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[ProVantage Letterhead]
May 10, 2000
Dear Stockholders:
On behalf of the Board of Directors of ProVantage Health Services, Inc. (the
"Company"), I am pleased to inform you that on May 4, 2000 the Company entered
into a definitive Agreement and Plan of Merger (the "Merger Agreement") with
Merck & Co., Inc. ("Parent") and PV Acquisition Corp., an indirect wholly-owned
subsidiary of Parent ("Offeror"), pursuant to which Offeror has today commenced
a tender offer to purchase all of the outstanding Shares (the "Shares") of the
common stock of the Company at $12.25 per Share in cash (the "Offer").
Following the successful completion of the Offer, upon approval by a
stockholder vote, if required, Offeror will be merged into the Company (the
"Merger"), and all Shares not purchased pursuant to the Offer will be converted
into the right to receive $12.25 per Share in cash without interest (except any
Shares as to which the holder has properly exercised appraisal rights).
Your Board of Directors has unanimously (by all directors present) approved
the Offer, the Merger and the Merger Agreement and determined that the terms of
the Offer and the Merger are fair to, and in the best interests of, the
Company's stockholders, and recommends that the Company's stockholders accept
the Offer and tender all of their Shares.
Concurrently with entering into the Merger Agreement, Offeror and Parent
entered into a Stockholder Agreement with ShopKo Stores, Inc. and SKO Holdings,
Inc. (together, the "Majority Stockholder"), whereby the Majority Stockholder
has agreed, among other things, to tender its Shares in the Offer and to grant
Offeror an option to purchase the Shares held by the Majority Stockholder at
the Offer Price under specified circumstances. The Majority Stockholder
beneficially owns approximately 64.5% of all outstanding Shares.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the enclosed
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"),
which is being filed with the Securities and Exchange Commission, including,
among other things, the written opinion, dated May 3, 2000, of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, the Company's financial advisor, that, as
of such date, and based upon and subject to the assumptions, limitations and
qualifications described in the opinion, the $12.25 per Share cash
consideration to be received by the holders of Shares pursuant to the Offer and
the Merger was fair from a financial point of view to such holders.
In addition to the attached Schedule 14D-9, also enclosed is the Offer to
Purchase, dated May 10, 2000, together with related materials, including a
Letter of Transmittal, to be used for tendering your Shares in the Offer. These
documents state the terms and conditions of the Offer and the Merger and
provide instructions as to how to tender your Shares. I urge you to read these
documents carefully in making your decision with respect to tendering your
Shares pursuant to the Offer.
Sincerely,
[Signature]
Jeffrey A. Jones
President and Chief Executive Officer
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-9
Solicitation/Recommendation Statement Under Section 14(d)(4)
of the Securities Exchange Act of 1934
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PROVANTAGE HEALTH SERVICES, INC.
(Name of Subject Company)
PROVANTAGE HEALTH SERVICES, INC.
(Names of Person(s) Filing Statement)
Common Stock, $0.01 par value per share
(Including the Associated Preferred Share Purchase Rights)
(Title of Class of Securities)
----------------
743725 10 3
(CUSIP Number of Class of Securities)
----------------
Jeffrey A. Jones
President and Chief Executive Officer
ProVantage Health Services, Inc.
N19 W24130 Riverwood Drive
Waukesha, Wisconsin 53188
(262) 312-3000
(Name, address and telephone number of person
authorized to receive notices and communications on
behalf of the person(s) filing statement)
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With copies to:
Jay O. Rothman
Russell E. Ryba
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
(414) 271-2400
[_] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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Item 1. Subject Company Information.
The name of the subject company is ProVantage Health Services, Inc., a
Delaware corporation (the "Company"). The address of the principal executive
offices of the Company is N19 W24130 Riverwood Drive, Waukesha, Wisconsin
53188. The telephone number of the Company at its principal executive offices
is (262) 312-3000.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (as amended or
supplemented, this "Schedule 14D-9") relates is the common stock, par value
$0.01 per share, of the Company (the "Common Stock"), including the associated
Preferred Share Purchase Rights (the "Rights") issued pursuant to the Rights
Agreement, dated as of March 12, 1999, by and between the Company and Norwest
Bank Minnesota, National Association, as Rights Agent (the "Rights
Agreement"), as amended by the First Amendment to Rights Agreement, dated as
of May 4, 2000. As of May 4, 2000, there were 18,150,000 shares of Common
Stock outstanding. Reference herein to the "Shares" means shares of the Common
Stock and shall, unless the context otherwise requires, include the associated
Rights.
Item 2. Identity and Background of Filing Person.
The name, business address and business telephone number of the Company,
which is the person filing this Schedule 14D-9, are set forth in Item 1 above.
This Schedule 14D-9 relates to the cash tender offer by PV Acquisition
Corp., a Delaware corporation ("Offeror") and an indirect wholly-owned
subsidiary of Merck & Co., Inc., a New Jersey corporation ("Parent"), as
disclosed in a Tender Offer Statement on Schedule TO, dated May 10, 2000 (as
amended or supplemented, the "Schedule TO"), to purchase all outstanding
Shares at a price of $12.25 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in Offeror's Offer to Purchase,
dated May 10, 2000 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
collectively constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of May 4, 2000 (the "Merger Agreement"), among Parent, Offeror and the
Company. Pursuant to the Merger Agreement, as soon as possible after
completion of the Offer and satisfaction or waiver of all conditions to the
Merger (as defined below), Offeror will be merged with and into the Company
(the "Merger"), and the Company will continue as the surviving corporation in
the Merger (the "Surviving Corporation") as an indirect wholly-owned
subsidiary of Parent. At the effective time of the Merger, each Share
outstanding immediately prior to such time (other than Shares owned by Parent,
Offeror or any other subsidiary of Parent, held in the treasury of the Company
and held by stockholders who perfect their appraisal rights under Delaware
law) will be converted into the right to receive $12.25 in cash or any higher
price per Share paid in the Offer (the "Offer Price"), without interest
thereon. A copy of the Merger Agreement has been filed as Exhibit (e)(1)
hereto and is incorporated by reference herein.
Based on the information in the Schedule TO, the principal executive
offices of Parent and Offeror are located at One Merck Drive, Whitehouse
Station, New Jersey 08889.
Item 3. Past Contracts, Transactions, Negotiations and Agreements.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are, except as noted below, described in the Information Statement pursuant to
Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule
14f-1 promulgated thereunder (the "Information Statement") that is attached
hereto as Annex A and is incorporated herein by reference. Except as set forth
in the response to this Item 3 or in Annex A attached hereto or as
incorporated by reference herein, to the knowledge of the Company, there are
no material contracts, agreements, arrangements or understandings or any
actual or potential conflicts of interest between the Company or its
affiliates and (1) the Company's executive officers, directors or affiliates
or (2) Parent, Offeror or their respective executive officers, directors or
affiliates.
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Transaction Agreements.
The Merger Agreement. The summary of the Merger Agreement and the
description of the conditions of the Offer contained in Sections 13 and 15,
respectively, of the Offer to Purchase filed as Exhibit (a)(1)(A) to the
Schedule TO, which is being mailed to stockholders together with this Schedule
14D-9, are incorporated herein by reference. Such summary and description are
qualified in their entirety by reference to the Merger Agreement, which has
been filed as Exhibit (e)(1) hereto and is incorporated herein by reference.
The Stockholder Agreement. The summary of the Stockholder Agreement, dated
as of May 4, 2000 (the "Stockholder Agreement"), among ShopKo Stores, Inc.,
the beneficial owner of approximately 64.5% of the Shares ("ShopKo"), SKO
Holdings, Inc., a wholly-owned subsidiary of ShopKo ("Holdings", and together
with ShopKo, the "Majority Stockholder"), Parent and Offeror, contained in
Section 13 of the Offer to Purchase filed as Exhibit (a)(1)(A) to the Schedule
TO, which is being mailed to stockholders together with this Schedule 14D-9,
is incorporated herein by reference. Such summary is qualified in its entirety
by reference to the Stockholder Agreement, which has been filed as Exhibit
(e)(2) hereto and is incorporated herein by reference.
The Side Letter. As a condition to Parent's willingness to enter into the
Merger Agreement, the Company, the Majority Stockholder and Parent entered
into a Side Letter, dated as of May 4, 2000 (the "Side Letter"), which, among
other things, provides for certain changes in the treatment of all ongoing
contracts, commitments and arrangements between the Company and the Majority
Stockholder and Holdings (the "Affiliate Agreements") from and after the date
the Majority Stockholder ceases to own a majority of the outstanding Common
Stock (the "Change of Control Date"). The summary of the Affiliate Agreements
contained in the Information Statement attached hereto as Annex A under the
caption "Relationship with ShopKo" is incorporated herein by reference. The
following is a summary of the material terms of the Side Letter. This summary
is not a complete description of the terms and conditions of the Side Letter
and is qualified in its entirety by reference to the full text of the Side
Letter, which has been filed as Exhibit (e)(3) hereto and is incorporated
herein by reference.
Among other amendments to the Affiliate Agreements, the Side Letter amends
(1) the Prescription Benefit Management Agreement, dated March 4, 1996, to
extend the term through the fifth anniversary of the Change of Control Date,
(2) the Information Technology Services Agreement, dated July 19, 1999, to
extend the term until January 31, 2002 and (3) the Administrative Services
Agreement, dated July 19, 1999. Pursuant to the Side Letter, the parties
entered into an Amended and Restated Tax Matters Agreement, dated May 4, 2000,
and an Amendment to Lease Agreement, dated May 4, 2000, which extends the
lease for the Company's headquarters for two years after the Change of Control
Date at the rent that the Company currently pays the Majority Stockholder.
Other than the foregoing Affiliate Agreements and the Indemnification and Hold
Harmless Agreement, dated July 19, 1999, all other Affiliate Agreements will
be terminated pursuant to the Side Letter as of the Change of Control Date.
The Side Letter also sets forth the parties' agreement to settle in full
the Intercompany Balance (as defined in the Offer to Purchase) as of the
Change of Control Date, with the parties acknowledging 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 the Side Letter. Also, if the calculation of
Company Net Working Capital (as defined in the Offer to Purchase) by Arthur
Andersen LLP for the Company Fiscal Period (as defined in the Offer to
Purchase) immediately prior to expiration of the Offer discloses a Working
Capital Shortfall (as defined in the Offer to Purchase), and the Company
chooses to have such calculation audited, the Side Letter sets forth the
procedures for such audit and the Majority Stockholder's agreement to pay the
Working Capital Shortfall calculated pursuant to those audit procedures, with
interest thereon. See "The Merger Agreement--Intercompany Balance; Specified
Affiliate Agreements" and "Company Net Working Capital" in Section 13 of the
Offer to Purchase, which is incorporated herein by reference.
Also under the Side Letter, the Majority Stockholder has agreed to abide by
certain of the employment arrangements discussed under "The Merger Agreement--
Existing Employment Agreements and Benefits" in Section 13 of the Offer to
Purchase, which is incorporated herein by reference. In addition, the Majority
Stockholder has confirmed the Company's right to use products and services
provided to the Majority
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Stockholder and its affiliates by Microstrategy, Inc. and its affiliates
pursuant to the contractual arrangements in place on May 4, 2000 and sets
forth the prices to be paid by the Company for certain of such products and
services.
Certain Agreements and Plans.
Employment Agreements. As a condition precedent to Parent's willingness to
enter into the Merger Agreement, each of Jeffrey A. Jones (President and Chief
Executive Officer of the Company), Joseph A. Coffini (Senior Vice President,
Business Development and Marketing of the Company), Peter F. Hoffman (Senior
Vice President, Chief Medical Officer of the Company), Glen Laschober
(Executive Vice President, Health Benefit Management) and Matthew Zirpoli
(Senior Vice President, Sales of the Company) (individually, an "Executive"
and collectively, the "Executives") entered into an Employment Agreement,
dated as of May 4, 2000 (collectively, the "Employment Agreements"), with
Merck-Medco Managed Care, L.L.C., a wholly-owned subsidiary of Parent and the
parent company of Offeror ("Merck-Medco"). Each Employment Agreement is
effective upon consummation of the Offer (the "Consummation Date"), terminates
on the second anniversary of the Consummation Date and supersedes the Change
of Control Severance Agreements entered into by the Executives (the "Existing
Severance Agreements") described in the Information Statement attached hereto
as Annex A under the caption "Executive Compensation--Agreements with
Executive Officers--Change of Control Severance Agreements."
Pursuant to the terms of the Employment Agreements, each Executive will
perform those duties and services as may be designated from time to time by
Merck-Medco's President or his designee. Mr. Jones will have the title of
President and Chief Executive Officer--ProVantage, Mr. Laschober will have the
title of Executive Vice President--ProVantage/Vice President Merck-Medco and
Messrs. Coffini, Hoffman and Zirpoli will have the title of Senior Vice
President--ProVantage/Vice President--Merck-Medco. Each Executive will be paid
an annual salary equal to $449,350 for Mr. Jones, $186,419 for Mr. Coffini,
$219,725 for Mr. Hoffman, $244,310 for Mr. Laschober and $185,130 for Mr.
Zirpoli, with the Executive eligible for annual merit increases at the
discretion of Merck-Medco. In addition to base salary, each Executive will be
eligible to receive performance-based bonuses and grants of options to
purchase shares of Parent common stock ("Parent Options") and to participate
in the employee benefit plans and programs of Merck-Medco on the same terms
and conditions afforded other similar situated employees of Merck-Medco.
The Employment Agreements provide that if the Executive is terminated by
Merck-Medco without "cause" (as defined in the Employment Agreements) or if
the Executive terminates for "good reason" (as defined in the Employment
Agreements), then the executive will be entitled to receive (1) earned and
unpaid compensation to the effective date of such termination, (2) a lump sum
payment equal to one and one-half times initial annual salary in consideration
of the noncompete covenant described below, (3) an additional lump sum payment
of $834,837 for Mr. Jones, $135,862 for Mr. Coffini, $170,074 for Mr. Hoffman,
$192,940 for Mr. Laschober and $185,130 for Mr. Zirpoli, (4) 1/24th of the
amount equal to the amount, if any, that would have been payable as the
Retention Bonus (as defined below) for each full calendar month during which
the Executive performed services for Merck-Medco and (5) continued coverage
under Merck-Medco's medical, dental and prescription plans for up to twelve
months. If the Executive is terminated by Merck-Medco for "cause" or the
Executive terminates without "good reason," then the Executive will be
entitled only to earned and unpaid compensation to the effective date of such
termination, except that if Mr. Jones terminates his employment subsequent to
the date which is six months after the Consummation Date, then Mr. Jones will
be entitled to receive the payments described in clauses (1) through (3) in
the preceding sentence even if the termination is not for "good reason." In
the event of termination for death or disability, the Executive (or the
Executive's estate or heirs) will be entitled to the payments described in
clauses (1) through (3) above, and, in the event of termination for death, the
Retention Bonus as well. In the event of a termination of Mr. Jones'
Employment Agreement by Merck-Medco without "cause," or by Mr. Jones with
"good reason" or by Mr. Jones without "good reason", but subsequent to the
date which is six months after the Consummation Date, Mr. Jones, in addition
to other benefits to which he is entitled, will be retained as a consultant by
Merck-Medco for a period of four months and will receive certain payments
therefor. As part of the Employment Agreements, the Executives agree to a
noncompete covenant for a period of twelve months following the termination of
employment with Merck-Medco.
