% of the outstanding Common Stock, (B) with
respect to more than an aggregate of 3 registrations (which shall be increased
to an unlimited number of registrations if such additional registrations are
effected on Form S-3 or any successor similar short-form registration statement)
under this Section 2(a), (C) within a period of 180 days after the effective
date of any other registration statement relating to any registration request
under this Section
2
<PAGE>
2(a), or (D) if with respect thereto, the managing underwriter, the Commission,
the Securities Act or the rules and regulations thereunder, or the form on which
the registration statement is to be filed, would require the conduct of an audit
other than the regular audit conducted by the Company at the end of its fiscal
year, in which case the filing may be delayed until the completion of such
regular audit (unless the Holders requesting such registration agree to pay the
expenses of the Company in connection with such an audit other than the regular
audit).
(b) Priority in Requested Registrations. If a requested registration
pursuant to this Section 2 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceeds the number which
can be sold in such offering without having an adverse effect on such offering
as contemplated by the Holders (including the price at which the Holders propose
to sell such Registrable Securities) the Company will (subject to the last
sentence of this paragraph) include in such registration only the Registrable
Securities requested to be included in such registration by the Holders. In the
event that the number of Registrable Securities requested to be included in such
registration exceeds the number which, in the opinion of such managing
underwriter, can be sold, the number of such Registrable Securities included in
such registration shall be allocated pro rata among all requesting Holders on
the basis of the relative number of shares of Registrable Securities then held
by each such Holder (provided that any shares thereby allocated to any such
Holder that exceed such Holder's request shall be reallocated among the
remaining requesting Holders in like manner). In the event that the number of
Registrable Securities requested to be included in such registration is less
than the number which, in the opinion of the managing underwriter, can be sold,
the Company may include in such registration the securities the Company proposes
to sell up to the number of securities that, in the opinion of the managing
underwriter, can be sold; provided, however, that neither the Company nor any
other Person may include any securities in any registration pursuant to this
Section 2 without the prior written consent of the Holders requesting such
registration.
(c) Limitation on Registration Rights.
(i) If a request for registration pursuant to Section 2(a) hereof is
made within 30 days prior to the conclusion of the Company's then current
fiscal year, or within 40 days after the end of a fiscal year, the Company
shall not be required to file a registration statement until such time as
the Company receives its audited financial statements for such fiscal year.
(ii) The Company shall be entitled to postpone for a reasonable
period of time (not to exceed 90 days (or, in the case of clause (A) below,
180 days after effectiveness of the proposed registration statement), which
may not thereafter be extended) the filing of any registration statement
otherwise required to be prepared and filed by it pursuant to Section 2(a)
hereof if, at the time it receives a request for such registration, (A) the
Company is conducting or about to conduct an offering of any class of its
securities and the Company is advised by the investment banker or financial
advisor engaged by the Company to advise the Company thereon that such
offering would be affected adversely
3
<PAGE>
by the registration so demanded and the Company shall have furnished to the
Holder or Holders of Registrable Securities requesting such registration an
Officers' Certificate to that effect, (B) the Company is in possession of
material information that has not been disclosed to the public and the
Company deems it advisable not to disclose such information in the
registration statement, (C) the Company is engaged in any active program
for the repurchase of its Common Stock or (D) the board of directors of the
Company shall determine in good faith that such offering will interfere
with a pending or contemplated financing, merger, sale of assets,
recapitalization or other similar corporate action of the Company and the
Company shall have furnished to the Holder or Holders of Registrable
Securities requesting such registration an Officers' Certificate to that
effect. After such period of postponement the Company shall effect such
registration as promptly as practicable without further request from the
Holder or Holders of Registrable Securities, unless such request has been
withdrawn.
(iii) Except as otherwise provided herein, any request by a Holder or
Holders for registration of Registrable Securities pursuant to Section 2(a)
hereof which is subsequently withdrawn prior to the registration statement
becoming effective shall not constitute a registration statement for
purposes of determining the number of registrations to which the Holder of
such Registrable Securities is entitled pursuant to Section 2(a); provided,
however, that the Holder of such Registrable Securities shall reimburse the
Company for all expenses incurred, including, without limitation,
reasonable fees and expenses of the Company's attorneys, accountants and
investment bankers, in connection with the preparation and filing, if
filed, of such registration statement.
(d) If any registration of Registrable Securities shall be made in
connection with an underwritten public offering pursuant to this Section 2, then
the Company shall not effect any public sale or distribution of any of its
equity securities or of any security convertible into or exchangeable or
exercisable for any of its equity securities ("Company Equity Securities")
(except, in each case, (1) as part of such public offering, and (2) pursuant to
employee benefit plans registered on Form S-8) during the 180 day period
beginning on the effective date of such registration, and the Company shall use
its best efforts to cause each member of the management of the Company who holds
any Company Equity Securities and each other holder of 5% or more of any Company
Equity Securities purchased from the Company (at any time other than in a public
offering) to so agree.
3. (a) Incidental Registration. If the Company shall at any time propose
to file a registration statement under the Securities Act for an offering of
securities of the Company for cash (other than an offering relating to (i) a
business combination that is to be filed on Form S-4 under Securities Act (or
any successor form thereto) or (ii) any employee benefit plan, including,
without limitation a stock option or stock purchase plan), the Company shall
provide prompt written notice of such proposal to all Holders of Registrable
Securities of its intention to do so and of such Holders' rights under this
Section 3 and shall use its best efforts to include such number or amount of
Registrable Securities in such registration statement which the Company has been
so requested to register by the Holders thereof, which request shall be made to
the Company within 20 days after the Holder receives notice from the Company of
such proposed
4
<PAGE>
registration; provided, that (i) if, at any time after giving written notice of
its intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company may,
at its election, give written notice of such determination to each Holder of
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the registration expenses referred to in Section
6 incurred in connection therewith), and (ii) if such registration involves an
underwritten offering, all Holders requesting to include their Registrable
Securities in the Company's registration must sell their Registrable Securities
to the underwriters selected by the Company on the same terms and conditions as
apply to the Company, with such differences, including any with respect to
indemnification and liability insurance, as may be customary or appropriate in
combined primary and secondary offerings. If a registration requested pursuant
to this Section 3(a) involves an underwritten public offering, any Holder
requesting to include their Registrable Securities in such registration may
elect, in writing prior to the effective date of the registration statement
filed in connection with such registration, not to register such securities in
connection with such registration.
(b) Priority in Incidental Registrations. If a registration pursuant to
this Section 3 involves an underwritten offering and the managing underwriter
advises the Company in writing that, in its opinion, the number of securities to
be included in such registration (including Registrable Securities) exceeds the
number which can be sold in such offering without having an adverse effect on
such offering as contemplated by the Company (including the price at which the
Company proposes to sell such securities), then the Company will include in such
registration (i) first, all of the securities the Company proposes to sell, (ii)
second, that number of Registrable Securities requested to be included in such
registration which, in the opinion of such managing underwriter, can be sold
without having the adverse effect referred to above, such amount to be allocated
pro rata among all requesting Holders on the basis of the relative number of
shares of Registrable Securities then held by each such Holder (provided that
any shares thereby allocated to any such Holder that exceed such Holder's
request will be reallocated among the remaining requesting Holders in like
manner).
(c) If any registration of Registrable Securities shall be made in
connection with an underwritten public offering pursuant to this Section 3, then
the Holders shall not effect any public sale or distribution of any Registrable
Securities (except as part of such public offering) during the 180 day period
beginning on the effective date of such registration, if, and to the extent
that, the managing underwriter(s) of any such offering determine(s) that such
action is necessary or desirable to effect such offering; provided, that each
Holder has received the written notice required by subsection (a), hereof.
Notwithstanding the foregoing, no Holder shall be obligated to comply with the
restrictions of this subsection as a result of an underwritten public offering
subject to this Section 3 more than once in any twelve month period.
4. Additional Rights. If the Company at any time grants any other holders
of Company Equity Securities any rights to request the Company to effect the
registration of any such Company Equity Securities on terms more favorable to
such holders than the terms set forth in this Agreement, this Agreement shall be
deemed amended or supplemented to the extent
5
<PAGE>
necessary to provide the Holders such more favorable rights and benefits. In no
event shall the Company grant to any person any rights to request the Company to
effect the registration of any Company Equity Securities on terms which are
adverse to the rights of the Holders set forth in this Agreement.
5. Registration Procedures. Whenever a Holder or Holders have requested
that any Registrable Securities be registered pursuant to this Agreement, the
Company will use its best efforts to effect the registration and the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become effective (provided that before
filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel selected by
the Holders of a majority of the Registrable Securities covered by such
registration statement copies of all such documents proposed to be filed,
which documents will be subject to the review of such counsel);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 90 days and comply with
the provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other
acts and things that may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that the Company will
not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to
6
<PAGE>
make the statements therein, in light of the circumstances under which
made, not misleading, and at the request of any such seller, the Company
will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit
to state any fact necessary to make the statements therein, in light of the
circumstances under which made, not misleading;
(f) cause all such Registrable Securities to be listed or admitted
for trading on each securities exchange or quotation system on which
securities issued by the Company that are of the same class as the
Registrable Securities are then listed or admitted for trading;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration
statement;
(h) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other agent
retained by any such seller or underwriter all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent certified public
accountants to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement;
(i) use its best efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the sellers thereof to consummate the disposition of such Registrable
Securities;
(j) obtain a "cold comfort" letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by "cold comfort" letters as the seller or sellers of a
majority of the Registrable Securities being sold reasonably request;
(k) if underwriters are engaged in connection with any registration
referred to in this Agreement, enter into underwriting or other agreements
providing indemnification, representations, covenants, opinions and other
assurances to the underwriters in form and substance reasonably
satisfactory to such underwriters; and
(l) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
Holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities.
6. Registration Expenses. All expenses incidental to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration and filing fees,
7
<PAGE>
fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, and fees and disbursements of counsel
for the Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by the Company,
including without limitation, all salaries and expenses of the Company's
officers and employees performing legal or accounting duties, the expense of any
annual audit or quarterly review, the expense of any liability insurance and the
expenses and fees for listing or admitting the securities to be registered on
each securities exchange or quotation system on which similar securities issued
by the Company are then listed or admitted will be borne by the Company, except
that (i) underwriting discounts and commissions relating to the sale of
Registrable Securities will be the responsibility of the seller of the related
Registrable Securities, (ii) filing fees relating to the registration or
qualification of Registrable Securities with the Commission and any state
securities or blue sky commission will be the responsibility of the seller of
the related Registrable Securities, (iii) printing expenses incurred in
connection with any offering of Registrable Securities pursuant to Section 2(a)
hereof will be the responsibility of the sellers, (iv) the fees and expenses of
any counsel for the sellers will be the responsibility of such sellers and (v)
any special or extraordinary auditing costs resulting solely from the
registration of Registrable Securities under this Agreement will be the
responsibility of the sellers.
7. Term. This Agreement shall terminate upon the earlier to occur of (i)
any distribution (effected by dividend or otherwise) by the Shareholder of all
of the Registrable Securities held by it to the shareholders of ShopKo Stores,
Inc., a Wisconsin corporation, or its successors or (ii) such time as the shares
of Registrable Securities owned by the Holders of Registrable Securities
constitute less than 5.0% of the issued and outstanding shares of Common Stock
of the Company.
8. Indemnification.
(a) In connection with any offering of Registrable Securities pursuant
to Sections 2(a) or 3(a) hereof, the Company agrees to indemnify, to the
fullest extent permitted by law, each Holder of Registrable Securities
whose Registrable Securities are sold in such offering, its officers and
directors and each person who controls such Holder or Holders (within the
meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses (including attorney's fees) arising out of or
based upon any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto under which such
Registrable Securities were registered under the Securities Act or any
omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such untrue statement or alleged untrue statement or omission or
alleged omission was made in such registration statement, preliminary
prospectus, prospectus, amendment or supplement in reliance upon any
information furnished in writing to the Company by a Holder or Holders of
Registrable Securities expressly for use therein.
8
<PAGE>
(b) Each Holder of Registrable Securities whose Registrable
Securities are sold in any offering pursuant to Sections 2(a) or 3(a)
hereof, agrees to indemnify, to the fullest extent permitted by law, the
Company, the other Holders of Registrable Securities whose Registrable
Securities are sold in such offering, their respective officers and
directors and each other person, if any, who controls the Company or such
other Holders of Registrable Securities (within the meaning of the
Securities Act) against all losses, claims, damages, liabilities and
expenses (including attorney's fees) caused by any untrue or alleged untrue
statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto under which such Registrable Securities were registered under the
Securities Act or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary prospectus,
prospectus, amendment or supplement in reliance upon any information
furnished in writing to the Company by such Holder expressly for use
therein.
(c) Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party will not be subject to any liability for
any settlement made by the indemnified party without its consent (but such
consent will not be unreasonably withheld). An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and will survive the transfer of
securities. The indemnifying party also agrees to make such provisions as
are reasonably requested by any indemnified party, of contribution to any
such party in the event the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party for
any reason.
9. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder that is underwritten unless such Person (a) agrees
to sell such Person's securities on the basis provided in any underwriting
arrangements approved by the Person or Persons entitled hereunder to approve
such arrangements and (b) completes and executes all
9
<PAGE>
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
10. Rule 144. The Company covenants and agrees that it shall file in a
timely manner the reports required to be filed by it under the Securities Act
and the Exchange Act and the rules and regulations promulgated thereunder (or,
if the Company is not required to file such reports, it shall, upon the request
of any Holder, make publicly available such information), and it shall take such
further action as any Holder may reasonable request, all to the extent required
from time to time to enable such Holder to sell its Registrable Securities
without registration under the Securities Act within the limitations of the
exemptions provided by Rule 144. Upon the request of any Holder, the Company
shall deliver to such Holder a written statement as to whether it has complied
with such requirements.
11. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter enter into
any agreement with respect to its securities (other than any underwriting
agreement relating to the Initial Public Offering) which is inconsistent or in
conflict with the rights granted to the Holders of Registrable Securities in
this Agreement.
(b) Remedies. Any person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
(c) Amendment and Waivers. The provisions of this Agreement may be amended
and the Company may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, only if the Company has obtained the
written consent of Holders of at least 50% of the Registrable Securities .
(d) Successors and Assigns. No Holder may assign this Agreement or any of
its rights or obligations hereunder to any Person other than the Shareholder or
any Affiliate without the prior written consent of the Company, and any such
attempted assignment without such prior written consent shall be void and of no
force and effect. All covenants and agreements in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto whether so
expressed or not.
(e) Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
Agreement.
10
<PAGE>
(g) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(h) Governing Law. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the internal law, and not
the law of conflicts, of the State of Wisconsin.
(i) Notice. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally or
mailed by certified or registered mail, return receipt requested and postage
prepaid, to the recipient. Such notices, demands and other communications will
be sent to each Holder of Registrable Securities at such Holder's address as it
appears in the records of the Company (unless otherwise indicated by any such
Holder to the Company in writing) and to the Company at its principal executive
offices.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
PROVANTAGE HEALTH SERVICES, INC.
By:
----------------------------------------
Jeffrey A. Jones
Executive President and
Chief Operating Officer
Attest: ___________________________________
Richard D. Shepp
Secretary
PROVANTAGE HOLDINGS, INC.
By:
---------------------------------------
Dale P. Kramer
Chairman
Attest: ___________________________________
Richard D. Shepp
Secretary
11
<PAGE>
Exhibit 10.6
TAX MATTERS AGREEMENT
THIS TAX MATTERS AGREEMENT ("Agreement") dated as of _________, 1999 is
entered into by SHOPKO STORES, INC., a Wisconsin corporation ("ShopKo") and
PROVANTAGE HEALTH SERVICES, INC., a Delaware corporation ("ProVantage").
RECITALS
WHEREAS, ProVantage is currently a wholly-owned indirect subsidiary of
ShopKo and the parties anticipate that a portion of the authorized common stock
of ProVantage may be issued and sold to others; and
WHEREAS, ProVantage currently participates in the consolidated tax returns
of ShopKo, and ProVantage and ShopKo desire to enter into an agreement relating
to certain tax matters after the Distribution Date.
NOW, THEREFORE, the parties hereto agree as follows:
1. Effectiveness. This Agreement shall become effective on the
Distribution Date.
2. Definitions. As used in this Agreement, capitalized terms shall have
the following meanings.
Action: any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
Affiliate: with respect to any specified person, a person that, directly
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such specified person; provided, however,
that for purposes of this Agreement (i) Affiliates of ProVantage shall not be
deemed to include ShopKo or any of its subsidiaries other than ProVantage and
any of ProVantage's subsidiaries, and (ii) Affiliates of ShopKo shall not be
deemed to include ProVantage or any of its subsidiaries.
Code: the Internal Revenue Code of 1986, as amended.
Distribution Date: The date of the completion of the initial public
offering of the stock of ProVantage.
<PAGE>
Taxes: any federal, state, local or foreign income, gross receipts,
profits, franchise or other tax computed in whole or in part by reference to
gross or net income, or based on capital, and any interest, penalties or
additions to tax relating thereto.
3. Tax Indemnification and Cooperation.
(a) Indemnification for Periods Ending on or Before the Distribution Date.
ShopKo agrees to indemnify and hold harmless ProVantage from and against any
liability for (i) Taxes attributable to ProVantage for tax periods ending on or
before the Distribution Date, subject to the limitation of Section 3(b) below,
and (ii) Taxes for any period attributable to other members of an affiliated
group (as defined in Section 1504(a) of the Code or any analogous provision of
state or local law) to which ProVantage has belonged at any time on or before
the Distribution Date. For purposes of this Section 3, "ProVantage" shall mean
ProVantage and all of its subsidiaries eligible to be included in a consolidated
federal income tax return filed by it as the common parent.
(b) Payment for Subsequent Adjustments. To the extent that an adjustment
is made by a taxing authority to any Tax item of ProVantage for any tax period
ending after the Distribution Date and, as a result of such adjustment, a
correlative adjustment is made to any Tax item of ShopKo's affiliated group for
any tax period ending on or before the Distribution Date that results in an
increase in the Taxes due for such period, ShopKo shall not be required to pay
or to indemnify ProVantage from or against any such increase in Taxes, but
ProVantage shall pay and indemnify ShopKo from and against any such increase in
Taxes for which ShopKo is liable.
(c) Tax Return Filing Responsibility for Periods Ending On or Before the
Distribution Date. ShopKo shall file (or shall cause to be filed) all tax
returns of ProVantage for tax periods ending on or before the Distribution Date.
ShopKo shall, to the extent permissible, include (or cause to be included) the
results of the operations of ProVantage in ShopKo's consolidated federal tax
return and in any other consolidated, unitary, or combined tax return for tax
periods ending on or before the Distribution Date and shall pay all Taxes due
for such periods with respect to ProVantage.
(d) Allocation of Income for Year in which Distribution Date Occurs.
ShopKo, in its absolute discretion, shall either (i) cause ProVantage to close
its permanent books and records (including work papers) as of the Distribution
Date, in accordance with Treasury Regulations (S)1.1502-76(b)(4)(i), in order to
permit ProVantage's taxable income for the taxable period ending on the
Distribution Date to be reported and determined on the basis of income shown on
its permanent books and records (including work papers) or (ii) allocate items
of income or deduction between tax periods ending on or before the Distribution
Date and tax periods beginning after the Distribution Date in accordance with
Treasury Regulations (S)1.1502-76(b)(4)(ii).
(e) Audits for Periods Ending On or Before the Distribution Date. In the
event that any taxing authority conducts an audit to determine the amount of any
tax for any tax period ending on or before the Distribution Date or asserts any
tax liability not reflected on the applicable return as prepared by ShopKo,
ShopKo shall have the exclusive authority to direct, compromise
2
<PAGE>
or contest such audit or asserted tax liability as it shall in its sole
discretion deem proper, and shall pay all Tax liability and expenses arising out
of the compromise or contest of such audit, unless ShopKo is not liable for an
additional Tax liability pursuant to Section 3(b) hereof. Notwithstanding the
foregoing, ShopKo shall give ProVantage written notice of any adjustment
proposed by a taxing authority or otherwise arising during an audit for which
ShopKo believes that ProVantage may be liable under Section 3(b) hereof, and if,
within thirty (30) days of receiving such notice, ProVantage agrees in a writing
delivered to ShopKo that ProVantage is liable pursuant to Section 3(b) hereof
for any additional Tax liability that would result from an adjustment, ShopKo
shall not without the prior written consent of ProVantage compromise or agree to
any such adjustment; provided that, if ProVantage withholds its consent to any
such proposed adjustment, ProVantage shall at its own expense conduct the
contest or compromise of any such adjustment. If ShopKo fails to give ProVantage
the notice referred to in the immediately preceding sentence with respect to any
item of adjustment, ShopKo shall be deemed to have waived any claim that
ProVantage is obligated under Section 3(b) hereof to pay or to indemnify ShopKo
for any increase in taxes resulting from such adjustment. Furthermore, ShopKo
shall not without the prior consent of ProVantage compromise or agree to any
adjustment to the treatment of a Tax item which might, with respect to a tax
period of ProVantage beginning after the Distribution Date, (1) affect, by an
amount not less than $25,000.00, a financial statement tax expense resulting
from a permanent difference, as defined in Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (but expressly excluding any temporary difference as defined therein) or
(2) result in a change of accounting method (as defined in Section 446 of the
Code and applicable Treasury Regulations promulgated thereunder) that would
cause a net increase in ProVantage's tax liability in excess of $25,000.00;
provided that, if ProVantage withholds its consent to any such adjustment,
ProVantage shall agree in writing that it will conduct the contest or compromise
of any such proposed adjustment at its own expense and that it will be liable
for the payment of any Tax finally determined to be due by reason of such
adjustment. ProVantage shall be entitled to any refund of Taxes paid on behalf
of or made available to ShopKo's affiliated group which are attributable to
adjustments made to tax periods ending on or before the Distribution Date for
which ProVantage is liable under Section 3(b), whether received by ProVantage or
ShopKo, and ShopKo shall be entitled to all other refunds of Taxes paid on
behalf of or made available to ShopKo's affiliated group for tax periods ending
on or before the Distribution Date, whether received by ProVantage or ShopKo.
(f) Tax Return Filing and Payment Responsibility for Periods Ending After
the Distribution Date. ProVantage has entered into an Administrative Services
Agreement with ShopKo whereby ShopKo has agreed to prepare the tax returns of
ProVantage which relate to the tax period which begins before the Distribution
Date and ends after the Distribution Date and for all subsequent tax periods for
a fee. During the term of such Administrative Services Agreement, ProVantage
shall file said returns and pay all Taxes shown as due on such returns or
ultimately determined to be due with respect to such periods and shall be
entitled to keep and retain for itself any refunds of Taxes or credits paid on
behalf of or made available to it. All tax returns and any schedules to be
included therewith for the tax period which begins before the Distribution Date
and ends after the Distribution Date shall be prepared on a basis consistent
with those prepared for prior tax periods and consistent with the method used by
ShopKo to
3
<PAGE>
allocate items of ProVantage's income or deduction for the tax period ending on
the Distribution Date pursuant to Section 3(d) hereof, and shall be subject to
the approval of ShopKo prior to being filed by ProVantage, which approval shall
not be unreasonably withheld. ShopKo shall, to the extent it in its sole
judgment deems permissible, file or cause to be filed state tax returns for
ProVantage for the period ending on the Distribution Date. In the case of a tax
period which begins before the Distribution Date and ends after the Distribution
Date for which ProVantage is required hereunder to file the return, ShopKo shall
reimburse ProVantage for an amount equal to the product of (i) total Taxes for
such period, multiplied by (ii) a percentage determined by dividing ProVantage's
net income accrued on or before the Distribution Date (determined using the
allocation method elected by ShopKo under Section 3(d)) by the total ProVantage
net income for such period as shown on such return; provided, however, that any
amount by which ShopKo is required to reimburse ProVantage hereunder shall be
reduced by the amount of all estimated tax payments previously made by ShopKo
with respect to ProVantage's tax liability for such period.
(g) Treatment of ProVantage Net Operating Losses. ProVantage shall make
an election pursuant to Section 172(b)(3) of the Code to carry forward any of
its net operating losses incurred in tax periods beginning after the
Distribution Date which, if carried back, would be carried back to a tax period
ending on or before the Distribution Date. Notwithstanding the foregoing,
ProVantage shall be entitled to any and all tax refunds, whether received by
ShopKo or ProVantage, that result from a carryback of net operating losses or
credits of ProVantage arising in a tax period beginning after the Distribution
Date to a tax period ending on or before the Distribution Date (a "ProVantage
Carryback"), if and to the extent that the ProVantage Carryback results from
ProVantage's inability to make an election under Section 172(b)(3) of the Code
or a comparable provision of any state tax law. If and to the extent that
ProVantage fails to make an election available to it under Section 172(b)(3) of
the Code or a comparable provision of any state tax law, ShopKo shall be
entitled to any and all tax refunds, whether received by ShopKo or ProVantage,
that result from a ProVantage Carryback.
(h) Tax Claim Notices by ProVantage. Promptly after receipt by ProVantage
of a written notice of any demand, claim or circumstance which, after the lapse
of time, would or might give rise to a claim or commencement of any action,
proceeding or investigation with respect to which indemnity or payment may be
sought under Section 3(a) or Section 3(f) hereof (an "Asserted Tax Liability"),
ProVantage shall give written notice thereof to ShopKo (the "Tax Claim Notice").
The Tax Claim Notice shall contain factual information (to the extent known to
ProVantage) describing in reasonable detail the Asserted Tax Liability and shall
include copies of any notice or other document received from any taxing
authority in respect of such Asserted Tax Liability. If ProVantage fails to
give ShopKo prompt notice of an Asserted Tax Liability as required by this
Section 3(h), and if such failure results in a detriment to ShopKo, then any
amount which ShopKo is otherwise required to pay ProVantage pursuant to Section
3(a) or Section 3(f) hereof with respect to such Asserted Tax Liability shall be
reduced by the amount of such detriment.
(i) Tax Adjustment Notices by ShopKo. ShopKo shall give ProVantage prompt
notice of each item of adjustment proposed by a taxing authority for any tax
period ending on or before the Distribution Date which relates to ProVantage (a
"Tax Adjustment Notice"). A Tax Adjustment
4
<PAGE>
Notice shall contain factual information (to the extent known to ShopKo)
describing in reasonable detail the proposed adjustment and shall include copies
of any notice or other document received from any taxing authority in respect of
such proposed adjustment. If ShopKo fails to give ProVantage a Tax Adjustment
Notice as required by this Section 3(i), and if such failure results in a
detriment to ProVantage, then any amount which ProVantage would otherwise be
required to pay pursuant to Section 3(b) hereof with respect to an adjustment
that should have been the subject of a Tax Adjustment Notice shall be reduced by
the amount of such detriment. ShopKo may elect to direct, through counsel of its
own choosing and at its own expense, the compromise or contest, either
administratively or in the courts, of any Asserted Tax Liability. If ShopKo
elects to direct the compromise or contest of any Asserted Tax Liability, it
shall, either within 30 calendar days after receiving the Tax Claim Notice with
respect to such Asserted Tax Liability (or sooner, if the nature of the Asserted
Tax Liability so requires) or within 30 calendar days after giving the Tax
Adjustment Notice, whichever is applicable, notify ProVantage of its intent to
do so, and ProVantage shall cooperate at its own expense in the compromise or
contest of such Asserted Tax Liability. ShopKo, in its discretion, may enter
into a settlement agreement with respect to, or otherwise resolve, any Asserted
Tax Liability without the consent of ProVantage, except that ShopKo shall not
without the prior consent of ProVantage compromise or agree to any adjustment to
the treatment of a Tax item which might, with respect to a tax period of
ProVantage beginning after the Distribution Date, (1) affect, by an amount not
less than $25,000.00, a financial statement tax expense resulting from a
permanent difference, as defined in Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (but expressly excluding any temporary difference as defined therein), or
(2) result in a change of accounting method (as defined in Section 446 of the
Code and applicable Treasury Regulations promulgated thereunder) that would
cause a net increase in ProVantage's tax liability in excess of $25,000.00;
provided that, if ProVantage withholds its consent to any such adjustment,
ProVantage shall agree in writing that it will conduct the contest or compromise
of any such proposed adjustment at its own expense and that it will be liable
for the payment of any tax finally determined to be due by reason of such
adjustment. If ShopKo (1) within 30 calendar days after receiving the Tax Claim
Notice with respect to such Asserted Tax Liability (or sooner, if the nature of
the Asserted Tax Liability so requires) or within 30 calendar days after giving
the Tax Adjustment Notice, whichever is applicable, notifies ProVantage that it
has elected not to direct the compromise or contest of the Asserted Tax
Liability, or (2) fails to properly notify ProVantage within such period of its
election to direct or not to direct the compromise or contest of the Asserted
Tax Liability, ProVantage may pay, compromise, or contest at its own expense and
in its sole discretion such Asserted Tax Liability; provided, however, that
ProVantage may not settle or compromise any Asserted Tax Liability without
giving prior notice to ShopKo of its intention to settle or compromise such
liability and receiving ShopKo's written approval of such settlement or
compromise. ProVantage may, at its own expense and through counsel of its own
choosing, elect to direct the contest or compromise of any Tax adjustment or Tax
liability if ProVantage has previously agreed in a writing delivered to ShopKo
that ShopKo has no obligation under Section 3(a) hereof to pay or indemnify
ProVantage from and against such Tax liability and that ProVantage is liable for
such Tax liability, if any, pursuant to Section 3(b) hereof. If ShopKo or
ProVantage elects to direct the compromise or contest of any liability for Taxes
as provided herein (respectively, the "Electing Party"), the other party shall
promptly empower (by power of attorney and such other
5
<PAGE>
documentation as may be appropriate) the designated representative of the
Electing Party to represent the other party in any audit, claim for refund or
administrative or judicial proceeding insofar as such audit, claim for refund or
proceeding involves an asserted liability for Taxes for which ShopKo would be
liable under Section 3(a) hereof or ProVantage would be liable under Section
3(b) hereof.
