EXHIBIT 10.2
[CAPS LETTERHEAD]
May 4, 2000
ShopKo Stores, Inc.
ShopKo Holdings, Inc.
000 Xxxxxxx Xxx
Xxxxx Xxx, Xxxxxxxxx 00000-0000
Ladies and Gentlemen,
Reference is made to the Agreement and Plan of Merger, dated as of the
date hereof (the "Merger Agreement"), by and between Merck & Co., Inc., a New
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Jersey corporation ("Parent"), PV Acquisition Corp., a Delaware corporation and
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a wholly owned indirect subsidiary of Parent ("Merger Sub"), and ProVantage
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Health Services, Inc., a Delaware corporation (the "Company"). Capitalized terms
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used but not defined herein shall have the meanings ascribed to such terms in
the Merger Agreement.
Pursuant to the Merger Agreement, Parent has required, as a condition
to its willingness to enter into the Merger Agreement, that the Company enter
into this Side Letter with ShopKo Stores, Inc. and SKO Holdings, Inc.
(collectively, "ShopKo"), providing for the treatment of all ongoing contracts,
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commitments and arrangements between the parties (the "Affiliate Agreements")
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from and after the date on which ShopKo ceases to beneficially own a majority of
the Company's common stock (the "Change of Control Date"). This letter will
confirm the agreement between the Company and ShopKo as of the Change of Control
Date as follows:
1. Prescription Benefit Management Agreement dated March 4, 1996
1.1. Section 11 of the Prescription Benefit Management Agreement, a copy of
which agreement is attached hereto, is hereby deleted in its entirety
and replaced by the following:
BILLING CYCLE AND PAYMENTS. PROVANTAGE shall provide Plan Sponsor with
a bi-weekly consolidated invoice for services provided by PROVANTAGE
and its affiliates under the Agreement. All invoices shall be paid in
full by Plan Sponsor within six (6) days of receipt by wire transfer,
electronic debit or other method approved by PROVANTAGE in writing.
Failure by Plan Sponsor to make any payments in accordance with the
terms of this Agreement shall constitute a payment default. If Plan
Sponsor fails to cure any such default within (2) days, in addition to
other available remedies, PROVANTAGE may terminate this Agreement upon
notice to Plan Sponsor. There shall be a late payment fee of 1% per
month on the balance due on all late payments over two (2) days past
due. Plan Sponsor shall reimburse PROVANTAGE for all collection costs
incurred as a result of any payment default by Plan Sponsor under this
Agreement.
1.2. Section 21 of the Prescription Benefit Management Agreement is hereby
deleted in its entirety and replaced by the following:
TERM OF AGREEMENT. Notwithstanding anything to the contrary on the
Data Sheet and subject to the terms and conditions of the following
paragraph, the commencement date of this Agreement shall be January 1,
1998 and the initial term of this Agreement shall terminate on the
fifth anniversary of the Change of Control Date. At the end of the
initial five-year term, unless either party has provided the other
party with written notice of its intention to terminate this Agreement
at the expiration of such five-year term, the term of this Agreement
shall automatically continue unless terminated as provided in Section
22 below or either party gives written notice to the other of such
party's intent to terminate this Agreement, which notice shall be
given at least ninety (90) days prior to the proposed date of
termination. Except as provided in Section 22, this Agreement shall
not be terminated for any circumstances prior to the expiration of the
initial five-year term.
1.3. Section 32 of the Prescription Benefit Management Agreement is hereby
deleted in its entirety and replaced by the following:
ASSIGNMENT. This Agreement shall not be assignable by the Plan Sponsor
to any other person or entity, and any attempted assignment shall be
void and of no force and effect, unless the written consent of
PROVANTAGE shall have first been obtained, which consent shall not be
unreasonably withheld. The foregoing restrictions on assignment shall
not apply to assignments to any entity which controls, is controlled
by, or is under common control with the Plan Sponsor, provided
PROVANTAGE is notified in writing of any such assignment
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within fourteen (14) days thereof. Nothing in this Agreement shall
prohibit PROVANTAGE from assigning its rights and obligations under
this Agreement to Merck-Medco Managed Care, L.L.C., its affiliates or
designees, provided the Plan Sponsor is notified in writing of any
such assignment within fourteen (14) days thereof.
1.4. Section 13 of the Plan Parameters attached to the Prescription Benefit
Management Agreement is hereby amended such that the Coordination of
Benefits (COB) Program will only apply for companies that have agreed
in writing with PROVANTAGE to accept primary responsibility for COB
claims.