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Each Executive will also be entitled to receive a retention bonus (the
"Retention Bonus") payable upon the second anniversary of the Consummation
Date, so long as the Executive has remained an employee of Merck-Medco through
the second anniversary of the Consummation Date. The Retention Bonus will be
equal to the amounts described in the preceding paragraph in clauses (2) and
(3) plus, at the Executive's election: (1) a lump sum cash payment equal to a
multiple of one times the amount (the "Base Amount") equal to the Executive's
current annual salary plus the lesser of the average of the Executive's actual
bonuses payable during the three preceding fiscal years or the average of the
Executive's annual bonus "norms" for those years, (2) Parent Options with a
value equal to a multiple of five times the Base Amount or (3) a combination
of a lump sum cash payment equal to a multiple of one-half times the Base
Amount and Parent Options with a value equal to a multiple of two and one-half
times the Base Amount.
The foregoing is a summary of certain provisions of the Employment
Agreements. This summary is not a complete description of the terms and
conditions of the Employment Agreements and is qualified in its entirety by
reference to the full text of the Employment Agreements, which have been filed
as Exhibits (e)(7), (e)(8), (e)(9), (e)(10) and (e)(11) hereto and are
incorporated herein by reference.
New Change of Control Severance Agreements. In February 2000, the Board of
Directors authorized the Company to offer new Change of Control Severance
Agreements (the "New Severance Agreements") to certain of its officers. The
Company will offer to enter into the New Severance Agreements with certain of
its officers who have not entered into Employment Agreements. The Existing
Severance Agreements will remain in effect for those officers of the Company
who do not enter into a New Severance Agreement.
The acquisition of more than 50% of the Shares in the Offer, together with
an election of Offeror's designees (see "General Information Regarding the
Company--Right to Designate Directors; the Offeror Designees" in the
Information Statement) to a majority of the seats on the Board of Directors,
will constitute a "change of control" for purposes of the New Severance
Agreements. The New Severance Agreements provide that, if within two years
after a "change of control" the Company terminates the officer's employment
other than for "cause" (as defined in the New Severance Agreements) or
disability, or the officer terminates his or her employment for "good reason"
(as defined in the New Severance Agreements), then the officer will be
entitled to a lump sum cash payment equal to a multiple of one and one-half or
two times the officer's annual base salary, plus a multiple of one and one-
half or two times the lesser of (1) the officer's average annual bonus for the
three fiscal years immediately preceding the date of termination or (2) the
average of the officer's annual bonus "norm" for the three fiscal years
immediately preceding the date of termination. Each officer would also receive
his or her salary through the date of termination and all other amounts owed
to the officer at the date of termination under the Company's benefit plans.
In addition, under such circumstances, the officer will be entitled to
continued health and dental coverage for the officer and the officer's family
for 18 months after the date of termination. The New Severance Agreements
provide that if certain amounts to be paid thereunder constitute "parachute
payments" (as defined in Section 280(G) of the Internal Revenue Code of 1986,
as amended (the "Code")), the severance benefits owed to the officer may be
decreased, but only if the result is to give the officer a larger after-tax
benefit than if the payments are not reduced. The officer is permitted to
elect the payments to be reduced. The New Severance Agreements contain a
covenant not to compete, which extends for a period of two years following the
termination of employment with the Company.
The foregoing is a summary of the material terms of the New Severance
Agreements. This summary is not a complete description of the terms and
conditions of the New Severance Agreements and is qualified in its entirety by
reference to the full text of the form of the New Severance Agreements, which
has been filed as Exhibit (e)(12) hereto and is incorporated herein by
reference.
Company Stock Option Plan. Pursuant to the terms of the ProVantage Health
Services, Inc. 1999 Stock Incentive Plan (the "Stock Plan"), each outstanding
option to acquire Common Stock (each, a "Company Option"), to the extent
currently not exercisable, will become exercisable in accordance with its
terms upon the
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acquisition of more than 50% of the Shares in the Offer, together with an
election of Offeror's designees (see "General Information Regarding the
Company--Right to Designate Directors; the Offeror Designees" in the
Information Statement) to a majority of the seats on the Board of Directors.
The Merger Agreement provides that as of the Effective Time (as defined in
the Merger Agreement), each Company Option will be assumed by Parent and
converted into an option (a "New Parent Option") to purchase, on the same
terms and conditions as were applicable to such Company Option, the number of
shares of Parent common stock (rounded to the nearest whole number) equal to
the product of (1) the number of shares of Common Stock subject to such
Company Option and (2) the Offer Price divided by the average of the closing
sales prices of Parent common stock on the New York Stock Exchange for the ten
(10) consecutive days immediately prior to and including the day preceding the
Effective Time, at an exercise price per share of Parent common stock (rounded
to the nearest whole cent) equal to the quotient of (x) the aggregate exercise
price for the shares of Common Stock subject to such Company Option and (y)
the aggregate number of shares of Parent common stock purchasable pursuant to
the New Parent Option (as calculated immediately above). However, in the case
of any Company Option to which Section 422 of the Code applies, the option
price, the number of shares purchasable pursuant to such option and the terms
and conditions of exercise of such option shall be determined in accordance
with the foregoing, subject to such adjustments as are necessary in order to
satisfy the requirements of Section 424(a) of the Code.
Item 4. The Solicitation or Recommendation
(a) Recommendation of the Board of Directors.
At a meeting held on May 3, 2000, the Board of Directors of the Company
(the "Board" or the "Board of Directors") unanimously (by all directors
present) approved the Offer, the Merger and the Merger Agreement and
determined that the terms of the Offer and the Merger are fair to, and in the
best interests of, the Company's stockholders. Accordingly, the Board of
Directors recommends that the Company's stockholders accept the Offer and
tender their Shares pursuant thereto.
(b) Background of the Offer; Reasons for the Recommendation.
Background of the Offer.
In the fall of 1999, the Board of Directors met with senior management at a
regularly scheduled strategic planning meeting to discuss the Company's
strategic direction. During the course of this meeting, management made
various presentations to the Board regarding the Company's pharmacy benefit
management ("PBM") and health information technology ("HIT") businesses and
the Company's long-term strategy relative to those businesses. Based on these
discussions, the Board determined that the Company needed to find alternatives
to allow it to effectively compete and that the Company needed to leverage
margins in the HIT business to offset pressure on margins in the Company's
traditional PBM business. The Board directed senior management of the Company
to begin to consider a variety of strategic alternatives for the Company to
achieve these goals, including acquisitions and strategic alliances to add
scale in the PBM business and to expand high-margin HIT offerings, a strategic
re-alignment of the Company's PBM and HIT businesses and a possible business
combination.
Following this strategic planning meeting, the Board of Directors requested
Merrill, Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to
contact potential strategic partners on an informal basis regarding whether
such potential strategic partners might have an interest in effecting a
strategic transaction with the Company. Merrill Lynch received oral
indications of interest from several parties, including Parent, who each
expressed a desire for further discussions regarding a potential business
combination with the Company.
On December 1, 1999, Parent indicated in writing its desire to pursue a
possible business combination and expressed a desire to conduct its due
diligence on an exclusive basis. Although the Company did not formally agree
to proceed with Parent on an exclusive basis, the Company did enter into a
confidentiality agreement with Parent on December 8, 1999.
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During the second half of 1999, and early in 2000, the pressure on the
Company's margins in its PBM business (which the Company had previously
identified) intensified. For example, on January 4, 2000, the Company
announced that it had signed a three-year agreement to provide American
Medical Security Group, Inc. ("AMS") with comprehensive PBM services. This
agreement replaced the existing agreement with AMS, the Company's largest
single customer for PBM services. Due to the competitive pricing structure of
the new PBM agreement with AMS, the Company estimated that the contribution to
operating income under the new agreement was expected to be approximately $2
million less for calendar 2000 than it would have been had the existing
agreement been extended through calendar 2000.
Throughout January and into February 2000, Parent conducted due diligence
regarding the Company, and received a presentation from senior management
regarding the Company on February 14, 2000. During its due diligence review,
the Company responded to numerous requests by Parent for additional
information.
On February 28, 2000, Parent submitted a non-binding indication of interest
to acquire the Company at a cash price in the range of $12.00 to $15.00 per
Share. The indication of interest provided that it was Parent's intent to make
arrangements to retain key employees of the Company as part of the proposed
transaction. The indication of interest was conditioned on Parent completing
additional due diligence and on the Majority Stockholder entering into an
agreement to support the transaction and tender its shares. The indication of
interest also contemplated that certain ancillary agreements between the
Majority Stockholder and the Company would be modified and that the Majority
Stockholder would agree to have the Company provide it with PBM services for a
five-year period post-closing. Parent also sought an agreement that for thirty
days neither the Company nor the Majority Stockholder would solicit other
offers for or enter into negotiations (other than with Parent) regarding a
possible business combination involving the Company. Neither the Company nor
the Majority Stockholder agreed to such an exclusivity period.
At a regularly scheduled meeting on February 29, 2000 and again at a
special meeting on March 7, 2000, the Board of Directors met to discuss
Parent's preliminary indication of interest as well as the level of interest
expressed by other potential bidders. At the conclusion of the March 7
meeting, the Board instructed management and Merrill Lynch to pursue other
bidders for the Company in addition to Parent.
In March 2000, Merrill Lynch, on behalf of the Company, contacted various
other parties to determine their interest in effecting a business combination
with the Company. The Company entered into confidentiality agreements with
several other potential acquirors, which thereafter conducted due diligence
regarding the Company and received presentations from senior management of the
Company. The parties, including the Parent, were ultimately provided with a
proposed form of Merger Agreement and given a deadline for the submission of
final binding offers to acquire the Company.
On April 18, 2000, in accordance with instructions from Merrill Lynch
provided to all interested parties, Parent submitted a final proposal to
acquire all of the Company's outstanding shares at $13.50 per Share in cash.
The offer submitted by Parent did not contain a financing contingency.
Parent's proposal was contingent upon (1) approval by Parent's Board of
Directors, (2) Parent entering into employment agreements with certain key
employees of the Company, (3) the Majority Stockholder irrevocably committing
to support the transaction by entering into a stock option and voting
agreement whereby the Majority Stockholder would, among things, agree to
tender its shares into the Offer, (4) the Majority Stockholder entering into a
side letter pursuant to which it would agree, among other things, to purchase
PBM services from the Company for five years after the closing, commit to a
continuation of the Company's lease on its headquarters facility at the then
applicable rates to the Company, extend to the Company certain information
technology services through January 31, 2002 and enter into an amended tax
sharing agreement with the Company and (5) final confirmatory due diligence.
In addition, Parent sought to cause the Majority Stockholder to indemnify
Parent on a dollar-for-dollar basis in the event that the Company's working
capital at closing was below a specified level.
Merrill Lynch also received a proposal submitted by another bidder to
acquire all of the Company's outstanding Shares that was at a price range
below the price offered by Parent, was subject to the completion of additional
due diligence and contained a financing contingency.
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On April 19, 2000, the Board of Directors met to discuss the proposal
received from Parent and the second party. Merrill Lynch and counsel for the
Company reviewed in detail with the directors the terms of Parent's proposal.
Merrill Lynch also reviewed with the directors the proposal it had received
from the second party. In addition, counsel reviewed with the directors their
fiduciary obligations in considering a potential business combination
transaction. At the conclusion of the meeting, the Board of Directors
determined Parent's proposal was superior to that of the second party for
various reasons, including price range and contingencies, and directed
management to proceed to determine if a transaction on acceptable terms with
Parent could be negotiated.
On April 24, 2000, representatives of the Company and Parent met to discuss
certain aspects of the Company's business, including a projected negative
trend in the Company's financial performance for the first two months of its
first fiscal quarter as compared to the plan provided to Parent in connection
with its due diligence. Representatives of the Company and Parent also
discussed the terms of the employment arrangements for those senior executive
officers of the Company from whom Parent was seeking employment agreements as
a condition precedent to entering into the Merger Agreement.
Throughout the next several days representatives of the Company, the
Majority Stockholder and Parent, as well as their respective legal and
financial advisors, continued to discuss the proposed business combination and
negotiate the terms of the Merger Agreement, Stockholder Agreement and Side
Letter.
On April 26, 2000, representatives of the Parent and the Company along with
their respective legal and financial advisors met by telephone conference to
discuss various due diligence issues relating to the Company's business
operations, including the Company's recent financial performance.
On April 27, 2000, Parent advised the Company that it was willing to
proceed with the transaction but was reducing its offer to $12.00 per Share in
cash based on its review of the projected negative trend in the Company's
financial performance as compared to the plan provided to Parent.
On April 28, 2000, the Board of Directors met by telephone conference for
an update on the status of the negotiations and to review Parent's revised
offer. Senior management reviewed with the directors the Company's recent
financial performance and long-term prospects. Merrill Lynch also reviewed
with the directors its financial analysis of the revised offer and the status
of discussions with other potential bidders. Merrill Lynch noted that the
reduction in purchase price was approximately proportional to the reduction in
the Company's financial performance as compared to the plan provided to Parent
on an annualized basis. At the conclusion of this meeting, management of the
Company was directed by the Board to seek to enhance the purchase price being
offered by Parent as part of an overall resolution of the remaining
outstanding issues.
On May 1, 2000, the Company through Merrill Lynch discussed with Parent a
possible increase in the purchase price and a resolution of the remaining open
issues. On May 2, 2000, Parent increased its purchase price to $12.25 per
Share and agreed to a resolution in principle of the remaining open issues.
Thereafter, representatives of the Company, the Majority Stockholder and
Parent, as well as their respective legal and financial advisors, proceeded to
complete negotiations on the Merger Agreement, the Stockholder Agreement and
the Side Letter. In addition, the senior executives of the Company completed
their negotiations with Parent regarding the terms of their respective
Employment Agreements.
On the afternoon of May 3, 2000, the Board of Directors met by telephone
conference and received reports from senior management and reviewed with
counsel the final terms of the Merger Agreement, including the fiduciary out,
termination provisions and conditions to consummation of the Offer and the
Merger. In addition, counsel also reviewed with the directors the terms of the
Stockholder Agreement, the Side Letter and the Employment Agreements. Counsel
also reviewed with the directors their fiduciary obligations in connection
with the consideration of a transaction such as the one proposed with Parent.