(j) Treatment of ShopKo Options and ShopKo Compensation Exercised by or
Payable to ProVantage Employees. ShopKo and ProVantage understand and agree
that certain stock options to acquire common stock of ShopKo are held by various
ProVantage employees (the "ShopKo Options") and that certain ProVantage
employees may participate in other nonqualified incentive programs of ShopKo
("ShopKo Compensation"). ShopKo agrees that it shall take such action as it
deems appropriate to insure that all applicable federal and state payroll,
withholding, income or other Taxes in connection with or arising out of the
ShopKo Options and the ShopKo Compensation are withheld or collected from any
employee of ProVantage. ProVantage agrees that it shall take all necessary and
appropriate steps to timely claim any compensation deductions available to it
for any Tax purpose in connection with the ShopKo Options exercised after the
Distribution Date and payments of ShopKo Compensation made to ProVantage
employees after the Distribution Date. With respect to both the ShopKo Options
and the ShopKo Compensation, ProVantage agrees to promptly pay ShopKo an amount
equal to the "tax benefit" obtained by ProVantage as a result of its claiming
compensation deductions with respect to such items as well as the employer's
share of any employment taxes paid by ShopKo arising out of exercise of the
ShopKo Options or payment of the ShopKo Compensation. For purposes of the
foregoing, tax benefit shall mean the reduction in the Tax liability of
ProVantage (or of any affiliated or consolidated group of which it is a member)
for any taxable period. Such tax benefit shall be deemed to arise at the time
of the first estimated Tax payment made by ProVantage after the exercise of the
ShopKo Options or the payment of the ShopKo Compensation, or on the due date
(without regard to extensions) for the filing of the Tax return on which
ProVantage is entitled to claim the compensation deductions with respect to such
ShopKo Options or ShopKo Compensation, whichever occurs first. In the event
that there is any subsequent adjustment by any Tax authority with respect to
ProVantage's deductions attributable to such items which has the effect of
reducing the amount of the foregoing tax benefit, ShopKo agrees to pay
ProVantage the difference between the amount of the payment or payments
previously made by ProVantage to ShopKo and the amount that would have been paid
by ProVantage to ShopKo after taking into account the adjustment with respect to
ProVantage's deductions. To the extent that ProVantage fails to claim any
compensation deductions with respect to the ShopKo Options exercised after the
Distribution Date and the ShopKo Compensation, ProVantage agrees to pay to
ShopKo the tax benefit that it would have obtained if it had claimed such
deductions. ProVantage agrees to notify ShopKo at or before the time that
ProVantage agrees to extend the period of limitations for the assessment of tax
by any Tax authority for any Tax period of ProVantage ending after the
Distribution Date and during which a ShopKo Option has been exercised or a
payment of ShopKo Compensation been made. If ProVantage so notifies ShopKo and
ProVantage is ultimately unable to claim deductions with respect to such ShopKo
Options or ShopKo Compensation, no amount shall be owing from ProVantage to
ShopKo under this Section 3(j). If ProVantage fails to so notify ShopKo and
neither ProVantage nor ShopKo is ultimately able successfully to claim
deductions with respect to such ShopKo Options or ShopKo
6
<PAGE>
Compensation, ProVantage agrees that it will pay to ShopKo an amount equal to
the tax benefit that ProVantage would have received if it had successfully
claimed deductions with respect to such items.
(k) Mutual Cooperation. ShopKo and ProVantage shall provide each other
with such cooperation and information as either reasonably may request of the
other in filing any tax return, amended return, or claim for refund, in
determining a liability for Taxes or a right to a refund of Taxes, or in
conducting any audit or proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of relevant tax returns or portions
thereof, together with accompanying schedules and related work papers and
documents relating to rulings or other determinations by tax authorities. Each
party shall make its employees available on a mutually convenient basis to
provide explanation of any documents or information provided hereunder. ShopKo
shall make available to ProVantage, with respect to all tax years in which
ProVantage was includable in ShopKo's affiliated group (as defined in section
1504 of the Code) copies of all work papers and schedules relating to the
preparation of ProVantage's pro forma federal and state income tax returns which
were included in ShopKo's federal consolidated and state income tax returns
which are necessary to reconcile such pro forma returns with the amounts
actually included in such consolidated returns. ShopKo and ProVantage shall
make available to each other all other books and records relating to Taxes of
ProVantage with respect to all tax years in which ProVantage was includable in
ShopKo's affiliated group (as defined in section 1504 of the Code). ShopKo and
ProVantage agree to maintain and preserve for a period of eight (8) years after
the period to which such documents relate, and, upon written request, to provide
to the other party, such factual information as that party reasonably requires
for filing tax returns, tax planning, and contesting any tax audit that only
ShopKo or ProVantage, as the case may be, actually possesses.
4. Notice. Any notice shall be in writing and shall be effective and
deemed to have been given when it is (i) mailed, postage prepaid, by certified
first class mail, return receipt requested, addressed to a party and received by
such party; (ii) hand or courier delivered; or (iii) sent by telecopy with
receipt confirmed, as follows:
If to ShopKo: ShopKo Stores, Inc.
700 Pilgrim Way
P.O. Box 19060
Green Bay, WI 54307
Telecopy: (920) 429-4225
Attention: Chief Financial Officer
cc: General Counsel
If to ProVantage: ProVantage Health Services, Inc.
13555 Bishops Court, Suite 201
Brookfield, WI 53005
Telecopy: (414) 641-3770
Attention: Chief Financial Officer
cc: Legal Department
7
<PAGE>
Any party may from time to time designate another address to which notice
or other communication shall be addressed or delivered to such party and such
new designation shall be effective on the later of (i) the date specified in the
notice or (ii) receipt of such notice by the intended recipient.
5. General.
(a) Assignment. Neither party may assign any of its rights or delegate
any of its duties or obligations under this Agreement without the other party's
consent. Any attempted assignment or delegation of any rights, duties, or
obligations in violation of this Section 5(a) shall be void and without effect.
(b) Amendment and Waiver. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties, or in the
case of a waiver, by the party waiving compliance. Any waiver by either party
hereto of any condition, or of the breach of any provision or term in any one or
more instances shall not be deemed to be nor construed as a further or
continuing waiver of any such condition, or of the breach of any other provision
or term of this Agreement.
(c) Integration. This Agreement supersedes any and all prior or
contemporaneous oral agreements or understandings between the parties regarding
the subject matter of this Agreement. Nothing in this Agreement is intended to
modify the terms and conditions of any other written agreement between the
parties, including the Administrative Services Agreement of even date herewith.
(d) Severability. If any term or condition of this Agreement shall be
held invalid in any respect, such invalidity shall not affect the validity of
any other term or condition hereof.
(e) Successors. This Agreement binds and inures to the benefit of the
parties and their respective legal representatives, successors, and permitted
assigns.
(f) Applicable Law. This Agreement shall be construed under the laws of
the State of Wisconsin and the rights and obligations of the parties shall be
determined under the substantive law of Wisconsin, without giving effect to
Wisconsin's conflict of law rules or principles.
(g) Reasonableness. As concerns every provision of this Agreement, ShopKo
and ProVantage agree to act reasonably and in good faith unless a provision
expressly states that ProVantage or ShopKo may act in its sole discretion.
(h) Counterparts. This Agreement may be executed in two counterparts,
each of which shall constitute an original, and both of which, when taken
together, shall constitute one and the same instrument.
8
<PAGE>
(i) Further Assurances. Each party shall take such actions, upon request
of the other party and in addition to the actions specified in this Agreement,
as may be necessary or reasonably appropriate to implement or give effect to
this Agreement.
(j) No Third Party Beneficiaries. Each of the provisions of this
Agreement is for the sole and exclusive benefit of the parties hereto and their
Affiliates, respectively, as their interests may appear, and shall not be deemed
for the benefit of any other person or entity or group of persons or entities.
(k) Construction. Descriptive headings to sections and paragraphs are for
convenience only and shall not control or affect the meaning or construction of
any provisions in this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties as of the date first written above.
SHOPKO STORES, INC.
By: ________________________________________
William J. Podany
President and Chief Executive Officer
Attest: ____________________________________
Richard D. Schepp
Sr. Vice President,
General Counsel/Secretary
PROVANTAGE HEALTH SERVICES, INC.
By: ________________________________________
Jeffrey A. Jones
Executive Vice President and Chief
Operating Officer
Attest: ____________________________________
Richard D. Schepp,
Secretary
9
<PAGE>
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, is made as of ________________, 199_ by and
between ProVantage Health Services, Inc., a Delaware corporation (the
"Company"), and ______________________ ("Indemnitee").
WHEREAS, Indemnitee is a member of the Board of Directors and/or an
executive officer of the Company; and
WHEREAS, it will be difficult to retain directors and executive officers of
the Company unless such persons are adequately indemnified against liabilities
incurred and claims made in performance of their duties as directors and/or
executive officers of the Company; and
WHEREAS, Article VIII of the Company's Bylaws (the "Bylaws") provides for
the indemnification by the Company of the officers and directors of the Company
and, as additional consideration for the services of Indemnitee, the Company has
obtained at its expense directors' and officers' liability insurance ("D & O
Insurance") covering Indemnitee with respect to Indemnitee's position with the
Company; and
WHEREAS, to induce Indemnitee to continue to serve as a member of the Board
of Directors and/or as an executive officer of the Company, the Company has
determined that it is in its best interests to assure Indemnitee of the
protection currently provided by the Bylaws and D & O Insurance and to indemnify
Indemnitee to the fullest extent permitted by the Delaware General Corporation
Law (the "DGCL").
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Indemnification. The Company agrees to indemnify and hold Indemnitee
harmless from and against any and all claims, liabilities, damages, judgments,
penalties, fines, settlements, disbursements or expenses of any type whatsoever
(including, without limitation, reasonable attorneys' fees) incurred by
Indemnitee in or arising out of (A) the status, capacities or activities of
Indemnitee as a director and/or an executive officer of the Company, or (B) the
status, capacities or activities of Indemnitee with any Subsidiary (as
hereinafter defined) which status, capacities or activities with such Subsidiary
were undertaken in connection with the Indemnitee's position with the Company as
a director and/or an executive officer, in each case to the maximum extent
permitted under Section 145 of the DGCL and Article VIII of the Bylaws as in
effect on the date hereof and as either may be amended to provide more
advantageous rights to the Indemnitee. For purposes hereof, "Subsidiary" means
any corporation, joint venture, limited liability company, or other business
entity in which the Company has a significant direct or indirect equity
interest.
<PAGE>
2. Advances of Expenses. Upon written request by Indemnitee and subject to
the requirements of the DGCL, the Company shall advance all expenses incurred by
Indemnitee in connection with the investigation, defense, settlement or appeal
of any proceeding, action or investigation to which Indemnitee is a party or is
threatened to be made a party arising out of any matter for which the Indemnitee
is entitled to indemnification pursuant to Section 1 hereof to the maximum
extent permitted under Section 145 of the DGCL and Article VIII of the Bylaws as
in effect on the date of this Agreement and as either may be amended to provide
more advantageous rights to the Indemnitee. The indemnification provisions
contained in Section 145 of the DGCL and Article VIII of the Bylaws, as in
effect on the date hereof and as either may be amended to provide more
advantageous indemnification rights to Indemnitee, shall be deemed to be a
contract between the Company and Indemnitee and any amendment, modification,
revocation or repeal of any such provisions of Section 145 of the DGCL or
Article VIII of the Bylaws shall not limit any rights of Indemnitee hereunder to
indemnification or the allowance of expenses.
3. Other Rights of Indemnitee. The right of Indemnitee to indemnification
or advance of expenses pursuant to this Agreement shall not be exclusive of
other rights Indemnitee may have (i) under applicable law, (ii) pursuant to
other agreements between the Company and Indemnitee or the Bylaws (subject to
Section 16 hereof), or (iii) pursuant to any agreement with a third party (by
way of insurance, indemnification or otherwise).
4. Absolute Right to Indemnification and Advancement of Expenses. The
Company agrees that it shall not, and the Company hereby waives all rights that
it has or may have to refuse to indemnify, or withhold payment of amounts for
which Indemnitee is indemnified hereunder, based on any breach or alleged breach
of any of the provisions of this Agreement by Indemnitee or for any other reason
whatsoever; provided, however, that the Agreement shall not require the Company
to make any payment prohibited by law, or to advance expenses contrary to the
provisions hereof. In the event Indemnitee is required to bring any action to
enforce Indemnitee's rights or to collect monies due to Indemnitee under this
Agreement, and is successful in such action, the Company shall reimburse
Indemnitee for all of Indemnitee's legal fees and expenses in bringing and
pursuing such action.
5. Amendments to the DGCL or Company's Charter or Bylaws. The Company shall
not amend its Certificate of Incorporation ("Charter") or Bylaws to reduce or
eliminate the Indemnitee's right to indemnification or advances provided for
under this Agreement. Any amendments to the Charter or Bylaws made subsequent to
the date of this Agreement which reduce or eliminate rights of persons entitled
to indemnification or advances under such Charter or Bylaws shall not limit the
rights of Indemnitee pursuant to this Agreement. If the DGCL, the Charter or the
Bylaws are amended so as to provide for greater indemnification rights or
benefits, Indemnitee shall be entitled to such greater rights and benefits
immediately upon such amendment. Subsequent amendments to the DGCL or other
applicable law shall in no way reduce Indemnitee's rights under this Agreement.
6. Maintenance of Insurance. The Company represents that it presently has
in force and effect directors and officers insurance under a directors' and
officers' liability insurance policy covering certain liabilities which may be
incurred by its officers and directors. The Company
2
<PAGE>
agrees to purchase and maintain in effect, for the benefit of Indemnitee, D & O
Insurance providing, in all respects, coverage not less favorable than that
presently provided pursuant to said policy for so long as Indemnitee shall serve
as director and/or executive officer and until the later of (i) three years
after Indemnitee ceases to be a director and/or executive officer, as the case
may be, for any reason, or (ii) for so long as Indemnitee shall be subject to
any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Indemnitee was a member of the Board of Directors and/or an executive officer,
as the case may be. The unavailability or subsequent exclusions, limitations or
deductibles contained in coverage provided by such D & O Insurance shall in no
way limit the obligations of the Company to insure and indemnify Indemnitee to
the full extent required by this Agreement.
7. Effect of Certain Proceedings. The termination of any proceeding or of
any claim, issue or matter therein, by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, does not of itself
adversely affect the right of Indemnitee to indemnification hereunder or create
a presumption that indemnification is not required. The knowledge and/or
actions, or failure to act, of any director, officer, agent or employee of the
Company shall not be imputed to Indemnitee for purposes of determining the right
to indemnification under this Agreement.
8. Notification. Promptly after receipt by Indemnitee or the Company of any
notice or document respecting the commencement of any action, suit, proceeding
or investigation naming or involving Indemnitee and relating to any matter
concerning which Indemnitee may be entitled to indemnification or advances
pursuant to this Agreement, the party receiving notice will notify the other of
the receipt of same, but the failure by Indemnitee to so notify the Company
shall not relieve the Company from any obligation under this Agreement or
otherwise.
9. Amendment. This Agreement may be amended at any time by written
instrument executed by the Company and Indemnitee.
10. Notices. All notices and other communications between the parties with
respect to this Agreement must be made in writing and shall be deemed to have
been fully delivered as of the date on which they are hand delivered or
deposited in the United States mail for delivery by registered or certified
mail, postage and fees prepaid.
11. Binding Effect. Due to the personal nature of the services to be
rendered by Indemnitee, Indemnitee may not assign this Agreement. Subject to the
foregoing, the provisions of this Agreement are binding upon and inure to the
benefit of (i) Indemnitee and Indemnitee's respective heirs, legal
representatives and administrators, and (ii) the Company and its successors,
transferees and assigns.
12. Term of Agreement. This Agreement shall continue and terminate upon the
later of: (i) 10 years after the date that Indemnitee shall have ceased to serve
as a director and/or executive officer of the Company; or (ii) the final
termination of all pending proceedings in respect of which Indemnitee is granted
rights of indemnification or advancement of expenses
3
<PAGE>
hereunder and of any proceeding commenced by Indemnitee pursuant to Section 14
of this Agreement relating thereto.
13. Validity. The invalidity or unenforceability of any provision of the
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
14. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be discussed between the parties in a good faith
effort to arrive at a mutual settlement of any such controversy. If,
notwithstanding the parties' good faith efforts, a dispute remains unresolved
for a period of 45 days after initial notice from one party to the other of the
dispute, the parties shall submit such dispute to arbitration in accordance with
the rules of the American Arbitration Association, and judgment upon the award
may be entered in any court having jurisdiction over the controversy. The costs
of the proceedings shall be paid by the Company. Unless otherwise agreed upon,
the place of arbitration proceedings shall be Milwaukee County, Wisconsin.
15. Subrogation. In the event of payment by the Company to Indemnitee under
this Agreement, the Company shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee, and Indemnitee shall execute all
documents and shall do all things necessary to enable the Company effectively to
bring suit to enforce such rights.
16. Effectiveness. The provisions of this Agreement (i) shall supersede the
provisions of any agreement between the Indemnitee and the Company entered into
prior to the date hereof which provides for the indemnification of the
Indemnitee by the Company for the matters covered by Section 1 hereof, and (ii)
shall be retroactive to cover any and all matters which may have taken place
prior to the date hereof for which the Indemnitee is entitled to indemnification
pursuant to Section 1 hereof. By way of example but not of limitation, this
Agreement shall apply to matters for which the Indemnitee is entitled to
indemnification pursuant to Section 1 hereof, regardless of whether such matters
relate to activities of Indemnitee or the Company preceding or subsequent to the
date of this Agreement.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
PROVANTAGE HEALTH SERVICES, INC.
_____________________________ By:______________________________
Indemnitee Its
4
<PAGE>
<PAGE>
Exhibit 10.8
PROVANTAGE HEALTH SERVICES, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT by and between PROVANTAGE HEALTH SERVICES,
INC., a Minnesota corporation (the "Company"), and ___________________ (the
"Executive"), is entered into on this ____ day of ________ __, 199_.
WHEREAS, in order to retain capable executives, the Company desires to
enter into agreements to protect its executives upon a change of control of the
Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, the parties
agree as follows:
1. Definitions.
(a) The "Change of Control Date" shall be the first date on which a Change
of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is
terminated by the Company within one hundred eighty (180) days before
the date on which a Change of Control occurs, and the Executive can
demonstrate that such termination arose in connection with or in
anticipation of a Change of Control then the "Change of Control Date"
shall mean the date immediately prior to the date of such termination.
(b) The "Board" means the Board of Directors of the Company.
(c) A "Control Acquisition" means the acquisition by an individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of either (i) the
then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power
of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Control Acquisition: (i) any
acquisition directly from the Company (including, without limitation,
any acquisition through an underwritten public offering of the
Company's securities by the Company), (ii) any acquisition by the
Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (iv) any acquisition by ShopKo
Stores, Inc., a Wisconsin corporation ("ShopKo"), or any corporation
controlled by ShopKo, or any employee benefit plan (or related trust)
sponsored or maintained by ShopKo or any corporation
<PAGE>
controlled by ShopKo, (v) any acquisition pursuant to a public
distribution of the Company's securities as a dividend to ShopKo's
shareholders, or (vi) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of Section
2(b) below.
2. Change of Control. For the purpose of this Agreement, a "Change of Control"
shall mean:
(a) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then constituting the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of:
(i) an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other
than the Board, or (ii) a Control Acquisition; or
(b) consummation of a reorganization, merger, statutory share exchange, or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company for which approval of the shareholders of
the Company is required (a "Business Combination"), in each case,
unless, immediately following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock")
and the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities") immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (excluding
any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding Common Stock of the Corporation resulting from such
Business
2
<PAGE>
Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination, and (iii) at
least a majority of the members of the Board of Directors of the
corporation resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(c) approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
3. Protected Period. Subject to Section 7 hereof, the Company hereby agrees
to provide to the Executive the benefits and protections described herein
for the period commencing on the Change of Control Date and ending on the
second anniversary of the Change of Control Date (the "Protected Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Protected Period, (A) the Executive's position,
authority, duties and responsibilities shall be at least
commensurate in all material respects with those held, exercised
and assigned immediately preceding the Change of Control Date and
(B) except when traveling in the normal course of business, the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Change of
Control Date or any office or location not more than fifty (50)
miles from such location.
(ii) During the Protected Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote full-time attention during normal
business hours to the business and affairs of the Company and, to
use the Executive's best efforts to perform the responsibilities
assigned to the Executive hereunder faithfully and efficiently.
(b) Compensation.
(i) Base Salary. During the Protected Period, the Executive shall
receive an annual base salary ("Base Salary") at least equal to
the annualized rate of pay received by the Executive from the
Company immediately prior to the Change of Control Date. During
the Protected Period, the Base Salary shall be reviewed at least
annually and shall be increased from time to time consistent with
increases in base salary awarded in the ordinary
3
<PAGE>
course of business to other key executives of the Company.
During the Protected Period, Base Salary shall not be reduced
after any increase.
(ii) Annual Bonus. During the Protected Period, the Executive shall
be awarded an annual bonus (an "Annual Bonus") in cash
determined pursuant to a bonus program at least as advantageous
to the Executive as the bonus program in place immediately prior
to the Change of Control Date.
(iii) Benefits. During the Protected Period, the Executive shall be
entitled to participate in all welfare benefit plans, incentive,
savings, fringe benefit and retirement plans and programs
applicable to other key executives of the Company (including,
without limitation, vacation, automobile allowance, medical,
dental, disability, salary continuance, executive life, group
life, accidental death and travel accident insurance plans and
programs). Such plans and programs, in the aggregate, shall
provide the Executive with benefits at least as favorable as the
benefits provided by the Company to the Executive immediately
prior to the Change of Control Date.
(iv) Expenses. During the Protected Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the
policies and procedures of the Company in effect immediately
prior to the Change of Control Date.
5. Termination of Employment. Prior to the Change of Control Date, the
Executive is an "at will" employee whose employment may be terminated at
any time by either the Company or the Employee. During the Protected
Period, the following provisions shall apply:
(a) Death or Disability. This Agreement shall terminate automatically upon
the Executive's death. The Company may terminate this Agreement, after
having established the Executive's Disability (pursuant to the
definition of "Disability" set forth below), by giving to the
Executive written notice of its intention to terminate the Executive's
employment. In such a case, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of
such notice (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" means disability which, at least 26 weeks
after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative.
4
<PAGE>
(b) Cause. The Company may terminate the Executive's employment for
"Cause." For purposes of this Agreement, "Cause" means (i) an act or
acts of personal dishonesty taken by the Executive and intended to
result in substantial personal enrichment of the Executive at the
expense of the Company, (ii) repeated violations by the Executive of
the Executive's obligations under Section 4(a) of this Agreement which
are demonstrably willful and deliberate on the Executive's part and
which are not remedied after receipt of notice from the Company, or
(iii) the conviction of the Executive of a felony.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good
Reason" means:
(i) the Executive's authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement are materially
and adversely reduced, excluding for this purpose an isolated,
insubstantial or inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated,
insubstantial or inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive; or
(iii) the Company's requiring the Executive to be based at any office
other than that described in Section 4(a)(i)(B) hereof, except
for travel reasonably required in the performance of the
Executive's responsibilities.
(d) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Good Reason shall be communicated by Notice of
Termination to the other party in accordance with Section 14(b) of
this Agreement. A "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and (iii) if
the termination date is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
fifteen (15) days after the giving of such notice).
(e) Date of Termination. "Date of Termination" means the date of receipt
of the Notice of Termination or any later date specified therein, as
the case may be. If the Executive's employment is terminated by the
Company other than for Cause or Disability, the Date of Termination
shall be the date on which the Company notifies the Executive of such
termination. If the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the
5
<PAGE>
date of death of the Executive or the Disability Effective Date, as
the case may be.
6. Obligations of the Company upon Termination.
(a) Death. If, during the Protected Period, the Executive's employment is
terminated by reason of the Executive's death, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than those obligations
accrued or earned by the Executive hereunder as of the Date of
Termination. During the Protected Period, the Executive's family
shall be entitled to receive benefits at least equal to the benefits
provided by the Company to surviving families of executives of the
Company under such plans, programs and policies relating to family
death benefits, if any, as in effect immediately prior to the Change
of Control Date.
(b) Disability. If, during the Protected Period, the Executive's
employment is terminated by reason of the Executive's Disability, this
Agreement shall terminate without further obligations to the
Executive, other than those obligations accrued or earned by the
Executive hereunder as of the Date of Termination. During the
Protected Period, the Executive shall be entitled to receive
disability and other benefits at least equal to those provided by the
Company to disabled employees and/or their families in accordance with
such plans, programs and policies relating to disability, if any, as
in effect immediately prior to the Change of Control Date.
(c) Cause and Other Than for Good Reason. If, during the Protected Period,
the Executive's employment shall be terminated for Cause, this
Agreement shall terminate without further obligations to the Executive
other than the obligation to pay to the Executive amounts accrued to
the Executive through the Date of Termination. If the Executive
terminates employment other than for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than
those obligations accrued or earned by the Executive through the Date
of Termination.
(d) Good Reason and Other Than for Cause or Disability. If, during the
Protected Period, the Company shall terminate the Executive's
employment other than for Cause or Disability, or the employment of
the Executive shall be terminated by the Executive for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. to the extent not therefore paid, the Executive's Base
Salary through the Date of Termination; and
6
<PAGE>
B. ___ ( ) times the smaller of the following amounts:
(1) the average of the Annual Bonuses payable to the
Executive in respect of the three fiscal years
preceding the fiscal year in which the Date of
Termination occurs; and
(2) the average of Executive's annual bonus "norm" for each
of the three fiscal years preceding the fiscal year in
which the Date of Termination occurs, regardless of the
actual Annual Bonus payable for such years; and
C. ___ ( ) times the current Base Salary; and
D. all other amounts accrued or earned by the Executive through
the Date of Termination and amounts otherwise owing under
the then existing plans and policies of the Company; and
(ii) for ___ ( ) months after the Date of Termination the Company
shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to
them in accordance with the health and dental plans, programs and
policies provided by the Company to employees and/or their
families if the Executive's employment had not been terminated,
including health insurance and dental insurance, as in effect
immediately prior to the Change of Control Date; provided,
however, that such benefit continuation shall cease when and to
the extent the Executive obtains coverage through a new employer.
7. Termination of Agreement at Election of the Company. The Executive agrees
that prior to a Change of Control Date occurring the Company may terminate
this Agreement on not less than one hundred eighty (180) days prior written
notice to Executive which notice shall designate the date this Agreement is
to terminate; provided, however, that such termination shall be of no force
or effect whatsoever, and this Agreement shall remain in full force and
effect, if a Change of Control Date occurs on or before the date set forth
in such notice as the date of termination of this Agreement.
8. Mitigation; Attorney's Fees. The Executive shall not be obligated to seek
other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement. The Company agrees to pay all reasonable legal fees and
expenses which the Executive may reasonably incur as a result of any action
brought by the Executive to enforce the provisions of this Agreement
provided that Executive is successful on the merits of any such action.
9. Certain Reduction of Payments by the Company.
(a) For purposes of this section, (i) "Payment" shall mean any payment or
distribution in the nature of compensation to or for the benefit of
Executive,
7
<PAGE>
whether paid or payable pursuant to this Agreement or otherwise; (ii)
"Agreement Payment" shall mean a Payment paid or payable pursuant to
this Agreement (disregarding this Section 9); (iii) "Net After Tax
Receipt" shall mean the Present Value of a Payment net of all taxes
imposed on Executive with respect thereto under Sections 1 and 4999 of
the Code, determined by applying the highest marginal rate under
Section 1 of the Code which applied to the Executive's taxable income
for the immediately preceding taxable year; (iv) "Present Value" shall
mean such value determined in accordance with Section 280G(d)(4) of
the Code; and (v) "Reduced Amount" shall mean the smallest aggregate
amount of Payments which (a) is less than the sum of all Payments and
(b) results in aggregate Net After Tax Receipts which are equal to or
greater than the Net After Tax Receipts which would result if the
aggregate Payments were any other amount less than the sum of all
Payments.
(b) Anything in this Agreement to the contrary notwithstanding, in the
event Deloitte & Touche (the "Accounting Firm") shall determine that
receipt of all Payments would subject Executive to tax under Section
4999 of the Code, it shall determine whether some amount of Payments
would meet the definition of a "Reduced Amount." If the Accounting
Firm determines that there is a Reduced Amount, the aggregate
Agreement Payments shall be reduced to such Reduced Amount; provided,
however, that if the Reduced Amount exceeds the aggregate Agreement
Payments, the aggregate Payments shall, after the reduction of all
Agreement Payments, be reduced (but not below zero) in the amount of
such excess.
(c) If the Accounting Firm determines that aggregate Agreement Payments or
Payments, as the case may be, should be reduced to the Reduced Amount,
the Company shall promptly give Executive notice to that effect and a
copy of the detailed calculation thereof, and the Executive may then
elect, in his sole discretion, which and how much of the Payments
shall be eliminated or reduced (as long as after such election the
present value of the aggregate Payments equals the Reduced Amount) and
shall advise the Company in writing of his election within ten days of
his receipt of notice. If no such election is made by the Executive
within such ten-day period, the Company may elect which of the
Agreement Payments or Payments, as the case may be, shall be
eliminated or reduced (as long as after such election the present
value of the aggregate Agreement Payments or Payments, as the case may
be, equals the Reduced Amount) and shall notify the Executive promptly
of such election. All determinations made by the Accounting Firm under
this Section shall be binding upon the Company and Executive and shall
be made within 60 days of a termination of employment of the
Executive. As promptly as practicable following such determination,
the Company shall pay to or distribute for the benefit of Executive
such Payments as are then due to Executive under this Agreement and
shall promptly pay to or distribute for the benefit of Executive in
the future such Payments as become due to Executive under this
Agreement.
