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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period (13 weeks) ended July 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-14923
PROVANTAGE HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1508848
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
N19 W24130 Riverwood Drive, Waukesha, Wisconsin 53188
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 414/784-4600
--------------------------
Former name, former address and former fiscal year, if changed since last
report:
13555 Bishops Court, Suite 201, Brookfield, Wisconsin 53005
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
---- -----
The number of shares outstanding of each of the issuer's classes of Common Stock
as of September 1, 1999 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 18,150,000
Exhibit Index Page 1 of Page 20
on Page 20
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PROVANTAGE HEALTH SERVICES, INC.
FORM 10-Q
FOR THE 13 WEEKS AND 26 WEEKS ENDED JULY 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Part I Item 1 - Financial Statements
Consolidated Statements of Earnings for the 13 weeks 3
ended July 31, 1999 and August 1, 1998
Consolidated Statements of Earnings for the 26 weeks 4
ended July 31, 1999 and August 1, 1998
Consolidated Balance Sheets as of July 31, 1999, 5
and January 30, 1999
Consolidated Statements of Cash Flows for the 26 6
weeks ended July 31, 1999 and August 1, 1998
Consolidated Statements of Stockholders' Equity for 7
the 26 weeks ended July 31, 1999 and for the period
ended January 30, 1999
Notes to Consolidated Financial Statements 8-9
Item 2 - Management's Discussion and Analysis of Financial 10-15
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure About 15
Market Risk
Part II Item 2 - Changes in Securities and Use of Proceeds 16
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 17-18
Signatures 19
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
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ProVantage Health Services, Inc. Second Quarter (13 Weeks)
Ended
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(In thousands, except per share data)
July 31, August 1, % Increase
1999 1998 (Decrease)
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(UNAUDITED)
<S> <C> <C> <C>
Net Sales $ 214,894 $ 148,987 44.2
Costs and expenses:
Cost of sales 201,049 137,945
Selling, general and administrative expenses 7,794 5,989
Depreciation and amortization expenses 2,130 1,798
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210,973 145,732 44.8
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Income from operations 3,921 3,255 20.5
Interest income - net 231 173
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Earnings before income taxes 4,152 3,428 21.1
Provision for income taxes 1,765 1,504
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Net Earnings $ 2,387 $ 1,924 24.1
============== =============
Basic net earnings per common share $ 0.17 $ 0.15
============== =============
Weighted average number of common shares
outstanding 13,688 12,550
Diluted net earnings per common share $ 0.17 $ 0.15
============== =============
Adjusted weighted average number of common
shares outstanding 13,689 12,550
</TABLE>
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
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ProVantage Health Services, Inc. Year To Date (26 Weeks)
Ended
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(In thousands, except per share data)
July 31, August 1, % Increase
1999 1998 (Decrease)
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(UNAUDITED)
<S> <C> <C> <C>
Net Sales $ 429,842 $ 294,760 45.8
Costs and expenses:
Cost of sales 402,229 273,315
Selling, general and administrative expenses 15,571 11,767
Depreciation and amortization expenses 4,191 3,198
--------------- --------------
421,991 288,280 46.4
--------------- --------------
Income from operations 7,851 6,480 21.2
Interest income - net 404 188
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Earnings before income taxes 8,255 6,668 23.8
Provision for income taxes 3,515 2,932
--------------- --------------
Net Earnings $ 4,740 $ 3,736 26.9
=============== ==============
Basic net earnings per common share $ 0.36 $ 0.30
=============== ==============
Weighted average number of common shares
outstanding 13,039 12,550
Diluted net earnings per common share $ 0.36 $ 0.30
=============== ==============
Adjusted weighted average number of common
shares outstanding 13,039 12,550
</TABLE>
See notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
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ProVantage Health Services, Inc.