At this meeting, Merrill Lynch delivered its oral opinion to the Board of
Directors (which was subsequently delivered in writing) to the effect that, as
of such date and based upon and subject to the various assumptions,
limitations and qualifications described in the opinion, the proposed cash
purchase price of $12.25 per Share to be received by the stockholders of the
Company
-7-
<PAGE>
in the Offer and the Merger was fair from a financial point of view to such
stockholders. The Board of Directors then discussed the presentations it had
received at this and other Board meetings and unanimously approved (by all
directors present) the Merger Agreement and the Side Letter and the
transactions contemplated thereby, and authorized their execution.
Early in the morning on May 4, 2000, the parties completed negotiations and
the Company and Parent executed the Merger Agreement, the Company and the
Majority Stockholder executed the Side Letter and the Majority Stockholder and
Parent executed the Stockholder Agreement. The Employment Agreements were also
executed by the parties thereto on that date. Thereafter, the Company and
Parent issued a joint press release announcing the execution of the Merger
Agreement.
Thereafter, in accordance with the Merger Agreement, the Purchaser
commenced the Offer.
Reasons for the Recommendation. In reaching its conclusions and
recommendations described in paragraph (a) of this Item 4 above, the Board of
Directors considered a number of factors, including the following:
(1) Company Operating and Financial Condition. The current and
historical financial condition and results of operations of the Company, as
well as the prospects and strategic objectives of the Company, including
risks involved in achieving those prospects and objectives, and the current
and expected conditions in the PBM and HIT industries in which the
Company's business operates.
(2) Transaction Financial Terms/Premium to Market Price. The
relationship of the Offer Price to the historical market prices of the
Shares. The $12.25 Offer Price represents a 60.7% premium over the $7.63
closing price of the Shares on the New York Stock Exchange on May 3, 2000
(the last trading day prior to the Board meeting at which the Board
approved the Merger Agreement). The Board also considered the form of
consideration to be paid to holders of Shares in the Offer and the Merger,
and the certainty of value of such cash consideration compared to stock.
The Board was aware that the consideration received by holders of Shares in
the Offer and Merger would be taxable to such holders for federal income
tax purposes.
(3) Industry Conditions. The Board considered the current competitive
pressures in the PBM industry, including e-health initiatives and pricing
and margin pressures, and the impact of such factors on the Company's
projected profitability and cash flow. The Board also considered the
current and prospective conditions and trends in the stock market
valuations and ongoing consolidation activity in the PBM industry and the
anticipated effects of those conditions and trends on the Company and its
stockholders.
(4) Strategic Alternatives. The presentation of Merrill Lynch and the
Board's review with respect to trends in the industries in which the
Company's business operates and strategic alternatives available to the
Company, including remaining an independent public company, the possibility
of acquisitions or mergers with other companies in such industry, strategic
alliances or re-alignments and extraordinary corporate transactions, as
well as the risks and uncertainties associated with such alternatives. The
Board considered possible alternatives to the Offer and the Merger
involving third parties, the likelihood of consummation with respect to
such proposals and the risks associated therewith.
(5) Merrill Lynch Fairness Opinion. The presentation from Merrill Lynch
and the written opinion of Merrill Lynch, dated May 3, 2000, that, as of
the date of the opinion, and based upon and subject to the assumptions,
limitations and qualifications described in the opinion, the $12.25 per
Share cash consideration to be received by holders of Shares was fair from
a financial point of view to such holders. The full text of the written
opinion of Merrill Lynch to the Board of Directors, which sets forth the
procedures followed, the factors considered, the assumptions made and the
limitations on the review undertaken by Merrill Lynch in arriving at its
opinion, is attached hereto as Annex B and incorporated by reference.
Stockholders are urged to read this opinion in its entirety. The Board was
aware that Merrill Lynch becomes entitled to certain fees described in Item
5 upon the consummation of the Offer.
(6) Majority Stockholder Support. The fact that the Majority
Stockholder, the beneficial owner of approximately 64.5% of the outstanding
Shares, is in favor of the Offer, the Merger and the transactions
contemplated thereby and would, after approval of the Offer and the Merger
by the Board, enter into the Stockholder Agreement, pursuant to which it
has agreed to tender its shares in the Offer and to support Parent's
transaction.
8
<PAGE>
(7) Timing of Completion. The anticipated timing of consummation of the
transactions contemplated by the Merger Agreement, including the structure
of the transactions as a tender offer for all of the Shares, which should
allow stockholders to receive the transaction consideration earlier than in
an alternative form of transaction, followed by the Merger in which
stockholders will receive the same consideration as received by
stockholders who tender their Shares in the Offer.
(8) Limited Conditions to Consummation. Parent's obligation to
consummate the Offer and the Merger is subject to a limited number of
conditions, with no financing condition. The Board also considered the
likelihood of obtaining regulatory approvals, as compared to a transaction
with other potential partners, and the terms of the Merger Agreement
regarding the obligations of both companies to pursue such regulatory
approvals. The Board was aware that Parent's obligation to consummate the
Offer is subject to the condition that the Company's working capital may
not be less than $55.0 million, subject to the ability of the Majority
Stockholder to cure any shortfall in working capital.
(9) Alternative Transactions. The Board considered that under the terms
of the Merger Agreement, while the Company is prohibited from soliciting
acquisition proposals from third parties, the Company may furnish
information and access to any person making an unsolicited, bona fide
written fully-financed all-cash acquisition proposal and may participate in
discussions and negotiate with such person concerning such acquisition
proposal if, among other things, the Board determines in good faith that
such acquisition proposal would result in a transaction more favorable to
the Company's stockholders from a financial point of view, taking into
account advice of financial advisors. The Board considered that the terms
of the Merger Agreement permit the Company to terminate the Merger
Agreement to enter into such a superior transaction involving the Company
if the Company pays Parent an $8,000,000 termination fee and expenses of up
to $1,500,000, and gives Parent four business days' notice prior to
terminating the Merger Agreement (during which period Parent may match any
such superior transaction). The Board considered the possible effect of
these provisions of the Merger Agreement, and the terms of the Stockholder
Agreement, on third parties who might be interested in exploring an
acquisition of the Company. In this regard, the Board recognized that the
provisions of the Merger Agreement relating to termination fees, non-
solicitation of acquisition proposals and the execution of the Stockholder
Agreement by the Majority Stockholder were insisted upon by Parent as a
condition to entering into the Merger Agreement. The Board also considered
the contacts that the Company had with certain third parties regarding a
potential transaction involving the Company and the proposal by another
bidder to acquire all of the Shares, and took into account the views of
management and Merrill Lynch as to the likelihood that a third party would
be prepared to pay a higher price for the Shares than the consideration
offered in the Offer and the Merger in a transaction that could be
completed on a timely basis.
(10) Potential Conflicts of Interest. The interests of certain Company
executives and affiliates in the Offer and the Merger (see Item 3 under the
captions "Transaction Agreements--The Side Letter" and "--Certain
Agreements and Plans").
In view of its many considerations, the Board did not find it practical to,
and did not, quantify or otherwise assign relative weights to the specific
factors considered. In addition, individual members of the Board may have
given different weights to the various factors considered. After weighing all
of these considerations, the Board determined to unanimously (by all directors
present) approve the Merger Agreement and recommend that holders of Shares
tender their Shares in the Offer.
(c) Intent to Tender.
To the Company's knowledge after reasonable inquiry, each executive
officer, director, affiliate (subject to the terms of the Stockholder
Agreement in the case of the Majority Stockholder) or subsidiary of the
Company currently intends to tender all shares of Common Stock held of record
or beneficially by them pursuant to the Offer.
Item 5. Person/Assets, Retained, Employed, Compensated or Used.
Pursuant to the terms of an engagement letter, dated as of December 6,
1999, the Company engaged Merrill Lynch to act as its financial advisor in
connection with various possible transactions, including transactions
-9-
<PAGE>
contemplated by the Merger Agreement (a "Business Combination"). As part of
its role as financial advisor, Merrill Lynch delivered a fairness opinion to
the Board of Directors. Pursuant to the engagement letter, Merrill Lynch will
receive from the Company an aggregate financial advisory fee, contingent upon
the closing of a Business Combination, equal to 1% of the aggregate purchase
price paid in such Business Combination, but in no case less than $2.0
million. The Company has also agreed to reimburse Merrill Lynch for reasonable
out-of-pocket expenses, including, without limitation, the reasonable fees and
disbursements of its outside legal counsel, and to indemnify Merrill Lynch and
related parties against certain liabilities, including liabilities under the
federal securities laws arising out of Merrill Lynch's engagement.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person or class of persons to
make solicitations or recommendations on its behalf concerning the Offer or
the Merger.
Item 6. Interest in Securities of the Subject Company.
No transactions have been effected during the past 60 days by the Company
or, to the Company's knowledge, by any executive officer, director, affiliate
or subsidiary of the Company. However, on February 29, 2000, the Company
granted options to purchase an aggregate of 326,500 Shares, at a per Share
option price of $7.19, to certain officers of the Company.
Item 7. Purpose of the Transaction and Plans or Proposals.
Except as set forth herein, the Company is not undertaking or engaged in
any negotiations in response to the Offer that relate to (1) a tender offer or
other acquisition of the Company's securities by the Company, any subsidiary
of the Company or any other person, (2) any extraordinary transaction, such as
a merger, reorganization or liquidation, involving the Company or any
subsidiary of the Company, (3) any purchase, sale or transfer of a material
amount of assets by the Company or any subsidiary of the Company or (4) any
material change in the present dividend rate or policy, or indebtedness or
capitalization of the Company.
Except as set forth herein, there are no transactions, Board resolutions,
agreements in principle or signed contracts in response to the Offer that
relate to or would result in one or more of the matters referred to in the
preceding paragraph.
Item 8. Additional Information.
Rights Agreement. Each Right issued pursuant to the Rights Agreement
entitles the registered holder thereof to purchase one one-thousandth of a
share of Series B Junior Participating Preferred Stock, par value $.01 per
share (the "Preferred Shares"), of the Company at an exercise price of $120.00
per one one-thousandth of a Preferred Share, subject to adjustment. On the
earlier of (1) the tenth day following a public announcement that any
individual, firm, corporation or other entity (an "Acquiring Person") has
acquired beneficial ownership of 15% or more of the outstanding Shares,
exclusive of the Majority Stockholder or (2) the tenth business day (or such
later date as may be determined by action of the Board of Directors prior to
the time any person becomes an Acquiring Person) following the commencement
of, or announcement of an intention to commence, a tender or exchange offer,
the consummation of which would result in any person becoming the beneficial
owner of 15% or more of the then outstanding Shares (the earlier of such dates
being the "Distribution Date"), the Rights become exercisable and trade
separately from the Common Stock. After the Distribution Date, each holder of
a Right (other than the Acquiring Person) will thereafter have the right to
acquire Shares having a market value of two times the exercise price of the
Right, or, in certain circumstances, the right to acquire shares of the
Acquiring Person's capital stock having a market value of two times the
exercise price of the Right. The Board may redeem the Rights at a price of
$.01 per Right at any time prior to a person becoming an Acquiring Person.
Prior to the execution of the Stockholder Agreement, the Company and the
Rights Agent under the Rights Agreement amended the Rights Agreement as of May
4, 2000 to provide that (1) Parent and its affiliates will not be deemed to be
the beneficial owners of Shares as a result of the Merger Agreement or the
Stockholder Agreement or any purchase of Shares thereunder and (2) nothing in
the Rights Agreement will create or cause a
10
<PAGE>
Distribution Date or constitute an event pursuant to which a Person becomes an
Acquiring Person as a result of the execution of the Merger Agreement or the
Stockholder Agreement or the commencement or consummation of the transactions
contemplated by the Merger Agreement or the Stockholder Agreement.
Delaware General Corporation Law. As a Delaware corporation, the Company is
subject to Section 203 of the Delaware General Corporation Law (the "DGCL").
In general, Section 203 would prevent an "interested stockholder" (generally
defined as a person beneficially owning 15% or more of a corporation's voting
stock) from engaging in a "business combination" (as defined in Section 203)
with a Delaware corporation for three years following the date such person
became an interested stockholder unless: (1) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination, (2) upon consummation of the
transaction which resulted in the interested stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding, for purposes of determining the number of shares of
outstanding stock, shares held by directors who are also officers and by
employee stock plans that do not allow plan participants to determine
confidentially whether to tender shares) or (3) following the transaction in
which such person became an interested stockholder, the business combination
is (x) approved by the board of directors of the corporation and (y)
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least 66- 2/3% of the outstanding voting stock of the corporation not
owned by the interested stockholder. In accordance with the provisions of
Section 203, the Board of Directors has approved the Merger Agreement and the
Stockholder Agreement, as described in Item 4 above and, therefore, the
restrictions of Section 203 are inapplicable to the Merger and the
transactions contemplated under the Stockholder Agreement.
Under Section 253 of the DGCL, if Offeror acquires, pursuant to the Offer
or otherwise, at least 90% of the outstanding Shares, Offeror will be able to
effect the Merger after consummation of the Offer without a vote of the
Company's stockholders. However, if Offeror does not acquire at least 90% of
the Shares pursuant to the Offer or otherwise, a meeting of the Company's
stockholders will be required to effect the Merger.
Regulatory Approvals. Under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, an amended (the "HSR Act"), and the rules that have been
promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be consummated unless certain information has
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the FTC and certain waiting period requirements have
been satisfied. The purchase of Shares by Offeror pursuant to the Offer is
subject to such requirements.
Under the provisions of the HSR Act applicable to the Offer, the purchase
of Shares under the Offer may not be consummated until the expiration of a 15-
calendar day waiting period following the filing by Parent of a Notification
and Report Form (the "Form") with respect to the Offer. However, prior to such
time, the Antitrust Division or the FTC may extend the waiting period by
requesting from Parent additional information or documentary material relevant
to the Offer. If such a request is made, the waiting period will be extended
until 11:59 p.m., New York City time, on the tenth day after substantial
compliance by Parent with such request. Thereafter, such waiting period can be
extended only by court order.
The Antitrust Division and the FTC scrutinize the legality under the
antitrust laws of transactions such as the acquisition of Shares by Offeror
pursuant to the Offer. At any time before or after the consummation of any
such transactions, the Antitrust Division or the FTC could take such action
under the antitrust laws of the United States as it deems necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or seeking divestiture of the Shares so acquired
or divestiture of substantial assets of Parent or the Company. Private parties
(including individual States) may also bring legal actions under the antitrust
laws.
11
<PAGE>
The Company does not, and Parent has advised the Company that it does not,
believe that the consummation of the Offer will result in a violation of any
applicable antitrust laws. However, there can be no assurance that a challenge
to the Offer on antitrust grounds will not be made, or if such a challenge is
made, what the result will be. See Sections 13 and 15 of the Offer to Purchase
for a description of the conditions of the Offer with respect to litigation
and certain governmental actions and of certain termination rights.
Both the Company and Parent intend to file Forms with the Antitrust
Division and the FTC as soon as practicable.
Offeror's Designation of Persons to be Elected to the Board of Directors.