8
<PAGE>
(d) While it is the intention of the Company and the Executive to reduce
the amounts payable or distributable to Executive hereunder only if
the aggregate Net After Tax Receipts to Executive would thereby be
increased, as a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that amounts will have
been paid or distributed by the Company to or for the benefit of
Executive pursuant to this Agreement which should not have been so
paid or distributed ("Overpayment") or that additional amounts which
will have not been paid or distributed by the Company to or for the
benefit of Executive pursuant to this Agreement could have been so
paid or distributed ("Underpayment"), in each case, consistent with
the calculation of the Reduced Amount hereunder. In the event that the
Accounting Firm, based either upon the assertion of a deficiency by
the Internal Revenue Service against the Company or Executive which
the Accounting Firm believes has a high probability of success or
controlling precedent or other substantial authority, determines that
an Overpayment has been made, any such Overpayment paid or distributed
by the Company to or for the benefit of Executive shall be treated for
all purposes as a loan ab initio to Executive which Executive shall
repay to the Company together with interest at the applicable federal
rate provided for in Section 7872(f)(2) of the Code; provided,
however, that no such loan shall be deemed to have been made and no
amount shall be payable by Executive to the Company if and to the
extent such deemed loan and payment would not either reduce the amount
on which the Executive is subject to tax under Section 1 and Section
4999 of the Code or generate a refund of such taxes. In the event that
the Accounting Firm, based upon controlling precedent or other
substantial authority, determines that an Underpayment has occurred,
any such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained
by the Executive during the Executive's employment by the Company or any of
its affiliated companies and which shall not be public knowledge (other
than by acts by the Executive or his representatives in violation of this
Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it.
11. Exclusive Remedy, Waiver of Claims. During the Protected Period, severance
benefits provided to the Executive pursuant to this Agreement are to be
paid and provided in lieu of any severance payments, severance benefits and
severance protections provided in any other plan or policy of the Company,
except as expressly provided in writing under the terms of any plan or
policy of the Company, or in a written agreement between the
9
<PAGE>
Company and the Executive entered into after the date of this Agreement.
Additionally, any payments due to Executive hereunder may be conditioned
upon Executive's execution and delivery of a waiver of any and all claims
the Executive may have against the Company.
12. Statement of Intention. It is the intention of the parties hereto that
prior to the Change of Control Date, this Agreement shall not create any
rights or obligations in the Executive or the Company, or require any
payments by the Company to the Executive, except as expressly provided
herein.
13. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
14. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Wisconsin, without reference to principles of
conflict of laws. This Agreement contains the entire understanding of
the Company and the Executive with respect to the subject matter
hereof and may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Executive: c/o ProVantage Health Services, Inc.
13555 Bishops, Suite 201
P.O. Box 846
10
<PAGE>
Brookfield, WI 53008-0846
If to the Company: ProVantage Health Services, Inc.
13555 Bishops, Suite 201
P.O. Box 846
Brookfield, WI 53008-0846
Attention: Secretary
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) It is expressly agreed that this Agreement supersedes and replaces any
other form of Change of Control Agreement which may have previously
been entered into between Company and Executive. In addition, at such
time as an initial public offering of the Company's common stock is
completed, any Change of Control Severance Agreement between Executive
and ShopKo shall be terminated and shall be of no further force or
effect whatsoever. ShopKo is an intended third-party beneficiary of
the foregoing provision.
IN WITNESS WHEREOF, the Executive and the Company have caused this
Agreement to be executed as of the day and year first above written.
PROVANTAGE HEALTH SERVICES, INC.
By: ____________________________________
Richard D. Schepp
Secretary
EXECUTIVE
____________________________________
11
<PAGE>
EXHIBIT 10.9(a)
March 14, 1996
FIRST AMENDED AND RESTATED
PRESCRIPTION BENEFIT MANAGEMENT AGREEMENT
THIS FIRST AMENDED AND RESTATED PRESCRIPTION BENEFIT AGREEMENT
("Agreement") is made by and between PROVANTAGE PRESCRIPTION BENEFIT MANAGEMENT
SERVICES, INC., a Minnesota Corporation, with its principal place of business at
700 Pilgrim Way, Green Bay, Wisconsin 54313, hereinafter referred to as
"PROVANTAGE", and AMERICAN MEDICAL SECURITY, INC., a Delaware corporation with
its principal place of business at 3100 AMS Boulevard, Green Bay, Wisconsin
54313, hereinafter referred to as "AMS".
WHEREAS, AMS has adopted various prescription drug programs referenced on
Exhibit A attached hereto (the "Plans") for various clients' eligible employees
and their eligible dependents (the "Plan Participants"). A description of each
Plan (the "Plan Parameters") will be communicated by AMS to PROVANTAGE either
electronically or in written hard copy format prior to the effective date of
this Agreement. Additional Plans may be added to Exhibit A from time to time
during the term of this Agreement. Such additions shall be evidenced by a
written Addendum to this Agreement which is signed by AMS and ProVantage. The
Plan Parameters of any such additional Plans shall be communicated to ProVantage
prior to the effective date thereof.
WHEREAS, PROVANTAGE is a prescription benefit manager, and maintains a
computerized claims processing system, a prescription drug mail service, and a
network of retail pharmacies (the "Participating Pharmacies") who have agreed to
provide prescription services for PROVANTAGE's clients, and
WHEREAS, additional information with respect to AMS and the Plans is set
forth on the AMS Data Sheet attached to this Agreement as Exhibit B (the "Data
Sheet"); and
WHEREAS, PROVANTAGE and AMS have entered into that certain Prescription
Benefit Management Agreement dated June 28, 1995 (the "1995 Agreement"),
whereby PROVANTAGE has agreed to provide prescription benefit management
services to AMS upon the terms and conditions set forth therein; and
WHEREAS, pursuant to that certain Addendum and Assumption Agreement dated
July 1, 1995, Unity HMO of Illinois, Inc., an Illinois domiciled health
maintenance organization of which American Medical Security Group, Inc. ("AMS'
Parent") owns an 90% interest ("Unity") has agreed to participate in the 1995
Agreement; and
WHEREAS, pursuant to that certain Addendum and Assumption Agreement dated
as of July 1, 1995, Frontier Community Health Plans, Inc., a Colorado domiciled
health maintenance organization of which AMS' Parent owns an 33% interest
("Frontier") has agreed to participate in the 1995 Agreement; and
WHEREAS, pursuant to that certain Addendum and Assumption Agreement dated
March 18, 1996, Atlantic Health Plans, Inc., a North Carolina domiciled health
maintenance organization of which AMS' Parent indirectly owns 100% interest
("Atlantic") has agreed to participate in the 1995 Agreement; and
WHEREAS, pursuant to that certain Addendum and Assumption Agreement dated
February 1, 1996, American Medical Security Health Plan, Inc., d/b/a American
Medical HealthCare, a Florida corporation of which AMS' Parent owns an 100%
interest ("AHPF") has agreed to participate in the 1995 Agreement; and
WHEREAS, pursuant to that certain Addendum and Assumption Agreement dated
March 7, 1996, American Medical Security Health Plan, Inc., a Tennessee
corporation of which AMS' Parent owns an 49% interest ("AHPT") has agreed to
participate in the 1995 Agreement; and
WHEREAS, PROVANTAGE and AMS have agreed to amend and restate the 1995
Agreement as set forth herein, and Unity, Frontier, Atlantic, AHPT and AHPF have
also agreed to be bound and abide by the terms and conditions set forth herein;
1
<PAGE>
I. GENERAL APPOINTMENT
----------------------
1. PROVANTAGE shall be AMS's exclusive prescription benefit manager with
respect to the Plans. As the prescription benefit manager of the Plans,
PROVANTAGE shall diligently assist AMS in establishing and implementing
prescription benefit management programs designed to lower the total cost of
Plan Participants' health care. Toward this end, PROVANTAGE shall manage all
prescription claim processes for AMS by implementing an optimal mix of cost
reduction strategies which may include, but are not limited to:
. Programs designed to increase mail service utilization;
. Formulary management services;
. Drug utilization evaluation programs, including:
. Drug utilization review programs (prospective, concurrent and
retrospective)
. Educational programs (as such programs may be developed by
PROVANTAGE from time to time)
. Disease state management processes (as such processes may be jointly
developed by PROVANTAGE and AMS from time to time)
PROVANTAGE's services, which shall be provided subject to and in accordance with
the terms and conditions of this Agreement, shall initially be prescription
claims processing, prescription drug mail services, and formulary management
services described in this Agreement, and shall include such other functions as
may be mutually agreed upon in writing by AMS and PROVANTAGE from time to time
during the term of this Agreement. AMS and PROVANTAGE agree to work together in
good faith to develop and implement mutually acceptable programs, procedures and
policies to more effectively and efficiently manage the prescription benefits
available to Participants under the Plans.
II. PRESCRIPTION CLAIMS PROCESSING
----------------------------------
2. APPOINTMENT. AMS hereby appoints PROVANTAGE as its exclusive Prescription
Claims Processor for all new business written pursuant to the Plans, and
PROVANTAGE hereby accepts such appointment. PROVANTAGE acknowledges that AMS is
contractually committed to another prescription benefit management company for
the provision of some of the services described herein with respect to some of
the currently existing Plan Participants. AMS agrees to use good faith, diligent
efforts to convert such Plan Participants to the PROVANTAGE program as soon as
possible.
3. AUTHORITY. PROVANTAGE hereby agrees to perform all of the following claims
processing functions with respect to the Plans, and AMS hereby grants PROVANTAGE
the authority and empowers PROVANTAGE to perform such functions:
A. To process all claims received from Participating Pharmacies and/or
eligible Plan Participants in accordance with the Plan Parameters;
B. To reject or otherwise deny claims which are incomplete, ineligible,
outside the dates specified by this Agreement or invalid for any other
reason;
C. To issue checks to Participating Pharmacies for the payment of claims;
D. To issue checks directly to Plan Participants for covered items under
the Plans if they are unable to have a Participating Pharmacy submit
the claims on their behalf;
E. To audit Participating Pharmacies as deemed necessary or appropriate
by PROVANTAGE for compliance with the specific Plan parameters as well
as for fraudulent or incorrectly submitted claims;
F. To generate reports for AMS, Participating Pharmacies and for
PROVANTAGE's own uses;
G. To maintain hard copy and/or computerized records of all transactions
completed hereunder for a reasonable period of time as may be
required by law;
H. To adjust the amount paid on a submitted claim so that it accurately
reflects:
i. The correct ingredient cost at the time the benefit was received
as determined by First Data Bank current drug pricing database.
ii. The correct dispensing fee, if any.
iii. The correct sales tax, if any, for the State in which the benefit
was rendered.
2
<PAGE>
iv. The correct deductible or copayment, if any, that should have
been collected.
v. To provide such other functions as may be indicated on the Data
Sheet.
4. IDENTIFICATION CARDS. AMS will issue identification cards for eligible Plan
Participants containing the following information:
A. AMS'S NAME*
B. PARTICIPANT'S NAME*
C. PARTICIPANT'S IDENTIFICATION NUMBER*
D. GROUP NUMBER
E. CO-PAY (IF ANY)*
F. EFFECTIVE DATES OR THE WORDS "ON-LINE ELIGIBILITY"
G. SPECIAL NOTES PERTAINING TO THE PLAN (IF APPLICABLE)
H. PROVANTAGE NAME AND LOGO
Each single Plan Participant will be issued one card. Each Plan Participant that
has dependent coverage will be issued two cards. If a card is lost or stolen,
AMS will issue a replacement card.
5. PAYMENT OF CLAIMS. AMS assumes all financial responsibility for all claims
submitted to PROVANTAGE, whether by Participating Pharmacies or Plan
Participants. AMS further acknowledges the right of any Participating Pharmacy
to proceed directly against AMS to collect any legitimate claim which AMS has
failed to pay to the Participating Pharmacy through PROVANTAGE. This is a waiver
of any claim of lack of privity of contract between AMS and the Participating
Pharmacy.
AMS shall transfer funds for the payment of valid prescription drug claims under
the Plan to PROVANTAGE pursuant to the banking arrangement between the parties
as specified in this Agreement.
6. DRUG COST CALCULATION. PROVANTAGE shall use prescription drug pricing
information and clinical databases supplied by First Data Bank, or any other
nationally recognized database. AMS agrees to hold PROVANTAGE harmless from
liability for any claim or payment arising out of inaccurate information
supplied to or used by PROVANTAGE in good faith.
7. DRUG UTILIZATION REVIEW (DUR). PROVANTAGE shall, as part of the electronic
claim adjudication process, perform Drug Utilization Review (DUR). DUR includes
drug interaction screening and other informational messages. The information
generated and provided in connection with DUR is intended as a supplement to,
and not a substitute for, the knowledge, expertise, skill, and judgment of
physicians, pharmacists and other health care providers. PROVANTAGE disclaims
all responsibility for any and all actions or interventions, taken or not taken
as a result of providing this information. AMS understands and authorizes
PROVANTAGE to inform providers that the information provided should not be
relied upon as a substitute for their professional judgment and AMS acknowledges
that DUR shall not prevent providers from dispensing prescriptions or providing
other goods and services in opposition to the information they receive under
PROVANTAGE's DUR Program. Providers are individually responsible for acting or
not acting upon the information provided through PROVANTAGE's DUR Program, and
for performing services in each jurisdiction consistent with the scope of their
professional licenses.
PROVANTAGE relies upon outside databases and software provided by other vendors
to provide information used by PROVANTAGE in its DUR Program. PROVANTAGE's
performance is limited by the information sought and received by and from these
vendors. PROVANTAGE will attempt to update these databases on a reasonable basis
to reflect changes in the standards of pharmaceutical prescribing; however, no
database will contain all currently available information. In most cases the
vendors limit or exclude warranties regarding the information provided to
PROVANTAGE for use in its DUR Program. Such limitations and exclusions are
incorporated herein by this reference.
Further, PROVANTAGE may not have all the relevant information necessary for the
purposes of providing DUR Information including, but is not limited to, patient
diagnoses, utilization of drugs obtained without using PROVANTAGE's Claims
Processing System or not included in the patient's active profile, patient's
medical history, and any other idiosyncrasies of a patient. PROVANTAGE shall
have no obligation to acquire information concerning any patient where
sufficient information is at any time unavailable to enable PROVANTAGE's DUR
Program to determine whether or not intervention is indicated.
3
<PAGE>
PROVANTAGE's DUR Program is dependent upon the accurate transmission and
processing of data by electronic means. AMS agrees to hold PROVANTAGE harmless
from liability for any intervention or non-intervention resulting from any
interruption in the electronic processing regardless of the reason for said
interruption. Because of the large number of computer systems and software in
use by providers, PROVANTAGE cannot and does not guarantee that a provider is
technically capable of receiving DUR information.
PROVANTAGE disclaims all express and implied warranties of any kind, including
but not limited to, any warranty as to the quality, accuracy or suitability for
any particular purpose of the information generated and provided through DUR.
PROVANTAGE disclaims any liability for consequential, incidental, exemplary,
punitive or special damages incurred directly or indirectly in connection with
PROVANTAGE's performance of or omission to perform, DUR services or resulting
from reliance on or use of information furnished under PROVANTAGE's DUR program.
8. REPORTS AND STATEMENTS. PROVANTAGE shall provide AMS with a detailed report
on all claims paid or rejected on its behalf. PROVANTAGE shall provide all
Participating Pharmacies which submit claims for reimbursement with a remittance
report.
9. AUDIT. PROVANTAGE will perform audits of Plan Participants' claims or
Participating Pharmacies at its own discretion to ensure the integrity and
validity of the claims it receives and processes on behalf of AMS. AMS may also
request an audit of a specific claim or Participating Pharmacy, to be conducted
at AMS's expense. If PROVANTAGE finds grounds for denying or charging back any
claims AMS will be notified. PROVANTAGE's own books and files will be available
for AMS's inspection during regular business hours. However, AMS may only
inspect PROVANTAGE's books and files as they pertain to AMS's Plans.
10. COMPENSATION. AMS agrees to pay to PROVANTAGE such compensation as
indicated on the Data Sheet. PROVANTAGE will provide AMS an itemized monthly
bill. PROVANTAGE shall have the right after the initial term of this Agreement
to change the level of compensation PROVANTAGE receives hereunder upon sixty
(60) days written notice to AMS. AMS may object to any increase in such
compensation by giving written notice to PROVANTAGE at least thirty (30) days
prior to the expiration of the sixty (60) day period. In the event the parties
cannot agree on an appropriate level of compensation, this Agreement shall
terminate at the end of the sixty (60) day period.
The parties may agree in writing from time to time on "gain-sharing"
compensation arrangements whereby PROVANTAGE and AMS will divide incremental
cost savings realized by AMS as a result of PROVANTAGE's prescription benefit
management services provided hereunder. Such incremental savings will be
measured by comparing actual costs to a predetermined, mutually acceptable
baseline for each gain-sharing program. PROVANTAGE and AMS agree to meet not
less frequently than annually during the term of this Agreement to discuss and
establish baselines, goals and objectives for any prescription benefit
management program for which PROVANTAGE's compensation will be determined on a
gain-sharing basis. At such meetings, the parties will also discuss new
programs, policies or procedures which could be implemented as additional cost
saving measures hereunder.
11. BILLING CYCLE AND PAYMENTS. AMS hereby authorizes PROVANTAGE to debit the
account indicated on the Data Sheet for prescription drug claims and other
charges authorized hereunder. Such debits shall be made via Automated Clearing
House ("ACH"). PROVANTAGE will bill AMS or AMS's designee on a semi-monthly
basis to enable payment of claims submitted to PROVANTAGE in a timely manner.
The first billing statement of every month will include charges for all claims
submitted by Participating Pharmacies and for all mail services rendered between
the first (1st) and the fifteenth (15th) of the month. The second billing
statement of every month will include charges for all claims submitted by
Participating Pharmacies and all mail services rendered between the sixteenth
(16th) and the last day of the month. The first billing statement of each month
will be mailed on the sixteenth (16th) of each month, or the first business day
thereafter. The second billing statement of each month will be mailed on the
first (1st) day of the following month, or the first business day thereafter.
AMS's account will be debited via ACH on the twenty second (22nd) of each month,
or the first business day thereafter, for the first monthly billing statement.
AMS's account will be debited via ACH on the seventh (7th) day of the following
month, or the first business day thereafter, for the second monthly billing
statement.
AMS warrants to PROVANTAGE that it shall make available for debit sufficient
funds to meet the full amount of each invoice submitted to AMS by PROVANTAGE.
All bills shall be deemed to have been received by AMS on the third (3rd)
4
<PAGE>
day after the date said bill was mailed, or by the end of the next business day
if sent by facsimile or express mail. Payments more than 7 days past due shall
be subject to interest at the rate of one half of one percent per semi-monthly
billing period (twelve percent (12%) per annum) or the maximum portion thereof
allowed by law.
12. CLAIM FUNDING DEPOSIT. [Intentionally Omitted].
13. OPTIONAL PROGRAMS. AMS may participate in any one or more of PROVANTAGE's
Optional Programs, as described in the Plan Parameters.
III. PRESCRIPTION DRUG MAIL SERVICE
-----------------------------------
14. APPOINTMENT. AMS hereby appoints ProVantage as its exclusive Prescription
Drug Mail Service provider for the Plans, and ProVantage hereby accepts such
appointment.
15. AUTHORITY. ProVantage hereby agrees to perform all of the following
services with respect to the Plans, and AMS hereby grants ProVantage the
authority and empowers ProVantage to perform such services:
A. To provide and dispense all prescribed legend drugs (collectively
referred to herein as "Pharmaceuticals"), as set forth in the Plan
Parameters, subject to availability. Such Pharmaceuticals shall be
supplied in amounts prescribed by a physician, or as indicated in the
Plan Parameters. Whenever possible, and subject to state guidelines
and the dispensing pharmacist's professional discretion, PROVANTAGE
agrees to dispense the generic drug or the lowest cost equivalent item
currently available to PROVANTAGE.
B. To label and package the Pharmaceuticals as required by applicable
State and Federal Laws and Regulations and as is consistent with
industry practices and procedures.
C. To provide prepaid delivery of Pharmaceuticals to Plan Participants'
residences by U.S. Mail, UPS or an overnight service in accordance
with applicable regulations and industry practices and procedures.
D. To provide, at PROVANTAGE's expense, toll free telephone lines,
computer services, informational brochures and similar administrative
services as PROVANTAGE shall determine to be appropriate for the
provision of the Prescription Drug Mail Services described herein.
16. TIMELINESS OF MAIL SERVICE. PROVANTAGE shall use reasonable efforts to
dispense Pharmaceuticals within 48 hours of PROVANTAGE's receipt of an
acceptable prescription. Weekends and holidays are not to be included within
this 48 hour period. AMS acknowledges that PROVANTAGE shall not be responsible
for causes and circumstances beyond the reasonable control of PROVANTAGE and
that PROVANTAGE shall have no liability to AMS or its Plan Participants as a
result of any delay in preparation or delivery of Pharmaceuticals. PROVANTAGE
shall have no obligation to provide Pharmaceuticals to any Plan Participant
until PROVANTAGE receives from such Plan Participant any applicable copayment
charges.
17. PRESCRIPTIONS. PROVANTAGE assumes no liability or responsibility for the
accuracy, efficacy or timely receipt of prescriptions, orders or other
directions by physicians to supply Pharmaceuticals to Plan Participants.
PROVANTAGE reserves the right to refuse to fill any prescription that
professional judgment dictates should not be dispensed.
18. BILLING AND REIMBURSEMENT. With respect to each prescription filled by
PROVANTAGE, AMS shall pay PROVANTAGE the charges set forth in the Data Sheet
attached hereto or the applicable Plan Parameters plus any applicable state or
federal sales or use taxes.
In the event a Plan Participant submits to PROVANTAGE a copayment in an
insufficient amount, and PROVANTAGE is unable to collect the correct copayment
amount from the Participant, then PROVANTAGE reserves the right to invoice AMS
for the amount of the uncollected copayment(s). All payments shall be made to
PROVANTAGE in accordance with Section 11 of this Agreement.
5
<PAGE>
19. REPORTS. PROVANTAGE shall furnish to AMS a monthly report reflecting the
Pharmaceuticals dispensed pursuant to this Agreement, the details of which AMS
agrees to treat as confidential under applicable Federal and State guidelines.
IV. FORMULARY MANAGEMENT
------------------------
20. APPOINTMENT. AMS hereby appoints PROVANTAGE as its exclusive formulary
management agent for the Plans, and PROVANTAGE hereby accepts such appointment.
21. AUTHORITY. PROVANTAGE hereby agrees to perform various formulary management
services with respect to the Plans, and AMS hereby grants PROVANTAGE the
authority and empowers PROVANTAGE to perform those formulary management services
as described herein, and as may be agreed to in writing from time to time by AMS
and PROVANTAGE.
22. PROVANTAGE FORMULARY. The PROVANTAGE formulary (the "Formulary") is a
prescription drug formulary containing a listing of preferred medications in the
most commonly prescribed therapeutic categories. The Formulary has been prepared
by licensed clinical pharmacists, and is based upon evaluation of the quality,
efficacy, safety and cost of various pharmaceutical products. The list of drugs
on the Formulary may be modified from time to time as a result of PROVANTAGE's
continuing evaluation of the Formulary, based upon factors including but not
limited to medical appropriateness, manufacturer rebate arrangements and patent
expirations.
PROVANTAGE agrees to implement the Formulary with respect to the Plans and
hereby grants AMS the right to use, during the term of this Agreement,
PROVANTAGE's Formulary. AMS shall distribute copies of the Formulary to all Plan
Participants. With AMS's full cooperation and assistance, PROVANTAGE may
implement various Formulary compliance programs and cost containment
initiatives, which may include communication with Plan Participants,
Participating Pharmacies and/or treating physicians. The parties will work
together in good faith to develop innovative products, including products
utilizing restrictive drug formularies and/or restrictive pharmacy networks.
AMS understands and agrees that AMS's right to utilize the Formulary is limited
solely to AMS's own use in connection with the Plans. AMS further understands
and agrees that, except in connection with such limited use, AMS shall at no
time copy, distribute, sell or otherwise provide the Formulary to any third
party without PROVANTAGE's prior written approval. On or prior to termination of
this Agreement, AMS shall cease all use of the Formulary and shall return to
PROVANTAGE all copies in its possession. Plan Participants and any other parties
to whom AMS has provided the Formulary shall be instructed by AMS to discontinue
use of the Formulary and to destroy all copies on or before the effective date
of termination. Upon PROVANTAGE's request, AMS shall provide proof to PROVANTAGE
that it has complied with all of the terms and conditions set forth in this
paragraph.
[Section 23 Intentionally Omitted.]
6
<PAGE>
V. GENERAL TERMS AND CONDITIONS
-------------------------------
24. APPLICABLE PLAN. AMS authorizes PROVANTAGE to Fill prescriptions and
reimburse Participating Pharmacies or Plan Participants in accordance with this
Agreement, including the Plan Parameters and the Data Sheet. The Plan Parameters
are expressly incorporated into this Agreement and must be completed prior to
PROVANTAGE's providing any services hereunder. The Plans shall be in effect for
the term of this Agreement unless modified by AMS. AMS may elect to amend the
Plans, with sufficient written notice to PROVANTAGE.
25. TERM OF AGREEMENT. Subject to the terms and conditions of the following
paragraph, the initial term and commencement date of this Agreement shall be as
indicated on the Data Sheet. At the end of the initial term, and on each
anniversary thereafter, the term of this Agreement shall automatically renew for
successive one (1) year terms, unless either party notifies the other party of
its intent to terminate this Agreement at the end of the then-current term,
which notice shall be given at least ninety (90) days prior to the expiration of
the then-current term.
26. TERMINATION. This Agreement may be terminated by either party with respect
to any one or more of the Plans as of the date written notice of such
termination is received by the other party in the event that:
A. any law or regulation becomes effective after the date of this
Agreement which would render the services provided by PROVANTAGE under
this Agreement in violation of such law or regulation; or
B. the non-terminating party fails to make any of the payments referred
to in this Agreement or breaches any of the other terms and provisions
of this Agreement; or
C. the non-terminating party shall make an assignment for the benefit of
creditors, is adjudicated insolvent, has a receiver or trustee
appointed for a substantial part of its property, or has a proceeding
commenced against it which will substantially impair its ability to
perform hereunder.
AMS is responsible for all of PROVANTAGE's post-termination processing charges.
Claims that are received and processed by PROVANTAGE after termination will be
subject to the rate so specified on the Data Sheet for a period of NINETY (90)
days after the effective date of termination of this Agreement. AMS remains
responsible for the payment of all claims submitted to PROVANTAGE with a date of
service prior to the effective date of termination, as well as all of
PROVANTAGE's administrative charges during the NINETY (90) day period after
termination.
PROVANTAGE shall have the right to advise Participating Pharmacies that
effective on the termination date, AMS's Plan Participants are not eligible to
receive benefits under the Plan. The post-termination fees indicated on the Data
Sheet will apply. The termination of this Agreement by either party shall not
affect any liabilities of AMS for the payments and charges due PROVANTAGE or its
Participating Pharmacies. These rights shall be in addition to all other rights
and remedies of PROVANTAGE as allowed by law or equity.
27. RELATIONSHIP BETWEEN PARTIES. Nothing in this Agreement shall be construed
to constitute either party a partner, joint venturer, employee or agent of the
other, nor shall either party have authority to bind the other in any respect,
it being intended that each shall remain an independent contractor solely
responsible for its own actions. No employee or agent of one party hereto shall
be considered an employee or agent of the other party hereto. The Participating
Pharmacies which provide services to the Plan Participants shall also do so as
independent contractors.
28. LIST OF ELIGIBLE PLAN PARTICIPANTS. Upon execution of this Agreement, AMS
will provide PROVANTAGE with a list of all eligible Plan Participants and
applicable Plan Parameters. AMS is responsible for providing PROVANTAGE with any
changes to such list or parameters, (additions, deletions and/or terminations)
in writing as soon as reasonably possible after they occur. In the event of a
Participant's termination, such Participant(s) and their dependents will be
considered eligible for up to one full business day after notification has been
received by PROVANTAGE. Until such time, AMS will be responsible for all
liabilities incurred by the terminated Participant(s) and their dependents. AMS
shall hold PROVANTAGE harmless and without liability for any errors or
omissions, or any related problems that may result from AMS's failure to provide
an accurate, updated listing of eligible Plan Participants.
7
<PAGE>
29. NON-LIABILITY. Without limiting any other indemnification set forth
elsewhere in this Agreement, AMS agrees to indemnify, defend, and hold
PROVANTAGE harmless from liability for any claim, injury, demand or judgment
based on contract, tort, or other grounds (including warranty of
merchantability) arising directly or indirectly out of:
A. PROVANTAGE's providing Drug Utilization Review (DUR) services
described herein; and
B. Payment of fraudulent claims or filling of fraudulent prescriptions if
the fraud is committed by AMS, a Plan Participant or any party other
than PROVANTAGE. "Fraudulent claims" shall include: (i) the
unauthorized, illegal or wrongful use of any card issued by AMS to any
of AMS's Plan Participants, and (ii) the wrongful use of any card that
is lost or stolen until notification is received by PROVANTAGE.
AMS acknowledges that the Participating Pharmacies have been chosen by
PROVANTAGE solely based on their willingness to provide pharmacy services to the
Plan Participants. PROVANTAGE has not performed any investigation or review of
any Participating Pharmacy's operations.
In addition, and without limiting the generality of the foregoing, each party
agrees to indemnify and hold harmless the other party and its directors,
officers and employees acting in the scope and course of their employment and
not as Plan Participants against all claims, lawsuits, settlements, judgments,
costs, penalties and expenses, including attorney's fees, with respect to this
Agreement and the acts of the indemnifying party or its employees, acting alone
or in collusion with others, if it determined that the indemnified party's
liability therefor was the direct consequence of negligence, criminal conduct or
fraud on the part of the indemnifying party's directors, officers or employees.