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(In thousands)
July 31, January 30,
ASSETS 1999 1999
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(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,033 $ 24,680
Receivables, less allowances for losses of
$1,575 and $1,314, respectively 102,707 83,483
Receivable - related party 4,106 0
Pharmaceutical inventories 2,569 3,121
Other current assets 2,392 2,343
------------ --------------
Total current assets 131,807 113,627
Other assets - net 2,606 3,295
Intangible assets - net 66,556 66,053
Property and equipment - net 19,529 15,276
============ ==============
Total assets $ 220,498 $ 198,251
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
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<S> <C> <C>
Current liabilities:
Short-term debt $ 995 $ 968
Accounts payable - trade 55,561 65,566
Accrued liabilities 18,010 13,199
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Total current liabilities 74,566 79,733
Deferred income taxes 3,792 3,521
Minority interest 3,145 2,949
Stockholders' equity:
Common stock 182 126
Additional paid-in capital 138,394 88,997
Retained earnings 419 22,925
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Total stockholders' equity 138,995 112,048
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Total liabilities and stockholders' equity $ 220,498 $ 198,251
============ =============
</TABLE>
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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ProVantage Health Services, Inc. Year to Date (26 Weeks) Ended
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(In thousands)
July 31, August 1,
1999 1998
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(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,740 $ 3,736
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 4,191 3,198
Provision for losses on receivables 320 46
Deferred income taxes 256 895
Change in assets and liabilities:
Receivables (23,978) (6,202)
Pharmaceutical inventories 552 (1,463)
Other current assets (34) (1,773)
Other assets 1,312 663
Accounts payable (10,005) 6,624
Accrued liabilities 2,197 (1,839)
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Net cash (used in) provided by operating
activities (20,449) 3,885
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Cash flows from investing activities:
Payments for property and equipment (6,434) (3,466)
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Net cash (used in) investing activities (6,434) (3,466)
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Cash flows from financing activities:
Change in short-term debt 27 (14)
Issuance of common stock 92,369 0
Dividend paid to parent (73,744) 0
Capital contribution 3,582 7,930
Change in long-term debt 0 (943)
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Net cash provided by financing activities 22,234 6,973
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Net (decrease) increase in cash and cash equivalents (4,649) 7,392
Cash and cash equivalents at beginning of period 24,682 12,533
- -------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 20,033 $ 19,925
=====================================================================================
Supplemental cash flow information:
Non-cash investing activity
Accrued Supplemental
Contingent Payment $ 2,500
</TABLE>
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
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ProVantage Health Services, Inc.
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(In thousands, except per share data)
Common Stock Additional
------------------------------ Paid-in Retained
Shares Amount Capital Earnings
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<S> <C> <C> <C> <C>
BALANCES AT JANUARY 31, 1998 12,550 $ 126 $ 76,522 $ 13,443
Capital contribution 12,475
Net earnings 9,482
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BALANCES AT JANUARY 30, 1999 12,550 126 88,997 22,925
Dividend paid to parent (46,498) (27,246)
Sale of common stock under public offering 5,600 56 92,313
Net earnings 4,740
Capital contribution 3,582
----------------------------------------------------------------
BALANCES AT JULY 31, 1999 18,150 $ 182 $ 138,394 $ 419
================================================================
</TABLE>
Interim data subject to year end audit.
See notes to consolidated financial statements.
7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies:
The Company's consolidated financial statements and the notes to the
consolidated financial statements in the Registration Statement on Form S-1
contains a summary of significant accounting policies. The same accounting
policies are followed in the preparation of interim reports.
In June 1998, Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. The
Company believes this statement will have no significant impact on the Company's
consolidated financial statements.
Intangible Assets:
The fair value of the intangible assets of businesses acquired are amortized
using the straight-line method over 18 to 22 years. Accumulated amortization for
these assets was $11.5 million and $7.6 million at July 31, 1999 and August 1,
1998, respectively.
Income Taxes:
The provision for income tax expense for the second half of fiscal 1999 was $3.5
million, of which $3.2 million is current taxes and $0.3 million in deferred
taxes. Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Net Earnings Per Common Share:
Basic net earnings per common share are computed by dividing net earnings by the
weighted average number of common shares outstanding. Diluted net earnings per
common share are 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.
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.
8
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Major Customers:
For the second quarter ended July 31, 1999 and August 1, 1998, one customer,
American Medical Security, Inc., represented $25.5 million and $17.7 million,
respectively, in net sales. This represents 11.8% of net sales for each period.
ProVantage's contract with American Medical Security for pharmacy benefit
management services terminates on July 1, 2000. As of September 13, 1999,
ProVantage is engaged in the bidding process to provide pharmacy benefit
management services to American Medical Security after July 1, 2000. For a
more complete description of ProVantage's relationship with American Medical
Security and the possible affect on Provantage of the loss of one or more
significant customers, see ProVantange's Registration Statement on Form S-1
(Reg. No. 333-71743).