The Information Statement attached as Annex A hereto is being furnished in
connection with the possible designation by Offeror, pursuant to the terms of
the Merger Agreement, of certain persons to be elected to a majority of the
seats on the Board of Directors other than at a meeting of the Company's
stockholders.
Certain Litigation. On May 8, 2000, a purported class action was filed in
the Circuit Court of the State of Wisconsin for Waukesha County by James
Jorgensen (Case No. 00CV-938), an alleged stockholder of the Company (the
"Action"). The complaint evidencing the Action (the "Complaint") names the
Company and the directors of the Company as defendants (the "Defendants") and
alleges, among other things, that (1) the Company's directors breached their
respective fiduciary duties by engaging in self-dealing, failing to take steps
to maximize the value of the Company, including avoiding competitive bidding
and ignoring or failing to protect against conflicts of interest of the
directors of the Company, and (2) the proposed purchase price for the Shares
does not represent the true value of the Company. The Complaint requests that
the Circuit Court, among other things, declare that the Action is a proper
class action, enjoin the Offer or rescind the Offer to the extent completed,
and award compensatory monetary damages, including reasonable attorneys' and
experts' fees. Neither the Company, nor to the Company's knowledge any of its
directors, have been served with the Complaint.
The Company believes the Action to be without merit and the Company intends
to vigorously contest all allegations set forth in the Complaint. There can be
no assurances, however, with regard to other outcome of the Action.
12
<PAGE>
Item 9. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ---------------------------------------------------------------------
<C> <S>
(a)(1)* Letter to Stockholders of ProVantage Health Services, Inc., dated May
10, 2000.
(a)(2)* Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated
May 3, 2000.
(a)(3) Joint Press Release issued by Merck & Co., Inc. and ProVantage Health
Services, Inc. on May 4, 2000 [Incorporated by reference to Joint
Press Release under cover of Schedule 14D-9 filed by ProVantage
Health Services, Inc. on May 4, 2000].
(a)(4) Sections 13 and 15 of the Offer to Purchase dated May 10, 2000
[Incorporated herein by reference to Exhibit (a)(1)(A) to the
Schedule TO filed by Merck & Co., Inc. and PV Acquisition Corp. on
May 10, 2000].
(a)(5) Press Release issued by ProVantage Health Services, Inc. on May 10,
2000 [Incorporated by reference to Press Release under cover of
Schedule 14D-9 filed by ProVantage Health Services, Inc. on May 10,
2000].
(e)(1) Agreement and Plan of Merger, dated as of May 4, 2000, among Merck &
Co., Inc. PV Acquisition Corp. and ProVantage Health Services, Inc.
(e)(2) Stockholder Agreement, dated as of May 4, 2000, among ShopKo Stores,
Inc., SKO Holdings, Inc., Merck & Co., Inc. and PV Acquisition Corp.
(e)(3) Side Letter, dated as of May 4, 2000, among ProVantage Health
Services, Inc., ShopKo Stores, Inc. and Merck & Co., Inc.
(e)(4) Amended and Restated Tax Matters Agreement, dated as of May 4, 2000,
between ShopKo Stores, Inc. and ProVantage Health Services, Inc.
(e)(5) Amendment to Lease Agreement, dated as of May 4, 2000, between ShopKo
Stores, Inc. and PV Acquisition Corp.
(e)(6) First Amendment to Rights Agreement, dated as of May 4, 2000, between
ProVantage Health Services, Inc. and Norwest Bank Minnesota, National
Association.
(e)(7) Employment Agreement, between Merck-Medco Managed Care, L.L.C. and
Jeffrey A. Jones.
(e)(8) Employment Agreement, between Merck-Medco Managed Care, L.L.C. and
Joseph A. Coffini.
(e)(9) Employment Agreement, between Merck-Medco Managed Care, L.L.C. and
Peter F. Hoffman.
(e)(10) Employment Agreement, between Merck-Medco Managed Care, L.L.C. and
Glen Laschober.
(e)(11) Employment Agreement, between Merck-Medco Managed Care, L.L.C. and
Matthew Zirpoli.
(e)(12) Form of ProVantage Health Services, Inc. Change of Control Severance
Agreement.
(e)(13) Confidentiality Agreement, dated as of December 8, 1999, between
ProVantage Health Services, Inc. and Merck & Co., Inc.
(e)(14)* The Information Statement of ProVantage Health Services, Inc.
</TABLE>
- --------
* Included in copies of the Schedule 14D-9 mailed to stockholders.
13
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
Dated: May 10, 2000.
PROVANTAGE HEALTH SERVICES, INC.
/s/ Jeffrey A. Jones
By: _________________________________
Jeffrey A. Jones
President and Chief Executive
Officer
14
<PAGE>
ANNEX A
ProVantage Health Services, Inc.
N19 W24130 Riverwood Drive
Waukesha, Wisconsin 53188
----------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement (the "Information Statement") is being mailed on
or about May 10, 2000 as part of the Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9") to the holders of the Common Stock of
ProVantage Health Services, Inc. (the "Company"). Capitalized terms used and
not otherwise defined herein shall have the meaning set forth in the Schedule
14D-9. You are receiving this Information Statement in connection with the
possible election of persons designated by Offeror to a majority of the seats
on the Board of Directors of the Company (the "Board" or the "Board of
Directors"). The Merger Agreement requires the Company to cause Offeror's
designees to be elected to the Board under the circumstances described
therein. This Information Statement is required by Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14f-1 thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action in connection with the matters set forth
herein.
Pursuant to the Merger Agreement, Offeror commenced the Offer on May 10,
2000. The Offer is scheduled to expire at 12:00 midnight, New York City time,
on Wednesday, June 14, 2000, unless the Offer is extended.
The information contained in this Information Statement (including
information incorporated by reference) concerning Parent, Offeror and the
Offeror Designees (as defined below) has been furnished by either Parent or
Offeror, and the Company assumes no responsibility for the accuracy or
completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
General
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of May 4, 2000, there were 18,150,000
Shares issued and outstanding and 873,309 Shares reserved for issuance upon
the exercise of outstanding options (none of which were exercisable). The
Board currently consists of six members, divided into three classes. Each
director holds office for a three-year term and until such director's
successor is duly elected and qualified or until such director's earlier
resignation or removal.
Right to Designate Directors; the Offeror Designees
Pursuant to the Merger Agreement, promptly upon the acceptance for payment
of, and payment for, Shares by Offeror pursuant to the Offer (and, to the
extent the Minimum Tender Condition is waived, the exercise of the Option),
Offeror will be entitled to designate such number of directors, rounded up to
the next whole number, on the Board (the "Offeror Designees"), equal to the
product of the number of directors on the Board multiplied by the percentage
that the number of votes represented by Shares so purchased and Shares
otherwise held by Parent and its affiliates, if any, bears to the total number
of votes represented by Shares then outstanding. In furtherance thereof, the
Company has agreed, subject to applicable law, either to increase the size of
the Board or obtain the resignations of such number of incumbent directors, or
both, as is necessary to enable the Offeror Designees to be so elected or
appointed to the Board. The Company's obligation to appoint the Offeror
Designees is subject to Section 14(f) of the Exchange Act and other applicable
laws. The Company is required to take all
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<PAGE>
action necessary to effect any such election and to include in this
Information Statement the information required by Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder. The foregoing
notwithstanding, the Merger Agreement further provides that at least two
directors who are neither officers, directors, stockholders or designees of
Offeror or any of its affiliates ("Offeror Insiders") shall continue to serve
on the Board until the effectiveness of the Merger and each committee of the
Board shall have at least one member who is not a Offeror Insider.
Following the election or appointment of the Offeror Designees to the
Board, but prior to the effectiveness of the Merger, any amendment or
termination of the Merger Agreement by the Company, any extension or waiver by
the Company of the time of performance of any of the obligations or other acts
of Parent or Offeror under the Merger Agreement and any waiver of the
Company's rights under the Merger Agreement require the concurrence of a
majority of the directors of the Company then in office who are not Offeror
Insiders.
Offeror has informed the Company that it will choose the Offeror Designees
from the directors and executive officers listed in Annex I to the Offer to
Purchase, a copy of which is being mailed to the Company's stockholders
together with the Schedule 14D-9. Offeror has informed the Company that each
of the directors and executive officers listed in Annex I to the Offer to
Purchase has consented to act as a director, if so designated. The information
on such Annex I is incorporated herein by reference.
Offeror has advised the Company that to the best knowledge of Offeror, none
of the Offeror Designees currently is a director of, or holds any position
with the Company, and except as disclosed in the Offer to Purchase, none of
the Offeror Designees beneficially owns any securities (or rights to acquire
any securities) of the Company or has been involved in any transactions with
the Company or any of its directors, executive officers or affiliates that are
required to be disclosed pursuant to the rules of the Securities and Exchange
Commission (the "SEC"), except as may be disclosed in the Offer to Purchase.
None of the Offeror Designees has any family relationship with any director or
executive officer of the Company.
Offeror has advised the Company that none of the persons listed in Annex I
to the Offer to Purchase has during the last five years been convicted in a
criminal proceeding (excluding traffic violations and other minor offenses) or
was a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was, or is, subject
to a judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, federal or state securities laws or finding
any violation of such laws or is involved in any other legal proceeding which
is required to be disclosed under Item 401(f) of Regulation S-K promulgated by
the SEC.
A-2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Current Members of the Board of Directors
The names of the Company's current directors and certain information about
them, as of January 29, 2000, are set forth below. As indicated above, some of
the current directors may resign promptly following the purchase of Shares by
Offeror pursuant to the Offer (and, if applicable, the exercise of the
Option).
William J. Podany, 53, director of the Company since July 1999. Mr. Podany
has been the Chairman of the Board of the Company since March 2000, Chairman
of the Board of Directors of ShopKo Stores, Inc. ("ShopKo") since March 2000,
President and Chief Executive Officer of ShopKo since March 1999 and a
director of ShopKo since July 1997. Mr. Podany was President and Chief
Operating Officer of ShopKo's retail stores from November 1997 to March 1999
and was Executive Vice President of ShopKo from November 1994 to March 1999.
From 1992 to 1994, he was Executive Vice President-Merchandise of Carter
Hawley Hale, a federation of four department store chains. Mr. Podany has held
senior merchandising executive officer positions with Allied Stores, May
Department Stores and Carter Hawley Hale since 1978.
Jeffrey A. Jones, 53, director of the Company since July 1999. Mr. Jones
has been the President and Chief Executive Officer of the Company since July
1999 and was Executive Vice President and Chief Operating Officer from
November 1997 to July 1999. Prior thereto, he served as the Senior Vice
President and Chief Financial Officer of ShopKo from November 1993 to August
1998. Mr. Jones had 11 years of executive and chief financial officer
experience and 11 years of experience with Arthur Andersen & Co. Mr. Jones is
a director and the chairman-elect of Pharmacy Care Management Association and
a director of Boys and Girls Club of Green Bay.
Jeffrey C. Girard, 52, director of the Company since July 1999. Mr. Girard
has been a director of ShopKo since June 1991 and the President of Girard &
Co. of Minneapolis, Minnesota, a private consulting company, and was
previously an Adjunct Professor at the Carlson School of Management,
University of Minnesota. Mr. Girard was Executive Vice President and Chief
Financial Officer of Supervalu Inc. from October 1992 to July 1997 and prior
thereto, he held the positions of Executive Vice President, Chief Financial
Officer and Treasurer of Supermarkets General Holdings Corporation and Senior
Vice President and Chief Financial Officer of Supervalu Inc.
Dale P. Kramer, 60, director of the Company since January 1998. Mr. Kramer
was Chairman of the Board of the Company from January 1998 to March 2000 and
has been a director of ShopKo since August 1991, Chairman of the Board of
ShopKo from July 1997 to March 2000 and President and Chief Executive Officer
of ShopKo from February 1991 to March 1999. Prior thereto, he served as
ShopKo's Executive Vice President from April 1983 to February 1986 and as its
Executive Vice President and Chief Operating Officer from February 1986 to
February 1991. Mr. Kramer was employed by ShopKo in various other positions
since 1971.
Terry R. Thompson, 42, director of the Company since August 1999. Mr.
Thompson has been the Chairman and Chief Executive Officer of Medical
Logistics, a provider of transportation and logistics service to institutional
pharmacies, drug wholesalers, clinical laboratories and other health care
entities, since March 1997. Prior thereto, he served as the Executive Vice
President, Business Operations and a director of Merit Behavioral Care
Corporation, Inc., a provider of specialty outpatient clinics, from September
1996 to March 1997. Prior to joining Merit, Mr. Thompson had been employed by
Parent and its affiliates since 1990, where he served as Executive Vice
President of Operations for Merck-Medco Managed Care, LLC as well as President
of its subsidiary companies, Paid Prescriptions, National Pharmacies and
National Rx Services.
Gregory H. Wolf, 43, director of the Company since July 1999. Mr. Wolf has
been a director of ShopKo since November 1998 and Chairman and Chief Executive
Officer of nextHR.com, an application service provider of human resource asset
management services, since January 2000. Prior thereto, he served as an
officer of Humana, Inc., a provider of managed healthcare products and
services, from October 1995 to August 1999; having first served as Senior Vice
President of Sales and Marketing, as Chief Operating Officer from July 1996
A-3
<PAGE>
to September 1996, as President from September 1996 through November 1997 and
as President, Chief Executive Officer and Director from December 1997 to
August 1999. Prior to joining Humana, Mr. Wolf had been employed by EMPHESYS
Financial Group, Inc. and its affiliates since 1988, where he most recently
served as President. In October 1995, EMPHESYS was acquired by Humana. Mr.
Wolf is also a director of InSystems Technologies and Shreyer Honors College
and Institute for Innovation in Learning and a national trustee for the Boys
and Girls Clubs of America.
Board of Directors Meetings and Committees
The Board of Directors held three meetings and acted by consent 11 times in
the fiscal year ended January 29, 2000. Each incumbent director participated
in 75% or more of the total number of the meetings of the Board and those of
the committees of which such director is a member held during the period for
which he was a director.
The Board has three standing committees: the Compensation Committee, the
Executive Committee and the Audit Committee. The Board does not have a
standing nominating committee.
The Compensation Committee is currently comprised of Messrs. Kramer
(Chairman), Girard and Wolf. The duties of the Compensation Committee are to
provide a general review of the company's compensation and benefit plans to
ensure that they meet corporate objectives. The Compensation Committee has the
authority to administer the Company's employee stock options and stock
incentive plans. In addition, the Compensation Committee approves the (1)
compensation of all corporate officers, (2) grant of awards under the
Company's compensation and benefit plans and (3) adoption of and changes in
major corporate compensation policies and practices, and reports its
recommendations to the full Board of Directors for approval and to authorize
action. The Compensation Committee met one time in the fiscal year ended
January 29, 2000.
The Audit Committee is currently comprised of Messrs. Girard (Chairman) and
Thompson. The duties of the Audit Committee are to recommend to the full Board
of Directors the selection of independent certified public accountants to
audit annually the financial statements of the Company, to review the
activities and the reports of the independent certified public accountants and
to report the results of such review to the full Board. The Audit Committee
also monitors the internal controls of the Company. The Audit Committee met
one time in the fiscal year ended January 29, 2000.