30. NOTICES. All notices provided for in this Agreement shall be in writing and
shall be sent by registered or certified mail, express mail, facsimile, or
delivered in person to the other party at the address above or indicated on the
Data Sheet or such other address as may be provided to the other party in the
same manner as that provided for giving of any notice. All notices shall be
deemed to have been received on the third (3rd) day after the date said notice
was mailed; or twenty four (24) hours following the time of said notice if sent
by facsimile, or immediately upon personal delivery.
31. MAINTENANCE OF RECORDS. PROVANTAGE shall maintain such records with regard
to services provided hereunder as it shall determine to be necessary and
appropriate under the circumstances and as may be required under applicable
laws, rules and regulations. PROVANTAGE shall have no responsibility for the
maintenance of any records by or which are the obligation of AMS. Records kept
by PROVANTAGE with respect to AMS's Plan Participants may be reviewed by AMS
during regular business hours, at AMS's expense provided, however, that no such
review shall relate to records for prescriptions dispensed more than two (2)
years prior to the date such review is requested.
32. OWNERSHIP OF INFORMATION. PROVANTAGE shall be the sole owner of the
information obtained through the administration and processing of the claims it
receives. AMS shall have free access to that information which pertains
specifically to AMS, but shall have no ownership rights with respect thereto.
AMS acknowledges that PROVANTAGE may receive certain incentives or marketing
support funds from pharmaceutical manufacturers based upon Plan Participants'
utilization of certain drugs in the PROVANTAGE formulary. Sharing of such
incentives or funds with AMS shall be as set forth on the Data Sheet.
33. CONFIDENTIALITY. Each party to this Agreement agrees that it shall receive
and hold in confidence any knowledge or information concerning the affairs or
business of the other party, and the other party's programs, procedures, or
systems and will not, during or after the term hereof, disclose same to any
third party or use same for the benefit of itself or any other person, firm or
corporation related to or associated with it in any way, except as may be
required for the performance of this Agreement or as may be required by law.
Each party agrees to hold the other party harmless from liability for any claim,
injury, demand or action based on the unauthorized release of any of the above-
described confidential information.
In the performance of its obligations under this Agreement, PROVANTAGE will
receive private and confidential information concerning the Plan Participants.
PROVANTAGE is sensitive to the confidential nature of the files it maintains and
warrants that it shall hold all such information confidential and shall not
disclose such information to any entity other than AMS, unless required by law
or to enable its performance under this Agreement.
8
<PAGE>
34. NO THIRD PARTY BENEFICIARIES. Except as set forth in Paragraph 3 above, no
individual person, Plan Participant, insurance company, third party payer or
other entity, other than PROVANTAGE and AMS (except governmental authorities to
the extent required by law), is or shall be entitled to bring any action to
enforce any provision of this Agreement against either of the parties hereto,
and that the covenants, undertakings, and agreements set forth in this Agreement
shall be solely for the benefit of, and shall be enforceable only by, the
parties hereto, or their respective successors and assignees as permitted
hereunder.
35. EXCLUSIVITY. With respect to each Plan, PROVANTAGE shall be the sole and
exclusive provider of the services described in this Agreement to AMS while this
Agreement remains in effect. However, nothing in this Agreement shall prohibit
PROVANTAGE from contracting with any other person, firm. corporation or other
entity for any purpose whatsoever for the providing or delivery of the same or
similar services as those described in this Agreement.
36. NON-DISCRIMINATION. PROVANTAGE shall not discriminate against any AMS or
Plan Participant on the basis of race, color, disability, national origin,
creed, sex or age.
37. ASSIGNMENT. This Agreement shall not be assignable by either party to any
other person or entity, and any attempted assignment shall be void and of no
force and effect, unless the written consent of the non-assigning party shall
have first been obtained, which consent shall not be unreasonably withheld. For
purposes of this Paragraph, "assignments" shall not include assignments to any
entity which controls, is controlled by, or is under common control with the
assigning party.
38. REGULATORY COMPLIANCE. AMS acknowledges that the Plans are or may be
"employee welfare benefit plans" as defined in the Employee Retirement Income
Security Act ("ERISA"), 29 U.S.C. (S) 1001 et seq., and the regulations
promulgated under that act. PROVANTAGE will provide AMS with any information in
PROVANTAGE's possession necessary for AMS and the Plans to comply with any laws
or regulations applicable to Plans, but AMS's and PROVANTAGE's compliance with
any such laws and regulations shall be the sole responsibility of AMS and/or the
Plans and AMS shall comply and ensure that the Plans comply with all such laws
and regulations. PROVANTAGE will obtain and maintain any licenses or regulatory
approvals necessary for it to perform PROVANTAGE's services under the Agreement.
AMS shall not name PROVANTAGE or represent that PROVANTAGE is, and PROVANTAGE
shall not be, a Plan Administrator or a named fiduciary of the Plan as those
terms are used in ERISA. AMS shall have complete discretionary, binding and
final authority to construe the terms of the Plan, to interpret ambiguous Plans
language, to make factual determinations regarding the payment of claims or
provisions of benefits, to review denied claims and to resolve complaints by
Plan Participants.
39. PRIOR AGREEMENTS. This Agreement is intended to supplant, replace and
supersede the 1995 Agreement and that certain Maintenance Prescription Drug Plan
Agreement between AMS and PROVANTAGE dated September 2, 1994 (collectively the
"Prior Agreements"). As of the commencement date of this Agreement, said Prior
Agreements shall be null and void, except with respect to any obligations which
arose prior to the commencement date of the term of this Agreement.
40. EMPLOYEES. AMS agrees that during the term of this Agreement, and for a
period of one (1) year thereafter, AMS and AMS's affiliates will not, directly
or indirectly, hire or employ, or solicit or offer employment to any employee of
ShopKo Stores, Inc. ("ShopKo") or any of ShopKo's subsidiaries, including
without limitation, PROVANTAGE, without ShopKo's prior written consent. The
foregoing limitation shall apply only with respect to ShopKo employees who,
during the term of their employment with ShopKo, held a management-level
position or any position within ShopKo's MIS/computer systems departments.
PROVANTAGE agrees that during the term of this Agreement, and for a period of
one (1) year thereafter, PROVANTAGE and PROVANTAGE's affiliates will not,
directly or indirectly, hire or employ, or solicit or offer employment to any
employee of American Medical Security Group, Inc., or any of American Medical
Security Group, Inc.'s subsidiaries, including without limitation, AMS, without
American Medical Security Group, Inc.'s prior written consent. The foregoing
limitation shall apply only with respect to AMS employees who, during the term
of their employment with AMS, held a management level position or any position
within AMS's MIS/computer systems departments.
9
<PAGE>
41. MISCELLANEOUS PROVISIONS. The provisions of this Agreement shall bind and
inure to the benefit of the parties hereto and their heirs, legal
representatives and successors. Failure to exercise any of the rights granted
hereunder for any one default shall not be a waiver of the right to exercise any
of these rights for subsequent default. Neither this Agreement nor any term
hereof may be changed, waived, discharged, or terminated orally, but only by an
instrument in writing signed on behalf of both parties. Time is of the essence
in the performance of each and every obligation herein imposed. This Agreement
when executed by all parties constitutes the entire understanding between the
parties hereto. In the event any provision or part thereof contained in this
Agreement shall be determined by a court of competent jurisdiction to be invalid
or unenforceable, such invalidity or unenforceability shall not affect the
validity or enforceability of any other provision or part thereof contained
herein. The headings in this Agreement are used solely for the purpose of
convenience and shall not be deemed to list the subject of any provision or be
considered in the construction thereof. This Agreement shall be construed and
enforced according to the Employee Retirement Income and Security Act of 1974,
as amended from time to time ("ERISA"). To the extent ERISA does not apply, the
laws of the state of Wisconsin shall govern. Both parties understand that it is
their respective obligation to comply with all applicable state, federal and
local laws, regulations and guidelines.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
begin as noted in the Data Sheet.
AMERICAN MEDICAL SECURITY, INC.
/s/ Penny Paque 3-18-96
By:________________________________ Date:___________
Vice President, Operations
Title:_____________________________
/s/ Julie A. Dubey 3-18-96
Attest:____________________________ Date:___________
Asst. Secretary
Title:_____________________________
PROVANTAGE PRESCRIPTION BENEFIT MANAGEMENT SERVICES, INC.:
/s/ Michael J. Bettiga 3-14-96
By_________________________________ Date:___________
Michael J. Bettiga, Sr.
Vice President Health Services
/s/ Richard D. Schepp 3-14-96
Attest:____________________________ Date:___________
Richard D. Schepp, Secretary
10
<PAGE>
The following entities are executing this Agreement to acknowledge their
agreement with all of the terms and conditions set forth herein and to
acknowledge their agreement that from and after the date of their respective
execution, this Agreement shall be substituted for the 1995 Agreement as Exhibit
A to each of their respective Addendum and Assumption Agreements referenced
above. The following signatures may be attached to this Agreement in two or more
counterparts, each of which will be deemed an original. The failure of any one
or more of the following entities to execute this Agreement shall not in any way
affect the enforceability or validity of this Agreement between AMS and
PROVANTAGE, or the effectiveness of the signature by any of the remaining
entities.
UNITY HMO OF ILLINOIS, INC.
By:_____________________________ Date:___________
Title:__________________________
Attest:_________________________ Date:___________
Title:__________________________
FRONTIER COMMUNITY HEALTH PLANS, INC.
By:_____________________________ Date:___________
Title:__________________________
Attest:_________________________ Date:___________
Title:__________________________
ATLANTIC HEALTH PLANS, INC.,
By:_____________________________ Date:___________
Title:__________________________
Attest:_________________________ Date:___________
Title:__________________________
11
<PAGE>
AMERICAN MEDICAL SECURITY HEALTH PLAN, INC., a Florida Corporation
By:_____________________________ Date:___________
Title:__________________________
Attest:_________________________ Date:___________
Title:__________________________
AMERICAN MEDICAL SECURITY HEALTH PLAN, INC., a Tennessee Corporation
By:_____________________________ Date:___________
Title:__________________________
Attest:_________________________ Date:___________
Title:__________________________
12
<PAGE>
EXHIBIT A
PLANS
13
<PAGE>
EXHIBIT B
[Intentionally omitted.]
14
<PAGE>
EXHIBIT 10.9(b)
FIRST AMENDMENT TO THE FIRST AMENDED AND RESTATED PRESCRIPTION
BENEFIT MANAGEMENT AGREEMENT
THIS FIRST AMENDMENT TO THE FIRST AMENDED AND RESTATED PRESCRIPTION BENEFIT
MANAGEMENT AGREEMENT is made by and between PROVANTAGE BENEFIT PRESCRIPTION
MANAGEMENT SERVICES, INC., a Minnesota corporation, with its principal place of
business at 700 Pilgrim Way, Green Bay, Wisconsin 54313, hereinafter referred to
as "PROVANTAGE" and AMERICAN MEDICAL SECURITY, INC., a Delaware corporation with
its principal place of business at 3100 AMS Boulevard, Green Bay, Wisconsin
54313, hereinafter referred to as "AMS".
Whereas, PROVANTAGE and AMS have entered into a First Amended and Restated
Prescription Benefit Management Agreement dated as of March 14, 1996 ("PBM
Agreement"); and
Whereas, PROVANTAGE and AMS have agreed to amend the PBM Agreement as set forth
herein; and
Whereas, pursuant to certain Addendum and Assumption Agreements various Health
Plans have agreed to participate in the PBM Agreement including all amendments.
Now Therefore, the parties agree to modify the PBM Agreement as follows:
1. Exhibit B, AMS Data Sheet, Part 3, Paragraph 1, Pricing Guidelines.
Effective May 15, 1997, the mail service reimbursement rates for BRANDED
PRODUCTS shall be deleted and replaced with the following.
BRANDED PRODUCTS. [Intentionally omitted.]
2. Exhibit B, AMS Data Sheet, Part 4, Paragraph 4, Retail Pharmacy
Reimbursement. Effective March 1, 1997, the retail pharmacy reimbursement
rates for GENERIC PRODUCTS shall be deleted and replaced with the
following:
GENERIC PRODUCTS: [Intentionally omitted.]
<PAGE>
3. Exhibit B, AMS Data Sheet, Part 5B. Effective December 1, 1997, the claims
processing charge for non-pharmacy (user) claims received and processed shall be
deleted and replaced with the following:
[Intentionally omitted.]
4. Effectiveness of PBM Agreement. Except as set forth in this First Amendment
to the First Amended and Restated Prescription Benefit Management
Agreement, all of the provisions of the PBM shall remain unchanged and in
full force and effect.
IN WITNESS WHEREOF, this First Amendment to the First Amended and Restated
Prescription Benefit Management Agreement is signed and sealed by the parties as
set forth below, effective as set forth herein.
AMERICAN MEDICAL SECURITY, INC.
/s/ Mark R. Xxxxxxxxx
By: _________________________ Date: _____________________
Vice President
Title: ______________________
PROVANTAGE PRESCRIPTION BENEFIT MANAGEMENT SERVICES, INC.
By: _________________________ Date: _____________________
Title: ______________________
<PAGE>
****************
The following entities are executing this First Amendment to the First Amended
and Restated Prescription Benefit Management Agreement to acknowledge their
agreement with all of the terms and conditions set forth herein. The following
signatures may be attached to this Agreement in two or more counterparts, each
of which will be deemed an original. The failure of any one or more of the
following entities to execute this Agreement shall not in any way affect the
enforceability or validity of this First Amendment to the First Amended and
Restated Prescription Benefit Management Agreement between AMS and PROVANTAGE,
or the effectiveness of the signature by any of the remaining entities.
UNITY HMO OF ILLINOIS, INC.
/s/ Mark R. Xxxxxxxxx
By: _____________________ Date: ___________________
Title: __________________
AMERICAN MEDICAL SECURITY HEALTH PLAN, INC.,
d/b/a American Medical HealthCare, a Florida Corporation
/s/ Timothy L. Day
By: _____________________ Date: ___________________
Title: __________________
<PAGE>
Exhibit 10.10
PROVANTAGE HEALTH SERVICES, INC.
1999 STOCK INCENTIVE PLAN
-------------------------
SECTION 1
---------
GENERAL
-------
1.1. Purpose. The ProVantage Health Services, Inc. 1999 Stock Incentive
Plan (the "Plan") has been established by ProVantage Health Services, Inc. (the
"Company") (i) to attract and retain high quality individuals eligible to
participate in the Plan; (ii) to motivate Participants, by means of appropriate
incentives, to achieve long-range goals; (iii) to provide incentive compensation
opportunities that are competitive with those of other similar companies; and
(iv) to further align Participants' interests with those of the Company's
shareholders through compensation that is based on the Company's common stock;
and thereby promote the long-term financial interests of the Company and the
Related Companies, including the growth in value of the Company's equity and
enhancement of long-term shareholder return.
1.2. Participation. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time, from among the
Eligible Employees and the Eligible Directors, those persons who will be granted
one or more Awards under the Plan, and thereby become "Participants" in the
Plan. In the discretion of the Committee, a Participant may be granted any Award
permitted under the provisions of the Plan, and more than one Award may be
granted to a Participant. Awards may be granted as alternatives to or
replacement of awards outstanding under the Plan, or any other plan or
arrangement of the Company or a Related Company (including a plan or arrangement
of a business or entity, all or a portion of which is acquired by the Company or
a Related Company).
1.3. Operation and Administration. The operation and administration of the
Plan, including the Awards made under the Plan, shall be subject to the
provisions of Section 4 (relating to operation and administration). Subject to
subsection 5.5 (relating to the Board's authority), the authority to control and
manage the operation and administration of the Plan shall be vested in a
committee of the Board (the "Committee") in accordance with Section 5.
1.4 Definitions. Capitalized terms used herein which are not defined where
such terms first appear shall be defined as set forth in Section 7.
SECTION 2
---------
OPTIONS
-------
2.1. Options. The grant of an "Option" entitles the Participant to purchase
shares of Stock at an Exercise Price established by the Committee. Options
granted under this Section 2 may be either Incentive Stock Options or Non-
Qualified Stock Options, as determined in the discretion of the Committee. An
"Incentive Stock Option" is an Option that is intended to satisfy the
requirements applicable to an "incentive stock option" described in section
422(b) of the Code. A "Non-Qualified Option" is an Option that is not intended
to be an "incentive stock option" as that term is described in section 422(b) of
the Code.
2.2. Exercise Price. The "Exercise Price" of each Option granted under this
Section 2 shall be established by the Committee; except that the Exercise Price
shall not be less than 100% of the Fair Market Value of a share of Stock as of
the Pricing Date. For purposes of the preceding sentence, the "Pricing Date"
shall be the date on which the Option is granted.
2.3. Exercise. An Option shall be exercisable in accordance with such terms
and conditions and during such periods as may be established by the Committee.
2.4 Payment of Option Exercise Price. The payment of the Exercise Price of
an Option granted under this Section 2 shall be subject to the following:
1
<PAGE>
(a) Subject to the following provisions of this subsection 2.4, the
full Exercise Price for shares of Stock purchased upon the exercise of any
Option shall be paid at the time of such exercise (except that, in the case
of an exercise arrangement approved by the Committee and described in
subsection 2.4(c), payment may be made as soon as practicable after the
exercise).
(b) The Exercise Price shall be payable in cash or by tendering shares
of Stock (by either actual delivery of shares or by attestation, with such
shares valued at Fair Market Value as of the day of exercise), or in any
combination thereof, as determined by the Committee.
(c) The Committee may permit a Participant to elect to pay the
Exercise Price upon the exercise of an Option by authorizing a third party
to sell shares of Stock (or a sufficient portion of the shares) acquired
upon exercise of the Option and remit to the Company a sufficient portion
of the sale proceeds to pay the entire Exercise Price and any tax
withholding resulting from such exercise.
2.5. Expiration Date. The "Expiration Date" with respect to an Option means
the date established as the Expiration Date by the Committee at the time of the
grant; provided, however, that the Expiration Date with respect to any Option
shall not be later than the earliest to occur of:
(a) the tenth anniversary of the date on which the Option is granted;
(b) if the Participant is an Eligible Employee and the Participant's
Date of Termination occurs by reason of death or Disability, the first
anniversary of such Date of Termination;
(c) if the Participant is an Eligible Employee and the Participant's
Date of Termination occurs by reason of Retirement, the second anniversary
of such Date of Termination;
(d) if the Participant is an Eligible Employee and the Participant's
Date of Termination occurs for reasons other than Retirement, death or
Disability, the 90-day anniversary of such Date of Termination; or
(e) if the Participant is an Eligible Director, the third anniversary
of the Participant's Date of Termination.
Notwithstanding the foregoing provisions of this subsection 2.5, if the
Participant dies while the Option is otherwise exercisable, the Expiration Date
may be later than the dates set forth above, provided that it is not later than
the first anniversary of the date of death.
2.6. Settlement of Award. The distribution following exercise of an Option
of shares of Stock, shall be subject to such conditions, restrictions and
contingencies as the Committee may establish. The Committee, in its discretion,
may impose such conditions, restrictions and contingencies with respect to
shares of Stock acquired pursuant to the exercise of an Option as the Committee
determines to be desirable.
SECTION 3
--------
OTHER STOCK AWARDS
------------------
3.1. Definition. A Stock Award is a grant of shares of Stock or of a right
to receive shares of Stock (or their cash equivalent or a combination of both)
in the future.
3.2. Restrictions on Stock Awards. Each Stock Award shall be subject to
such conditions, restrictions and contingencies as the Committee shall
determine. These may include continuous service and/or the achievement of
performance measures. The Committee may designate a single goal criterion or
multiple goal criteria for performance measurement purposes, with the
measurement based on absolute Company or business unit performance and/or on
performance as compared with that of other
2
<PAGE>
publicly-traded companies. The performance measures for such awards may include:
stock price, total shareholder return, earnings, earnings per share, return on
equity, and return on assets. The Committee may define the performance measures,
including, without limitation, defining such performance measures to exclude
non-recurring or extraordinary terms or events.
SECTION 4
---------
OPERATION AND ADMINISTRATION
----------------------------
4.1. Effective Date. The Plan shall be effective as of the date it is
approved by the Company's shareholders (the "Effective Date"). The Plan shall be
unlimited in duration and, in the event of Plan termination, shall remain in
effect as long as any Awards under it are outstanding; provided, however, that,
to the extent required by the Code, no Incentive Stock Options may be granted
under the Plan on a date that is more than ten years from the date the Plan is
adopted or, if earlier, the date the Plan is approved by shareholders.
4.2. Shares Subject to Plan.
(a) (i) Subject to the following provisions of this subsection 4.2,
the maximum number shares of Stock that may be delivered to
Participants and their beneficiaries under the Plan shall be
1,750,000 shares of Stock.
(ii) Any shares of Stock granted under the Plan that are forfeited
because of the failure to meet an Award contingency or condition shall
again be available for delivery pursuant to new Awards granted under
the Plan. To the extent any shares of Stock covered by an Award are
not delivered to a Participant or beneficiary because the Award is
forfeited or canceled, such shares shall not be deemed to have been
delivered for purposes of determining the maximum number of shares of
Stock available for delivery under the Plan.
(b) Subject to subsection 4.2(c), the following additional maximums
are imposed under the Plan.
(i) The maximum number of shares of Stock that may be issued by
Options intended to be Incentive Stock Options shall be 500,000
shares.
(ii) The maximum number of shares that may be covered by Awards
granted to any one individual pursuant to Section 2 (relating to
Options) shall be 500,000 shares in any one calendar year.
(iii) The maximum payment that can be made for awards granted to
any one individual pursuant to Section 3 (relating to Stock Awards)
shall be $5,000,000. If an Award granted under Section 3 is, at the
time of grant, denominated in shares, the value of the shares of Stock
for determining this maximum individual payment amount will be the
Fair Market Value of a share of Stock on the date of grant multiplied
by the number of shares granted.
(c) In the event of a corporate transaction involving the Company
(including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares), the
Committee may adjust Awards to preserve the benefits or potential benefits
of the Awards. Action by the Committee may include adjustment of: (i) the
number and kind of shares which may be delivered under the Plan; (ii) the
number and kind of shares subject to outstanding Awards; and (iii) the
Exercise Price of outstanding Options; as well as any other adjustments
that the Committee determines to be equitable.
3
<PAGE>
4.3. Acceleration on Change of Control. Subject to the provisions of
subsection 4.2(c) (relating to the adjustment of shares), and except as
otherwise provided in the Plan or the Agreement reflecting the applicable Award,
upon the occurrence of a Change of Control:
(a) All outstanding Options shall become fully exercisable.
(b) All Stock Awards shall become fully vested.
4.4. Limit on Distribution. Distribution of shares of Stock or other
amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall
have no liability to deliver any shares of Stock under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933), and the
applicable requirements of any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock
certificates to reflect the issuance of shares of Stock, the issuance may
be effected on a noncertificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.
4.5. Tax Withholding. Whenever the Company proposes or is required to
distribute Stock under the Plan, the Company may require the recipient to remit
to the Company an amount sufficient to satisfy any Federal, state and local tax
withholding requirements prior to the delivery of any certificate for such
shares or, in the discretion of the Committee, the Company may withhold from the
shares to be delivered shares sufficient to satisfy all or a portion of such tax
withholding requirements. Whenever under the Plan payments are to be made in
cash, such payments may be net of an amount sufficient to satisfy any Federal,
state and local tax withholding requirements.
4.6. Payment Shares. Subject to the overall limitation on the number of
shares of Stock that may be delivered under the Plan, the Committee may use
available shares of Stock as the form of payment for compensation, grants or
rights earned or due under any other compensation plans or arrangements of the
Company or a Related Company, including the plans and arrangements of the
Company or a Related Company acquiring another entity (or an interest in another
entity).
4.7. Dividends and Dividend Equivalents. An Award may provide the
Participant with the right to receive dividends or dividend equivalent payments
with respect to Stock which may be either paid currently or credited to an
account for the Participant, and may be settled in cash or Stock as determined
by the Committee. Any such settlements, and any such crediting of dividends or
dividend equivalents or reinvestment in shares of Stock, may be subject to such
conditions, restrictions and contingencies as the Committee shall establish,
including the reinvestment of such credited amounts in Stock equivalents.
4.8. Transferability. Except as otherwise provided by the Committee or in
the Agreement reflecting the applicable Award, Awards under the Plan are not
transferable except as designated by the Participant by will or by the laws of
descent and distribution.
4.9. Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
4.10. Agreement With Company. At the time of an Award to a Participant
under the Plan, the Committee may require a Participant to enter into an
agreement with the Company (the "Agreement") in a form specified by the
Committee, agreeing to the terms and conditions of the Plan and to such
additional
4
<PAGE>
terms and conditions, not inconsistent with the Plan, as the Committee may, in
its sole discretion, determine.
4.11. Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of the
Plan, acquire any right in or title to any assets, funds or property of the
Company or any Related Company whatsoever, including, without limitation,
any specific funds, assets, or other property which the Company or any
Related Company, in their sole discretion, may set aside in anticipation of
a liability under the Plan. A Participant shall have only a contractual
right to the stock or amounts, if any, payable under the Plan, unsecured by
any assets of the Company or any Related Company. Nothing contained in the
Plan shall constitute a guarantee that the assets of such companies shall
be sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and
selection as a Participant will not give any employee the right to be
retained in the employ of the Company or any Related Company, nor any right
or claim to any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan. Selection as a
Participant will not give any director the right to be retained or
nominated as a director of the Company or any Related Company. Except as
otherwise provided in the Plan, no Award under the Plan shall confer upon
the holder thereof any right as a shareholder of the Company prior to the
date on which the individual fulfills all conditions for receipt of such
rights.
4.12. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
4.13. Action by Company or Related Company. Any action required or
permitted to be taken by the Company or any Related Company shall be by
resolution of its board of directors, or by action of one or more members of the
board (including a committee of the board) who are duly authorized to act for
the board, or (except to the extent prohibited by applicable law or applicable
rules of any stock exchange) by a duly authorized officer of the Company.
4.14. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
SECTION 5
---------
COMMITTEE
---------
5.1. Selection of Committee. The Committee shall be selected by the Board,
and shall consist of two or more members of the Board.
5.2. Powers of Committee. The authority to manage and control the operation
and administration of the Plan shall be vested in the Committee, subject to
subsection 5.5 hereof and to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select from among the Eligible Employees and
the Eligible Directors those persons who shall receive Awards, to determine
the time or times of receipt, to determine the types of Awards and the
number of shares covered by the Awards, to establish the terms, conditions,
performance criteria, restrictions, and other provisions of such Awards,
and (subject to the restrictions imposed by Section 6) to cancel or suspend
Awards. In making such Award determinations, the Committee may take into
account the nature of services rendered by the individual, the individual's
present and potential contribution to the Company's success and such other
factors as the Committee deems relevant.
5
<PAGE>
(b) Subject to the provisions of the Plan, the Committee will have
the authority and discretion to determine the extent to which Awards under
the Plan will be structured to conform to the requirements applicable to
performance-based compensation as described in Code section 162(m), and to
take such action, establish such procedures, and impose such restrictions
at the time such Awards are granted as the Committee determines to be
necessary or appropriate to conform to such requirements.
(c) The Committee will have the authority and discretion to
establish terms and conditions of Awards as the Committee determines to be
necessary or appropriate to conform to applicable requirements or practices
of jurisdictions outside of the United States.
(d) The Committee will have the authority and discretion to
interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan, to determine the terms and provisions of
any agreements made pursuant to the Plan, and to make all other
determinations that may be necessary or advisable for the administration of
the Plan.
(e) Any interpretation of the Plan by the Committee and any
decision made by it under the Plan is final and binding.
(f) In controlling and managing the operation and administration
of the Plan, the Committee shall act by a majority of its then members, by
meeting or by writing filed without a meeting. The Committee shall maintain
and keep adequate records concerning the Plan and concerning its
proceedings and acts in such form and detail as the Committee may decide.
5.3. Delegation by Committee. Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it. Any such allocation or
delegation may be revoked by the Committee at any time.
5.4. Information to be Furnished to Committee. The Company and Related
Companies shall furnish the Committee with such data and information as may be
required for it to discharge its duties. The records of the Company and Related
Companies as to an employee's or Participant's employment, termination of
employment, leave of absence, reemployment and compensation shall be conclusive
on all persons unless determined to be incorrect. Participants and other
persons entitled to benefits under the Plan must furnish the Committee such
evidence, data or information as the Committee considers desirable to carry out
the terms of the Plan.
5.5. Board Administration. The Board shall have the authority to exercise
all of the powers of the Committee under the Plan (i) prior to the establishment
of the Committee, (ii) at such other times as the Board determines, and (iii)
with respect to any Award to an Eligible Director. The determination by the
Board to make an Award to an Eligible Director shall not limit the authority of
the Committee to also make Awards to Eligible Directors.
SECTION 6
---------
AMENDMENT AND TERMINATION
-------------------------
The Board may, at any time, amend or terminate the Plan; provided, however, that
(a) subject to subsection 4.2(c) (relating to the adjustments of
shares), no amendment or termination may, in the absence of written consent
to the change by the affected Participant (or, if the Participant is not
then living, the affected beneficiary), adversely affect the rights of any
Participant or beneficiary under any Award granted under the Plan prior to
the date such amendment is adopted by the Board; and
6
<PAGE>
(b) without further approval of the shareholders of the Company,
no amendment shall materially increase the number of shares of Stock which
may be delivered pursuant to Awards hereunder, except for increases
resulting from subsection 4.2(c) (relating to the adjustment of shares).
SECTION 7
---------
DEFINED TERMS
-------------
For purposes of the Plan, the terms listed below shall be defined as follows:
(a) Award. The term "Award" shall mean any award or benefit
granted to any Participant under the Plan, including, without limitation,
the grant of Options and Stock Awards.
(b) Board. The term "Board" shall mean the Board of Directors of
the Company.