Statement of Registrant:
The data presented herein is unaudited, but in the opinion of management,
includes all adjustments (which consist only of normal recurring accruals)
necessary for a fair presentation of the consolidated financial position of the
Company and its subsidiaries at July 31, 1999 and August 1, 1998 and the results
of their operations and cash flows for the periods then ended. These interim
results are not necessarily indicative of the results of the fiscal years as a
whole.
Significant Events:
Prior to completion of ProVantage's initial public offering on July 19, 1999,
ProVantage Health Services, Inc. ("ProVantage") was a wholly-owned subsidiary of
ProVantage Holdings, Inc. which in turn was wholly-owned by ShopKo Stores, Inc.
("ShopKo"). The Company issued 5,600,000 shares of common stock at a public
offering price of $18.00 per share in its initial public offering. Another
840,000 shares were sold by ShopKo to cover over-allotments. ShopKo currently
owns approximately 64.5% of ProVantage's stock. ProVantage retained $20.0
million of the net proceeds which it will use for working capital, capital
expenditures and other general corporate purposes. Approximately $73.7 million
in proceeds from the initial public offering was paid to ShopKo as payment of a
dividend declared prior to the offering.
Subsequent Events:
On August 10, 1999 Avatex Corporation exercised its supplemental cash payment
right relating to the Company's 1996 acquisition of CareStream ScripCard from
Avatex. Avatex's supplemental cash payment right was for an amount equal to 1.5%
of the Company's market value, subject to a maximum of $5 million. In August
1999, ProVantage made a payment to Avatex of $5 million.
9
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company operates in one business segment, health benefit management. The
following table sets forth items from the Company's unaudited consolidated
financial statements for the second quarter of fiscal 1999 and 1998 as a
percentage of net sales:
<TABLE>
<CAPTION>
Second Quarter First Half
-------------- ----------
Fiscal Fiscal Fiscal Fiscal
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses
Cost of sales 93.6 92.6 93.6 92.7
Selling, general and administrative expenses 3.6 4.0 3.6 4.0
Depreciation and amortization expenses 1.0 1.2 1.0 1.1
---------- ----------- ----------- ----------
98.2 97.8 98.2 97.8
Income from operations 1.8 2.2 1.8 2.2
Interest income - net 0.1 0.1 0.1 0.1
---------- ----------- ----------- ----------
Earnings before income taxes 1.9 2.3 1.9 2.3
Provision for income taxes 0.8 1.0 0.8 1.0
---------- ----------- ----------- ----------
Net earnings 1.1 % 1.3 % 1.1 % 1.3 %
========== =========== =========== ==========
</TABLE>
Net Sales
Net sales for the second quarter of fiscal 1999 increased $65.9 million, or
44.2% to $214.9 million. This increase is due primarily to internally generated
growth in claims processing and mail pharmacy. Sales from pharmacy claims
processing increased $54.3 million, or 41.1%. This increase reflects a 28.9%
increase in number of claims processed and a 9.5% increase in the average
revenue per claim processed. Sales from ProVantage's mail pharmacy services
increased $11.1 million, or 74.0%, reflecting a 48.5% increase in the number of
prescriptions dispensed and a 17.5% increase in the average revenue per
prescription dispensed.
10
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Gross Margin:
Gross profit, calculated as net sales less cost of sales, for the second quarter
of fiscal 1999 increased $2.8 million, or 25.4%, compared to the second quarter
of fiscal 1998. This increase is principally attributable to a $1.4 million
increase in gross profit associated with mail pharmacy services, and a $1.0
million increase in gross profit associated with claims processing. ProVantage's
gross margins were 6.4% for the second quarter of fiscal 1999 and 7.4% for the
second quarter 1998. For the first half of fiscal 1999, gross margin was 6.4%
compared with 7.3% for the same period last year. The decrease in gross margin
as a percent of sales is primarily attributable to increasing prescription drug
costs and the addition of larger clients with lower average transaction fees.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses for the second quarter of fiscal
1999 increased $1.8 million, or 30.1% to $7.8 million. This increase relates to
additional personnel to support transaction growth and continued investment in
health information technology and clinical products and services. As a
percentage of net sales, selling, general, and administrative expenses were 3.6%
in the second quarter and first half of fiscal 1999 compared to 4.0% in the
second quarter and first half of fiscal 1998. This decrease as a percentage of
sales is primarily due to the leveraging of fixed costs against increased sales
volume.