Director Compensation
Each director who is not an employee of the Company or ShopKo receives an
annual retainer fee of $10,000, a fee of $1,000 for each Board meeting in
which the director participates and a fee of $1,000 for each committee meeting
in which the director participates, if such committee meeting is not held on
the same day as a Board meeting. The Company reimburses all non-employee
directors for travel and related expenses incurred in connection with Board
and committee meetings.
The Company's 1999 Stock Incentive Plan authorizes various stock incentive
awards to non-employee directors. Messrs. Kramer, Wolf and Girard were granted
options to purchase 4,762 shares of Common Stock, and Mr. Podany was granted
an option to purchase 11,905 shares of Common Stock, at $18.00 per share on
July 19, 1999. Additionally, on August 16, 1999, Mr. Thompson was granted an
option to purchase 4,762 shares of Common Stock at $12.125 per share.
A-4
<PAGE>
Executive Officers of the Company
The names of the Company's current executive officers, their ages as of
January 29, 2000 and certain other information about them, as of April 19,
2000, is set forth below.
<TABLE>
<CAPTION>
Served in Employed
Current by the
Position Company
Name Age Position Since Since
- ---- --- -------- --------- --------
<S> <C> <C> <C> <C>
Jeffrey A. Jones............ 53 President and Chief Executive 1999 1997
Officer
Robert J. Abramowski, CPA... 49 Senior Vice President of Finance and 1999 1999
Chief
Financial Officer
George M. Barlow............ 53 Senior Vice President, Healthcare 1999 1997
Information Technology
Joseph A. Coffini, RPh...... 52 Senior Vice President, Business 1999 1993
Development and Marketing
Vincent Gallucci............ 32 Senior Vice President, Organization 2000 1998
Development and Human Resources
Peter F. Hoffman, M.D., PhD. 55 Senior Vice President and Chief 1999 1998
Medical Officer
Glen C. Laschober........... 49 Executive Vice President, Health 1997 1997
Benefit
Management
Matthew J. Zirpoli.......... 36 Senior Vice President of Sales 2000 1993
</TABLE>
See "Current Members of the Board of Directors" above for background
information on Mr. Jones.
Robert J. Abramowski, CPA, has served as the Company's Senior Vice
President of Finance and Chief Financial Officer since October 1999. Mr.
Abramowski served as Vice President and Controller with Extendicare Health
Services from October 1983 to December 1989 and as Vice President of Finance
and Chief Financial Officer from January 1990 to March 1998. Following his
tenure with Extendicare, Mr. Abramowski served as Chief Financial Advisor to
Americor Management Services, L.L.C. Mr. Abramowski spent eleven years with
Arthur Andersen & Co.
George M. Barlow has served as the Company's Senior Vice President,
Healthcare Information Technology since January 1999. He served as the Vice
President, General Manager of ProVMed, L.L.C. from December 1997 to January
1999. From 1995 to 1997, Mr. Barlow was Senior Director of Corporate Marketing
with HealthVision, Inc. He was the President of Distributed Micro Systems,
Inc. from 1980 to 1995.
Joseph A. Coffini, RPh, has served as the Company's Senior Vice President,
Business Development and Marketing since January 1999. He served as the
Company's Vice President, Managed Care Services from November 1994 to January
1999 and from February 1993 to November 1994 he held the position of Director
of Managed Care. Mr. Coffini served as Pharmacy Division President from 1990
to 1993 of Geriatric and Medical Companies, Inc. and as National Sales Manager
of Third Party Programs from 1986 to 1990 for Thrift Drug Company, Inc.
Vincent Gallucci has served as the Company's Senior Vice President,
Organization Development and Human Resources since March 2000. Prior thereto,
Mr. Gallucci served as Vice President, Organizational Development from
September 1998 to March 2000. Mr. Gallucci was Director, Organization
Development from January 1997 to September 1998 and Human Resources Manager
from May 1995 to January 1997 with Capital District Physicians' Health Plan,
Inc. Prior thereto Mr. Gallucci was the employment manager with Delmar
Publishers from May 1993 to May 1995.
Peter F. Hoffman, M.D., PhD, has served as the Company's Senior Vice
President and the Chief Medical Officer since January 1999. He served as the
Vice President and the Chief Medical Officer of PharMark from January 1998 to
January 1999. From June 1996 to January 1998, Dr. Hoffman was the Chief
Medical Officer of
A-5
<PAGE>
Wang Healthcare Information Systems, an electronic medical records company.
From 1966 until his retirement as a Brigadier General in 1996, Dr. Hoffman
served as a Medical Corps Officer in the United States Air Force. He commanded
a wide range of medical treatment facilities, served as the Command Surgeon of
three commands and was the Director of Programs and Resources in the Office of
the Surgeon General of the Air Force.
Glen C. Laschober has served as the Company's Executive Vice President,
Health Benefit Management since he joined the Company in March 1997. From 1989
to 1997, Mr. Laschober was with Caremark International, Inc., where his most
recent position was Vice President and General Manager of Caremark's
prescription service division. Mr. Laschober also served in senior management
positions at the NutraSweet and GD Searle divisions of Monsanto Company.
Matthew J. Zirpoli has served as the Company's Senior Vice President of
Sales since March 2000. Prior thereto, Mr. Zirpoli served as Vice President of
Sales from May to March 2000 and National Sales Director from February 1993 to
May 1995. Mr. Zirpoli was Vice President Sales from April 1990 to February
1993 and Manager, Contract Sales from September 1989 to April 1990 for
Innovative Pharmacy Services, Inc.
The term of office of each executive officer is from one annual meeting of
the directors until the next annual meeting of directors or until a successor
for each is selected. There are no arrangements or understandings between any
of the executive officers of the Company and any other person (not an officer
or director of the Company acting as such) pursuant to which any of the
executive officers were selected as an officer of the Company.
There are no family relationships between or among any of the directors or
executive officers of the Company.
A-6
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Set forth in the table below is information regarding the beneficial
ownership of shares of the Common Stock by each person or entity known by the
Company to beneficially own 5% or more of the total number of outstanding
shares of the Common Stock, and information regarding the beneficial ownership
of shares of the Common Stock and shares of ShopKo, the Company's majority
stockholder, common stock by (i) each director of the Company, (ii) the
Company's Named Executive Officers (as defined below) and (iii) the directors
and executive officers of the Company as a group. Except as otherwise noted,
information with respect to directors and executive officers is as of January
29, 2000.
<TABLE>
<CAPTION>
ProVantage Common
Stock ShopKo Common Stock
---------------------- -----------------------
Amount and Amount and
Nature of Nature of
Beneficial Beneficial
Name of Beneficial Owner Ownership(1) Percent Ownership(2)(4) Percent
- ------------------------ ------------ ------- --------------- -------
<S> <C> <C> <C> <C>
ShopKo Stores, Inc.(3).......... 11,710,000 64.5% -- --
700 Pilgrim Way
Green Bay, WI 53404
Dale P. Kramer.................. 8,150 * 370,000 1.2%
William J. Podany............... 0 * 113,000 *
Jeffrey C. Girard............... 1,630 * 4,000 *
Gregory H. Wolf................. 4,890 * 5,000 *
Terry R. Thompson............... 0 * 0 *
Jeffrey A. Jones................ 1,730 * 76,000 *
Glen C. Laschober............... 480 * 8,000 *
Peter F. Hoffman................ 100 * 1,200 *
Joseph A. Coffini............... 3,400 * 555 *
George M. Barlow................ 210(5) * 800 *
All directors and executive
officers
as a group (13 persons)........ 23,210 * 578,960 1.9%
</TABLE>
- --------
* Less than 1%
(1) Except as otherwise noted, the persons named in the above table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Includes shares which may be acquired within 60 days pursuant to stock
options as follows: Mr. Kramer--280,000 shares; Mr. Podany--88,000 shares;
Mr. Girard--3,000 shares; Mr. Jones--76,000 shares; Mr. Laschober--8,000
shares; Dr. Hoffman--1,200 shares; Mr. Coffini--480 shares; and Mr.
Barlow--800 shares; and all directors and executive officers--457,960
shares.
(3) Based on Schedule 13G filed on February 14, 2000. According to this
filing, ShopKo (through its wholly-owned subsidiary SKO Holdings, Inc.)
has sole voting power and sole dispositive power with respect to all
11,710,000 shares.
(4) The number of shares shown does not reflect funds from ShopKo's Profit
Sharing and 401(k) Plans invested in ShopKo common stock through the
ShopKo Stock Fund. As of January 29, 2000, the approximate ShopKo Stock
Fund account balances were as follows: Mr. Kramer--$204,877; Mr. Podany--
$63,704; Mr. Jones--$13,237; and Mr. Coffini--$24,414.
(5) Includes 105 shares held by Mr. Barlow's wife.
A-7
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors and persons who beneficially own more than 10% of the Company's
Common Stock to file reports of ownership and changes in ownership on Forms 3,
4 and 5 with the Securities and Exchange Commission and the New York Stock
Exchange and furnish the Company with copies of all such forms they file.
Based solely on its review of the copies of such forms, the Company believes
that during the fiscal year ended January 29, 2000 all reports required by
Section 16(a) to be filed by the Company's executive officers, directors and
owners of more than 10% of the Company's Common Stock were filed on a timely
basis, with the exception of Mr. Jones who reported one transaction late.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table (the "Summary Compensation Table") sets forth the
compensation paid by the Company for each of the last two fiscal years to the
Company's Chief Executive Officer and its other four most highly compensated
executive officers (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
--------------------- ---------------
Securities
Name and Principal Underlying All Other
Position Year(1) Salary($) Bonus($)(2) Options/SARs(#) Compensation($)
------------------ ------- --------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Jeffrey A. Jones........ 1999 360,150 234,098 103,000 79,989(3)
President and Chief 1998 340,000 255,000 0 232,030
Executive Officer
Glen C. Laschober ...... 1999 200,227 91,103 38,850 23,643(4)
Executive Vice 1998 192,115 67,240 0 5,284
President,
Health Benefit Manager
Peter F. Hoffman........ 1999 170,926 70,241 24,600 174(6)
Senior Vice President, 1998 163,000 40,750 3,000(5) 38,750
Chief Medical Officer
Joseph A. Coffini....... 1999 161,000 66,346 24,600 11,016(7)
Senior Vice President, 1998 152,696 30,539 0 73,686
Business Development
and Marketing
George M. Barlow........ 1999 172,385 71,370 24,600 7,634(8)
Senior Vice President, 1998 150,000 30,000 2,000(5) 6,275
Healthcare Information
Technology
</TABLE>
- --------
(1) Refers to fiscal years ended on the following dates: 1998: January 30,
1999; and 1999; January 29, 2000.
(2) Represents bonuses earned with respect to the indicated fiscal year
pursuant to the Company's Executive Incentive Plan although all or a
portion of the bonus may have been paid during the subsequent fiscal year.
(3) "All Other Compensation" for Mr. Jones includes the following: ProVantage-
paid portion of individual life insurance policy: $174; 401(k) ProVantage
match: $4,906; ShopKo profit sharing plan contributions: $37,244;
relocation expenses and associated tax adjustments: $24,165; and car
allowance: $13,500.
(4) "All Other Compensation" for Mr. Laschober includes the following:
ProVantage-paid portion of individual life insurance policy: $174; 401(k)
ProVantage match: $5,018; ShopKo profit sharing plan contributions:
$6,451; and car allowance: $12,000.
(5) The securities referenced are options to purchase shares of ShopKo's
common stock.
A-8
<PAGE>
(6) "All Other Compensation" for Dr. Hoffman consists of ProVantage-paid
portion of individual life insurance policy: $174.
(7) "All Other Compensation" for Mr. Coffini includes the following:
ProVantage-paid portion of individual life insurance policy: $174; and
ShopKo profit sharing plan contributions: $10,842.
(8) "All Other Compensation" for Mr. Barlow includes the following:
ProVantage-paid portion of individual life insurance policy: $174; 401(k)
ProVantage match: $4,569; and relocation expenses and associated tax
adjustments: $2,891.
Option Grants Table
The following table sets forth information about stock option grants during
the fiscal year ended January 29, 2000 to the Named Executive Officers.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Individual Grants (1) Realizable Value at
---------------------------------------------- Assumed Annual
Number of % of Total Rates of Stock
Securities Options/SARs Exercise Price Appreciation
Underlying Granted to or Base for Option Term
Options/SARs Employees in Price Expiration -------------------
Name Granted(#) Fiscal Year ($/Share) Date 5%($) 10%($)
- ---- ------------ ------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Jones........ 103,000 21.6 18.00 2009 1,165,970 2,954,799
Glen C. Laschober....... 38,850 8.2 18.00 2009 439,786 1,114,504
Peter F. Hoffman........ 24,600 5.2 18.00 2009 278,475 705,709
Joseph A. Coffini....... 24,600 5.2 18.00 2009 278,475 705,709
George M. Barlow........ 24,600 5.2 18.00 2009 278,475 705,709
</TABLE>
- --------
(1) Forty percent (40%) of these stock options vest and become exercisable on
the second anniversary of the date of grant, with an additional twenty
percent (20%) of the options vesting and becoming exercisable on each
successive anniversary of the date of grant. All stock options vest
immediately upon a "change of control" of the Company, as defined in the
Company's 1999 Stock Incentive Plan.
Option Exercise and Fiscal Year End Value Table
The following table sets forth information with respect to the Named
Executive Officers concerning stock options that were exercised during the
last fiscal year and the number and value of options outstanding on January
29, 2000.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-
Unexercised Options/SARs at the-Money Options/SARs at
Shares Fiscal Year End(#) Fiscal Year End($)
Acquired on Value ------------------------------- -------------------------
Name Exercise(#)(1) Realized($) Exercisable(1) Unexercisable(2) Exercisable Unexercisable
- ---- -------------- ----------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Jones........ 0 0 76,000 136,000 213,500 23,625
Glen C. Laschober....... 6,000 134,970 8,000 59,850 4,470 13,400
Peter F. Hoffman........ 0 0 0 27,600 0 0
Joseph A. Coffini....... 10,200 199,974 480 25,320 0 0
George M. Barlow........ 0 0 0 26,600 0 0
</TABLE>
- --------
(1) The securities referenced are shares of ShopKo's common stock.
(2) Includes shares underlying options to purchase ShopKo common stock as
follows: Mr. Jones--33,000; Mr. Laschober--21,000; Dr. Hoffman--3,000; Mr.
Coffini--720; and Mr. Barlow--2,000.
A-9
<PAGE>
Agreements With Executive Officers
Employment Agreements. Merck-Medco Managed Care, L.L.C., a wholly-owned
subsidiary of Parent and the parent company of Offeror, entered into
Employment Agreements with five officers of the Company, including Messrs.