(c) Change of Control. The term "Change of Control" shall mean any
of the following events:
(1) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then constituting the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of: (A) an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other
than the Board, or (B) a Control Acquisition (as defined below); or
(2) consummation of a reorganization, merger, statutory share
exchange, or consolidation or sale or other disposition of all or
substantially all of the assets of the Company for which approval of
the shareholders of the Company is required (a "Business
Combination"), in each case, unless, immediately following such
Business Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") and the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities") immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be,
(B) no individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended) (excluding any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more
of, respectively, the then outstanding Common Stock of the Corporation
resulting from such Business Combination or the combined voting power
of the then outstanding voting securities of such corporation
7
<PAGE>
except to the extent that such ownership existed prior to the Business
Combination, and (C) at least a majority of the members of the Board
of Directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(3) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(d) Control Acquisition. A "Control Acquisition" means the
acquisition by an individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or
more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Control Acquisition: (i) any
acquisition directly from the Company (including, without limitation, any
acquisition through an underwritten public offering of the Company's
securities by the Company), (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company,
(iv) any acquisition by ShopKo Stores, Inc., a Wisconsin corporation
("ShopKo"), or any corporation controlled by ShopKo, or any employee
benefit plan (or related trust) sponsored or maintained by ShopKo or any
corporation controlled by ShopKo, (v) any acquisition pursuant to a public
distribution of the Company's securities as a dividend to ShopKo's
shareholders, or (vi) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of Section 2(b)
below.
(e) Code. The term "Code" means the Internal Revenue Code of 1986,
as amended. A reference to any provision of the Code shall include
reference to any successor provision of the Code.
(f) Date of Termination.
(1) With respect to a Participant who is an Eligible Employee,
the Participant's "Date of Termination" shall be the first day
occurring on or after the Agreement Date on which the Participant's
employment with the Company and all Related Companies terminates for
any reason; provided that a termination of employment shall not be
deemed to occur by reason of a transfer of the Participant between the
Company and a Related Company or between two Related Companies; and
further provided that the Participant's employment shall not be
considered terminated while the Participant is on a leave of absence
from the Company or a Related Company approved by the Participant's
employer. If, as a result of a sale or other transaction, the
Participant's employer ceases to be a Related Company (and the
Participant's employer is or becomes an entity that is separate from
the Company), the occurrence of such transaction shall be treated as
the Participant's Date of Termination caused by the Participant being
discharged by the employer.
(2) With respect to a Participant who is an Eligible Director,
the Participant's "Date of Termination" shall be the first day
occurring on or after the Agreement Date on which the Participant
ceases to be a director of any of the Company and any Related
Companies for any reason.
8
<PAGE>
(g) Disability. Except as otherwise provided by the Committee, the
Participant shall be considered to have a "Disability" during the period in
which the Participant is unable, by reason of a medically determinable
physical or mental impairment, to engage in any substantial gainful
activity, which condition, in the opinion of a physician selected by the
Committee, is expected to have a duration of not less than 120 days.
(h) Eligible Director. The term "Eligible Director" shall mean any
director (or person holding authority comparable to that of a director for
business entities which do not have directors) of the Company or a Related
Company who is not an employee of the Company or a Related Company.
(i) Eligible Employee. The term "Eligible Employee" shall mean
any employee of the Company or a Related Company.
(j) Fair Market Value. For purposes of determining the "Fair
Market Value" of a share of Stock, the following rules shall apply:
(i) If the Stock is at the time listed or admitted to trading
on any stock exchange or in the over-the-counter market, then the
"Fair Market Value" shall be the last reported sale price of the Stock
on the date in question on the principal exchange on which the Stock
is then listed or admitted to trading or in the over-the-counter
market, as the case may be. If no reported sale of Stock takes place
on the date in question, then the most recent reported sale of the
Stock shall be determinative of "Fair Market Value."
(ii) If the Stock is not listed or admitted to trading on any
stock exchange or traded in the over-the-counter market, the "Fair
Market Value" shall be as determined in good faith by the Committee.
(k) Related Companies. The term "Related Company" means:
(i) any corporation, joint venture, limited liability company,
or other business entity in which the Company has a significant
direct or indirect equity interest, or
(ii) any corporation, joint venture, limited liability
company, or other business entity which owns a significant direct or
indirect equity interest in the Company, as determined by the
Committee in its sole discretion.
(l) Retirement. "Retirement" of the Participant shall mean the
occurrence of the Participant's Date of Termination after age 55 with ten
(10) or more years of service with the Company or a Related Company, or as
otherwise expressly approved by the Committee.
(m) Stock. The term "Stock" shall mean shares of common stock of the
Company.
_________________________
Adopted: _________ __, 1999.
9
<PAGE>
Exhibit 10.11
PRESCRIPTION BENEFIT MANAGEMENT AGREEMENT
THIS PRESCRIPTION BENEFIT MANAGEMENT AGREEMENT ("Agreement") is made by and
between PROVANTAGE PRESCRIPTION BENEFIT MANAGEMENT SERVICES, INC., a Minnesota
Corporation with its principal place of business at 700 Pilgrim Way, Green Bay,
Wisconsin 54313, hereinafter referred to as "PROVANTAGE", and SHOPKO STORES,
INC. a MINNESOTA corporation hereinafter referred to as the "Plan Sponsor".
WHEREAS, the Plan Sponsor has adopted a prescription drug program (the
"Plan") for its eligible employees and their eligible dependents (the
"Participants"), a description of which will be completed by the Plan Sponsor
prior to the effective date of this Agreement and shall be attached hereto and
incorporated herein (the "Plan Parameters");
WHEREAS, PROVANTAGE is a prescription benefit manager, and maintains a
computerized claims processing system, a prescription drug mail service, and a
network of retail pharmacies (the "Participating Pharmacies") who have agreed to
provide prescription services for PROVANTAGE's clients; and
WHEREAS, PROVANTAGE has agreed to provide prescription benefit management
services to Plan Sponsor upon the terms and conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Plan Sponsor and PROVANTAGE agree
as follows:
I. PRESCRIPTION CLAIMS PROCESSING SERVICE
-----------------------------------------
The terms and conditions set forth in this Section I shall apply only if
the Prescription Claims Processing Service option is selected by Plan Sponsor.
Plan Sponsor's election of the Prescription Claims Processing Service option
must be indicated by checking the appropriate box on the Plan Sponsor Data Sheet
attached to this Agreement as Exhibit A (hereafter, the "Data Sheet").
1. APPOINTMENT. The Plan Sponsor hereby appoints PROVANTAGE as its exclusive
Prescription Claims Processor, and PROVANTAGE hereby accepts such appointment.
2. AUTHORITY. PROVANTAGE hereby agrees to perform all of the following services,
and the Plan Sponsor hereby grants PROVANTAGE the authority and empowers
PROVANTAGE to perform such services:
A. To issue identification cards for all Participants entitled to receive
prescription drug benefits as directed by the Plan Sponsor;
B. To process all claims received from Participating Pharmacies and/or eligible
Participant in accordance with the Plan Parameters;
C. To reject or otherwise deny claims which are incomplete, ineligible, outside
the dates specified by this Agreement or invalid for any other reason;
D. To issue checks to Participating Pharmacies for the payment of claims;
E. To issue checks directly to the Plan Sponsor's Participants for covered items
if they are unable to have a Participating Pharmacy submit the claims on
their behalf;
F. To audit Participating Pharmacies as deemed necessary or appropriate by
PROVANTAGE for compliance with the specific Plan parameters as well as for
fraudulent or incorrectly submitted claims;
G. To generate reports for the Plan Sponsor, Participating Pharmacies and for
PROVANTAGE's own uses;
H. To maintain hard copy and/or computerized records of all transactions
completed on behalf of the Plan Sponsor;
I. To adjust the amount paid on a submitted claim so that it accurately
reflects:
i. The correct ingredient cost at the time the benefit was received as
determined by First Data Bank current drug pricing database.
ii. The correct dispensing fee, if any.
iii. The correct sales tax, if any, for the State in which the benefit was
rendered.
iv. The correct deductible, if any, that should have been collected.
v. To provide such other services as may be indicated on the Data Sheet.
3. IDENTIFICATION CARDS. PROVANTAGE will issue identification cards for eligible
Plan members containing the following information (all asterisked information to
be provided by Plan Sponsor):
A PLAN SPONSOR'S NAME*
B. PARTICIPANT'S NAME*
C. PARTICIPANT'S IDENTIFICATION NUMBER*
D. GROUP NUMBER
E. SPECIAL NOTES PERTAINING TO THE PLAN (IF APPLICABLE)
1
<PAGE>
These cards remain the property of PROVANTAGE and must be surrendered upon
request. Each single Participant will be issued one card. Each Participant that
has dependent coverage will be issued two cards. If a card is lost or stolen,
PROVANTAGE will issue a replacement card and invalidate the lost or stolen card.
4. PAYMENT OF CLAIMS. The Plan Sponsor assumes all financial responsibility for
all claims submitted to PROVANTAGE, whether by Participating Pharmacies or
Participants. PROVANTAGE will issue checks to a Participating Pharmacy or
Participant only after the funds have been transferred from the Plan Sponsor to
PROVANTAGE. Payments to Participating Pharmacies shall be made by PROVANTAGE in
accordance with the terms of separate agreements between PROVANTAGE and the
Participating Pharmacies. The Plan Sponsor further acknowledges the right of any
Participating Pharmacy to proceed directly against the Plan Sponsor to collect
any legitimate claim which the Plan Sponsor has failed to pay to the
Participating Pharmacy through PROVANTAGE. This is a waiver of any claim of lack
of privity of contract between the Plan Sponsor and the Participating Pharmacy.
The Plan Sponsor shall transfer funds for the payment of prescription drug
claims under the Plan to PROVANTAGE pursuant to the banking arrangement between
the parties as specified in this Agreement. PROVANTAGE shall be responsible for
properly applying all funds transferred by the Plan Sponsor to PROVANTAGE for
the payment of prescription drug claims under the Plan.
5. DRUG COST CALCULATION. Drug cost calculations made by PROVANTAGE hereunder
shall be based upon prescription drug pricing information and clinical databases
supplied by First Data Bank, or any other nationally recognized database
selected by PROVANTAGE.
6. DRUG UTILIZATION REVIEW (DUR). PROVANTAGE shall, as part of the electronic
claim adjudication process, perform Drug Utilization Review (DUR). DUR includes
electronic drug interaction screening and the provision of other informational
messages to Participating Pharmacies. The information generated and provided in
connection with DUR is intended as a supplement to, and not a substitute for,
the knowledge, expertise, skill, and judgment of physicians, pharmacists and
other health care providers. Such providers are individually responsible for
acting or not acting upon the information provided through PROVANTAGE's DUR
Program, and for performing services in each jurisdiction consistent with the
scope of their professional licenses. PROVANTAGE disclaims all responsibility
for any and all actions or interventions, taken or not taken as a result of
PROVANTAGE's DUR services. Plan Sponsor acknowledges that PROVANTAGE may not
have all the relevant information necessary for the purposes of providing DUR
Information, including, but not limited to, patient diagnoses, utilization of
drugs obtained without using PROVANTAGE's Claims Processing System or not
included in the patients active profile, patient's medical history, and any
other idiosyncrasies of a patient. PROVANTAGE shall have no obligation to
acquire information concerning any patient where sufficient information is at
any time unavailable to enable PROVANTAGE's DUR Program to determine whether or
not intervention is indicated.
7. REPORTS AND STATEMENTS. PROVANTAGE shall provide the Plan Sponsor with a
detailed report on all claims paid or rejected on its behalf. PROVANTAGE shall
provide all Participating Pharmacies which submit claims for payment with a
remittance report.
8. AUDIT. PROVANTAGE will perform audits of Participants' claims or
Participating Pharmacies at its own discretion to ensure the integrity and
validity of the claims it receives and processes on behalf of the Plan Sponsor.
The Plan Sponsor may also request an audit of a specific claim or Participating
Pharmacy, to be conducted at Plan Sponsor's expense. if PROVANTAGE finds grounds
for denying or charging back any claims the Plan Sponsor will be notified.
PROVANTAGE's own books and files will be available for the Plan Sponsor's
inspection during regular business hours. However, the Plan Sponsor may only
inspect PROVANTAGE's books and files as they pertain to the specific Plan
Sponsor.
9. COMPENSATION. Plan Sponsor agrees to pay to PROVANTAGE such compensation as
indicated on the Data Sheet. PROVANTAGE will provide an itemized semi-monthly
bill for its services. PROVANTAGE shall have the right after the initial term of
this Agreement to change the level of compensation PROVANTAGE receives for its
services upon sixty (60) days written notice to the Plan Sponsor. The Plan
Sponsor may object to any increase in such compensation by giving written notice
to PROVANTAGE at least thirty (30) days prior to the expiration of the sixty
(60) day period. In the event the parties cannot agree on an appropriate level
of compensation, this Agreement shall terminate at the end of the sixty (60) day
period.
10. BILLING CYCLE AND PAYMENTS. PROVANTAGE will bill the Plan Sponsor or its
billing designee, as indicated on the Data Sheet, on a semi-monthly basis in
order that claims submitted to PROVANTAGE will be paid in a timely manner. The
first billing statement of every month will contain a list of all claims
submitted between the first (1st) and the fifteenth (15th) of the month and
approved for payment to the Participating Pharmacies as well as PROVANTAGE's
claims processing charges. The end of the month billing will contain all claims
submitted and processed between the sixteenth (16th) and the last day of the
month and approved for payment, as well as PROVANTAGE's claims processing fee,
and the monthly maintenance fees. Any credits due the Plan Sponsor from the
Participating Pharmacies will be credited on the next billing statement
following receipt of the credit by PROVANTAGE.
2
<PAGE>
Bills will be generated and mailed on or after the 16th of the month and payment
is due on or before the twenty second (22nd) of the month for the first monthly
billing period. Bills will be mailed on or after the first of the month
following for the second billing period and payment is due on or before the
seventh (7th) of the month following the second billing period. In the event
payment is deemed late the funds will be transferred from the Claim Funding
Account if established, together with an administrative charge for this
transfer. In the event the Plan Sponsor does not have a Claim Funding Account or
has insufficient funds in the Claim Funding Account to cover the amount of the
invoice, payments deemed late shall be subject to interest at the rate of one
half of one percent per semi-monthly billing period (twelve percent (12%) per
annum) for payments more than thirty (30) days past due (or the maximum portion
thereof allowed by law).
11. CLAIM FUNDING DEPOSIT. The Plan Sponsor may be required to provide
PROVANTAGE with a claim funding deposit in the initial amount and on the terms
indicated on the Data Sheet. This deposit will be placed in a savings Account at
a reputable financial institution, in the name of the Plan Sponsor. The Plan
Sponsor agrees to appoint PROVANTAGE, its officers and agents the sole fiduciary
agents for this account. The Plan Sponsor will be responsible for the reporting
of any interest earned as income to the appropriate state and federal agencies.
The Plan Sponsor will be responsible for any service charges associated with
this account. In the event payment for claims and administrative fees payable
hereunder are not received by the due date indicated on the billing invoice,
PROVANTAGE at Its option, may withdraw the funds necessary from this account to
pay claims and twenty dollar ($20.00) per withdrawal administrative fee. The
Plan Sponsor shall immediately replace any funds transferred out of the Claim
Funding Account. The required amount of the claim funding deposit may be
adjusted during the term of this Agreement to provide PROVANTAGE with sufficient
funds to cover the estimated claims and claim processing fees for two
semi-monthly billing periods. The deposit will be held in the account for the
term of this Agreement and for 120 days thereafter. At the end of such period,
the full amount of the claim funding deposit account, less any outstanding
charges owed to PROVANTAGE or the Participating Pharmacies, will be refunded to
the Plan Sponsor.
12. OPTIONAL PROGRAMS. The Plan Sponsor may participate in any one or more of
PROVANTAGE's Optional Programs, as described in the Plan Parameters. Election
must be indicated on the Data Sheet.
II. PRESCRIPTION DRUG MAIL SERVICE
----------------------------------
The terms and conditions set forth in this Section 11 shall apply only if the
Prescription Drug Mail Service option is selected by Plan Sponsor. Plan
Sponsor's election of the Prescription Drug Mad Service must be indicated by
checking, the appropriate box on the Data Sheet.
13. APPOINTMENT. The Plan Sponsor hereby appoints PROVANTAGE as its exclusive
Prescription Drug Mail Service provider, and PROVANTAGE hereby accepts such
appointment.
14. AUTHORITY. PROVANTAGE hereby agrees to perform all of the following
services, and Plan Sponsor hereby grants PROVANTAGE the authority and empowers
PROVANTAGE to perform such services:
A. To provide and dispense all prescribed legend drugs, (collectively
referred to herein as "Pharmaceuticals"), as set forth in the Plan
Parameters, subject to availability. Such Pharmaceuticals shall be
supplied in the amounts prescribed, or as indicated in the Plan
Parameters.
B. To label and package the Pharmaceuticals as required by applicable State
and Federal Laws and Regulations and as is consistent with industry
practices and procedures.
C. To provide prepaid delivery of Pharmaceuticals to Participants'
residences by U.S. Mail, UPS or an overnight service in accordance with
applicable regulations and industry practices and procedures.
D. To provide, at PROVANTAGE's expense, toll free telephone lines, computer
services, informational brochures and similar administrative services as
PROVANTAGE shall determine to be appropriate for the provision of the
Prescription Drug Mail Services described herein.
15. TIMELINESS OF MAIL SERVICE. PROVANTAGE shall use reasonable efforts to
dispense Pharmaceuticals within two (2) business days after PROVANTAGE's receipt
of an acceptable prescription. Plan Sponsor acknowledges that PROVANTAGE shall
not be responsible for causes and circumstances beyond the reasonable control of
PROVANTAGE and that PROVANTAGE shall have no liability to Plan Sponsor or its
Participants as a result of any delay in preparation or delivery of
Pharmaceuticals. PROVANTAGE shall have no obligation to provide Pharmaceuticals
to any Participant until PROVANTAGE receives from such Participant any
applicable copayment charges.
16. PRESCRIPTIONS. PROVANTAGE assumes no liability or responsibility for the
accuracy, efficacy or timely receipt of prescriptions, orders or other
directions by physicians to supply Pharmaceuticals to Participants. PROVANTAGE
reserves the right to refuse to fill any prescription that professional judgment
dictates should not be dispensed.
3
<PAGE>
17. BILLING AND PAYMENT. With respect to each prescription filled by PROVANTAGE,
Plan Sponsor shall pay PROVANTAGE the charges set forth in the Data Sheet
attached hereto plus any applicable state or federal sales or use taxes.
Whenever possible, and subject to State guidelines, PROVANTAGE agrees to
dispense the generic drug or the lowest cost item in stock unless the
prescribing physician orders otherwise.
If mail service is selected without a retail program PROVANTAGE shall bill Plan
Sponsor on a monthly basis. In the event a Participant submits to PROVANTAGE a
copayment in an insufficient amount, and PROVANTAGE is unable to collect the
correct copayment amount from the Participant, then PROVANTAGE reserves the
right to invoice Plan Sponsor for the amount of the uncollected copayment(s).
All payments shall be made to PROVANTAGE within fourteen (14) calendar days
after Plan Sponsors receipt of such invoice. Late payments will be subject to
interest at the rate of eighteen percent (18%) per annum. In the event a retail
and mail service program is selected, PROVANTAGE shall bill the Plan Sponsor as
indicated in section 10 of this Agreement.
18. MAINTENANCE OF RECORDS. PROVANTAGE shall maintain such records with regard
to Prescription Drug Mail Services provided hereunder as it shall determine to
be necessary and appropriate under the circumstances and as may be required
under applicable laws, rules and regulations. PROVANTAGE shall have no
responsibility for the maintenance of any records by or which are the obligation
of the Plan Sponsor. Records kept by PROVANTAGE with respect to Plan Sponsor's
Participants may be reviewed by Plan Sponsor during regular business hours, at
Plan Sponsor's expense provided, however, that no such review shall relate to
records for prescriptions dispensed more than two (2) years prior to the date
such review is requested.
PROVANTAGE shall furnish to Plan Sponsor a monthly report reflecting the
Pharmaceuticals dispensed pursuant to this Agreement, the details of which the
Plan Sponsor agrees to treat as confidential under applicable Federal and State
guidelines.
III. GENERAL TERMS AND CONDITIONS
The terms and conditions set forth in this Section III shall apply in all
instances regardless of whether the Plan Sponsor elects the Prescription Claims
Processing Service option or the Prescription Mail Service option, or both.
19. APPLICABLE PLAN. Plan Sponsor authorizes PROVANTAGE to fill prescriptions
and pay Participating Pharmacies or Participants in accordance with this
Agreement, including the Plan Parameters and the Data Sheet. The Plan Parameters
are expressly incorporated into this Agreement and must be completed prior to
PROVANTAGE's providing any services hereunder. The Plan shall be in effect for
the term of this agreement unless modified by the Plan Sponsor. The Plan Sponsor
may elect to amend the Plan, with sufficient written notice to PROVANTAGE.
20. TERM OF AGREEMENT. Subject to the terms and conditions of the following
paragraph, the initial term and commencement date of this Agreement shall be as
indicated on the Data Sheet. At the end of the initial term, and on each
anniversary thereafter, the term of this Agreement shall automatically renew for
successive one (1) year terms, unless either party gives written notice to the
other of such party's intent to terminate this Agreement at the end of the
then-current term, which notice shall be given at least ninety (90) days prior
to the end of the then-current term.
21. TERMINATION. If the Plan Sponsor or its designee fails to make any of the
payments referred to in this Agreement or breaches any of the terms and
provisions of this Agreement or if the Plan Sponsor shall make an assignment for
the benefit of creditors, file a petition of bankruptcy, is adjudicated
insolvent or bankrupt, has a receiver or trustee appointed for a substantial
part of its property, or has a proceeding commenced against it which will
substantially impair its ability to perform hereunder, then, in any such event,
this Agreement may be terminated immediately at the option of PROVANTAGE upon
written notice to Plan Sponsor. PROVANTAGE shall have the right to advise
Participating Pharmacies that effective on the termination date, the Plan
Sponsor's Participants are not eligible to receive benefits under the Plan. If a
Participating Pharmacy or a Participant requests information regarding the
denial of benefits, they may be advised that the Plan Sponsor has terminated the
program. The post-termination fees indicated on the Data Sheet will apply. The
termination of this Agreement by PROVANTAGE does not affect any liabilities of
the Plan Sponsor for the payments and charges due PROVANTAGE or its
Participating Pharmacies. These rights shall be in addition to all other rights
and remedies of PROVANTAGE as allowed by law or equity.
Either party shall have the right to terminate this Agreement effective as of
the date written notice of such termination is received by the other party in
the event that a law or regulation becomes effective after the date of this
Agreement which would render the services provided by PROVANTAGE under this
Agreement in violation of such law or regulation.
The Plan Sponsor remains responsible for the payment of all claims (and
associated administrative charges described herein) with a date of service prior
to the effective date of termination, which are received by PROVANTAGE within
NINETY (90) days after the effective date of such termination.
22. RELATIONSHIP BETWEEN PARTIES. Nothing in this Agreement shall be construed
to constitute either party a partner, joint venturer, employee or agent of the
other, nor shall either party have authority to bind the other in any respect,
it being intended that each shall remain an independent contractor solely
responsible for its own actions. No employee or agent of one
4
<PAGE>
party hereto shall be considered an employee or agent of the other party hereto.
The Participating Pharmacies which provide services to the Participants shall
also do so as independent contractors.
23. LIST OF ELIGIBLE PARTICIPANTS. Upon execution of this Agreement, Plan
Sponsor will provide PROVANTAGE with a list of all eligible Participants. The
Plan Sponsor is responsible for providing PROVANTAGE with any changes
(additions, deletions and/or terminations) in writing as rapidly as possible
after they occur. In the event of a Participant's termination, the applicable
monthly fee will be assessed and the Participant(s) and their dependents will be
considered eligible for up to one full business day after notification has been
received by PROVANTAGE. Until such time, the Plan Sponsor will be responsible
for all liabilities incurred by the terminated Participant(s) and their
dependents. The Plan Sponsor shall hold PROVANTAGE harmless and without
liability for any errors or omissions, or any related problems that may result
from the Plan Sponsor's failure to provide an accurate, updated listing of
eligible Participants.
24. INDEMNIFICATION AND LIMITATION OF LIABILITY.
A. Each party agrees to indemnify and hold harmless the other party and
its directors, officers and employees (acting in the scope and course of their
employment and not as Plan Participants) against all claims, lawsuits,
settlements, judgments, costs, penalties and expenses, including aftorney's
fees, with respect to this Agreement and the acts of the indemnifying party or
its employees, acting alone or in collusion with others, to the extent it is
determined that the indemnified party's liability therefore was the direct
consequence of gross negligence, criminal conduct or fraud on the part of the
indemnifying party's directors, officers or employees.
B. The Plan Sponsor acknowledges that the Participating Pharmacies have
been chosen by PROVANTAGE solely based upon their willingness to provide
pharmacy services to the Plan Participants. PROVANTAGE has not performed any
investigation or review of any Participating Pharmacy's operations, and shall
not be responsible in any manner for any claim, loss or damage sustained as a
result of the provision of, or failure to provide, pharmaceutical goods or
services or any other action or failure to act by any Participating Pharmacy.
C. In no event shall either party be liable to the other for incidental,
consequential or exemplary damages.
D. PROVANTAGE relies upon outside data bases and software provided by
other vendors to provide information used by PROVANTAGE for drug pricing and in
its DUR program. PROVANTAGE's performance is limited by the information sought
and received by and from these vendors. PROVANTAGE will attempt to update these
data bases on a reasonable basis to reflect changes in the standards of
pharmaceutical prescribing; however, no data bases will contain all currently
available information. In most cases the vendors of such software and data bases
limit or exclude warranties regarding the information provided to PROVANTAGE for
use in its DUR and other programs. Such limitations and exclusions are
incorporated herein by this reference. PROVANTAGE's DUR program is dependent
upon the accurate transmission and processing of data by electronic means. Plan
Sponsor agrees to hold PROVANTAGE harmless from any liability for any
intervention or nonintervention resulting from any interruption in the
electronic processing regardless of the reason for said interruption. Because of
the large number of computer systems and software in use by providers,
PROVANTAGE cannot and does not guarantee that all providers are technically
capable of receiving DUR information. PROVANTAGE disclaims all express and
implied warranties of any kind, including but not limited to, any warranty as to
the quality, accuracy or suitability for any particular purpose of the
information generated and provided through DUR.
E. [Intentionally Deleted]
5
<PAGE>
25. NOTICES. All notices provided for in this Agreement shall be in writing and
shall be sent by registered or certified mail, express mail, facsimile, or
delivered in person to the other party at the address above or indicated on the
Data Sheet or such other address as may be provided to the other party in the
same manner as that provided for giving of any notice. All notices shall be
deemed to have been received on the third (3rd) day after the date said notice
was mailed, or twenty four (24) hours following the time of said notice if sent
by facsimile, or immediately upon personal delivery.
26. OWNERSHIP OF INFORMATION. PROVANTAGE shall be the sole owner of the
information obtained through the administration and processing of the claims it
receives. The Plan Sponsor shall have free access to that information which
pertains specifically to the Plan Sponsor, but shall have no ownership rights
with respect thereto. Plan Sponsor, on behalf of itself and the Plan,
acknowledges that PROVANTAGE may use and/or transfer to third parties the drug
and related medical data collected by PROVANTAGE or provided to PROVANTAGE by
Plan Sponsor and/or Plan, for research, cost analysis, or cost comparison
purposes; provided, however, that PROVANTAGE shall maintain Participants'
confidentiality in accordance with all applicable laws. PROVANTAGE may receive
certain incentives or marketing support funds from pharmaceutical manufacturers
or other third parties based upon Participants' utilization of certain drugs in
the PROVANTAGE formulary.
27. CONFIDENTIALITY. Plan Sponsor agrees that it shall receive and hold in
confidence any knowledge or information concerning the affairs or business of
PROVANTAGE and PROVANTAGE's programs, procedures, or systems and will not,
during or after the term hereof, disclose same to any third party or use same
for the benefit of itself or any other person, firm or corporation related to or
associated with it in any way, except as may be required for the performance of
this Agreement or as may be required by law. Plan Sponsor agrees to hold
PROVANTAGE harmless from liability for any claim, injury, demand or action based
on the unauthorized release of such confidential information about PROVANTAGE's
operations.
In the performance of its obligations under this Agreement, PROVANTAGE will
receive private and confidential information concerning the Plan Participants.
PROVANTAGE is sensitive to the confidential nature of the files it maintains and
warrants that it has experienced no breach of this confidence in the history of
its operation. PROVANTAGE shall not disclose such information to any entity
other than the Plan Sponsor, unless required to do so by law or as otherwise set
forth in this Agreement. Any such disclosure shall be made in accordance with
applicable laws with respect to patient confidentiality.
28. NO THIRD PARTY BENEFICIARIES. Except as set forth in Paragraph 3 above, the
parties hereto, no individual person, participant insurance company, third party
payer or other entity, other than PROVANTAGE and Plan Sponsor (except
governmental authorities to the extent required by law), is or shall be entitled
to bring any action to enforce any provision of this Agreement against either of
the parties hereto, and that the covenants, undertakings, and agreements set
forth in this Agreement shall be solely for the benefit of, and shall be
enforceable only by, the parties hereto, or their respective successors and
assignees as permitted hereunder.
29. EXCLUSIVITY. PROVANTAGE shall be the sole and exclusive provider of the
services described in this Agreement to Plan Sponsor while this Agreement
remains in effect. However, nothing in this Agreement shall prohibit ProVantage
from contracting with any other person, firm, corporation or other entity for
any purpose whatsoever for the providing or delivery of the same or similar
services as those described in this Agreement.
30. NON-DISCRIMINATION. PROVANTAGE shall not discriminate against any Plan
Sponsor or Participant on the basis of race, color, disability, national origin,
creed, sex or age.