Depreciation and amortization expenses for the second quarter of fiscal 1999
increased $0.3 million, or 18.5% to $2.1 million. This increase is attributable
to increased goodwill amortization related to ProVantage's business acquisitions
and increased software amortization. As a percent of net sales, depreciation and
amortization expenses were 1.0% for the second quarter and first half of 1999
compared to 1.2% and 1.1% for the second quarter and second half of fiscal 1998,
respectively.
Liquidity and Capital Resources:
The Company relies primarily on cash generated from operations and the proceeds
of the Company's initial public offering, with any remaining funding
requirements being met from short-term borrowings from ShopKo. Cash provided
from net earnings before depreciation and amortization was $8.9 million for the
first half of fiscal 1999 compared to $6.9 million for the same period last
year.
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As of July 31, 1999, the Company had a $25.0 million credit agreement with
ShopKo. No borrowings were outstanding under the credit agreement as of July 31,
1999. Funds generated from the initial public offering and operations, and if
necessary, the revolving credit facility or other short-term borrowings, are
expected to fund the projected working capital needs and total capital
expenditures through fiscal 1999. The Company's principal use of cash is for the
purchase of property, equipment and systems technology. The Company spent $6.4
million on capital expenditures in the first half of fiscal 1999, compared to
$3.5 million on capital expenditures for the same period last year. The
Company's total capital expenditures for the fiscal year ending January 29, 2000
are anticipated to approximate $15 to $20 million, the majority of which would
relate to replacement of the Company's retail network processing system and
continued enhancements and development in its suite of health information
technology products. These amounts exclude any capital that may be required for
acquisitions of businesses. Such plans may be reviewed and revised from time to
time in light of changing conditions.
The Company 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.
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. At the date of
acquisition, the present value of the minimum supplemental cash payment, $2.4
million, was recorded as additional purchase price. 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. Avatex is entitled to $5.0 million if ShopKo sells a
majority of ProVantage's common stock, other than in a public offering or public
distribution, of if ShopKo buys a competing business or if ProVantage disposes
of a substantial portion of its business. In August 1999, the Company paid $5.0
million to Avatex. Such additional purchase price will be amortized over a
period of 15 to 18 years.
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 was paid in August 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. No payment will be due if the fair market value is $250.0 million or less
at the measurement date; the full $8.0 million will be due if the value equals
or exceeds $500.0 million at the measurement date; and a pro rata portion of the
$8.0
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million contingent payment will be due if the value is between $250.0 million
and $500.0 million at the measurement date. The contingent payments, if any,
will be due, and the ultimate amount of the payment calculated, on the first to
occur of August 20, 2002 and the date on which ShopKo and its affiliates cease
to own at least a majority of ProVantage's outstanding common stock. The
contingent payments, if any, 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, 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 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.
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, that is, renovation, and is actively
engaged in the fifth stage of testing.
With respect to information technology systems, approximately 90 percent of
ProVantage's critical business systems are currently compliant, approximately 5
percent of them will be retired and approximately 5 percent 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 third 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
substantially all of its vendors and services 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 the Company relies upon to conduct its
day-to-day business will be compliant.
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Costs
ProVantage estimates that it will incur internal and external expenses of $0.8
to $1.0 million in conjunction with the Year 2000 compliance project of which
approximately $0.8 million had been incurred as of July 31, 1999. Of this
amount, $0.4 million was incurred in fiscal 1998, and $0.4 million was incurred
in the first half of 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
system 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 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 litigation which will have a material adverse effect on the
Company.
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 substantially completed contingency plans to handle the most
reasonably likely worst case scenarios described above. ProVantage intends to
complete the contingency plans for these scenarios during the third quarter of
fiscal 1999.
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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 10-Q 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.
Inflation:
Inflation has and is expected to have only a minor effect on the results of
operations of the Company and its internal and external sources of liquidity.
Forward-Looking Statements:
Item 2 of this Form 10-Q, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements within
the meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements include, without limitation,
statements regarding earnings, growth and capital expenditure plans, acquisition
plans, the awarding of contracts, and capital requirements. Such statements are
subject to important factors which could cause the Company's actual results to
differ materially from those anticipated by the forward-looking statements.