1.5. Section 21 of the Plan Parameters attached to the Prescription Benefit
Management Agreement is hereby amended such that the PROVANTAGE
"Standard" Open Formulary will be transitioned over to Merck-Medco
Preferred Prescription Formulary as determined by Merck-Medco, but, in
any event, no earlier than ninety days after the Change of Control
Date.
1.6. Section 22 of the Plan Parameters attached to the Prescription Benefit
Management Agreement is hereby amended such that the PROVANTAGE
Pharmacy Network will be transitioned over to the Merck-Medco Retail
Pharmacy Network as determined by Merck-Medco, but, in any event, no
earlier than ninety days after the Change of Control Date.
1.7. PROVANTAGE acknowledges and agrees that the term and amount of
compensation payable by Shopko to PROVANTAGE under the Prescription
Benefit Management Agreement shall not be increased or otherwise
modified or amended, notwithstanding anything to the contrary
contained in this side letter. Notwithstanding the preceding sentence,
PROVANTAGE and ShopKo may agree in writing to add additional services
to the Prescription Benefit Management Agreement at fees to be agreed
upon by the parties.
2. Lease Agreement dated August 1, 1999
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2.1. The Lease Agreement shall be amended as set forth in Exhibit A.
3. Tax Sharing Agreement dated July 19, 1999
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The Tax Sharing Agreement shall be amended and restated in its entirety
in the form attached as Exhibit B.
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4. Information Technology Services Agreement dated July 19, 1999
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4.1. Article II of the Information Technology Services Agreement is hereby
deleted in its entirety and replaced by the following:
The initial term of this Agreement shall commence on the Change of
Control Date and, except as otherwise provided below, continue until
January 31, 2002. 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
that one hundred eighty (180) days prior to the end of the then
current term. Either party may terminate any specified Services under
the prior notice provision in Section 15.1(c). Both Parties agree to
use their commercially reasonable efforts to terminate this agreement
as soon as reasonably practicable, but, in any event, prior to January
31, 2002.
4.2. Article XIII of the Information Technology Support Agreement is hereby
deleted in its entirety and replaced by the following:
Section 13.1 Employees. During the term of this Agreement and for a
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period of two years after expiration or termination of this Agreement
for any reason whatsoever, or upon termination of any of the Services
pursuant to Section 15.1(c) below:
(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
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party's employees to initiate such contact. General advertisements
shall not be deemed violative of this restriction.
4.3. Although Parent is not independently subject to the restrictions in
Section 13.1 of the Information Technology Support Agreement, when
acting on its own behalf or on behalf of any of its affiliates, Parent
shall not engage in any of the activities precluded by Section 13.1 of
such agreement in order to assist PROVANTAGE in circumventing the
provisions of Section 13.1 of such agreement.
4.4. Section 16.2 of the Information Technology Support Agreement is hereby
deleted in its entirety and replaced by the following:
Survival. Articles IX, X, XI, XII, XIII and XVI of this Agreement
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shall survive the termination or expiration of this Agreement.
4.5. Notwithstanding any other provision therein to the contrary, Sections
13.1 and 16.1 of the Information Technology Services Agreement shall
survive any termination of such agreement.
4.6. PROVANTAGE acknowledges and agrees that until such time as the parties
consent to modifications to the Services following a review pursuant
to Section 4.2 of the Information Technology Services Agreement,
ShopKo is not and will not be obligated to provide Services after the
Change of Control Date that are materially in addition to, or in a
manner materially different than, the Services provided to PROVANTAGE
as of the Change of Control Date.
5. Administrative Services Agreement dated July 19, 1999
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5.1. The Administrative Services Agreement, as in effect of the date
hereof, shall remain in full force and effect after the Change of
Control Date; provided, however, Services shall not include the
categories of Services listed under General Corporate Services, Senior
Vice President Human Resources or overhead cost related to above.
ShopKo shall continue to be obligated to provide tax return
preparation services to the Company as described in Section 3(f) of
the Amended and Restated Tax Sharing Agreement.
5.2. Notwithstanding any other provision therein to the contrary, Sections
4.4 and 5.3 of the Administrative Services Agreement shall survive any
termination of such agreement.
5.3. Although Parent is not independently subject to the restrictions in
Section 5.3 of the Administrative Services Agreement, when acting on
its own behalf or
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on behalf of any of its affiliates, Parent shall not engage in any of
the activities precluded by Section 5.3 of such agreement in order to
assist PROVANTAGE in circumventing the provisions of Section 5.3 of
such agreement.