Jones, Laschober, Hoffman and Coffini. The Employment Agreements will become
effective on the Consummation Date and will supersede the Existing Severance
Agreements entered into by those individuals. The Employment Agreements are
described in Item 3 of the Schedule 14D-9 accompanying this Information
Statement and are incorporated herein by reference.
Indemnification of Directors and Officers. The Company's Amended and
Restated Bylaws provide for the indemnification, or reimbursement for losses
and expenses incurred in litigation relating to corporate affairs, of the
Company's directors and officers to the full extent permitted by the DGCL. The
Company has entered into agreements to indemnify, or reimburse, its directors
and certain officers, in addition to the indemnification provided for in the
Amended and Restated Bylaws. These agreements will, among other things,
indemnify the Company's directors and certain of its officers to the full
extent permitted by Delaware law for any claims, liabilities, damages,
judgments, penalties, fines, settlements, disbursements or expenses, including
attorneys' fees, incurred by such person in any action or proceeding,
including any action by or in the Company's right, on account of services as
one of its directors or officers. The Company believes that these provisions
and agreements are necessary to attract and retain qualified persons as
directors and officers. The Merger Agreement also contains certain provisions
under which the Company's directors and officers are entitled to
indemnification, which are described more fully in Section 13 of the Offer to
Purchase, a copy of which is being mailed to the Company's stockholders
together with the Schedule 14D-9 and is incorporated herein by reference.
Change Of Control Severance Agreements. None of the Named Executive
Officers will receive New Severance Agreements. The Company currently has in
effect the Existing Severance Agreements with certain of its officers,
including the Named Executive Officers. The Existing Severance Agreements
provide that, if within two years after a "change of control" (as defined in
the Existing Severance Agreements) the Company terminates the officer's
employment other than for "cause" (as defined in the Existing Severance
Agreements) or disability, or the officer terminates his employment for "good
reason" (as defined in the Existing Severance Agreements) then the officer
will be entitled to a lump sum cash payment equal to a multiple of one, one
and one-half or two times the officer's annual base salary, plus a multiple of
one, one and one-half or two times the lesser of (A) the officer's average
annual bonus for the three fiscal years immediately preceding the date of
termination or (B) the average of the officer's annual bonus "norm" for the
three fiscal years immediately preceding the date of termination. The multiple
referred to in this paragraph is two for Mr. Jones and one and one-half for
Messrs. Laschober, Hoffman, Barlow and Coffini. Each officer would also
receive his salary through the date of termination and all other amounts owed
to the officer at the date of termination under the Company's benefit plans.
In addition, under such circumstances, the officer will be entitled to
continued health and dental coverage for the officer and the officer's family
for a one, one and one-half or two year period after the date of termination.
The Existing Severance Agreements provide that if certain amounts to be paid
thereunder constitute "parachute payments," as defined in Section 280(G) of
the Internal Revenue Code, the severance benefits owed to the officer may be
decreased, but only if the result is to give the officer a larger after-tax
benefit, than if the payments are not reduced. The officer is permitted to
elect the payments to be reduced.
Other Compensation. The Company provides certain personal benefits and
other non-cash compensation to its executive officers. For the fiscal year
ended January 29, 2000, the incremental cost of providing such compensation
did not exceed the minimum amounts required to be disclosed under current
rules under the Exchange Act for each of the Named Executive Officers.
Compensation Committee Interlocks and Insider Participation
Prior to the Company's initial public offering, the compensation of the
Company's executive officers was determined by ShopKo's compensation
committee. The compensation committee consists of Messrs. Kramer, Girard and
Wolf. All of these individuals are members of ShopKo's Board of Directors. Mr.
Kramer is
A-10
<PAGE>
ShopKo's former Chairman of the Board, President and Chief Executive Officer.
The Company is a party to various agreements with ShopKo. Additionally, ShopKo
was the Company's sole stockholder prior to the Company's initial public
offering, and owns a substantial majority of the Company's Common Stock. See
"Relationship with ShopKo."
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee was established after completion of the
Company's initial public offering in July 1999. The Compensation Committee
consists of Messrs. Kramer (Chairman), Girard and Wolf, none of whom are
employees of the Company. The Compensation Committee is responsible for making
recommendations to the Board concerning the compensation levels of the
executive officers of the Company. The Compensation Committee also administers
the Company's 1999 Stock Incentive Plan and determines awards to be made under
such plan to the Company's executive officers and to other eligible
individuals. It is currently expected that the Compensation Committee will
review compensation programs for executive officers annually, commencing in
2000.
With respect to 1999, virtually all of the compensation decisions for
executive officers, including base salary and bonus levels and stock option
awards for Mr. Jones, were made by ShopKo's compensation committee prior to
the completion of the Company's initial public offering.
Described below are the different forms of compensation, both short- and
long-term, that the Compensation Committee may consider in making future
recommendations to the Board.
Base Salary. The Compensation Committee intends to set (and periodically
adjust) the base salaries of the Company's executive officers at levels
designed to attract and retain highly qualified individuals. The Compensation
Committee expects to review information on the compensation levels of
comparable public companies and to consider that information together with the
executives' and the Company's performance in determining salary levels.
Bonus Compensation. Historically, the Company's executive officers have had
an opportunity for annual bonuses. The Compensation Committee intends to set
target performance levels for the Company's executive officers which would
result in eligible executive officers receiving bonus payouts based on a
percentage of base salary if the performance goals set by the Compensation
Committee are met for that year.
Equity Based Compensation. The Company adopted the 1999 Stock Incentive
Plan in connection with the Company's initial public offering. The
Compensation Committee expects that stock option grants will be the primary
form of long-term incentive compensation for the Company's executive officers.
The Compensation Committee believes stock options are an effective means of
incenting senior management to increase the long-term value of the Company's
Common Stock.
In making compensation decisions, it is the Compensation Committee's
current intention to recommend plans and awards which will meet the
requirements for deductibility for tax purposes under Section 162(m) of the
Internal Revenue Code of 1986, as amended.
The Compensation Committee:
Dale P. Kramer, Chairman Jeffrey C. Girard Gregory H. Wolf
A-11
<PAGE>
PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
stockholder return on the Company's Common Stock for the period beginning on
July 14, 1999 (the first day of trading of the Common Stock on the New York
Stock Exchange) and ending on January 29, 2000 (the Company's fiscal year
end), with the cumulative total return for the Russell 2000 Index and the
cumulative total return for the Nasdaq Health Services Index, which has been
selected as the Company's peer group. The comparison assumes $100 was invested
on July 14, 1999 in the Company's Common Stock and in each of the comparison
indexes, and assumes reinvestment of dividends.
[GRAPH APPEARS HERE]
- ---------------------------------------------------------------------
7/14/99 1/29/00
- ---------------------------------------------------------------------
ProVantage Health Services, Inc. $100 $50
- ---------------------------------------------------------------------
Russell 2000 $100 $91
- ---------------------------------------------------------------------
Nasdaq Health Services $100 $74
- ---------------------------------------------------------------------
A-12
<PAGE>
RELATIONSHIP WITH SHOPKO
The Company entered into a number of agreements with ShopKo in connection
with the July 1999 initial public offering of the Company's Common Stock.
These agreements were entered into while the Company was a wholly-owned
subsidiary of ShopKo, and, therefore, such agreements were not the result of
arm's-length negotiations. As a result, there can be no assurance that each of
these agreements, or the transactions provided for in these agreements, has
been or will be effected on terms at least as favorable to the Company as
could have been obtained from parties other than ShopKo.
These agreements will be amended or terminated pursuant to the terms of the
Side Letter, which the Company, ShopKo and Parent entered into in connection
with the Merger Agreement. A summary of the Side Letter is contained in Item 3
of the Schedule 14D-9 accompanying this Information Statement and is
incorporated herein by reference.
The following is a summary of the material features of certain agreements,
arrangements and transactions between the Company and ShopKo. The summaries of
each of the following agreements are qualified in their entirety by reference
to the full text of such agreement, a copy of which has been filed with the
Securities and Exchange Commission.
Credit Agreement. The Company has entered into a credit agreement with
ShopKo to provide the Company with a revolving line of credit which expires on
January 31, 2001. Pursuant to the credit agreement, ShopKo has agreed, subject
to certain conditions, to make advances to the Company on a revolving basis in
an aggregate amount not to exceed $25.0 million. Borrowings under the credit
agreement will bear interest at various market rates at the time of borrowing.
The credit agreement provides for an annual commitment fee of 1/5 of one
percent of the total commitment amount. The credit agreement is unsecured, and
the Company may terminate the credit agreement at any time without penalty.
The Company may at any time replace the credit agreement with borrowings from
banks or other financial institutions or in the private or public markets. The
credit agreement restricts the Company from borrowing funds from parties other
than ShopKo without ShopKo's consent, and prohibits the Company from selling
Common Stock unless ShopKo meets certain financial tests, pledging certain of
the Company's assets and entering into agreements which restrict the Company's
ability to pay dividends.
Indemnification and Hold Harmless Agreement. The Company has entered into
an indemnification and hold harmless agreement with ShopKo with respect to the
allocation of responsibility for certain liabilities. In general, the
indemnification agreement provides that the Company and ShopKo will each
indemnify the other party and that party's directors, officers, employees and
agents against certain liabilities arising from or based upon the operation of
their own respective businesses prior to and following the Company's initial
public offering, including, but not limited to, liabilities arising under
securities, environmental and contract law.
Tax Matters Agreement. The Company has entered into a tax matters agreement
with ShopKo which provides that ShopKo will prepare all returns and,
generally, have liability for all income taxes attributable to all tax periods
ending on or before the Company's initial public offering. The Company has
entered into an administrative services agreement, described below, pursuant
to which ShopKo will continue to prepare tax returns for the Company, however,
the Company has liability for all taxes for tax periods beginning after the
Company's initial public offering. For tax periods which began before the
Company's initial public offering but ended after the offering, ShopKo has
liability for income taxes attributable to income allocable to the period
ending with the offering and the Company has liability for the remainder.
ShopKo determined the method for allocating income in the tax year in which
the offering occurred. By law, the Company is liable for the entire federal
income tax of ShopKo and other companies included in the consolidated return
for all periods in which the Company is included in the consolidated group. In
the tax matters agreement, however, ShopKo agrees to indemnify the Company
against this liability except to the extent it relates to the Company and its
subsidiaries, if any, after the offering. If the Company's employees exercise
ShopKo stock options or otherwise receive compensation from ShopKo
nonqualified plans after the offering, the tax matters agreement provides that
the Company will reimburse ShopKo for the tax benefit, if any, that the
Company receives from deducting
A-13
<PAGE>
compensation attributable thereto and the employer's share of any employment
taxes arising in connection with such compensation which is paid by ShopKo.
Administrative Services Agreement. The Company has entered into an
administrative services agreement with ShopKo pursuant to which ShopKo will
make available and provide certain administrative, support and consultation
services to the Company, including employee benefits, payroll processing,
insurance, tax compliance, treasury and accounts payable processing. The
administrative services agreement has an initial term which expires January
31, 2001, subject to automatic renewal for successive one-year terms. At any
time during the term of the administrative services agreement, either party
may terminate existing categories of services upon 120 days' prior written
notice. ShopKo is obligated to provide the Company transition assistance, at
the Company's request and expense, upon the termination of any service
provided pursuant to the agreement.
Information Technology Services Agreement. Certain components of the
Company's computer systems are located in ShopKo's corporate headquarters. The
Company has entered into an information technology services agreement with
ShopKo pursuant to which ShopKo has agreed to provide the Company with:
.access to ShopKo's computer facilities,
.certain support services to be performed by ShopKo's systems personnel,
and
.the shared use of ancillary computer hardware and operating software.
The information technology services agreement has a term which expires on
January 31, 2001. At any time during the term of the information technology
services agreement, either party may terminate existing categories of services
upon 120 days' prior written notice. In addition, ShopKo has agreed to provide
transition assistance to the Company if any services are terminated as a
result of expiration or termination of the agreement or otherwise. The
information technology services agreement also contains confidentiality
provisions relating to the Company's patient data and proprietary software.
Lease Agreement. The Company has entered into a lease agreement whereby the
Company leases its corporate headquarters from ShopKo. The lease agreement has
a term of 15 years with four options to renew for five years each. The annual
rental payments are $200,000. The Company has the option to purchase the
building at fair market value at such time as ShopKo ceases to beneficially
own at least 51% of the Company's outstanding Common Stock. If the Company
does not exercise the option at such time, the rental payments will be
increased to fair market rates.
Registration Rights Agreement. The Company has entered into a registration
rights agreement with SKO Holdings, Inc. (f/k/a ProVantage Holdings, Inc.), a
wholly-owned subsidiary of ShopKo ("Holdings"), pursuant to which the Company
has granted demand and "piggyback" registration rights to Holdings and its
affiliates, including ShopKo, with respect to shares of Common Stock owned by
Holdings and its affiliates, including ShopKo. Pursuant to the registration
rights agreement, Holdings has the right to require the Company to file up to
three registration statements under the Securities Act, which may be increased
by an unlimited number of registration statements if effected on Form S-3,
covering Holdings' shares. Holdings also has the right, if the Company files a
registration statement, to require the Company to include its shares in such
registration statement. The Company's obligations under the registration
rights agreement are subject to certain limitations relating to the minimum
amount of Common Stock to be included in a registration statement, the timing
of the exercise of registration rights and other similar matters. The Company
has agreed to pay all costs and expenses relating to the exercise of Holdings'
registration rights, except for underwriting commissions and filing fees
relating to the shares sold by Holdings, any special or extraordinary auditing
expenses, Holdings' legal expenses and, in the case of demand registration
rights, printing fees. The Company and Holdings will each indemnify the other
party for certain liabilities, including liabilities under the Securities Act,
in connection with any registration under the registration rights agreement.
The registration rights agreement will terminate when Holdings or its
affiliates owns less than 5% of the Company's outstanding Common Stock.
Prior to July 19, 1999, general administrative and other expenses were
allocated to the Company from ShopKo for the types of services described in
the administrative services agreement and the information technology services
agreement. The allocation for the last fiscal year was $0.5 million.
A-14
<PAGE>
In addition to the agreements described above, the Company has entered into
various transactions with ShopKo in the ordinary course of business. The
payments for these activities for the last fiscal year are as follows:
<TABLE>
<CAPTION>
Fiscal Year
1999
-------------
(in millions)
<S> <C>
Company payment to ShopKo for prescription costs........... $52.1
Company purchase of pharmaceutical inventory from Shopko... 0.3
Company payment to ShopKo for administrative, audit and
technology services after July 19, 1999................... 0.6
Company payment to ShopKo for rent expense................. 0.1
ShopKo payment to Company for claims processing............ 2.6
ShopKo payment to Company under indemnification agreement.. 1.5
ShopKo payment to Company for data warehouse product....... 0.35
ShopKo payment to Company for portion of warrant sale
proceeds.................................................. 0.6
</TABLE>
The Company receives a benefit in the form of lower prices when purchasing
various goods and services when such purchases are made through or in
conjunction with ShopKo. Such benefits may not be available in all cases in
the future.