These factors include those referenced in the Company's Registration Statement
on Form S-1 (Reg. No. 333-71743) or as may be described from time-to-time in the
Company's subsequent SEC filings.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
For information as to the Company's Quantitative and Qualitative Disclosures
About Market Risk, please see the Company's Registration Statement on Form S-1
(Reg. No. 333-71743). There have been no material changes in the Company's
quantitative or qualitative exposure to market risk from that described in the
Registration Statement.
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PART II - OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds
- ------ -----------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) Not applicable
(d) The Registrant's Registration Statement on Form S-1 was declared
effective by the Securities and Exchange Commission on July 8,
1999 (File No. 333-71743), and the initial public offering of the
Registrant's Common Stock, par value $0.01 per share (together
with the attached Preferred Stock Purchase Rights), began on July
14, 1999. All of the 5,600,000 shares offered by the Registrant,
and all of the 840,000 shares subject to an over-allotment option
granted by ShopKo Stores, Inc. to the underwriters, were sold on
July 19, 1999. The managing underwriters for the Registrant's
initial public offering were Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Bear, Stearns & Co. Inc. William Blair &
Company, L.L.C. and Lehman Brothers Inc. The number of shares of
Common Stock registered under the Registrant's Form S-1 was
6,440,000 shares (which includes 345,000 shares registered under
the Registrant's Form S-1 filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended), which includes 840,000
shares registered for the account of ShopKo; the aggregate price
of the offering amount registered was $115,920,000 which includes
$15,120,000 registered for the account of ShopKo; the amount of
shares of Common Stock sold was 6,440,000 which includes 840,000
shares sold for the account of ShopKo; and the aggregate offering
price of the Common Stock sold was $115,920,000, which includes
$15,120,000 sold for the account of ShopKo.
From July 14, 1999 through July 31, 1999, the Registrant incurred
the following expenses in connection with the issuance and
distribution of the Common Stock registered: $7,056,000 in
underwriting discounts (which does not include $1,058,400 in
underwriting discounts incurred by ShopKo in connection with the
underwriters' exercise of the over-allotment option on July 19,
1999); and approximately $1,375,000 in other expenses (this
figure represents a reasonable estimate of the amount of expenses
incurred). None of such payments were made directly or indirectly
to directors, officers, ten percent owners of the Registrant or
affiliates of the Registrant.
16
<PAGE> 17
The net proceeds from the initial public offering to the
Registrant, after deducting the underwriting discounts, were
$93,744,000. From July 19, 1999 through July 31, 1999, the
Registrant used approximately $73,744,000 of the proceeds
received in connection with the initial public offering to repay
a portion of a demand promissory note issued by the Registrant to
ShopKo, the Registrant's parent company. The remaining
$20,000,000 was invested in high grade short-term investments as
of July 31, 1999.
Item 5: Other Information
On August 16, 1999, Terry R. Thompson, Chairman and Chief Executive Officer of
Medical Logistics, based in Totowa, New Jersey, joined the Company's Board of
Directors. Medical Logistics provides transportation and logistics service to
institutional pharmacies, drug wholesalers, clinical laboratories and other
health care entities exclusively. The addition of Mr. Thompson, as a Class I
director, increases the size of the Company's Board from five to six members.
Mr. Thompson's initial term on the board will expire at ProVantage's annual
meeting of shareholders in 2000, where he is expected to stand for reelection.
Mr. Thompson founded Medical Logistics in March of 1997 as Chief Executive
Officer. Prior to this, Thompson served as the Executive Vice President,
Business Operations and Director for Merit Behavioral Care Corporation, Inc. Mr.
Thompson is originally from Tennessee and earned a bachelor's degree from
Memphis State University.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
4.1 Rights Agreement between the Registrant and Norwest Bank
Minnesota, N.A. dated as of March 12, 1999.
10.1 Indemnification and Hold Harmless Agreement dated as of July
19, 1999 between the Registrant and ShopKo Stores, Inc.
10.2 Tax Matters Agreement dated as of July 19, 1999 between the
Registrant and ShopKo Stores, Inc.
10.3 Credit Agreement dated as of July 19, 1999 between the
Registrant and ShopKo Stores, Inc.
10.4 Registration Rights Agreement dated as of July 19, 1999
between the Registrant and ProVantage Holdings, Inc.
17
<PAGE> 18
10.5 Information Technology Services Agreement dated as of
July 19, 1999 between the Registrant and ShopKo Stores, Inc.
10.6 Administrative Services Agreement dated as of July 19, 1999
between the Registrant and ShopKo Stores, Inc.