31. ASSIGNMENT. This Agreement shall not be assignable by the Plan Sponsor to
any other person or entity, and any attempted assignment shall be void and of no
force and effect, unless the written consent of PROVANTAGE shall have first been
obtained, which consent shall not be unreasonably withheld. The foregoing
restrictions on assignment shall not apply to assignments to any entity which
controls, is controlled by, or is under common control with the Plan Sponsor,
provided PROVANTAGE is notified in writing of any such assignment within
fourteen (14) days thereof.
32. REGULATORY COMPLIANCE. Plan Sponsor acknowledges that the Plan is or may be
an "employee welfare benefit plan" as defined in the Employee Retirement Income
Security Act ("ERISA"), 29 U.S.C. ss 1001 et seq., and the regulations
promulgated under that act. PROVANTAGE will provide Plan Sponsor with any
information in PROVANTAGE's possession necessary for the Plan Sponsor and the
Plan to comply with any laws or regulations applicable to the Plan, but the Plan
Sponsor's and the Plan's compliance with any such laws and regulations shall be
the sole responsibility of the Plan Sponsor and/or Plan. The Plan Sponsor shall
comply and ensure that the Plan complies with all such laws and regulations.
PROVANTAGE will obtain and maintain any licenses or regulatory approvals
necessary for it to perform PROVANTAGE's services under this Agreement. The Plan
Sponsor shall not name PROVANTAGE or represent that PROVANTAGE is, and
PROVANTAGE shall not be, a Plan Administrator or a named fiduciary of the Plan
as those terms are used in ERISA. The Plan Sponsor shall have complete
discretionary, binding and final authority to construe the terms of the Plan, to
interpret ambiguous Plan language, to make factual determinations regarding the
payment of claims or provisions of benefits, to review denied claims and to
resolve complaints by Plan Participants.
33. FORCE MAJEURE. Neither PROVANTAGE nor Plan Sponsor shall be deemed to have
breached this Agreement or be held liable for any failure or delay in the
performance of all or any portion of their respective obligations hereunder if
prevented from doing so by a cause or causes beyond their respective reasonable
control. Without limiting the generality of the foregoing,
6
<PAGE>
such causes include acts of God or public enemy, fires, flood, storms,
earthquakes, riots, strikes, boycotts, lockouts, wars and war operations,
restraints of government, power or communication line failure or other
circumstances beyond such party's control, or by reason of the judgment, ruling
or order of any court or agency of competent jurisdiction, or change of law or
regulation subsequent to the execution of this Agreement.
34. MISCELLANEOUS PROVISIONS. The provisions of this Agreement shall bind and
inure to the benefit of the parties hereto and their heirs, legal
representatives and successors. Failure to exercise any of the rights granted
hereunder for any one default shall not be a waiver of the right to exercise any
of these rights for subsequent default. Neither this Agreement nor any term
hereof may be changed, waived, discharged, or terminated orally, but only by an
instrument in writing signed on behalf of both parties. Time is of the essence
in the performance of each and every obligation herein imposed. This Agreement
when executed by all parties constitutes the entire understanding between the
parties hereto. In the event any provision or part thereof contained in this
Agreement shall be determined by a court of competent jurisdiction to be invalid
or unenforceable, such invalidity or unenforceability shall not affect the
validity or enforceability of any other provision or part thereof contained
herein. The headings in this Agreement are used solely for the purpose of
convenience and shall not be deemed to list the subject of any provision or be
considered in the construction thereof. This Agreement shall be construed and
enforced according to the Employee Retirement Income and Security Act of 1974,
as amended from time to time ("ERISA"). To the extent ERISA does not apply, the
laws of the state of Wisconsin shall govern. Both parties understand that it is
their respective obligation to comply with all applicable state, federal and
local laws, regulations and guidelines.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to begin as
noted in the Data Sheet.
PLAN SPONSOR: SHOPKO STORES, INC.
By: /s/ Sharon Campbell Date: 2-12-96
----------------------------------- -------
Title: Director Compensation & Benefits
--------------------------------
Attest: /s/ Douglas Wilcox Date: 2-12-96
-------------------------------
Title: Benefits Manager -------
--------------------------------
PROVANTAGE PRESCRIPTION BENEFIT MANAGEMENT SERVICES, INC.:
By: /s/ Nicholas G. Avgoulas Date: 3/4/96
------------------------------------ ------
Nicholas G. Avgoulas, Vice President
Attest: /s/ David K. Jewell Date: 3/4/96
-------------------------------- ------
David K. Jewell, Vice President
7
<PAGE>
EXHIBIT A
---------
[Intentionally Omitted.]
<PAGE>
PRESCRIPTION BENEFIT MANAGEMENT AGREEMENT ADDENDUM
FOR PAYMENTS VIA THE AUTOMATED CLEARING HOUSE (ACH)
This Agreement is made by and between PROVANTAGE, INC., a Minnesota Corporation,
d/b/a ProVantage Prescription Benefit Management Services, Inc., with its
principal place of business at 700 Pilgrim Way, Green Bay, Wisconsin 54313,
hereinafter referred to as "PROVANTAGE", and the contract holder so indicated in
Exhibit A, hereinafter referred to as the "Plan Sponsor".
WHEREAS, PROVANTAGE is a prescription claims processor and not a Plan Sponsor
nor an Insurance company.
WHEREAS, PROVANTAGE will maintain a computerized claims processing system in
which it will process and pay the Plan Sponsor's prescription drug claims it
receives from a network of participating pharmacies.
WHEREAS, PROVANTAGE has no financial liability for the payment of any claims it
receives and/or processes on behalf of the Plan Sponsor.
WHEREAS, The Plan Sponsor wishes to have PROVANTAGE request payment for
prescription drug claims and its administrative charges by allowing PROVANTAGE
to debit the Plan Sponsor's bank account indicated hereunder in Exhibit A, via
the Automated Clearing House.
NOW AND THEREFORE, The Plan Sponsor and PROVANTAGE agree to the following terms
and conditions:
1. AUTHORIZATION. The Plan Sponsor hereby authorizes PROVANTAGE to debit the
account indicated in Exhibit A for prescription drug claims and administrative
charges incurred by the Plan Sponsor in accordance with the Prescription Benefit
Management Agreement to which this addendum is attached.
2. INVOICING. PROVANTAGE shall provide the Plan Sponsor with a billing invoice
and detail reports prior to initiating the ACH debit of the Plan Sponsor's
account. Billing invoices will be generated and mailed on the first business day
following the fifteenth and the end of each month. It shall be the
responsibility of the Plan Sponsor to notify PROVANTAGE if they have not
received an invoice for a given billing period.
3. BILLING CYCLE AND PAYMENTS. PROVANTAGE will bill the Plan Sponsor or its
billing designee, as indicated in Exhibit A, on a semi-monthly basis in order
that claims submitted to PROVANTAGE are paid in a timely manner. The first
billing statement of every month will contain a list of all claims submitted
between the first (1st) and the fifteenth (15th) of the month and approved for
reimbursement to the participating pharmacies as well as PROVANTAGE's claims
processing charges. The end of the month billing will contain all claims
submitted and processed between the sixteenth (16th) and the last day of the
month and approved for reimbursement, as well as PROVANTAGE's claims processing
fee, and the monthly maintenance fees. Any credits due the Plan Sponsor from the
participating pharmacies will be credited on this statement. Bills will be
mailed on the sixteenth (16th) of the month or the first business day thereafter
and the ACH debit of the Plan Sponsor's account shall occur on the twenty second
(22nd) of the month or the first business day thereafter, for the first monthly
billing period. Bills will be mailed on the first of the month or the first
business day thereafter and the ACH debit of the Plan Sponsor's account shall
occur on the seventh (7th) or the first business day thereafter, for the second
monthly billing period. All bills shall be deemed to have been received by the
Plan Sponsor on the third (3rd) day after the date said bill was mailed, or
within twenty four (24) hours if sent by facsimile or express mail. In the event
funds are willfully not made available for transfer via the ACH System the Plan
Sponsor shall be deemed in default and shall be subjected to late payment
penalties and/or automatic termination as outlined in the Prescription Benefit
Management Agreement to which this addendum is attached.
4. AVAILABILITY OF FUNDS. The Plan Sponsor warrants to PROVANTAGE that it shall
make available for debit sufficient funds to meet PROVANTAGE's full invoice
amount. The Plan Sponsor's willful failure to make these funds available for
transfer via the ACH System shall be deemed in default and shall be subjected to
late payment penalties and/or automatic termination as outlined in the
Prescription Benefit Management Agreement to which this addendum is attached.
-1-
<PAGE>
5. PROVANTAGE'S LIABILITY. PROVANTAGE warrants to the Plan Sponsor that it shall
only debit the Plan Sponsor's account via the ACH System on or after the dates
indicated above and for the amount of PROVANTAGE's invoice. PROVANTAGE shall be
liable for and immediately return to the Plan Sponsor any amount debited in
excess of the amount(s) owed. PROVANTAGE's liability shall be limited to the
extent the debit amount exceeds the amount or amounts owed to PROVANTAGE or its
participating pharmacies. Notwithstanding any provision to the contrary
contained herein, PROVANTAGE shall be held harmless from liability for any
wrongful act or omission in connection with the ACH debit process including,
without limitation, any act or omission by any Automated Clearing House, any
financial institution or any person including any data processing vendor used by
PROVANTAGE or the Plan Sponsor. PROVANTAGE shall have no liability for any
consequential damages in any event.
6. NON-LIABILITY. The Plan Sponsor and PROVANTAGE agree to hold the other
harmless from liability for any claim, injury, demand or judgment based on
contract, tort, or other grounds arising out of an error made by the bank(s) or
other entities involved in the ACH debit process. Each party agrees to
immediately notify the other, if they believe an error has occurred. Both
parties further agree to work to correct any such error immediately.
IN WITNESS WHEREOF, The parties have executed this Agreement to begin as noted
in Exhibit A.
PLAN SPONSOR:
Name of Plan Sponsor: Shopko Stores, Inc.
/s/ Sharon Campbell
By:____________________________________ Date: 2-12-96
Title: Director Compensation & Benefits
/s/ Douglas A. Wilcox
By:____________________________________ Date: 2-12-96
Title: Benefits Manager
PROVANTAGE PRESCRIPTION BENEFIT MANAGEMENT SERVICES, INC.
/s/ Nicholas C. Avgoulas
By:____________________________________ Date:
Nicholas G. Avgoulas, Vice President
/s/ David K. Jewell
By:____________________________________ Date: 3-4-96
David K. Jewell, Vice President
<PAGE>
EXHIBIT A
[Intentionally Omitted]
<PAGE>
EXHIBIT 10.12
SYSTEM AGREEMENT
THIS AGREEMENT is made as of the 27 day of January, 1999.
BETWEEN:
SYSTEMS XCELLENCE USA, INC.
900 Jackson Street
Suite 600
Dallas, Texas
U.S.A. 75202
Telephone: (972) 529-1644 Fax: (972) 529-1645
(hereinafter referred to as "Supplier")
OF THE FIRST PART
and
PROVANTAGE, INC.
13555 Bishops Court, Suite 201
P.O. Box 846
Brookfield, WI 53008-0846
Telephone: (414) 641-3909 Fax: (414) 641-3770
(hereinafter referred to as "Customer")
OF THE SECOND PART
IN CONSIDERATION of the mutual covenants and promises hereinafter
contained, the parties hereto agree as follows:
PART I - DEFINITIONS
1. INTERPRETATION
1.1 In this Agreement the terms below are defined as follows:
<PAGE>
-2-
(a) "Agreement" means this Master Agreement, the Proposal from Supplier dated
November 20, 1998 (other than the provisions entitled "Staffing
Requirements", "Environment" and "Project Plan"), each Addendum that is
executed by authorized representatives of the Parties and attached hereto,
and all Schedules and other documents expressly incorporated by reference
in this Master Agreement or any such Addendum. "Agreement" also includes
any amendments to the foregoing documents agreed to in writing by
authorized representatives of the Parties.
(b) "Business Days" means days other than Saturday, Sunday or holidays at the
location in which the Supplier's principal office is located, as set forth
on the first page of this Agreement.
(c) "Deficiency" means any material non-conformity of the Programs to the
Software Specifications, but does not include any non-conformity caused by:
(i) any operator error or neglect, misuse or abuse of the System;
(ii) any deficiency of the Designated Machine or of any software or
equipment with which the Programs are used; or
(iii) the use of the programs on computer equipment other than the
Designated Machine.
"Deficiencies" refers to more than one (1) Deficiency.
(d) "Designated Machine" means the computer hardware and operating system
software on which the Programs may be used, as described by type and model
number set forth in any Software Addendum executed by the Parties
hereunder.
(e) "Documentation" means the Software Documentation.
(f) "Master Agreement" means the Articles of this document entitled "System
Agreement".
(9) "Operating Site" means the address at which the Programs are installed in
the Designated Machine for use by Customer, as set forth in the Software
Addendum.
(h) "Parties" means Supplier and Customer.
<PAGE>
-3-
(i) "Professional Services" means the various services to be provided by
Supplier to Customer, as set forth in any Professional Services Addendum
executed by the Parties from time to time, which shall be in the form
attached hereto as Addendum "B".
(j) "Programs" means the computer programs to be provided by Supplier to
Customer, as set forth in any Software Addendum executed by the Parties
from time to time, which shall be in the form attached hereto as Addendum
"A". "Programs" also means any new versions, releases, modifications or
enhancements to such computer programs.
(k) "Software Documentation" means the Software Specifications, and any user's
manual or other documentation delivered by Supplier to Customer with the
Programs pursuant to any Software Addendum, as deemed appropriate by
Supplier, together with all revisions, modifications or enhancements to
such documentation.
(l) "Software Materials" means the Programs and the Software Documentation,
collectively.
(m) "Software Support Services" means the services relating to the maintenance
and support of the Programs to be provided by Supplier to Customer, as set
forth in any Software Support Addendum executed by the Parties from time to
time, which shall be in the form attached hereto as Addendum "C".
(n) "Software Specifications" means any documentation describing the features
and functionality of the Programs provided by Supplier to Customer pursuant
to any Software Addendum, and all revisions, enhancements and modifications
to the same provided by Supplier to Customer from time to time.
(o) "Transaction" shall mean the acceptance by the applicable Programs of a
valid single NCPDP pharmacy transaction involving a pharmacy claim or
reversal. If the Programs are used for other purposes in the future, the
parties will agree in advance on the meaning of a "Transaction" with
respect to such other uses. A transaction that does not pass the
Transaction Conformance Check by the Program will not be considered as a
Transaction.
(p) "Transaction Conformance Check" means the check that is performed on the
data stream received at the communications port(s) before allowing entrance
<PAGE>
-4-
into the PBM complex for further processing. This check will reject
transactions that are incorrect in structure or length.
1.2 This Master Agreement sets out the general terms and conditions governing
the provision by Supplier to Customer of any items of Software,
Professional Services and Software Support Services. The specific items of
Software, Professional Services and Software Support Services to be
provided by Supplier to Customer, and any additional terms and conditions
governing the provision of such items, shall be as set forth in the
applicable Addendum which may be executed by the Parties from time to time.
Each Addendum, when executed by the Parties, shall form an integral part of
this Agreement and shall be binding on the Parties.
Addendum "A" - Software Addendum
Addendum "B" - Professional Services Addendum
Addendum "C" - Software Support Addendum
PART II - SOFTWARE LICENSE TERMS
2. LICENSE TERMS
2.1 Supplier hereby grants to Customer, and Customer accepts, a non-
transferable and non-exclusive perpetual license to use the Software
Materials in the United States of America in accordance with the terms of
this Agreement. Customer shall be entitled to use the Programs on a site
license basis only for production, development, testing and fail-over
purposes solely in connection with its internal business. Customer is
prohibited from distributing or transferring possession of the Software
Materials to any other person. Customer shall be entitled to use the
Software Documentation in support of its use of the Programs. Customer
acknowledges and Supplier warrants that, subject to its right to use the
Software Materials in accordance with the provisions of this Agreement,
Supplier or its third party suppliers own all title, copyright, trade-mark,
trade secret, patent, and other rights in the Software Materials.
2.2 Customer shall be entitled to make a single copy of the Programs solely for
purposes of off-site storage for backup purposes. Except for the foregoing,
Customer shall not copy, or permit any other person to copy, the Programs.
2.3 Except as expressly permitted by Supplier (which permission may be withheld
at Supplier's discretion), Customer shall not copy, nor permit any other
person to copy, the Software Documentation.
<PAGE>
-5-
2.4 Customer may only change the Operating Site with Supplier's prior written
consent, which consent shall not be unreasonably withheld.
2.5 Customer shall not alter or remove any trade-marks or any trade-mark,
copyright, or other notices from any portion of the Software Materials.
Customer shall include facsimiles of all such notices and trade-marks on
any copy of the Programs made by Customer as permitted under this
Agreement, and if Supplier consents to the copying of the Software
Documentation, on all copies of such Documentation.
2.6 Customer shall not, nor permit any other person to, modify, adapt,
disassemble, decompile, or reverse engineer the Programs, or modify or
adapt any of the Software Documentation. Customer shall be permitted to
copy reasonable extracts from the Software Documentation to be incorporated
in Customer's requirements, design and user manuals to be used solely for
Customer's internal purposes.
2.7 The license granted hereunder entitles Customer to use the Programs on a
site license basis for production, development, testing and fail-over
purposes on Designated Machines of the model and type described in the
Software Addendum, having the serial number therein set forth. Customer may
transfer the Programs to be used for production, development, testing and
fail-over purposes to another computer(s) of the same model and type as
that set forth in the Software Addendum, whereupon such other computer(s)
shall become the Designated Machine.
2.8 The warranties set forth in Article 9 apply only in respect of Customer's
use of the Programs on the original Designated Machine and Customer
acknowledges that Supplier makes no representation or warranty that the
Programs will be capable of being used on any computer other than the
original Designated Machine.
3. LICENSE FEES
3.1 Customer agrees to pay to Supplier the license fee specified in the
Software Addendum (the "License Fee") for the rights to use the Software
Materials granted under this Agreement. The License Fee shall be payable in
accordance with the payment schedule set forth in the Software Addendum
(the "Software Payment Schedules").
3.2 Supplier shall not be responsible to provide any services for the
implementation, installation, testing or support of the Programs, or
related in any other manner to the Software Materials, unless Supplier has
agreed to provide such services in accordance with the Professional
Services Addendum or the Software Support Addendum. With respect to any
such services, Customer shall pay Supplier the applicable fees set forth in
the Professional Services Addendum or the Software Support Addendum.
<PAGE>
-6-
4. DELIVERY AND INSTALLATION OF PROGRAMS
4.1 At its expense, Supplier shall deliver the Software Materials to the
Operating Site on or before the date scheduled for delivery, as set forth
in the Software Addendum.
4.2 As indicated in the Software Addendum, Supplier is responsible for
installation and all services relating thereto shall be provided pursuant
to the Professional Services Addendum. If Supplier provides Customer with
services for the installation of the Programs, the Installation Date shall
be the date on which Supplier notifies Customer in writing that the
Programs are operational on the Designated Machine.
4.3 Customer shall make the Operating Site and the Designated Machine available
to permit the delivery and installation of the Programs. Customer shall be
responsible for ensuring that the Operating Site and the Designated Machine
meet all requirements set forth in any applicable Documentation and in any
documentation provided by the supplier of the Designated Machine, as may be
required for the proper use and operation of the Programs on the Designated
Machine.
5. TESTING AND SUPPORT
5.1 For a period commencing on the Installation Date and continuing until the
earlier of:
(i) the expiry of three hundred sixty-five (365) days following the
Installation Date; or
(ii) the expiry of one hundred eighty (180) days following the processing
of the first Transaction upon commencement in production use of the
Programs,
Customer shall be entitled to use the Programs for purposes of determining
whether the Programs contain any Deficiencies. Unless Customer provides
written notice to Supplier of any Deficiencies prior to the expiration of
such period, the Programs shall be deemed to be free of any Deficiencies.
5.2 Upon receipt by Supplier, within the period referred to in section 5.1
above, of any notice of Deficiencies, Supplier shall correct the
Deficiencies as soon as reasonably practicable. Customer shall review all
corrections and modifications to the Programs made by Supplier, and if any
Deficiencies remain in the Software, Supplier shall correct the same during
the period referred to in section 5.1 above.
<PAGE>
-7-
5.3 Customer acknowledges that the Programs may contain minor errors and
deficiencies which are not corrected during the period referred to in
section 5.1 above, but Supplier shall use reasonable efforts to correct
such errors or deficiencies as part of the Software Support Services to be
provided pursuant to the Software Support Addendum.
5.4 Customer acknowledges that any use to be made of the Programs pursuant to
this Article 5 shall be solely for purposes of determining whether the
Programs comply with the Specifications and shall not be for purposes of
determining whether the Programs meet any additional requirements of
Customer (including any requirements of compatibility with other products
or performance standards of the Programs when used alone or with any other
products).
5.5 In the case of any dispute between the parties as to whether the Programs
contain any Deficiencies, or whether any Deficiencies have been corrected
by Supplier, such dispute shall be resolved in accordance with section 15.9
below.
PART III - PROFESSIONAL SERVICES
6. PROFESSIONAL SERVICES
6.1 Supplier shall provide to Customer, and Customer shall procure from
Supplier, the professional services (the "Professional Services") described
in the Professional Services Addendum, upon the terms and conditions
contained in this Part III.
6.2 Customer shall provide such cooperation, information and assistance as may
be reasonably requested by Supplier to enable Supplier to perform the
Professional Services, and in particular, shall provide the items referred
to in the Professional Services Addendum.
6.3 Provided Supplier adequately performs the Professional Services, Customer
shall pay to Supplier the charges set forth in the Professional Services
Addendum at the times and in the manner set forth in the Payment Schedule
which is incorporated in and forms part of the Professional Services
Addendum.
6.4 Any services which have been requested in writing by Customer and which
Supplier is willing and able to provide, and which are not specifically
described in the Professional Services Addendum, will be initially
estimated for Customer, performed by Supplier and invoiced by Supplier, at
its then prevailing time and materials rates. Any such additional services
shall be deemed to form part of the Professional Services and shall be
governed by the terms and conditions of this Agreement.
<PAGE>
-8-
6.5 Supplier shall perform its obligations under the Professional Services
Addendum using qualified personnel of its choice. All Supplier personnel
shall remain under the supervision, management and control of Supplier.
Customer acknowledges that such personnel may provide similar services to
other customers of Supplier.
PART IV - SOFTWARE SUPPORT
7. SOFTWARE SUPPORT SERVICES
7.1 Supplier shall provide to Customer the various services (collectively the
"Software Support Services") set forth in the Software Support Addendum on
the terms and conditions set forth in such Schedule and in respect of the
items of Programs described in such Addendum (hereinafter referred to in
this Article 7 as the "Supported Programs").
7.2 Customer acknowledges that the Software Support Services shall be performed
either by Supplier or by such other person to whom Supplier may subcontract
the performance of such tasks.
7.3 Customer acknowledges that the Support Fee (as hereinafter defined) does
not entitle Customer to receive any services in respect of any matters set
forth under the heading "Exclusions" in the Maintenance Program described
in the Software Support Addendum (the "Maintenance Program") or any matters
which are provided by Supplier at any extra charge, as set forth in the
Maintenance Program. If Customer requests, and Supplier is willing and able
to provide, services in respect of any such matters, Supplier will estimate
the charge for the services and upon approval by the Customer, Supplier
shall perform such services and, Customer shall pay Supplier at its
standard hourly rates for all such services.
7.4 Customer shall provide, at its expense, a data line and terminal, and make
arrangements as may be necessary to enable Supplier to establish terminal
and file transfer access with Customer's Designated Machine in connection
with the provision of the Software Support Services hereunder. Supplier
will work with Customer to install access equipment with the intent of not
compromising Customer's security.
7.5 Customer shall gather all necessary information and data in sufficient
quantities to provide adequate testing of the Software in a manner and
format and at such times as Supplier may reasonably request in connection
with carrying out the Software Support Services.
<PAGE>
-9-
7.6 Customer shall make all reasonably necessary arrangements to enable
Supplier to obtain access to the Designated Machine to permit Supplier to
provide the Software Support Services.
7.7 Customer shall provide a written copy of the identical command sequence
demonstrating any failure in the Supported Programs if requested by
Supplier.
7.8 Software Support Services will be provided only during the hours set forth
in the Maintenance Program.
7.9 Each party shall designate at least one (1) employee or agent who shall
serve as the contact and who will be responsible for handling all technical
and maintenance communications between Customer and Supplier. The contact
shall be reasonably available for consultation at any time that Supplier is
providing Software Support Services or other services under this Agreement.
Both parties shall follow the procedures set forth in the Maintenance
Program with respect to all requests for Software Support Services or other
services made by Customer.
7.10 Customer shall pay to Supplier the monthly support fee set forth in the
Software Support Addendum for the Software Support Services (the "Support
Fee"). The Support Fee shall be payable quarterly in advance.
PART V - GENERAL TERMS AND CONDITIONS
8. PRICES AND PAYMENT
8.1 All invoices issued in accordance with the Payment Schedule with respect to
any Addendum are due and payable upon receipt. If the Customer fails to pay
any charges within forty five (45) days of receipt of invoice, then the
Customer agrees to pay a late it payment charge of eighteen percent (18%)
per annum on the past due balance or the maximum amount permitted by law.
8.2 In addition to any amounts set forth in the Payment Schedule for any
Addendum, Customer shall reimburse Supplier for ail reasonable travel,
accommodation and other expenses incurred by Supplier in the course of
performing its obligations under this Agreement and approved in advance by
Customer.
8.3 Customer is responsible for all sales, goods and services, use, excise or
other taxes, tariffs, duties or assessments, including interest and
penalties, levied or imposed at any time by any governmental authority
arising from or related to any transactions under the net this Agreement,
including any Addendum, other than any taxes based on the net
<PAGE>
-10-
income of the Supplier. If Supplier is required to collect any of the
foregoing taxes, tariffs, duties or assessments, Supplier shall add the
same to any invoices and Customer shall immediately pay the same to
Supplier. If Customer is required under any applicable law to deduct from
the amounts to be paid to Supplier pursuant to this Agreement any amount on
account of withholding taxes or any other taxes or levies of any kind,
Customer shall pay all such additional amounts so that the net amounts
received by Supplier are the amounts specified herein.
9. WARRANTY
9.1 Supplier and Customer represent and warrant to each other that neither the
execution of this Agreement nor the performance of its obligations
hereunder will breach or result in any default under its Articles, by-laws,
or other organization documents, or under any agreement or other legally
binding instrument, license or permit to which it is a party or by which it
may be bound.
9.2 Supplier warrants that it has the right to grant to Customer the right and
license to use the Software Materials set forth herein.
9.3 Supplier warrants that as of the Installation Date of the Programs, as
determined pursuant to Article 4 above, and continuing for the period set
forth in section 5.1 above, the Programs shall be free of any Deficiencies.
Supplier's sole liability and obligation in respect of such warranty shall
be to correct the Deficiencies in accordance with the provisions of Article
5 above, failing which Customer shall be entitled at its option to
terminate this Agreement in accordance with the provisions of Article 14
below, and/or to recover damages against Supplier, subject to the
provisions of Article 10 below.
9.4 Supplier warrants that the Professional Services and the Software Support
Services shall be provided by skilled personnel and shall be performed with
due care in accordance with industry standards. Supplier's sole liability
and obligation in respect of such warranty shall be to re-perform any
services for which Supplier has been in breach of such warranty, provided
that Supplier has received notice of such breach within ninety (90) days of
the occurrence, failing which Customer shall be entitled to receive a
refund of any fees paid in respect of any services for which Supplier is in
default.
10. LIABILITY
<PAGE>
-11-
10.1 Subject to Customer's obligations to pay to Supplier all amounts due and
owing hereunder, in no event shall either party, or its employees, agents,
suppliers or subcontractors, be liable for any loss of profits, or any
special, indirect, incidental, or consequential damages hereunder, whether
arising in contract (including fundamental breach), tort (including
negligence) or otherwise with respect to any claim arising out of or in
connection with this Agreement. Each party (the "indemnifying party")
further agrees that the other party and its employees, agents, suppliers or
subcontractors (collectively the "indemnified party") will not be liable
for any claim against the indemnifying party made by any third party
(except for any claim arising from the negligence or willful misconduct of
the indemnified party).
10.2 Each of the parties agrees that the other party's liability for any claims
made in connection with this Agreement, whether arising in contract
(including fundamental breach), tort (including negligence) or otherwise,
shall be limited to such direct money damages as are actually incurred by
the injured party and shall not in the aggregate exceed the amounts paid or
payable by Customer to Supplier under the terms of this Agreement on
account of the License Fees for the Programs and the Software Support Fees.
10.3 The express warranties contained in this Agreement by Supplier are in lieu
of, and Supplier expressly disclaims, any and all other representations,
warranties or conditions with respect to the subject matter hereof, whether
express or implied, past or present, including without limitation, any
implied warranties or conditions of merchantability or fitness for a
particular purpose, or of quality, productiveness or accuracy.
11. INDEMNIFICATION
11.1 Subject to section 11.2 hereof, Supplier will defend any claims that the
Software Materials in the form supplied by Supplier infringes any third
party's copyright or patent rights or other intellectual property rights
enforceable in the United States of America, and will indemnify Customer
against any loss, costs or expenses (including attorney's fees), and
damages awarded or settlement entered into, in connection with any such
claim, provided Customer gives Supplier reasonable written notice and
control of the defense of any such claim and does not settle any such claim
without Supplier's consent, and provided further that Customer cooperates
with Supplier in the defense of any such claim.
11.2 If Customer is enjoined by an order of a court of competent jurisdiction
from using the Software Materials, Supplier at its option and expense,
shall do one of the following: (1) procure for Customer the right to
continue using the software.
<PAGE>
-12-
Materials; or (2) replace or modify the Software Materials so that they
become non-infringing.