6. Indemnification and Hold Harmless Agreement dated July 19, 1999
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The Indemnification and Hold Harmless Agreement, as in effect as of the
date hereof, shall remain in full force and effect after the Change of
Control Date.
7. Other Affiliate Agreements
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All Affiliate Agreements other than those mentioned above or in Section 10
below shall be terminated as of the Change of Control Date.
8. Intercompany Balance
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The Intercompany Balance shall be settled in full as of the Change of
Control Date. The parties hereto acknowledge that they will incur
prospective payment obligations pursuant to those Affiliate Agreements that
remain in effect after the Change of Control Date pursuant to the terms of
those agreements as amended by this letter agreement.
9. Indemnification
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9.1. If ShopKo makes the election contemplated by Section 5.13(d) of the
Merger Agreement, then the provisions of this Section 9 shall apply.
9.2. Within 30 days after expiration of the Offer, ShopKo shall cause
Deloitte & Touche L.L.P. ("D&T") to conduct and complete a review of
the Company Net Working Capital amount for the Company Fiscal Period
as prepared by Xxxxxx Xxxxxxxx pursuant to Section 5.13(b) of the
Merger Agreement and deliver a certificate based on its review to
Parent (the "Audited Company Net Working Capital Certificate"). The
amount of any deficiency between the amount shown for (A) Company Net
Working Capital on the Audited Company Net Working Capital Certificate
and (B) $55.0 million is referred to herein as the "Audit Adjustment".
9.3. The Audited Company Net Working Capital Certificate as prepared by D&T
and delivered to Parent shall be deemed to be accepted by and shall be
conclusive for the purposes of the Audit Adjustment provided herein
except to the extent that Parent or Parent's accountant shall have
delivered, within twenty (20) days following receipt of the Audited
Company Net Working Capital Certificate, a written notice to ShopKo
setting forth the items which
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Parent disputes as not being in accordance with the requirements of
this Agreement or as having computational errors, specifying in
reasonable detail the nature and extent of any such exception. If any
change proposed by Parent is disputed by ShopKo, then ShopKo and
Parent shall negotiate in good faith to resolve such dispute. If,
after a period of ten (10) days, any proposed change remains
disputed, ShopKo and Parent shall together choose an independent firm
of public accountants of nationally recognized standing (the
"Independent Auditor") within one business day to resolve any
remaining dispute. The determination of the Independent Auditor,
which shall be made by the Independent Auditor within 30 days of its
engagement shall be conclusive and binding on all parties. ShopKo and
Parent each shall pay one-half of the expenses and fees of the
Independent Auditor.
9.4. Any Audit Adjustment payable pursuant to this Section shall be paid
by ShopKo to Parent together with interest thereon at an annual rate
equal to the reference rate from time to time of Chase Manhattan Bank
N.A. (the "Reference Rate") from and including the date of the
expiration of the Offer to but not including the date of payment,
promptly, but in any event within one business day, following final
determination of such amount. If payment for such Audit Adjustment is
not delivered by ShopKo to Parent within one business day from when
due, the outstanding balance of any payment payable pursuant to this
Section shall thereafter bear interest at the lesser of (i) the
Reference Rate plus 2% or (ii) the highest rate of interest allowed
by applicable law.
10. End User License Agreement for Company Products dated as of January 29,
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2000.
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10.1. Effective as of the Change of Control Date, the End User License
Agreement shall be terminated without penalty or payment of any kind
and all obligations of the parties thereunder shall be eliminated.
Prior to the Change of Control Date, the Company shall provide ShopKo
with a non-exclusive, perpetual and non-transferable license to
install and use the Product (as defined in the End User License
Agreement) including all source and object codes therefor and the
User Documentation (as defined in the End User License Agreement)
solely for ShopKo's and ShopKo's affiliates' own internal data
processing operations. Any such materials not previously delivered to
ShopKo shall be delivered on or before the Change of Control Date. In
the event ShopKo re-markets such materials or allows a non-affiliate
third party to make use thereof, all rights of ShopKo to use any and
all of such Products, source codes, object codes or User
Documentation shall immediately terminate.
10.2. Subject to the restriction set forth in paragraph 10.1, ShopKo shall
not be
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prohibited from copying, duplicating, modifying, reverse engineering,
disassembling or decompiling the Product, source code, object code or
User Documentation.