11 Computation of Earnings Per Common and Common Equivalent
Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed Current Reports on Form 8-K in the second quarter of
fiscal 1999 as follows:
None.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROVANTAGE HEALTH SERVICES, INC.
(Registrant)
Date: September 13, 1999 By: /s/ Patricia A. Nussle
---------------------------------------
Patricia A. Nussle
Vice President Legal Affairs and Secretary
(Duly Authorized Officer of Registrant)
Date: September 13, 1999 By: /s/ Peter J. Beste
----------------------------------------
Peter J. Beste
Vice President and Controller
(Chief Accounting Officer and Duly
Authorized Officer of Registrant)
19
<PAGE> 20
EXHIBIT INDEX
PROVANTAGE HEALTH SERVICES, INC.
10-Q REPORT
<TABLE>
<CAPTION>
Exhibit Sequential
Number Exhibit Page Number
- ------ ------- -----------
<S> <C> <C>
4.1 Rights Agreement between the Registrant and Norwest
Bank Minnesota, N.A. dated as of March 12, 1999.
10.1 Indemnification and Hold Harmless Agreement dated
as of July 19, 1999 between the Registrant and
ShopKo Stores, Inc.
10.2 Tax Matters Agreement dated as of July 19, 1999 between the
Registrant and ShopKo Stores, Inc.
10.3 Credit Agreement dated as of July 19, 1999 between the
Registrant and ShopKo Stores, Inc.
10.4 Registration Rights Agreement dated as of July 19, 1999
between the Registrant and ProVantage Holdings, Inc.
10.5 Information Technology Services Agreement dated as of July 19, 1999
between the Registrant and ShopKo Stores, Inc.
10.6 Administrative Services Agreement dated as of July 19, 1999
between the Registrant and ShopKo Stores, Inc.
11 Computation of Earnings Per Common and Common
Equivalent Share.
27 Financial Data Schedule.
</TABLE>
20
<PAGE> 1
EXHIBIT 4.1
RIGHTS AGREEMENT
BY AND BETWEEN
PROVANTAGE HEALTH SERVICES, INC.
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
RIGHTS AGENT
DATED AS OF MARCH 12, 1999
<PAGE> 2
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
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
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
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>
3
<PAGE> 4
RIGHTS AGREEMENT
THIS RIGHTS AGREEMENT ("Agreement"), dated as of March 12, 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
4
<PAGE> 5
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 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
5
<PAGE> 6
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
(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
6
<PAGE> 7
(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
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 June 30, 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
7
<PAGE> 8
$120.00, subject to adjustment from time to time as provided in
Sections 11 and 13 hereof.
(o) "Record Date" shall mean July 1, 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.
(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
8
<PAGE> 9
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,
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, N.A.,
dated March 12, 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,
9
<PAGE> 10
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,
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
10
<PAGE> 11
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.
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
11
<PAGE> 12
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
(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
12
<PAGE> 13
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.
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
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<PAGE> 14
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
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
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<PAGE> 15
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
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<PAGE> 16
of the Company were open, the holder would have owned upon
such exercise and been entitled to 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
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<PAGE> 17
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
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.
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<PAGE> 18
(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 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
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<PAGE> 19
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.
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
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<PAGE> 20
(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.
(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.
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<PAGE> 21
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.
(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
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<PAGE> 22
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.
(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,
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<PAGE> 23
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
(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,
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<PAGE> 24
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.
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<PAGE> 25
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
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<PAGE> 26
pursuant to this Agreement;
(iii) the term "Company" shall thereafter be deemed to refer to such
issuer; and
(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
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<PAGE> 27
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
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.
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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
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
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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 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
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<PAGE> 30
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 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
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<PAGE> 31
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.
(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
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<PAGE> 32
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 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.
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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.
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<PAGE> 34
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.
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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
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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 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
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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),
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:
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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
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.
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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.
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.
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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: /s/ Patricia Nussle By: /s/ Ted Garrity
----------------------------- -----------------------------
Name: Patricia Nussle Name: Ted Garrity
Title: Vice President - Legal Title: Assistant Vice President
40
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AND HOLD HARMLESS AGREEMENT
THIS INDEMNIFICATION AND HOLD HARMLESS AGREEMENT is dated as of July
19, 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 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
<PAGE> 2
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.