The Company used approximately $73,744,000 of the proceeds received in
connection with the initial public offering of its Common Stock to repay a
portion of a $115 million 5% demand promissory note issued to ShopKo. The
demand promissory note was issued to ShopKo in connection with a
reorganization of the Company's corporate structure. The unpaid balance of the
demand promissory note was contributed to the Company by ShopKo as a capital
contribution.
Messrs. Kramer, Podany, Girard and Wolf are members of ShopKo's Board of
Directors. Mr. Podany is also ShopKo's Chairman of the Board, President and
Chief Executive Officer.
A-15
<PAGE>
ANNEX B
[Merrill Lynch Letterhead]
May 3, 2000
Board of Directors
ProVantage Health Services, Inc.
13555 Bishops Court, Suite 201
Brookfield, Wisconsin 53005
Members of the Board:
ProVantage Health Services, Inc. (the "Company"), Merck & Co., Inc. (the
"Acquiror") and PV Acquisition Corp., an indirect wholly owned subsidiary of
the Acquiror (the "Acquisition Sub"), propose to enter into an Agreement and
Plan of Merger (the "Agreement") pursuant to which (i) the Acquiror shall cause
the Acquisition Sub to commence a cash tender offer (the "Tender Offer") for
all of the issued and outstanding shares of the Company's common stock, par
value $.01 per share (the "Company Shares"), for $12.25 per share, net to the
seller in cash, and (ii) the Acquisition Sub will subsequently merge with and
into the Company (the "Merger", the Merger and the Tender Offer together, the
"Transaction"), in which each Company Share not acquired in the Tender Offer,
other than Company Shares held in treasury or held by the Acquiror, the
Acquisition Sub or any subsidiary of the Acquiror, or as to which dissenters'
rights have been perfected, will be converted into the right to receive $12.25
per share, in cash.
You have asked us whether, in our opinion, the cash consideration to be
received by the holders of the Company Shares pursuant to the Transaction is
fair from a financial point of view to such holders.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Company;
(3) Conducted discussions with members of senior management of the
Company concerning the matters described in clauses 1 and 2 above;
(4) Reviewed the market prices and valuation multiples for the Company
Shares and compared them with those of certain publicly traded companies
that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and compared them
with those of certain publicly traded companies that we deemed to be
relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;
(8) Reviewed a draft dated May 3, 2000 of the Agreement; and
B-1
<PAGE>
(9) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company. In addition, we have not assumed any obligation to
conduct, nor have we conducted, any physical inspection of the properties or
facilities of the Company. With respect to the financial forecast information
furnished to or discussed with us by the Company, we have assumed that they
have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's management as to the expected future
financial performance of the Company. We have also assumed that the final form
of the Agreement will be substantially similar to the last draft reviewed by
us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof. We have assumed that in the course of obtaining
the necessary regulatory or other consents or approvals (contractual or
otherwise) for the Transaction, no restrictions, including any divestiture
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Transaction.
We are acting as financial advisor to the Company in connection with the
Transaction and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. We have, in the past, provided
financial advisory and financing services to the Company and the Acquiror
and/or its affiliates and may continue to do so and have received, and may
receive, fees for the rendering of such services. In addition, in the ordinary
course of our business, we may actively trade the Company Shares, as well as
securities of the Acquiror, for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Transaction and does not constitute a
recommendation to any shareholder as to whether such shareholder should tender
any Company Shares pursuant to the Tender Offer or how such shareholder should
vote on the proposed Merger.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the consideration to be received by the holders of the
Company Shares pursuant to the Transaction is fair from a financial point of
view to the holders of such shares.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
B-2
<PAGE>
EXHIBIT (e)(1)
--------------
================================================================================
AGREEMENT AND PLAN OF MERGER
among
MERCK & CO., INC.
PV ACQUISITION CORP.
and
PROVANTAGE HEALTH SERVICES, INC.
dated as of
May 4, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 OFFER.......................................................................... 2
Section 1.01. The Offer............................................................. 2
Section 1.02. Company Actions....................................................... 4
Section 1.03. Directors of the Company.............................................. 5
ARTICLE 2 THE MERGER..................................................................... 6
Section 2.01. The Merger............................................................ 6
Section 2.02. Closing............................................................... 6
Section 2.03. Effective Time........................................................ 6
Section 2.04. Effects of the Merger................................................. 6
Section 2.05. Certificate of Incorporation and Bylaws............................... 6
Section 2.06. Directors and Officers................................................ 6
Section 2.07. Conversion of Shares.................................................. 7
Section 2.08. Dissenting Shares..................................................... 7
Section 2.09. Payments for Shares................................................... 7
Section 2.10. Stock Option and Other Plans.......................................... 8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY................. 10
Section 3.01. Corporate Existence and Power......................................... 10
Section 3.02. Corporate Authority................................................... 10
Section 3.04. Non-contravention..................................................... 11
Section 3.05. Offer Documents; Proxy Statement; Schedule 14D-9...................... 11
Section 3.06. Financing............................................................. 12
Section 3.07. Finders' Fees......................................................... 12
Section 3.08. Delaware Law.......................................................... 12
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................. 12
Section 4.01. Corporate Existence and Power......................................... 12
Section 4.02. Corporate Authority................................................... 13
Section 4.03. Governmental Authorization............................................ 13
Section 4.04. Non-contravention..................................................... 13
Section 4.05. Capitalization........................................................ 14
Section 4.06. Subsidiaries.......................................................... 14
Section 4.07. Company SEC Documents and Financial Statements........................ 15
Section 4.08. Schedule 14D-9; Offer Documents; and Proxy Statement.................. 15
Section 4.09. Absence of Certain Changes............................................ 16
Section 4.10. Litigation............................................................ 16
Section 4.11. Proprietary Rights.................................................... 16
Section 4.12. Benefit Plans; ERISA.................................................. 17
Section 4.13. Environmental Matters................................................. 18
Section 4.14. Taxes................................................................. 18
Section 4.15. Certain Approvals..................................................... 19
Section 4.16. Opinion of Financial Advisor.......................................... 19
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 4.17. Rights Plan......................................................... 19
Section 4.18. Fees and Commissions................................................ 20
Section 4.19. Compliance; Permits................................................. 20
Section 4.20. Contracts........................................................... 20
Section 4.21. Affiliate Transactions.............................................. 20
Section 4.22. Working Capital..................................................... 21
ARTICLE 5 COVENANTS.................................................................... 21
Section 5.01. Conduct of Business of the Company.................................. 21
Section 5.02. Acquisition Proposals............................................... 23
Section 5.03. Access to Information............................................... 24
Section 5.04. Commercially Reasonable Efforts..................................... 25
Section 5.05. Indemnification Exculpation and Insurance........................... 26
Section 5.06. Employee Plans and Benefits and Employment Contracts................ 28
Section 5.07. Meeting of the Company's Stockholders............................... 29
Section 5.08. De-registration..................................................... 30
Section 5.09. Certain Actions..................................................... 30
Section 5.10. Affiliate Transactions.............................................. 31
Section 5.11. Public Announcements................................................ 31
Section 5.12. Performance by Merger Subsidiary.................................... 31
Section 5.13. Working Capital..................................................... 31
ARTICLE 6 CONDITIONS TO THE MERGER..................................................... 32
Section 6.01. Conditions to Each Party's Obligation to Effect the Merger.......... 32
ARTICLE 7 TERMINATION; AMENDMENT; WAIVER............................................... 32
Section 7.01. Termination......................................................... 32
Section 7.02. Effect of Termination............................................... 33
Section 7.03. Amendment........................................................... 34
Section 7.04. Extension; Waiver................................................... 34
Section 7.05. Procedure for Termination, Extension or Waiver...................... 35
ARTICLE 8 MISCELLANEOUS................................................................ 35
Section 8.01. Non-Survival of Representations and Warranties...................... 35
Section 8.02. Entire Agreement; Assignment........................................ 35
Section 8.03. Validity............................................................ 35
Section 8.04. Notices............................................................. 36
Section 8.05. Governing Law....................................................... 37
Section 8.06. Jurisdiction........................................................ 37
Section 8.07. Descriptive Headings................................................ 37
Section 8.08. Parties in Interest................................................. 37
Section 8.09. Counterparts........................................................ 37
Section 8.10. Fees and Expenses................................................... 37
Section 8.12. Waiver of Jury Trial................................................ 37
Section 8.13. Certain Definitions................................................. 37
</TABLE>
-ii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of May 4,
2000, among Merck & Co., Inc., New Jersey corporation ("Parent"), PV Acquisition
Corp., a Delaware corporation and an indirect wholly-owned subsidiary of Parent
("Merger Subsidiary"), and ProVantage Health Services, Inc., a Delaware
corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary and the
Company deem it advisable and in the best interests of their respective
stockholders that Parent acquire the Company upon the terms and subject to the
conditions provided for in this Agreement;
WHEREAS, in furtherance thereof, it is proposed that the acquisition
be accomplished by Merger Subsidiary commencing a cash tender offer (as it may
be amended from time to time as permitted by this Agreement, the "Offer") to
purchase all of the issued and outstanding shares of common stock, par value
$.01 per share, of the Company (the "Common Stock"), and the associated Rights
(as defined in Section 4.05) (the shares of Common Stock and any associated
Rights are referred to herein as "Shares"), for $12.25 per Share (such amount or
any greater amount per Share paid pursuant to the Offer being hereinafter
referred to as the "Offer Price"), net to the seller in cash, upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, the Board of Directors of the Company has approved the Offer
and the Merger and resolved to recommend that holders of Shares tender their
Shares pursuant to the Offer and approve and adopt this Agreement and the
Merger;
WHEREAS, the Boards of Directors of Parent (on its own behalf and as
the sole stockholder of Merger Subsidiary), Merger Subsidiary and the Company
have each approved this Agreement and the merger of Merger Subsidiary with and
into the Company (the "Merger") in accordance with the General Corporation Law
of the State of Delaware (the "DGCL"), in the case of each of the Company and
Merger Subsidiary, and in accordance with the New Jersey Business Corporation
Act, in the case of Parent, and upon the terms and conditions set forth in this
Agreement;
WHEREAS, Parent has required, as a condition to its willingness to
enter into this Agreement, that SKO Holdings, Inc., a wholly-owned subsidiary of
ShopKo Stores, Inc. (collectively, the "Majority Stockholder"), enter into a
Stockholder Agreement (the "Stockholder Agreement") with Parent, substantially
in the form attached hereto as Exhibit A, concurrently with the execution of
this Agreement;
WHEREAS, Parent has required, as a condition to its willingness to
enter into this Agreement, that the Majority Stockholder enter into a letter
with the Company, providing for certain changes in their existing contractual
arrangements upon the Majority Shareholder ceasing to own a majority of the
outstanding Common Stock (the "Side Letter"); and
WHEREAS, Parent has required, as a condition to its willingness to
enter into this Agreement, that Merck-Medco Managed Care, L.L.C. enter into new
employment contacts (the
-1-
<PAGE>
"Employment Contracts") with certain employees, providing for the terms and
conditions of their employment with Merck-Medco Managed Care, L.L.C. after the
consummation of the Offer.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, Parent, Merger Subsidiary and the Company agree as
follows:
ARTICLE 1
OFFER
Section 1.01. The Offer.
---------
(a) Within a reasonable period of time after the date of the
execution of this Agreement, Parent shall cause Merger Subsidiary to commence
(within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), and Merger Subsidiary shall commence, the Offer.
Parent shall use its best efforts to cause Merger Subsidiary to commence the
Offer no later than the fifth business day after the execution of this
Agreement. The obligation of Merger Subsidiary to accept for payment and pay for
Shares tendered pursuant to the Offer shall be subject to only those conditions
set forth in Annex A (any of which may be waived by Merger Subsidiary in its
sole discretion; provided, however, that, without the consent of the Company,
except as contemplated by Section 1.01(e), Merger Subsidiary shall not waive the
Minimum Tender Condition (as defined in Annex A)). Subject to the terms of the
Offer and this Agreement and the satisfaction or earlier waiver of all the
conditions of the Offer set forth in Annex A as of any expiration date of the
Offer, Merger Subsidiary shall accept for payment and pay for all Shares validly
tendered and not withdrawn pursuant to the Offer as soon as practicable after it
is permitted to do so under applicable law.
(b) As soon as practicable on the date of commencement of the Offer,
Parent and Merger Subsidiary shall file with the Securities and Exchange
Commission (the "SEC") with respect to the Offer a Tender Offer Statement on
Schedule TO (together with all amendments and supplements thereto, the "Schedule
TO"), which will comply in all material respects with the provisions of
applicable federal securities laws and will contain an offer to purchase
relating to the Offer (the "Offer to Purchase") and forms of related letters of
transmittal and summary advertisement (which documents, together with any
supplements or amendments thereto, are referred to herein collectively as the
"Offer Documents"). Parent and Merger Subsidiary shall make all filings
required by applicable state law relating to the Offer (the "State Filings") as
and when required by applicable state law. Parent and Merger Subsidiary will
deliver copies of the proposed forms of the Schedule TO, the Offer Documents and
the State Filings (as well as any change thereto) to the Company within a
reasonable time prior to the commencement of the Offer for prompt review and
comment by the Company and its counsel. Parent and Merger Subsidiary will
provide the Company and its counsel in writing any comments that Merger
Subsidiary, Parent or their counsel may receive from the SEC or its staff or any
applicable state authority with respect to the Offer Documents or the State
Filings promptly after the receipt thereof. Parent and Merger Subsidiary shall
promptly correct any information in the Schedule TO, the Offer Documents or the
State Filings that shall have become false or misleading in any material respect
and take all steps necessary to cause such Schedule TO, Offer Documents or State
Filings as so corrected to be filed
-2-
<PAGE>
with the SEC and any applicable state authority and disseminated to the
stockholders of the Company, as and to the extent required by applicable law.
Parent and Merger Subsidiary will provide copies of any amendments or
supplements to the Offer Documents, the Schedule TO or the State Filings prior
to any filing of such amendments or supplements with the SEC or any applicable
state authority in order to provide the Company and its counsel with a
reasonable opportunity to review and comment.