10.3. ProVantage shall have no obligation to provide to ShopKo any updates
or enhancements to the Product, source code, object code or User
Documentation.
10.4. Notwithstanding, anything to the contrary in paragraph 10, the
Company agrees to provide ShopKo with commercially reasonable
installation and transition services on commercially reasonable terms
through and including July 1, 2000.
11. Employment Arrangements.
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Except as provided in the next following paragraph, ShopKo shall retain,
bear and be responsible for all liabilities and obligations under the
ShopKo Plans. Without limiting the generality of the foregoing sentence,
ShopKo shall bear and be responsible for all liabilities and obligations
under the ShopKo Stores, Inc. Deferred Compensation Plan. Prior to the
Closing Date, ShopKo shall cause the Company to cause any accrued
liabilities applicable to the ShopKo Plans to be removed from the books of
the Company and its Subsidiaries.
Prior to the Closing Date, ShopKo shall cause Company to take all action
necessary such that, immediately prior to the Closing Date, all Current
Employees of the Company and its subsidiaries who participate in the ShopKo
Stores, Inc. Profit Sharing and Super Saver Plan (the "401(k) Plan") shall
become fully vested in any unvested portion of their accounts under the
401(k) Plan. ShopKo shall cause the Company to cause the trustee of any
trust in which the 401(k) Plan participates (the "Trust"), as of the
Trust's valuation date on or next following the Effective Time (the
"Valuation Date"), to value, in a manner consistent with its prior
practice, the account balances under the 401(k) Plan of the Current
Employees (collectively the "Account Balances"). As soon as practicable
after the determination of the Account Balances, ShopKo shall cause the
Company to cause the trustee of the Trust to transfer to a successor tax-
qualified trust designated by Parent an amount in cash equal to the Account
Balances and outstanding participant loans, if any (i) increased by
interest during the period from the Valuation Date to the date of transfer
(the "Interim Period") at an interest rate equal to the interest rate
credited on short-term investments held in the Trust (the "Short-Term
Rate") and (ii) reduced by benefit payments to employees or their
beneficiaries made in accordance with the provisions of the 401(k) Plan
during the Interim Period plus interest on such benefit payments at the
Short-Term Rate from the date of payment until the transfer date.
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12. Microstrategy Contract
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ShopKo hereby agrees that the Company is authorized to use all
infrastructure, development and user interface products and other products
and services provided to ShopKo, and its affiliates, by Microstrategy,
Inc., and its affiliates, pursuant to the contractual arrangements in place
as of the date hereof between such parties. Notwithstanding anything in
such contractual arrangements or other Affiliate Agreements to the
contrary, the Company agrees to pay for such use on the basis of $164.475
for each seat license and $44.325 per hour for consulting services. The
parties agree to cooperate to amend such contractual arrangements to permit
the Company's use of the MicroStrategy products and services as described
above. All invoices for such use shall be paid in full by the Company
within six (6) days of receipt by wire transfer, electronic debit or other
method approved by ShopKo in writing. The Company shall have the right to
terminate the arrangements contemplated by this paragraph 12, without
penalty, upon 60 days written notice to ShopKo.
The Company and ShopKo understand that this Side Letter is a condition
to Parent's willingness to enter into the Merger Agreement. Accordingly, the
parties hereby agree that Parent is a third party beneficiary of this Side
Letter and they will not terminate, amend or modify this Side Letter, or waive
any of the provisions hereof, or of the underlying agreements without the prior
written consent of Parent, which consent may be withheld for any reason or no
reason. Upon consummation of the Offer, the obligations of the parties hereto
under this Side Letter shall be independent of their respective obligations
under the Merger Agreement.
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If the foregoing sets forth your understanding of our agreement,
please sign in the space provided below.
Very Truly Yours,
PROVANTAGE HEALTH SERVICES, INC.
By: /s/ Xxxxxxx X. Xxxxx
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Name: Xxxxxxx X. Xxxxx
Title: President and
Chief Executive Officer
Accepted and acknowledged:
SHOPKO STORES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
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Name: Xxxxxxx X. Xxxxxx
Title: Senior Vice President, General
Counsel/Secretary
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By executing this document where indicated below, the undersigned agrees to
be bound by Sections 4.3 and 5.3 of this side letter.
MERCK & CO., INC.
By: /s/ Xxxx X. Xxxxxx
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Name: Xxxx X. Xxxxxx
Title: Senior Vice President and
Chief Financial Officer
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