Preliminary Prospectus: the meaning ascribed to such term in that
certain Purchase Agreement, dated July 14, 1999, (the "Underwriting Agreement")
between ProVantage and the representatives of the several underwriters named in
Schedule A thereto.
Prospectus: the meaning ascribed to such term in the Underwriting
Agreement.
Registration Statement: the meaning ascribed to such term in the
Underwriting Agreement.
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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 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
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(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
(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;
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(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-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
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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
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
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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 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
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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.
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: /s/ Richard D. Schepp
-----------------------------------------
Richard D. Schepp, Sr. Vice President,
General Counsel/Secretary
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PROVANTAGE HEALTH SERVICES, INC.
By: /s/ Jeffrey A. Jones
--------------------------------------
Jeffrey A. Jones
Executive Vice President and Chief
Operating Officer
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EXHIBIT 10.2
TAX MATTERS AGREEMENT
THIS TAX MATTERS AGREEMENT ("Agreement") dated as of July 19, 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.
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.
<PAGE> 2
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 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
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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 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
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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 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
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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 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.
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(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 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
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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
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.
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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.
(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.
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(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: /s/ Richard D. Schepp
----------------------------------------------------
Richard D. Schepp
Sr. Vice President, General Counsel/Secretary
PROVANTAGE HEALTH SERVICES, INC.
By: /s/ Jeffrey A. Jones
----------------------------------------------------
Jeffrey A. Jones
Executive Vice President and
Chief Operating Officer
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EXHIBIT 10.3
CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("Agreement") is made and entered into as of the 19th
day of July, 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.
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"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
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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
disbursements exceed cash receipts, an Account Balancing Loan will be made by
Lender to cover this excess.
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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 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
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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
1-602-3422-4931 with U.S. Bank, Minneapolis, Minnesota 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 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
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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 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
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<PAGE> 7
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.
(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:
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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 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
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<PAGE> 9
(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:
(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;
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<PAGE> 10
(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 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;
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<PAGE> 11
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.
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
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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 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
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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.
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,
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<PAGE> 14
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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SHOPKO STORES, INC.
By: /s/ Richard D. Schepp
------------------------------------------------------
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: Counsel
Facsimile Number: (920) 429-4720
PROVANTAGE HEALTH SERVICES, INC.
By: /s/ Jeffrey A. Jones
------------------------------------------------------
Name: Jeffrey A. Jones
Title: Executive Vice President and Chief
Operating Officer
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
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EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") dated as of July 19,
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 approximately 69.1% of the issued and outstanding
shares of Common Stock (as hereinafter defined) after completion of the Initial
Public Offering (approximately 64.5% if the overallotment option is exercised in
full. 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> 2
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
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<PAGE> 3
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 by the registration so demanded and the
Company shall have furnished to the Holder or
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<PAGE> 4
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 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
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<PAGE> 5
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 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
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<PAGE> 6
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 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
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<PAGE> 7
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, 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
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<PAGE> 8
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.
(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
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<PAGE> 9
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 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.
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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.
(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.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PROVANTAGE HEALTH SERVICES, INC.
By: /s/ Jeffrey A. Jones
-----------------------------------------------
Jeffrey A. Jones
Executive President and Chief Operating Officer
PROVANTAGE HOLDINGS, INC.
By: /s/ Richard D. Schepp
-----------------------------------------------
Richard D. Schepp, Assistant Secretary
and Authorized Officer
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<PAGE> 1
EXHIBIT 10.5
INFORMATION TECHNOLOGY SERVICES AGREEMENT
THIS INFORMATION TECHNOLOGY SERVICES AGREEMENT ("Agreement") dated as
of July 19, 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> 2
"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 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.
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"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.
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
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<PAGE> 4
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 liable to the other for special, punitive,
incidental or consequential damages arising out of this Agreement.
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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
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
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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.
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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
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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.
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.
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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.
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.
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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 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
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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 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
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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.
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
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If to ProVantage,
ProVantage, 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 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
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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.
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.
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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 erefor,
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.
SHOPKO STORES, INC.
By: /s/ Richard D. Schepp
-----------------------------------
Richard D. Schepp
Senior Vice President
PROVANTAGE HEALTH SERVICES, INC.