11.3 Sections 11.1 and 11.2 above set forth Supplier's sole obligation, and
Customer's sole remedy, for any claim for infringement of any third
person's proprietary or other rights. Supplier's obligations hereunder with
respect to infringement of any third party's rights shall not apply where
such claims arise from any alteration made to the Software Materials by
any person other than Supplier, or from the use of the Software Materials
on any computer other than the Designated Machine or in combination with
software or hardware not supplied by Supplier, if such claim would not have
arisen except for such alteration, use or combination.
12. CONFIDENTIALITY
12.1 Customer acknowledges that:
(a) the Software Materials embody substantial creative efforts, and contain
confidential information, ideas and expressions; and
(b) all proprietary rights, including all intellectual property rights, in
the Software Materials belong exclusively to Supplier.
12.2 Disclosure of, and access to, the Software Materials by Customer's
employees and consultants is permitted on a need to know basis for purposes
consistent with the use of the Software Materials as permitted under this
Agreement. Customer agrees to take all necessary steps to ensure that
Customer's employees and consultants are prohibited from any unauthorized
use, copying or disclosure of the Software Materials. Without limiting the
foregoing, Customer shall cause any employees or consultants of Customer to
whom any of the Software Materials are disclosed from time to time, to
execute such agreements as may be reasonably required by Supplier to
protect the proprietary rights of Supplier or any third party in the
Software Materials.
12.3 Except as authorized hereunder, Customer shall not use or disclose or
otherwise permit any entity any manner of access to the Software Materials.
Customer agrees to take any and all actions, including legal action, which
may be necessary or desirable to ensure the continued confidentiality and
protection of the Software Materials and to prevent unauthorized access to,
copying or use of the Software Materials by any entity.
<PAGE>
-13-
12.4 Customer agrees to promptly notify Supplier, in writing, of the
circumstances surrounding any unauthorized knowledge, possession, copying
or use of the Software Materials which comes to Customer's attention.
12.5 Customer acknowledges that any unauthorized use, copying or disclosure of
the Software Materials may diminish substantially the value to Supplier or
to its suppliers of the copyright, proprietary rights, and/or trade secret
interests that are embodied in the Software Materials. If Customer breaches
any of its obligations with respect to limited use or confidentiality of
the Software Materials, Supplier will be entitled to all remedies available
at law or in equity to protect such party's interests therein, including,
but not limited to, injunctive relief as well as money damages.
12.6 The obligations of this Article 12 shall not apply to restrict the
disclosure by Customer of any confidential information contained in the
Software Materials which Customer can demonstrate:
(a) is or becomes available to the public through no breach of this
Agreement;
(b) was previously known by Customer without any obligation to hold it in
confidence;
(c) is received from a third party free to disclose such information
without restriction;
(d) is independently developed by Customer without the use of confidential
information of Supplier;
(e) is approved for release by written authorization of Supplier, but only
to the extent of and subject to such conditions as may be imposed in
such written authorization;
(f) is required by law or regulation to be disclosed, but only to the
extent and for the purposes of such required disclosure; or
(g) is disclosed in response to a valid order of a court or other
governmental body of the United States or any political subdivisions
thereof, but only to the extent of and for the purposes of such order;
provided, however, that Customer shall first notify Supplier of the
order and permit Supplier to seek an appropriate protective order.
<PAGE>
-14-
12.7 (a) Supplier acknowledges that Customer may provide Supplier with, or
Supplier may obtain access to, certain confidential information
concerning Customer's clients, members, finances, operations, products
and services ("Customer Confidential Information").
(b) Disclosure of and access to the Customer Confidential Information by
Supplier's employees and consultants is permitted on a need to know
basis for purposes consistent with the performance by Supplier of its
obligations and the exercise by Supplier of its rights under this
Agreement. Supplier agrees to take all necessary steps to ensure that
Supplier's employees and consultants are prohibited from any
unauthorized use, copying or disclosure of the Customer Confidential
Information. Without limiting the foregoing, Supplier shall cause any
employees or consultants of Supplier to whom any of the Customer
Confidential Information is disclosed from time to time, to execute
such agreements as may be reasonably required by Customer to protect
the proprietary rights of Customer or any third party in the Customer
Confidential Information.
(c) Except as authorized by Customer, Supplier shall not use or disclose
or otherwise permit any entity any manner of access to the Customer
Confidential Information. Supplier agrees to take any and all actions,
including legal action, which may be necessary or desirable to ensure
the continued confidentiality and protection of the Customer
Confidential Information and to prevent unauthorized access to,
copying or use of the Customer Confidential Information by any entity.
(d) Supplier agrees to promptly notify Customer in writing of the
circumstances surrounding any unauthorized knowledge, possession,
copying or use of the Customer Confidential Information which comes to
Supplier's attention.
(e) Supplier acknowledges that any unauthorized use, copying or disclosure
of the Customer Confidential Information may diminish substantially
the value to Customer or to its suppliers of the copyright,
proprietary rights, and/or trade secret interests that are embodied in
the Customer Confidential Information. If Supplier breaches any of its
obligations with respect to limited use or confidentiality of the
Customer Confidential Information, Customer will be entitled, to all
remedies available at law or in equity to protect such party's
interests therein, including but not limited to injunctive relief as
well as money damages.
<PAGE>
-15-
(f) The obligations of Supplier under this section 12.7 shall not restrict
the disclosure by Supplier of any confidential information contained in
the Customer Confidential Information which Supplier can demonstrate:
(i) is or becomes available to the public through no breach of this
Agreement;
(ii) was previously known by Supplier without any obligation to hold
it in confidence;
(iii) is received from a third party free to disclose such information
without restriction;
(iv) is independently developed by Supplier without the use of
confidential information of Customer;
(v) is approved for release by written authorization of Customer, but
only to the extent of and subject to such conditions as may be
imposed in such written authorization;
(vi) is required by law or regulation to be disclosed, but only to the
extent and for the purposes of such required disclosure; or
(vii) is disclosed in response to a valid order of a court or other
governmental body of the United States or any political
subdivision thereof, but only to the extent of and for the
purposes of such order; p . provided however, that Supplier shall
first notify Customer of the order and permit Customer to seek an
appropriate protective order.
12.8 The provisions of this Article 12 hereof shall survive the termination of
this Agreement.
13. INTELLECTUAL AND INDUSTRIAL PROPERTY
13.1 Except as agreed to by the parties for Unique/Custom Requests, Customer
acknowledges that any invention, discovery or improvement involving ideas,
designs, methods or techniques, including computer techniques, conceived by
Supplier's personnel in connection with this Agreement shall belong to
Supplier. Customer shall have a non-exclusive, non-transferable license to
use any such inventions, discoveries and improvements which are
incorporated into any deliverables provided to Customer under this
Agreement, and the same shall be deemed to form part of the Software
Materials and Supplier's Confidential Information for purposes of this
Agreement.
<PAGE>
-16-
13.2 Customer acknowledges that Supplier retains the exclusive ownership of all
know-how, technical development tools, programs, concepts and materials
relating thereto (the "Supplier Tools") used in the provision of any of the
Professional Services or Software Support Services hereunder. Customer
acknowledges that the Supplier Tools constitute confidential, valuable
proprietary information and trade secrets of Supplier, and shall be deemed
to form part of Supplier's Confidential Information for purposes of this
Agreement. Customer agrees not to use, copy, disclose or otherwise make
available to any other person any Supplier Tools which may come into its
possession, knowledge or control, and shall take all necessary actions by
agreement, instruction or otherwise in order to prevent any unauthorized
disclosure, copying or use by any other person of the Supplier Tools. Upon
the termination of this Agreement for any reason, Customer shall
immediately return to Supplier all Supplier Tools in its possession or
control and shall within ten (10) days of termination certify in writing to
Supplier that it has returned the Supplier Tools to Supplier.
13.3 If Customer requests Supplier to develop certain custom product features
which are unique to Customer and for which Customer pays Supplier the full
costs of any custom development work, Supplier shall not utilize the same
as part of any product licensed to any other customer, except on such terms
as are mutually agreed by Supplier and Customer. Customer shall notify
Supplier prior to the commencement of any custom software development that
such development work is to be carried out in accordance with the
provisions of this section 13.3, and the parties shall agree on the terms
and conditions concerning such development, including any rights of either
party to market or license the deliverables to any third party.
14. TERMINATION
14.1 Either party may terminate this Agreement by notice to the other party,
effective immediately:
(a) if the other party becomes insolvent or voluntarily or involuntarily
bankrupt; if an involuntary petition in bankruptcy against the other
party is not dismissed within ninety (90) calendar days of filing; if
a receiver, assignee or other liquidating officer is appointed for all
or substantially all of the other party's business; if the other party
makes an assignment for the benefit of creditors; or if the other
party ceases to carry on business in the normal course; or
<PAGE>
-17-
(b) if the other party is in breach of any other provision of this
Agreement which is not cured within sixty (60) days following notice
from the non-defaulting party.
In addition, at any time following the date on which Customer has made all
payments to Supplier set forth in the Software Payment Schedule, Customer
shall be entitled at its option to terminate this Agreement without cause
on ninety (90) days' written notice to Supplier, provided that upon the
exercise of such right of termination, Customer shall not be entitled to
receive a refund of any amounts already paid to Supplier, and Customer
shall remain obligated to make any payments due and owing to Supplier at
any time up to the date of termination.
14.2 In the event of termination of this Agreement:
(a) Customer will immediately discontinue all use of the Software
Materials, provided, however, that so long as Customer is not at the
relevant time in continuing breach of this Agreement, and as long as
Customer continues to make all payments due and owing to Supplier,
Customer shall be entitled at its option to continue to use the
Software Materials and to receive Software Support Services for the
Programs for a period of up to nine (9) months after the effective
date of termination of this Agreement; and
(b) within ten (10) days following the date on which Customer is no longer
entitled to use the Software Materials, Customer will provide Supplier
with written certification that Customer has:
(i) discontinued all use of the Software Materials; and
(ii) returned to Supplier the copy of the Software Materials
provided by Supplier; or
(iii) destroyed or returned to Supplier all other copies of the
Software Materials in Customer's possession or control, and
(c) if such termination occurs as a result of any failure by Supplier to
correct any Deficiencies within the period referred to in section 9.3
above, Customer shall not be obligated to make any further payment on
account of the License Fee which is due and payable at any time after
the date of termination; or
<PAGE>
-18-
(d) if such termination occurs at any time after the period referred to in
paragraph 14.1(c) above as a result of any default by Supplier,
Supplier shall refund to Customer a pro rata portion of the Support
Fee paid in respect of Software Support Services to be provided after
the date of termination.
14.3 Except as set forth in section 14.2 above, termination of this Agreement
pursuant to paragraphs 14.1(a) or (b) above shall not affect Customer's
obligation to pay the License Fee, the Support Fee or any other amounts
payable at the date of termination under this Agreement. Termination of
this Agreement shall not affect any right or remedy to which either party
would otherwise be entitled as a result of the occurrence of the default
giving rise to the termination of this Agreement.
15. GENERAL
15.1 Except as expressly permitted hereunder, neither party shall assign this
Agreement, or assign, transfer or sublicense the Software Materials or any
rights therein granted under this Agreement, to any person or entity, in
whole or in part, without the express written consent of the other party.
15.2 Should any provision of this Agreement be found to be invalid by a court of
competent jurisdiction, that provision shall be deemed severed and the
remainder of this Agreement shall remain in full force and effect.
15.3 The laws of the State of Wisconsin and the laws of the United States of
America applicable therein shall govern as to the interpretation, validity
and effect of this Agreement.
15.4 Any terms which by their nature are intended to survive the termination of
this Agreement shall continue in full force and effect after termination,
which terms shall include, but not be limited to, any terms dealing with
confidentiality, limitation of liability, indemnification or proprietary
rights.
15.5 This Agreement, including the provisions of the Proposal referred to in
section 1.1 (a) above, all Addenda and Schedules, and the Confidentiality
Agreement dated September 11, 1998, constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties hereto, and there are
no warranties, representations or other agreements between the parties
hereto in connection with the subject matter hereof except as specifically
set forth herein. This Agreement may be changed only by written amendment
signed by both parties.
<PAGE>
-19-
15.6 No provision of this Agreement shall be deemed to be waived and no breach
shall be deemed to be excused unless such waiver or consent is in writing
and signed by the party said to have waived or consented. No consent by
either party to, or waiver of, a breach of any provision by the other party
shall constitute consent to, or waiver of, any different or subsequent
breach.
15.7 Any notice, document or other communication required or permitted to be
given hereunder shall be in writing and shall be sufficiently given if sent
by prepaid mail, if delivered personally, or if sent by telex or facsimile
transmission to the address of the other party specified on the face of
this Agreement. Any such notice, if mailed, shall be deemed to have been
given on the 5th business day following such mailing, or if delivered
personally, or sent by telex or facsimile transmission, shall be deemed to
be given on the first business day following such delivery or transmission,
provided that in the event of a disruption in postal service any notice so
mailed shall be deemed to have been delivered on the 5th business day
following the resumption of regular postal service. Each of the parties
hereto shall be entitled to specify a different address for purposes of
this section only, by giving notice in accordance with the terms hereof.
15.8 Each of the parties is an independent contractor in relation to the other,
and is not the other's agent, partner, franchisee, joint venture partner or
employee and the parties may not represent themselves otherwise.
15.9 Any dispute or claim arising out of or relating to this Agreement shall be
settled by arbitration in accordance with the Rules for the Conduct of
Arbitration of the American Arbitration Association (the "Rules") in effect
at the date of commencement of such arbitration, by three (3) arbitrators.
If practicable, the arbitrator shall be appointed from a list of no more
than ten (10) persons provided to the parties by the American Arbitration
Association, but if the parties are unable to agree on an arbitrator within
ten (10) days from the date on which either party requests the appointment
of an arbitrator, either party may request the American Arbitration
Association to appoint such person as soon as practicable. The arbitration
will be final and binding. Each of the parties shall cooperate with the
arbitrator and shall provide him with all information in their possession
or under their control necessary or relevant to the matter being
determined. The parties shall use their best efforts to cause any
arbitration hearing that may be held hereunder to be completed as soon as
practicable. The arbitrator shall be required to make his award as soon as
possible, and if at all practicable, within five (5) days after the
conclusion of the arbitration hearing. Disputes involving more than two (2)
parties shall be settled by one (1) arbitration, as determined by the
arbitration procedures adopted in this clause. Where by this clause any
dispute or difference is to be referred to arbitration, the making of a
final award.
<PAGE>
-20-
shall be a condition precedent to any right of action by either party
against the other. Judgment upon an award, including any interim award,
rendered by the arbitrator may be entered in any Court having
jurisdiction thereof. The arbitrator may determine all questions of law
and jurisdiction including questions as to whether the dispute is able to
be arbitrated, and has the right to grant permanent and interim damages
or injunctive relief, and shall have the discretion to award costs
including reasonable legal fees, interest and costs of the arbitration.
15.10 The parties hereby confirm their express wish that this Agreement and all
documents relating thereto be drawn up in English only.
15.11 This Agreement shall ensure to the benefit of and be binding upon the
heirs, executors, administrators, successors and permitted assigns of the
respective parties hereto.
15.12 The insertion of headings herein and the division of this Agreement into
sections are for convenience of reference only and shall not affect the
interpretation thereof.
15.13 Neither party hereto shall be liable to the other party for any delay or
failure to perform its obligations hereunder due to strikes, labour
disputes, riots, storms, floods, explosions, acts of God, acts of any
governmental authority, war or any other cause or causes which are beyond
the reasonable control of such party. The parties hereto shall use their
best efforts during the term of this Agreement to avoid or, if
unavoidable, minimize the effects of any force majeure upon the
performance of their respective obligations under this Agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the day and year first above written.
SYSTEMS XCELLENCE USA, INC. PROVANTAGE, INC.
By: /s/ [illegible] By: /s/ JEFFREY A. JONES
--------------------- ------------------------
Name: /s/ [illegible] Name: Jeffrey A. Jones
--------------------- ------------------------
Title: PRES/CEO Title: EVP & COO
--------------------- ------------------------
By: By: /s/ PETER J. BESTE
--------------------- ------------------------
Name: Name: Peter J. Beste
--------------------- ------------------------
<PAGE>
Exhibit 10.13
VISION BENEFIT GROUP INSURANCE POLICY
[Dollar Amounts Omitted]
POLICYHOLDER: Shopko Stores, Inc.
POLICY NUMBER: 50236
POLICY EFFECTIVE DATE: January l, 1998
POLICY RENEWAL DATE: January 1, 1999
GOVERNING JURISDICTION: Wisconsin
INITIAL POLICY TERM: One year
PREMIUM DUE DATE: 1st day of the coverage month
This group insurance policy is issued to the named Policyholder in the state
specified and, to the extent that it is governed by state law, the laws of that
state will control.
Risk assumed under this policy will be insured from the effective date of this
policy, subject to all policy provisions. The initial term of this policy is the
period specified. However, if this policy is issued as a restatement of the risk
assumed by any prior policy issued by Us and provides continuous coverage of
that risk, then, subsequent revision of coverage or premium rate
notwithstanding, the initial policy period specified above will be deemed to
have occurred under that prior policy.
All of the following articles, outlines, and amendments are part of this policy
and available benefits are dependent upon them. Altogether this policy is issued
on Our authority.
United Wisconsin Insurance Company
/s/
------------------------------
President
The Policyholder agrees to all of the terms of this policy.
/s/ Benefits Manager 1-1-98
----------------------- ---------------- ------
Authorized Signature Title Date
1
<PAGE>
POLICY OUTLINE
VISION BENEFIT PLAN
<TABLE>
<CAPTION>
Benefits from
Participating Non-Participating Benefit
Service Providers Providers Service
--------- --------- Availability
------------
<S> <C> <C> <C>
Vision Examination.............................. Full Coverage Once Each
12 months
Standard Lenses................................. Once Each
(glass or plastic any size (set of 2) including 12 months
solid tints)
Single Focus lens (each) Full Coverage
Bifocal lens (each) Full Coverage
Trifocal lens (each) Full Coverage
Lenticular lens (each) Full Coverage
Contact Lenses (in lieu of all other lenses
and/or frames)............................. Once Each
Standard Prescription (each) 12 months
Required for Sub-Normal Optical Correction
(each) Covered in Full
with Pre-
Approval
Frames.......................................... Once Each
24 months
</TABLE>
* Participating Providers will give the Insured an $82.00 retail credit.
Reimbursement will be made at Participating Provider Contracted amounts.
AMENDMENTS: None
ELIGIBILITY REQUIREMENTS:
Class Description - Class 01: All Actively At Work Full-Time Employees
Full Time: hours per week - 26
Service Waiting Period: Effective the 31st day of employment.
PREMIUM: - Single - Family
100% of the premium charges are paid by the Policyholder.
20% participation is required.
2
<PAGE>
DEFINITIONS
ACTIVELY AT WORK or ACTIVE WORK means the employee must be physically capable of
working:
1. for the Group on a permanent Full-Time basis and be paid regular earnings;
and
2. at least the minimum number of hours shown in the policy outline at either
a. the Group's usual place of business; or
b. a location to which the Group's business requires the employee to
travel.
If the employee meets these criteria, a holiday or a vacation day on the
effective date will be considered a work day.
ANNIVERSARY DATE means a date which is twelve months from the policy effective
date and every twelve months thereafter.
BENEFIT means the services or materials available to an Insured, if qualified,
under this policy.
CHILD(REN) means the Insured's unmarried:
1. natural child;
2. legally adopted child; or
3. stepchild or foster child.
Such children must be unable to provide their own support or must reside with
the Insured. They will cease to be Dependents on the date they marry, or at the
end of the day they attain the age of 19, whichever occurs first.
An unmarried child attending an accredited college or university on a full-time
basis who remains a Dependent of the Insured may continue to be eligible for
benefits under this policy in which the child graduates or attains the age of
25.
The attainment of age 19 specified above will not operate to terminate the
coverage of such Dependent child while the child is and continues to be both
incapable of self-sustaining employment by reason of mental retardation or
physical handicap and dependent upon the Insured for support and maintenance
within the meaning of the Internal Revenue Code of the United States. Provided,
however, that proof of such incapacity and dependency must be furnished by the
Insured to Us at no expense within 31 days of the child's attainment of age 19,
and subsequently when and as often as We may reasonably require, but not more
frequently than annually after the 2 year period following the child's
attainment of age 19.
DATE OF SERVICE means the calendar date on which a specific service was provided
or materials were ordered, and from which date Benefit Service Availability
periods are measured.
DEDUCTIBLE means the amount of covered charges during each Benefit Service
Availability period which must be incurred and paid by the Insured before
Benefits become payable by us.
DEPENDENT means the legal spouse and Children of the Insured who are not in
Full-Time military service. Dependent also means the child of the Insured's
child, until the Insured's child attains the age of 18.
FULL COVERAGE means the amount indicated in the written agreement between Us and
Our Participating Providers subject to all exclusions and limitations of this
policy.
3
<PAGE>
FULL-TIME means a regular work week of at least the number of hours shown as
Full-Time in the policy outline.
GRIEVANCE means any dissatisfaction with the administration or claims practices
of or provisions of services by a preferred provider plan which is expressed in
writing by or on behalf of an Insured.
GROUP means the common employer or organization with which Insureds are
affiliated. The Group may be the Policyholder. If the Policyholder is an
association or trust, the Group must be a participating member.
INSURED means a member of the Group:
1. who fulfills the eligibility requirements of the Group; and
2. who meets policy eligibility standards; and
3. who has made application which has been approved by Us; and
4. on whose behalf premiums are currently paid; and
5. who is covered under the terms of the policy on the Date Of Service.
NON-PARTICIPATING PROVIDERS are those providers which do not have to have a
Participating Providers contract with Us. They do not accept Our payments as
Full Coverage.
OPHTHALMOLOGIST means a person licensed by the state in which he practices as a
Doctor of Medicine or Osteopathy and qualified to practice within the medical
specialty of Ophthalmology.
OPTICALLY NECESSARY means a prescription or a change of prescription is required
to correct visual function.
OPTICIAN means a person or business licensed by the state to manufacture, grind
and/or dispense lenses and frames prescribed by either an Optometrist or an
Ophthalmologist.
OPTOMETRIST means a person licensed to practice Optometry as defined by the laws
of the state in which this service is rendered.
PARTICIPATING PROVIDERS are those providers that have contracts with Us and
agree to the discounted terms and administration contained in those contracts.
POLICYHOLDER means the entity to which this policy is issued. The Policyholder
is shown on the policy's face page.
SERVICE WAITING PERIOD, as shown in the policy outline, means the continuous
length of time a person must serve in an eligible class before becoming eligible
for this coverage.
STANDARD LENSES means any size lenses manufactured from glass or plastic, which
are optically clear or have a solid color tint; it does not include a lens with
variable photochromic properties. Standard multifocal lenses include segments
through flat top 35 for plastic bifocal and lenticular lenses, glass trifocals
through flat top 28 and plastic trifocals through flat top 35.
SUB-NORMAL OPTICAL CORRECTION means vision is not correctable to better than
20/70 in the better eye by the use of conventional lenses. For the determination
of eligibility for Sub-Normal Optical Correction contact lens, the following
diseases are included: keratoconus, irregular astigmatism, and irregular corneal
curvature; and following cataract surgery.
4
<PAGE>
VISION EXAMINATION means an examination of principal vision functions and
includes the services included in the term Minimum Visual Analysis as defined in
the rules set by the State Board of Examiners of Optometry following the
Wisconsin Administrative Code. A Vision Examination includes but is not limited
to, case history, examination for pathology or anomalies, job visual analysis,
refraction, visual field testing and tonometry if indicated.
WE, US, OUR means United Wisconsin Insurance Company.
ELIGIBILITY
ELIGIBILITY
A person will become eligible for coverage under this policy upon fulfillment of
the following conditions:
1. the Group must meet all of the eligibility rules for participation as
specified in the policy outline; and
2. the person must be Actively At Work on a regular, Full-Time basis as a
member of a class eligible for coverage under this policy; and
3. the person must complete any Service Wafting Period required under this
policy.
APPLICATION
A person must:
1. apply for coverage within 31 days after becoming eligible under this
policy; except as provided in the Late Application section of the policy;
and
2. cause premium to be paid on his behalf.
LATE APPLICATION
If the Insured does not apply for coverage within 31 days after completing his
Service Wafting Period, the Insured will not be eligible until the Group's
Anniversary date.
CONTRIBUTION
If the Group requires that an Insured contribute premium for coverage under this
policy, then that portion of the premium to be contributed is specified in the
policy outline.
DATE COVERAGE IS EFFECTIVE
Coverage will become effective on the date We have approved and accepted the
applicant's application for coverage and received premium payment on the
applicant's behalf, provided the applicant is Actively At Work on that date. If
the applicant is not Actively At Work on that date, the effective date of
coverage will be deferred until he returns to Active Work. Under no
circumstances shall coverage become effective prior to the date the applicant
completes the Service Waiting Period, if any.
5
<PAGE>
DEPENDENT COVERAGE
1. Except as provided below, a person may elect Vision insurance for his
eligible Dependents under the same terms as set forth under the
Eligibility, Application, Late Application Contribution, and Date
Coverage Is Effective sections of the policy.
2. An Insured's legally adopted child becomes eligible for coverage under
this policy on the date that a court makes a final order granting
adoption of the child by the Insured or on the date that the child is
placed for adoption with the Insured. The newborn child of an Insured
becomes eligible for coverage at the moment of birth. The Insured must
complete an application adding a legally adopted or newborn child to
coverage within 30 days after the child becomes eligible. If such
application is made the adopted or newborn child's effective date of
coverage will be the date of the adoption or the date of birth
respectively. For adopted children or newborns, if application is not
made within 30 days, then those children will not be eligible for
coverage until the Group's Anniversary date.
VISION BENEFITS
VISION EXAMINATION
Payment for a Vision Examination is provided as specified in the policy outline.
The frequency with which Vision Examinations are allowed is determined from the
date of the previous examination for which Benefits were paid under this or a
preceding policy issued by Us.
We will provide the benefit shown in the policy outline for examinations
provided by Participating and Non-Participating Providers.
If during an optometric examination, a Participating Optometrist discovers a
medical problem not within the scope of optometric practice, We will provide
Benefits for one referral examination by a Participating Ophthalmologist if:
1. the Insured is given a referral to the Ophthalmologist by the Optometrist
during the optometric examination; and
2. the ophthalmic examination is performed within 60 days of the optometric
examination during which the referral was made; and
3. the optometric examination was a policy Benefit.
COVERED VISION MATERIALS
Benefits for vision materials are available with the frequency specified in the
policy outline. The period between availability is determined from the last Date
Of Service.
Our payment to a Participating Provider for frame cost will not exceed the
frames retail cost, in accordance with Our agreement with the Participating
Provider.
Payment will be made for contact lenses in lieu of all other material benefits,
as specified in the policy outline.
We will pay the benefits shown in the policy outline for materials provided by
Participating and Non-Participating Providers.
BENEFIT CHANGES
Any change in the amount of Benefits payable under this policy due to coverage
changes will apply.
1. for Dates Of Service occurring on or after the effective date of the
change; and
2. only to Insureds Actively At Work on or after the effective date of the
change.
6
<PAGE>
LIMITATIONS AND EXCLUSIONS
We will pay the amounts specified in the policy outline. The Insured is
responsible for any additional costs for extra items not covered by this plan.
They include, but are not limited to:
1. Professional services and/or materials in connection with:
a. blended bifocals, no line, or executive bifocals. Benefits are provided
for Standard Lenses. The Insured is responsible for amounts incurred
for non-standard lenses.
b. compensated or special multi-focal lenses.
c. piano (non-prescription) lenses.
d. anti-reflective, scratch, UV400, or any coating or lamination applied
to lenses.
e. subnormal visual aids.
f. progressive lenses.
g. tints other than solid; A contribution by Us will be made for tints
other than solid, but you pay any difference between the charge and Our
payment.
h. orthoptics, vision training and developmental vision procedures.
2. Broken or lost lenses, contact lenses or frames, unless Benefits are
normally due and the Insured is eligible.
3. Medical and surgical treatment of the eye, except as provided under a
Vision Examination as defined in this policy.
4. Services or materials provided under Workers' Compensation programs.
5. Services or materials rendered by a provider other than an
Ophthalmologist, Optometrist, or Optician acting within the scope of his
or her license.
6. Any additional service required outside basic vision analyses for contact
lenses, including but not limited to fitting fees.
7. Vision examination or vision materials that may be required as a condition
of employment, including but not limited to industrial or safety glasses.
8. Services rendered after the date an Insured or Dependent ceases to be
covered under this policy, except when vision materials ordered before
coverage ended are delivered within 31 days from the date of that order.
9. When contact lenses are chosen, no other vision material Benefits are
available for the duration of the Benefit Service Availability period
specified in the policy outline for contact lenses.
10. Second pair of glasses or contacts if the second pair of glasses or
contacts is chosen instead of bifocals.
11. Regardless of Optical Necessity, Benefits are not available more
frequently than specified in the policy outline.
7
<PAGE>
COORDINATION OF BENEFITS
APPLICABILITY
This Coordination of Benefits ("COB") provision applies to This Plan when an
Insured has vision care coverage under more than one Plan. "Plan" and "This
Plan" are defined below.
If this COB provision applies, the order of benefit determination rules are
looked at first. The rules determine whether the benefits of This Plan are
determined before or after those of another Plan. The benefits of This Plan:
1. are not reduced when, under the order of benefit determination rules,
This Plan determines its benefits before another Plan; but
2. may be reduced when, under the order of benefit determination rules,
another Plan determines its benefits first. This reduction is described
in the Effect On The Benefits Of This Plan section of the policy.
DEFINITIONS
When used in this section only, these terms have the following meanings.
ALLOWABLE EXPENSE means a necessary, reasonable, and customary item of expense
for vision care, when the item of expense is covered at least in part by one or
more Plans covering the person for whom the claim is made.
When a Plan provides benefits in the form of services, the reasonable cash value
of each service rendered is considered both an Allowable Expense and a benefit
paid.