By: /s/ Jeffrey A. Jones
-----------------------------------
Jeffrey A. Jones
Executive Vice President and
Chief Operating Officer
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EXHIBIT A
Base Fee
<TABLE>
<CAPTION>
MONTHLY ANNUAL
FEE IN $'S FEE IN $'S
---------- ----------
ShopKo IS Employees
Job Category FTE
<S> <C> <C> <C> <C>
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 - 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 31,038 372,466
-------- ---------
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
I.S. Disaster Recovery Service 5,100 61,200
AIX Support line 3,333 40,000
---------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER SERVICES $ 8,643 $ 103,720
-------- ---------
---------------------------------------------------------------------------------------------------------------------------
BASE FEE $ 55,895 $ 670,752
===========================================================================================================================
</TABLE>
<PAGE> 17
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
- - Tack 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
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
- - 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
<PAGE> 18
- - 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
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
<PAGE> 19
- - 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
- - 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 and voice communication facilities
<PAGE> 20
- - Specify voice communication equipment
- - Design technical architectures
- - Design Intranet/Internet
- - Specify data communications equipment
- - Specify data communications facilities
<PAGE> 1
EXHIBIT 10.6
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") dated as of July
19, 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> 2
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.
2
<PAGE> 3
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.
3
<PAGE> 4
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.
4
<PAGE> 5
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'
5
<PAGE> 6
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:
(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.
6
<PAGE> 7
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:
If to ShopKo,
ShopKo Stores, Inc.
700 Pilgrim Way
Green Bay, WI 54307
Telecopy: (920) 429-4225
Attention: General Counsel
7
<PAGE> 8
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
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.
8
<PAGE> 9
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.
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: /s/ Richard D. Schepp
--------------------------------------------------
Richard D. Schepp, Sr. Vice President, General
Counsel/Secretary
PROVANTAGE HEALTH SERVICES, INC.
By: /s/ Jeffrey A. Jones
--------------------------------------------------
Jeffrey A. Jones
Executive Vice President and Chief Operating Officer
9
<PAGE> 10
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, etc. 100,000 8,334
- ------------------------------------------------------------------------------------------------------------------
TOTAL $375,000 $31,250
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 1
PROVANTAGE HEALTH SERVICES, INC.
EXHIBIT 11 - COMPUTATION OF EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Second Quarters as of Fiscal Years Ended
------------------------------------------------------------------------------------
July 31, August 1, January 30, January 31, February 1,
1999 1998 1999 1998 1997
(13 Weeks) (13 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BASIC:
Net earnings $ 2,387 $ 1,924 $ 9,482 $ 7,121 $ 4,640
============ ============= ============== ============= =============
Weighted average number of
outstanding common shares 13,688 12,550 12,550 12,550 12,550
============ ============= ============== ============= =============
Net earnings per common
share - basic (1) $ 0.17 $ 0.15 $ 0.76 $ 0.57 $ 0.37
============ ============= ============== ============= =============
DILUTED:
Net earnings $ 2,387 $ 1,924 $ 9,482 $ 7,121 $ 4,640
============ ============= ============== ============= =============
Weighted average number of
outstanding common shares 13,688 12,550 12,550 12,550 12,550
Number of common shares
issuable assuming exercise
of stock options 1
Weighted average number of
outstanding common and
common equivalent shares -
assuming full dilution 13,689 12,550 12,550 12,550 12,550
============ ============= ============== ============= =============
Net earnings per common
share - diluted (1) $ 0.17 $ 0.15 $ 0.76 $ 0.57 $ 0.37
============ ============= ============== ============= =============
</TABLE>
(1) Earnings per share are computed by dividing net earnings by the weighted
average number of outstanding common and common equivalent shares.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JUL-31-1999
<CASH> 20,033
<SECURITIES> 0
<RECEIVABLES> 108,388
<ALLOWANCES> 1,575
<INVENTORY> 2,569
<CURRENT-ASSETS> 131,807
<PP&E> 27,781
<DEPRECIATION> 8,252
<TOTAL-ASSETS> 220,498
<CURRENT-LIABILITIES> 74,566
<BONDS> 0
182
0
<COMMON> 0
<OTHER-SE> 138,813
<TOTAL-LIABILITY-AND-EQUITY> 220,498
<SALES> 429,842
<TOTAL-REVENUES> 429,842
<CGS> 402,229
<TOTAL-COSTS> 421,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (404)
<INCOME-PRETAX> 8,255
<INCOME-TAX> 3,515
<INCOME-CONTINUING> 4,740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,740
<EPS-BASIC> .36
<EPS-DILUTED> .36
</TABLE>