CLAIM DETERMINATION PERIOD means a calendar year. However, it does not include
any part of a year during which a person has no coverage under This Plan or any
part of a year before the date this COB provision or a similar provision takes
effect.
PLAN means any of the following which provides benefits or services for, or
because of, vision care or treatment:
1. Group insurance or group-type coverage, whether insured or uninsured,
that includes continuous 24 hour coverage. It also includes coverage
other than school accident-type coverage.
2. Coverage under a governmental plan or coverage that is required or
provided by law. This does not include a state plan under Medicaid
(Title XIX, Grants to States for Medical Assistance Programs, of the
United States Social Security Act as amended from time to time). It
also does not include any plan whose benefits, by law, are excess to
those of any private insurance program or other non-governmental
program.
Each contract or other arrangement for coverage under 1. or 2. is a separate
Plan. If an arrangement has two parts and COB rules apply only to one of the
two, each of the parts is a separate Plan.
PRIMARY PLAN/SECONDARY PLAN. The order of benefit determination rules state
whether This Plan is a Primary Plan or Secondary Plan as to another Plan
covering the person.
When This Plan is a Secondary Plan, its benefits are determined after those of
the other Plan and may be reduced because of the other Plan's benefits.
When This Plan is a Primary Plan, its benefits are determined before those of
the other Plan and without considering the other Plan's benefits.
8
<PAGE>
When there are more than two Plans covering the person, This Plan may be a
Primary Plan as to one or more other Plans and may be a Secondary Plan as to a
different Plan or Plans.
THIS PLAN means the part of the Contract that provides benefits for vision care
expenses.
ORDER OF BENEFIT DETERMINATION RULES
When there is a basis for a claim under This Plan and another Plan, This Plan is
a Secondary Plan which has its benefits determined after those of the other
Plan, unless:
1. the other Plan has rules coordinating its benefits with those of This
Plan; and
2. both those rules and This Plan's rules require that This Plan's benefits
be determined before those of the other Plan.
This plan determines its order of benefits using the first of the following
rules which applies:
1. NON-DEPENDENT/DEPENDENT. The benefits of the Plan which covers the
person as an employee, member or Insured (that is, other than as a
dependent) are determined before those of the Plan which covers the
person as a dependent.
2. DEPENDENT CHILD/PARENTS NOT SEPARATED OR DIVORCED. Except as stated in
rule 3, when This Plan and another Plan cover the same child as a
dependent of different persons (called "parents"):
a. The benefits of the Plan of the parent whose birthday falls earlier
in the calendar year are determined before those of the Plan of the
parent whose birthday falls later in that calendar year; but
b. If both parents have the same birthday, the benefits of the Plan
which covered the parent longer are determined before those of the
Plan which covered the other parent for a shorter period of time.
However, if the other Plan does not have the rule described in a. but
instead has a rule based upon the gender of the parent, and if, as a
result, the Plans do not agree on the order of benefits, the rule in the
other Plan shall determine the order of benefits.
3. DEPENDENT CHILD/SEPARATED OR DIVORCED PARENTS. If two or more Plans
cover a person as a dependent child of divorced or separated parents,
benefits for the child are determined in this order
a. first, the Plan of the parent with custody of the child;
b. then, the Plan of the spouse of the parent with the custody of the
child; and
c. finally, the Plan of the parent not having custody of the child.
Also, if the specific terms of a court decree state that the parents have joint
custody of the child and do not specify that one parent has responsibility for
the child's health care expenses or if the court decree states that both parents
shall be responsible for the health care needs of the child but gives physical
custody of the child to one parent and the entities obligated to pay or provide
the benefits of the respective parents' Plans have actual knowledge of those
terms, benefits for the dependent child shall be determined according to rule 2.
However, if the specific terms of a court decree state that one of the parents
is responsible for the health care expenses of the child, and the entity
obligated to pay or provide the benefits of the Plan of that parent has actual
knowledge of those terms, the benefits of that Plan are determined first. This
paragraph does not apply with respect to any Claim Determination Period or plan
year during which any benefits are actually paid or provided before the entity
has that actual knowledge.
9
<PAGE>
4. ACTIVE/INACTIVE EMPLOYEE. The benefits of a Plan which covers a person
as an employee who is neither laid off nor retired or as that employee's
dependent are determined before those of a Plan which covers that person
as a laid off or retired employee or as that employee's dependent. If
the other Plan does not have this rule and if, as a result, the Plans do
not agree on the order of benefits, this rule is ignored.
5. CONTINUATION COVERAGE. The benefits of a Plan which covers a person as
an employee, member, or Insured, or as a dependent of such person, are
determined before those of a Plan which covers that person as a person
on state or federal continuation. If the other Plan does not have this
rule and if, as a result, the Plans do not agree on the order of
benefits, this rule is ignored.
6. LONGER/SHORTER LENGTH OF COVERAGE. If none of the above rules determines
the order of benefits, the benefits of the Plan which covered an
employee, member, or Insured longer are determined before those of the
Plan which covered that person for the shorter time.
EFFECT ON THE BENEFITS OF THIS PLAN
This Section applies when, in accordance with the Order of Benefit Determination
Rules, This Plan is a Secondary Plan as to one or more other Plans. In that
event the benefits of This Plan may be reduced under this section. Such other
Plan or Plans are referred to below as "the other Plans".
The benefits of This Plan will be reduced when the sum of:
a. the benefits that would be payable for the Allowable Expenses under This
Plan in the absence of this COB provision; and
b. the benefits that would be payable for the Allowable Expenses under the
other Plans, in the absence of provisions with a purpose like that of
this COB provision, whether or not claim is made, exceeds those
Allowable Expenses in a Claim Determination Period. In that case, the
benefits of This Plan will be reduced so that they and the benefits
payable under the other Plans do not total more than those Allowable
Expenses.
When the benefits of This Plan are reduced as described above, each benefit is
reduced in proportion. It is then charged against any applicable benefit limit
of This Plan.
RIGHT TO RECEIVE AND RELEASE NEEDED INFORMATION
Certain facts are needed to apply these COB rules. We have the right to decide
which facts We need. We may get needed facts from or give them to any other
organization or person. We need not tell or get the consent of any person to do
this. Each person claiming benefits under This Plan must give Us any facts We
need to pay the claim.
FACILITY OF PAYMENT
A payment made under another Plan may include an amount which should have been
paid under This Plan. If it does, We may pay that amount to the organization
which made that payment. That amount will then be treated as though it were a
benefit paid under This Plan. We will not have to pay that amount again. The
term "payment made" means reasonable cash value of the benefits provided in the
form of services.
RIGHT OF RECOVERY
If the benefit provided by Us is more than should have been provided under this
COB provision, We may recover the excess from one or more of:
1. the persons We have paid or for whom We have paid;
2. insurance companies; or
3. other organizations.
10
<PAGE>
GRIEVANCE PROCEDURE
If vision Benefits are denied, either in whole or in part, or the Insured is
dissatisfied with the services provided, the Insured may request an explanation
of the cause of the Grievance.
Telephone inquiries should be directed to ProVantage Vision Management Services
at (414) 784-4600 or, outside Milwaukee area, 1-(888) 478-3722.
If the initial explanation of the cause of the Grievance is not satisfactory to
the Insured, the Insured may further appeal the Grievance by writing to the
Quality Assurance Committee (QAC) in care of Us. We recommend that a written
grievance include the following information:
1. The number of the Group Vision master policy issued to the Policyholder.
2. The Date Of Service in question.
3. The name of the Vision provider.
4. The patient's name.
5. The name and social security number of the Insured, and
6. The reason(s) why the Insured is making the written Grievance.
The QAC will acknowledge receipt of the Grievance within 10 days of that
receipt. The QAC will review the Grievance. The QAC review will consider all
relevant information submitted by the Insured as well as Our applicable records.
The QAC will allow the Insured the opportunity to appear before the QAC to
present written or oral information and to question the persons responsible for
making the determination which resulted in the Grievance. The QAC will notify
the insured of his right to appear, and of the time and place of the QAC meeting
at least 7 days in advance. The decision of the QAC will be made in writing to
the Insured within 30 calendar days from the date of the receipt of the
Grievance. Upon written notice within the initial 30 calendar day period, the
QAC may extend the review for up to 60 calendar days from the date of receipt of
the Grievance. This extension notice shall specify the reason why additional
time is needed, and specify when a resolution may be expected. The decision of
the QAC will be considered final by Us.
Should the Grievance involve urgent care, the Insured may file the Grievance via
a telephone call to Us. Urgent care is care which cannot be postponed during the
time required for the normal Grievance process. The telephone call must provide
the pertinent information listed above. The QAC will resolve the Grievance
within 4 business days of receipt of the Grievance.
The Insured has the right to be represented by counsel at any stage of the
Grievance procedure. This Grievance procedure does not prevent the Insured from
seeking legal redress.
11
<PAGE>
NOTICE OF RIGHT TO FILE A COMPLAINT
If the Insured is having problems with their insurance company or agent, do not
hesitate to contact the insurance company or agent to resolve their problem.
You can also contact the Office of the Commissioner of Insurance, a state agency
which enforces Wisconsin insurance laws, and file a complaint. The Insured can
contact the Office of the Commissioner of Insurance by writing to:
Office of the Commissioner of Insurance
Complaints Department
P.O. Box 7873
Madison, WI 53707-7873
or they can call 1-800-236-8517 outside of Madison or 266-0103 in Madison, and
request a complaint form.
OVERPAYMENT RECOVERY
Whenever any Benefit payments may have been made by Us in excess of the payment
amounts required, We will deem the excess payment amount a debt of the Insured
that is due and payable to Us. We have the right to recover that debt from the
Insured or to reduce Benefit amounts that remain payable to recover the debt.
TERMINATION OF COVERAGE
RENEWAL OF THE POLICY BY US
This policy will initially be in effect for two years commencing on the
effective date. This policy may be renewed by the Policyholder for additional
periods of one month each, specified by and subject to Our consent. Each
subsequent renewal will be in accordance with the eligibility, premium
computation, and payment provisions of this policy.
TERMINATION OF THE POLICY BY US
We may terminate this policy on the first policy anniversary. Thereafter, We may
terminate this policy on the first day of any period for which premium is due
if any of the following conditions occur:
1. the number of enrolled Insureds is less than 10; or
2. less than 75% of the persons eligible for contributory insurance are
enrolled; or
3. the Policyholder fails:
a. to promptly provide any information that We may reasonably require;
or
b. to perform any other contractual obligations of this policy.
We will give written notice of any termination to the Policyholder at least 60
days in advance of the termination date. Termination of this policy under any
condition will not prejudice any claims for which the Date of Loss occurred
while this policy was in force.
This policy will not terminate during any period for which premium has been
paid; however, if the Policyholder fails to pay any premium within the grace
period, this policy will automatically terminate at 12:00 midnight of the last
day of the grace period. The policyholder is liable to Us for any premium due
and unpaid for the entire period this policy remains in force.
TERMINATION OF THE POLICY BY THE POLICYHOLDER
12
<PAGE>
The Policyholder may cancel this policy on the first day of any period for which
premium is due, by giving written notice to Us at least 30 days in advance of
the termination date. If the Policyholder is a trust or an association, coverage
under this Policy will terminate with respect to a Group which is a
participating member on the date such Group terminates its membership therein.
The Group must provide Us written notice of such termination at least 30 days in
advance of the termination date. Without 30 days advance written notice, the
termination date must be mutually agreed upon by the Group, or the Policyholder
if the Group is not the Policyholder, and Us.
TERMINATION OF INDIVIDUAL COVERAGE
The coverage of any Insured will terminate upon the first to occur of any of the
following dates:
1. the date the policy is canceled; or
2. the date the policy is modified to exclude coverage for the class to
which the Insured belongs; or
3. the date the premium payments cease to be made when due; or the end of
the cobra extension.
4. the date the Insured terminates employment; or
5. the date the Insured is no longer a member of the class of persons
eligible for coverage as specified in this policy; or
6. the date the Insured is laid off, resigns, retires, or is dismissed
from employment; or
7. the day preceding the date a leave of absence begins, except a leave of
absence due to illness or injury. Refer to the Special Provisions For
Not Being In Active Status section of the policy; or
8. the date of work stoppage which is the result of a labor dispute.
TERMINATION OF EMPLOYEE'S DEPENDENT INSURANCE
The coverage on any Dependent will terminate upon the first to occur of any of
the following dates:
1. the date the person ceases to be a Dependent; or
2. the date premium payments cease to be made, if required; or
3. the date the Insured's coverage ceases under this policy.
SPECIAL PROVISIONS FOR NOT BEING IN ACTIVE STATUS
If a Insured is not Actively At Work Full-Time due to illness or injury,
coverage may remain in effect if:
1. the premium continues to be paid on the Insured's behalf; up to 12
weeks.
2. the Group continues participation under this policy.
In no event shall coverage on any Insured be continued by payment of premium
longer than 12 consecutive weeks after the illness or injury commenced.
13
<PAGE>
PREMIUM CALCULATION AND PAYMENT
PREMIUM
The initial premium is calculated by multiplying the premium rates specified in
the policy outline by the number of eligible Insureds enrolled for either single
or family coverage. Without due notice to the contrary, such premium rates will
remain effective.
We retain the right to establish new premium rates for the calculation of both
the current premium due and all future premium:
1. when the policy provisions or conditions are changed; or
2. when additional coverage is requested for a division, subsidiary, or
other group associated with the Group; or
3. when other factors, bearing on the risk We have assumed as evidenced by
this policy are changed.
New premium rates may be established on any premium due date after the first 12
month period that this policy has been in force by giving appropriate notice to
the Policyholder 31 days (60 days if the rate increases by 25% or more) before
the due date of the changed premium. New premium rates may be established at an
earlier date by mutual agreement of the Policyholder and Us.
Within the first 12 months, We reserve the right to revise premium rates if
changes in state or federal law enhance the Benefits available under this
policy.
PREMIUM PAYMENT
The initial premium payment is due from the Policyholder to Us on or before the
effective date of the policy. Subsequent payments are due monthly; however,
payment of any premium will not maintain this coverage in force beyond the end
of the period for which the premium was paid except when the grace period
provisions are in effect. If the Policyholder is a trust or an association, then
the Group which is a participating member thereof is responsible for paying to
Us premiums on a timely basis.
Any premium adjustment that involves a return of unearned premium to the Group
will be limited to the period of 2 months immediately preceding the date We
receive evidence that the Group is entitled to such adjustments. The Group shall
forfeit the return of any remaining unearned premium; however, such forfeiture
shall not be construed as extending an Insured's coverage beyond the date he
would otherwise have been ineligible.
GRACE PERIOD
If, after payment of the initial premium due under this policy and prior to the
due date of any subsequent premium, the Group has not given to Us written notice
of cancellation, a grace period of 31 days, extending from the first day of the
period for which premium is due, will be allowed.
During the grace period, coverage under this policy will remain in force until
the first of the following events occurs:
1. We receive, before the end of the grace period, written notice from the
Group to cancel the policy, in which case such notice will terminate
this policy on the later of either
a. the date the notice is received; or
b. the requested termination date.
However, in either case, the Group will be liable for premium payments
prorated for the time the policy remained in force during the grace
period.
14
<PAGE>
2. The grace period expires without payment of premium due, in which case
the Group is liable for the payment of all premium amounts due for
policy coverage which was extended during the grace period.
NONPARTICIPATING POLICY
This policy is non-participating. It will not receive any distribution from Our
surplus earnings, if any; neither will it be assessable to recover loss, if any,
to Our equity.
CONTINUATION
The provision entitled CONTINUATION OF COVERAGE UNDER WISCONSIN LAW contains the
continuation requirements of Wisconsin Statute 632.897. The provision entitled
CONTINUATION OF COVERAGE UNDER COBRA (Federal Law) contains the continuation
requirements of the federal Consolidated Omnibus Budget Reconciliation Act
(COBRA) of 1985. Groups insured under this Policy may be subject to both
statutes. If so, they must comply with the minimum requirements of both
statutes. The intent of this Policy is to comply with the minimal legislative
requirements of both state law and COBRA. If either or both laws are amended,
thus affecting a provision of this Policy, We deem that provision amended and
administer the Policy accordingly. It is the Group's responsibility to determine
which provision applies to the Group.
CONTINUATION OF COVERAGE UNDER WISCONSIN LAW
1. The following persons who have been continuously covered under this
Policy for at least 3 months may elect to continue coverage under this
Policy.
a. The former spouse of an Insured who otherwise would terminate
coverage because of divorce or annulment.
b. An Insured who would otherwise terminate eligibility for coverage
under this Policy. This does not include an Insured who terminates
eligibility for coverage due to discharge for misconduct shown in
connection with his or her employment.
c. The spouse and/or dependents of an Insured if the Insured dies while
covered by this Policy and the spouse and/or dependents were also
covered by this Policy.
2. If premium for coverage continues to be paid, coverage under this Policy
continues for
a. The terminated Insured entitled to continuation; and
b. The terminated Insured's spouse and dependents who were also covered
by this Policy,
until the terminated Insured is notified of his or her right to elect
continuation.
3. If the Group is notified to terminate an Insured's coverage for any of
the reasons set forth in paragraph 1 above, the Group will send to the
Insured's home address, as shown on the Group's records, or deliver
personally written notification of:
a. The right to continuation coverage under this Policy; and
b. The payment amount needed for continued coverage. This includes the
manner, place and time in which payment must be made.
The Group will give notice not more than 5 days after receiving notice
to terminate coverage. The premium for continued coverage under this
Policy will not be more than the rate in effect for a person covered
under the Group, including the Group's contribution.
4. The terminated person must elect continuation coverage within 30 days
after receiving notice under paragraph 3 above. He or she must pay the
amount required in that same period. If the terminated person is a
minor, his or her parent or guardian may act on his or her behalf. A
terminated Insured
15
<PAGE>
may continue coverage for his or her spouse or dependents who were also
covered by this Policy. Continued coverage continues until the earliest of
the following occurs:
a. The person terminated establishes residence outside this state.
b. The terminated person fails to make timely payment of a required premium
amount.
c. The terminated person is eligible for continued coverage under paragraph
1-a and the Insured through whom he or she originally obtained coverage
is no longer eligible for coverage under this Policy. If the Insured
becomes eligible for coverage by a replacement group policy providing
coverage to the same group, the terminated person has the right to
continued coverage under the replacement policy.
d. The terminated person becomes eligible for similar coverage under
another group policy.
e. The end of a period of 18 months of continued coverage.
5. The terminated person pays premium for continued coverage to the Group. The
Group collects the premium, and We bill the Group for the premium. We
charge to the Group the claims experience of individuals whose coverage is
continued.
CONTINUATION OF COVERAGE UNDER FEDERAL LAW (COBRA)
1. Upon the occurrence of an event set forth in paragraph 2 below, the
following persons who have been covered under this Policy may elect to
continue coverage under this Policy.
a. The spouse of an Insured, upon the occurrence of event 2-a, 2-b, 2-c, or
2-d;
b. The Dependent child of an Insured, upon the occurrence of event 2-a,
2-b, 2-c, or 2-d;
c. The Insured, upon the occurrence of event 2-b;
d. The retired Insured and any of his covered Dependents, upon the
occurrence of event 2-f;
e. Widows or widowers of retired Insureds who died before the occurrence of
event 2-f, upon the occurrence of that event.
2. If one of the following events occurs and results in the loss of coverage
under this Policy for a person described in paragraph 1, he or she may
continue coverage.
a. Death of the Insured;
b. Termination of the Insured's eligibility for coverage under this Policy.
This does not include an Insured who terminates eligibility for coverage
due to discharge for gross misconduct shown in connection with his or
her employment;
c. Eligibility of the Insured for Medicare;
d. Divorce or legal separation of the Insured;
e. End of the eligibility of a child of the Insured as a Dependent under
this Policy, or
f. The Group's filing of a Chapter 11 bankruptcy petition.
The Insured or his or her dependents whose coverage is terminated due to
the occurrence of an event listed in d or e above must provide the Group
notice of that event within 60 days of its occurrence.
3. If the Group is notified to terminate a persons coverage for any of the
reasons set forth in paragraph 2 above, the Group will send to that
person's home address, as shown on the Group's records, or deliver
personally written notification of:
a. The right to continue coverage under this Policy, and
b. The payment amounts needed for continued coverage. This includes the
manner, place and time in which payment must be made.
The Group will give notice not more than 14 days after receiving notice to
terminate coverage. Except as provided in paragraph 6-e, the premium for
continued coverage under this Policy will not
16
<PAGE>
be more than 102% of the rate in effect for a person covered under the
Group, including the Group's contribution.
4. The terminated person must elect continued coverage and pay the premium
within the election period. This is a period of 60 days from the later of:
a. The date of the event set forth in paragraph 2 that led to termination;
or
b. The date the terminated person receives notice under paragraph 3 above.
He or she also has 45 days from the date he or she elects continued
coverage in which to pay to the Group the premium required for the
continued coverage provided during the period immediately preceding the
election date.
If the terminated person is a minor, his or her parent or guardian may act
on his or her behalf. A terminated Insured may continue coverage for his or
her spouse or dependents who were also covered by this Policy.
5. We treat a terminated person who continues coverage under this Policy in
the same manner as a similarly situated person whose Policy coverage has
not terminated.
6. Coverage of the terminated person continues until the earliest of the
following occurs:
a. The Group ceases to provide this Policy to any employees.
b. The terminated person fails to pay a required premium amount by the end
of the grace period.
c. The terminated person becomes covered as an employee or otherwise under
any other group medical expenses benefit plan, unless the plan limits or
excludes coverage for any pre-existing condition of that person.
d. The terminated person becomes entitled to Medicare benefits.
e. The end of a period of 18 months after the occurrence of event 2-b, or
36 months after the occurrence of event 2-a, 2-c, 2-d, or 2-e. However:
1) If the Social Security Administration determines that an Insured or
spouse, or dependent who is eligible for continued coverage because
of event 2-b was disabled at the time of the event, then the
Insured's coverage, continues until the earlier of the end of the
disability or the end of a period of 29 months after the occurrence
of event 2-b. The disabled individual must notify the Group of the
Social Security Administration's determination within 60 days of the
determination, and before the end of the eighteenth month of
continuation, and must also notify the group if the individual
ceases to be disabled. The premium for the nineteenth through
twenty-ninth month of continued coverage will not be more than 150%
of the rate in effect for a person covered under the Group,
including the Group's contribution.
2) If a retired Insured dies after the Group files a Chapter 11
bankruptcy petition, continued coverage for his or her surviving
spouse and children who are covered dependents expires at the end of
a period of 36 months after the Insured's death.
3) In all other cases, if a terminated person, other than a person
described in paragraph 1-e, experiences more than one of the events
set forth in paragraph 2, the maximum period of continuation is 36
months from the date of the first event.
7. The terminated person pays premium for continued coverage to the Group.
The Group collects the premium, and We bill the Group for the premium. We
charge to the Group the claims experience of individuals whose coverage is
continued.
GENERAL PROVISIONS
ENTIRE CONTRACT AND CHANGES
17
<PAGE>
This policy, including all provisions, outlines, endorsements and amendments,
the application of the Group, and the individual application of the Insured
constitute the entire contract between the Group and Us. No change in this
policy will be valid unless approved in writing by one of Our executive officers
and made a formal amendment to this policy. No agent has authority to change
this policy or any of its provisions.
LEGAL ACTIONS
No action at law or in equity may be brought to recover on this policy prior to
the expiration of a 60 day period extending from the date that written proof of
claim is first required under this policy to be provided to Us. No action, at
law or in equity, may be brought after the expiration of a 3 year period
extending from the Date Of Service for which written proof of claim is required
to be provided to Us by the Insured.
STATEMENTS MADE BY THE GROUP OR MEMBERS
A statement made by the Group or an Insured in an enrollment form will not be
used as a defense to a claim or to void or reform coverage unless the statement
is signed by the Group or Insured, and a copy of the enrollment form containing
the statement is or has been furnished to that Group or the Insured.
TIME LIMIT ON CERTAIN DEFENSES
Except for fraudulent statements, no statement made by an Insured under this
policy relating to that Insureds coverage will be used to contest the validity
of the coverage extended to that Insured after the coverage has been in force
for a period of 2 years.
NOTICE OF CLAIM
For services from Non-Participating Providers, the Insured must give Us written
notice of claim within 30 days of the Date Of Service, or as soon as it is
reasonably possible. Participating Providers file claims for the Insureds.
When We receive that notice, We will send claim forms to the Insured If the
Insured does not receive the claim forms within 15 days of the notice, The
Insured will have complied with the requirements of proof of claim when We
receive verifiable documentation that establishes:
1. the Insured's eligibility, and
2. the Date Of Service; and
3. the Provider, and
4. the services obtained from that Provider, and
5. to whom the services were provided.
PROOF OF CLAIM FOR SERVICES USED
A statement of claim for services and/or vision material(s) ordered and provided
by Non-Participating Providers under this policy should be provided to Us by the
Insured as soon as is reasonably possible but no later than 90 days from the
Date Of Service. If it is not possible to give proof within the time limit, it
may be given as soon thereafter as is reasonably possible, as long as We have
not been prejudiced by the delay. Proof of claim may not be given later than one
year after the time proof is otherwise required. Participating Providers will
provide Us with Proof of Claim for the Insured.
TIMELY PAYMENT OF CLAIMS
Claims incurred while this policy is in force will be paid upon receipt of
written proof of claim for an eligible Insured or Dependent.
PAYMENT OF CLAIMS
18
<PAGE>
Payment for services and materials obtained from Participating Providers will be
made directly to those providers in accord with the Benefit Outline and the
terms of this contract. Payment for services and materials obtained from a
NonParticipating Provider will be made directly to the Insured. The Insured may
assign the Benefits to the Non-Participating Provider. The Insured is
responsible for non-covered services from Participating and Non-Participating
Providers.
APPEAL PROCESS
Questions concerning any payment or denial We make can be directed to Our Vision
Customer Service Department for additional explanation.
If an Insured still disagrees with Our decision regarding payment or denial of a
claim, the Insured may appeal Our decision. The appeal for review must be in
writing to Us and must be received by Us within 60 days after the Insured
received notification of the denial of benefits. The appeal must be identified
as a claim appeal and must provide pertinent information such as: identification
numbers, date and place of service, name of insured, name of patient, and reason
for requesting the review.
After being reviewed by Us, a written decision, including reasons, will be
provided within 60 days of receipt of the appeal. If there are special
circumstances requiring an extensive review, the final decision will be made
within 120 days of receipt of the appeal.
In all cases, the Insured retains the right to be represented by a lawyer at any
time. After the appeal process has been completed, the Insured has the right to
take his case to civil court.
DATA REQUIRED FROM THE GROUP
The Group will furnish to Us any information We may reasonably require for the
administration of this policy, including timely information about persons who
have become eligible, changes in coverage, and termination of coverage. We have
the right to inspect at any reasonable time any records of the Group which
relate to the coverage under this policy.
19
<PAGE>
CLERICAL ERROR
Failure of the Group, due to clerical error, to report the name of any person
who has qualified for coverage under this policy or to report the name of any
person whose classification has been changed will not deprive that person of
coverage, unless We have been prejudiced by the clerical error, as long as the
Group, and the Insured if applicable, immediately pay the appropriate premium
applicable to the coverage period. Failure of the Group to report the
termination of coverage for any Insured will not continue that coverage beyond
the date such coverage would otherwise terminate.
AGENCY
For all purposes of this policy, the Group acts on its own behalf or as an agent
of the Insured. Under no circumstances will the Group be deemed Our agent
without Our written authorization.
CERTIFICATES
We will issue to the Group, for delivery to each Insured covered under this
policy, an individual certificate or certificate substitute, that describes the
coverage for which that Insured is eligible, and how and to whom the policy
benefits are paid, and which contains the principal provisions of this policy
that affect the Insureds.
WORKERS' COMPENSATION
The coverage provided under this policy is not in place of and does not affect
any statutory requirement for coverage by workers' compensation insurance.
PRONOUNS
All personal pronouns used in this policy will include either gender, unless the
context clearly indicates to the contrary.
CONFORMITY WITH STATE STATUTES
Any provision of this policy that, on its effective date, is in conflict with
the statutes of the state in which it is issued, or issued for delivery, is
amended by this section to conform to the minimum requirements of that state
statute.
SEVERABILITY
Any provision of this policy which may be prohibited by law, will be and become
without force or effect within that jurisdiction; however, the void provision
will neither invalidate nor impair the enforceability of any other provision of
this policy.
20
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Shareholder of
ProVantage Health Services, Inc.:
We consent to the use in this Amendment No. 1 to this Registration Statement No.
333-71743 relating to 5,300,000 shares of Common Stock of ProVantage Health
Services, Inc. on Form S-1 of our report dated March 12, 1999, appearing in the
Prospectus, which is a part of this Registration Statement, and to the
references to us under the headings "Selected Historical Consolidated Financial
Data" and "Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule listed in Item 16(b). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
March 24, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 24,680
<SECURITIES> 0
<RECEIVABLES> 86,249
<ALLOWANCES> 1,314
<INVENTORY> 3,121
<CURRENT-ASSETS> 115,079
<PP&E> 20,943
<DEPRECIATION> 5,667
<TOTAL-ASSETS> 200,777
<CURRENT-LIABILITIES> 81,070
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 113,237
<TOTAL-LIABILITY-AND-EQUITY> 200,777
<SALES> 666,154
<TOTAL-REVENUES> 666,154
<CGS> 618,308
<TOTAL-COSTS> 649,994
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (543)
<INCOME-PRETAX> 16,703
<INCOME-TAX> 7,221
<INCOME-CONTINUING> 9,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,482
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99.4
CONSENT OF DIRECTOR DESIGNEE
March 22, 1998
The undersigned hereby consents, pursuant to Rule 438 under the Securities
Act of 1933, as amended, to the references to him as a future director of
ProVantage Health Services, Inc., in the Prospectus included in this
Registration Statement.
Signed: /s/ Jeffrey A. Jones
---------------------------------
Jeffrey A. Jones