(c) Each of Parent and Merger Subsidiary expressly reserves the right
to modify the terms of the Offer, except that neither Parent nor Merger
Subsidiary shall, without the prior written consent of the Company, decrease the
price per Share payable in the Offer, change the form of consideration payable
in the Offer, decrease the number of Shares sought pursuant to the Offer (except
as contemplated by Section 1.01(e)), change or modify the conditions to the
Offer in a manner adverse to the Company or holders of Shares, impose additional
conditions to the Offer, or amend any term of the Offer in any manner adverse to
the Company or holders of Shares. Notwithstanding the foregoing, Merger
Subsidiary, without the consent of the Company, (i) shall extend the Offer, if
at the then scheduled expiration date of the Offer any of the conditions to
Merger Subsidiary's obligation to accept for payment and pay for Shares shall
not have been satisfied, until such time as such condition is satisfied, if such
condition may in the reasonable judgment of Merger Subsidiary be satisfied in a
time period reasonable for such satisfaction, and (ii) may extend the Offer for
any period required by any rule, regulation, interpretation or position of the
SEC or the staff thereof applicable to the Offer. Each extension, if any, of the
Offer pursuant to clause (i) of the preceding sentence shall not exceed the
lesser of ten business days or such fewer number of days that Merger Subsidiary
reasonably believes are necessary to cause the conditions of the Offer set forth
in Annex A to be satisfied. Merger Subsidiary may provide for a "subsequent
offering period" in accordance with Rule 14d-11 under the Exchange Act with the
prior consent of the Company (such consent not to be unreasonably withheld).
Notwithstanding the foregoing, Merger Subsidiary shall have no obligation to
extend the Offer if the condition to the Offer set forth in Section (c)(x) of
the Annex A is not satisfied at the scheduled expiration date of the Offer.
(d) On or prior to the date that Merger Subsidiary becomes obligated
to accept for payment and pay for Shares pursuant to the Offer, Parent will
provide or cause to be provided to Merger Subsidiary the funds necessary to pay
for all Shares that Merger Subsidiary becomes obligated to accept for payment
and pay for pursuant to the Offer.
(e) Notwithstanding anything to the contrary in this Agreement,
Merger Subsidiary may waive the Minimum Tender Condition (as defined in Annex A)
without the consent of the Company as long as Merger Subsidiary is permitted by
applicable law to and does exercise the Option (as defined in the Stockholder
Agreement) immediately following the consummation of the Offer and acquires
title to all of the Shares subject thereto and thereafter promptly consummates
the Merger.
(f) The parties hereby agree that the initial scheduled expiration
date of the Offer shall be June 14, 2000. The parties further agree that any
extension of the expiration date of the Offer shall result in the Offer expiring
on the twelfth business day after the end of a Company
-3-
<PAGE>
Fiscal Period. For purposes of this Agreement, Company Fiscal Period shall mean
any of April 29, 2000; May 27, 2000; July 1, 2000; July 29, 2000; August 26,
2000; September 30, 2000; October 28, 2000; November 25, 2000; or December 30,
2000.
Section 1.02. Company Actions.
---------------
(a) The Company hereby consents to the Offer and represents that the
Company's Board of Directors, at a meeting duly called and held, has adopted
resolutions approving the Offer, the Merger and this Agreement, determining that
the terms of the Offer and the Merger are fair to, and in the best interests of,
the Company's stockholders and recommending acceptance of the Offer and approval
of the Merger and this Agreement by the stockholders of the Company; provided,
however, that the Board of Directors of the Company may modify, withdraw or
change such recommendation solely to the extent that the Company and the Board
of Directors are permitted to do so under Section 5.02 of this Agreement.
Subject to the foregoing and Section 5.02, the Company hereby consents to the
inclusion in the Offer Documents of the recommendations of the Company's Board
of Directors described in this Section.
(b) The Company will file with the SEC on the date of the
commencement of the Offer a Solicitation/Recommendation Statement on Schedule
14D-9 (together with all amendments and supplements thereto, the "Schedule 14D-
9") containing such recommendations of the Board in favor of the Offer and the
Merger; provided, however, that the Board of Directors of the Company may
modify, withdraw or change such recommendation solely to the extent that the
Board of Directors and the Company are permitted to do so under Section 5.02 of
this Agreement. The Company will deliver the proposed forms of the Schedule 14D-
9 and the exhibits thereto to Parent within a reasonable time prior to the
commencement of the Offer for prompt review and comment by Parent and its
counsel. Parent and its counsel shall be given a reasonable opportunity to
review any amendments and supplements to the Schedule 14D-9 prior to their
filing with the SEC or dissemination to stockholders of the Company. The Company
will provide Parent and its counsel in writing any comments that the Company or
its counsel may receive from the SEC or its staff with respect to the Schedule
14D-9 promptly after receipt thereof, and shall disseminate the Schedule 14D-9
as required by Rule 14d-9 promulgated under the Exchange Act. The Company shall
promptly correct any information in the Schedule 14D-9 that shall have become
false or misleading in any material respect and take all steps necessary to
cause such Schedule 14D-9 as so corrected to be filed with the SEC and
disseminated to the stockholders of the Company, as and to the extent required
by applicable federal securities laws.
(c) In connection with the Offer, the Company shall furnish to, or
cause to be furnished to, Parent mailing labels, security position listings and
any available listing or computer file containing the names and addresses of the
record holders and non-objecting beneficial owners of the Shares as of a recent
date and shall furnish Parent with such information and assistance as Parent or
its agents may reasonably request in communicating the Offer to the stockholders
of the Company. Subject to the requirements of applicable law, and except for
such steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer or the Merger, Parent and Merger
Subsidiary shall, and shall cause each of their affiliates to, hold the
information contained in any of such labels and lists in confidence, use such
information only in connection with the Offer and the Merger, and, if this
Agreement is terminated, promptly deliver to the Company all copies of such
information, labels, listings and files or extracts
-4-
<PAGE>
therefrom then in their possession, in the possession of their agents or
representatives or under their control.
Section 1.03. Directors of the Company. Promptly upon the acceptance
------------------------
for payment of and payment for any Shares by Merger Subsidiary pursuant to the
Offer (and, to the extent the Minimum Tender Condition is waived pursuant to
Section 1.01(e), the exercise of the Option as contemplated by Section 1.01(e)),
Merger Subsidiary shall be entitled to designate such number of directors,
rounded up to the next whole number, on the Board of Directors of the Company as
will give Merger Subsidiary, subject to compliance with Section 14(f) of the
Exchange Act, representation on the Board of Directors of the Company equal to
the product of (a) the number of directors on the Board of Directors of the
Company and (b) the percentage that such number of votes represented by Shares
so purchased and Shares otherwise held by Parent and its affiliates, if any,
bears to the number of votes represented by Shares outstanding, and the Company
shall at such time, subject to applicable law, cause Merger Subsidiary's
designees to be so elected by its existing Board of Directors. Subject to
applicable law, the Company shall take all action requested by Parent necessary
to effect any such election, including mailing to its stockholders the
information statement (the "Information Statement") containing the information
required by Section 14(f) of the Exchange Act and Rule 14(f)-1 promulgated
thereunder, and the Company shall make such mailing with the mailing of the
Schedule 14D-9 (provided that Parent and Merger Subsidiary shall have provided
to the Company on a timely basis all information required to be included in the
Information Statement with respect to Merger Subsidiary's designees). In
connection with the foregoing, the Company will, subject to applicable law,
promptly either increase the size of the Board of Directors of the Company
and/or obtain the resignation of such number of its current directors as is
necessary to enable Merger Subsidiary's designees to be elected or appointed to
the Company's Board of Directors as provided above; provided, however, that
prior to the Effective Time (as defined in Section 2.03) the Board of Directors
of the Company shall always have at least two (2) members who are neither
officers, directors, stockholders or designees of Merger Subsidiary or any of
its affiliates ("Merger Subsidiary Insiders") and each committee of the Board of
Directors of the Company shall have at least one (1) member who is not a Merger
Subsidiary Insider. If the number of directors who are not Merger Subsidiary
Insiders is reduced below two (2) for any reason prior to the Effective Time,
then the remaining director who is not a Merger Subsidiary Insider shall be
entitled to designate a person to fill such vacancy who is not a Merger
Subsidiary Insider and who shall be a director not deemed to be a Merger
Subsidiary Insider for all purposes of this Agreement. Following the election of
Merger Subsidiary's designees to the Company's Board of Directors pursuant to
this Section 1.03 and prior to the Effective Time (i) any amendment or
termination of this Agreement by the Company, (ii) any extension or waiver by
the Company of the time for the performance of any of the obligations or other
acts of Parent or Merger Subsidiary under this Agreement or (iii) any waiver of
the Company's rights hereunder shall, in any such case, require the concurrence
of a majority of the directors of the Company then in office who are not Merger
Subsidiary Insiders.
-5-
<PAGE>
ARTICLE 2
THE MERGER
Section 2.01. The Merger. Upon the terms and subject to the
----------
conditions hereof, and in accordance with the relevant provisions of the DGCL,
Merger Subsidiary shall be merged with and into the Company as soon as
practicable following the satisfaction or waiver of the conditions set forth in
Article 6. Following the Merger, the Company shall continue as the surviving
corporation (the "Surviving Corporation") and shall continue its existence under
the laws of the State of Delaware, and the separate corporate existence of
Merger Subsidiary shall cease.
Section 2.02. Closing. The closing of the Merger (the "Closing") will
-------
take place at 9:00 a.m. on a date to be specified by the parties, which shall be
no later than the second business day after satisfaction or waiver of the
conditions set forth in Article 6, unless another time or date, or both, are
agreed to in writing by the parties hereto. The Closing will be held at the
offices of Foley & Lardner, 777 East Wisconsin Avenue, Milwaukee, Wisconsin,
unless another place is agreed to by the parties.
Section 2.03. Effective Time. Upon the terms and subject to the
--------------
conditions hereof, as soon as possible after consummation of the Offer and, to
the extent required by the DGCL, after the vote of the stockholders of the
Company in favor of the approval of the Merger and this Agreement has been
obtained, the Merger shall be consummated by filing with the Secretary of State
of the State of Delaware, as provided in the DGCL, a certificate of merger or
other appropriate documents (in any such case, the "Certificate of Merger") and
the parties hereto shall make all other filings or recordings required under the
DGCL (the later of the time of such filing or the time specified in the
Certificate of Merger being the "Effective Time").
Section 2.04. Effects of the Merger. The Merger shall have the
---------------------
effects set forth in Section 259 of the DGCL. As of the Effective Time, the
Company, as the Surviving Corporation, shall be a wholly-owned subsidiary of
Parent.
Section 2.05. Certificate of Incorporation and Bylaws.
---------------------------------------
(a) The certificate of incorporation of Merger Subsidiary in effect
immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation (the "Charter") from and after the
Effective Time; provided, however, that Article FIRST of the Charter shall be
amended to provide that the name of the Surviving Corporation shall be the name
of the Company and as so amended shall be the Charter until amended in
accordance with applicable law and this Agreement.
(b) The bylaws of Merger Subsidiary in effect at the Effective Time
shall be the bylaws of the Surviving Corporation from and after the Effective
Time until amended in accordance with applicable law and this Agreement.
Section 2.06. Directors and Officers. The directors of Merger
----------------------
Subsidiary and the officers of the Company immediately prior to the Effective
Time shall be the directors and officers of the Surviving Corporation until
their respective successors are duly elected and qualified.
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<PAGE>
Section 2.07. Conversion of Shares. At the Effective Time, by virtue
--------------------
of the Merger and without any action on the part of Parent, Merger Subsidiary,
the Company or the holders of any of the following securities:
(a) each Share held by the Company as treasury stock and each issued
and outstanding Share owned by Parent, Merger Subsidiary or any other subsidiary
of Parent shall be cancelled and retired and no payment made with respect
thereto;
(b) each issued and outstanding Share, other than those Shares
referred to in Section 2.07(a) or Dissenting Shares (as defined in Section
2.08), shall be converted into the right to receive from the Surviving
Corporation an amount of cash equal to the Offer Price (the "Merger
Consideration"); and
(c) each share of common stock of Merger Subsidiary issued and
outstanding immediately prior to the Effective Time shall be converted into one
share of common stock of the Surviving Corporation.
Section 2.08. Dissenting Shares. Notwithstanding anything in this
-----------------
Agreement to the contrary, any issued and outstanding Shares held by a Person (a
"Dissenting Stockholder") who does not vote in favor of the Merger and complies
with all the provisions of Delaware law concerning the right of holders of
Shares to require appraisal of their Shares ("Dissenting Shares") shall not be
converted as described in Section 2.07(b), but shall become the right to receive
such consideration as may be determined to be due to such Dissenting Stockholder
pursuant to the laws of the State of Delaware. If, after the Effective Time,
such Dissenting Stockholder withdraws its demand for appraisal or fails to
perfect or otherwise loses such Dissenting Stockholder's right of appraisal, in
any case pursuant to the DGCL, such Dissenting Stockholder's Shares shall be
deemed to be converted as of the Effective Time into the right to receive the
Merger Consideration. The Company shall give Parent (a) prompt notice of any
demands for appraisal of Shares received by the Company and (b) the opportunity
to participate in and direct all negotiations and proceedings with respect to
any such demands. The Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such demands.
Section 2.09. Payments for Shares.
-------------------
(a) Prior to the commencement of the Offer, Parent shall appoint a
commercial bank or trust company reasonably acceptable to the Company to act as
exchange agent for the Offer and the Merger (the "Exchange Agent"). Parent will
enter into an exchange agent agreement with the Exchange Agent, in form and
substance reasonably acceptable to the Company, and shall deposit or cause to be
deposited with the Exchange Agent in trust for the benefit of the Company's
stockholders cash at such times as shall be necessary to make the payments
pursuant to the Offer and Section 2.07 to holders of Shares (such amounts being
hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall,
pursuant to irrevocable instructions, make the payments provided for in the
preceding sentence out of the Exchange Fund.
(b) Promptly after the Effective Time, Parent and the Surviving
Corporation shall cause the Exchange Agent to mail to each record holder, as of
the Effective Time, of an
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<PAGE>
outstanding certificate or certificates that immediately prior to the Effective
Time represented Shares (the "Certificates") a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent) and instructions for use in effecting the surrender of the
Certificate or payment therefor. Upon surrender to the Exchange Agent of a
Certificate, together with such letter of transmittal duly executed, the holder
of such Certificate shall be paid in exchange therefor cash in an amount equal
to the product of the number of Shares represented by such Certificate
multiplied by the Merger Consideration, less any applicable withholding taxes,
and such Certificate shall forthwith be cancelled. No interest will be paid or
accrued on the cash payable upon the surrender of the Certificates. If payment
is to be made to a Person other than the Person in whose name the Certificate
surrendered is registered, it shall be a condition of payment that the
Certificate so surrendered be properly endorsed or otherwise in proper form for
transfer and that the Person requesting such payment pay any transfer or other
taxes required by reason of the payment to a Person other than the registered
holder of the Certificate surrendered or established to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 2.09, each
Certificate (other than Certificates representing Shares owned by Parent, Merger
Subsidiary or any other subsidiary of Parent or Dissenting Shares) shall
represent for all purposes only the right to receive the Merger Consideration in
cash multiplied by the number of Shares evidenced by such Certificate, without
any interest thereon.
(c) After the Effective Time, there shall be no further registration
of transfers of Shares. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for cash as provided in this Section 2.09.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the stockholders of the Company
for twelve months after the Effective Time shall be repaid to the Surviving
Corporation. Any stockholders of the Company who have not theretofore complied
with this Section 2.09 shall thereafter look only to Parent and the Surviving
Corporation for payment of their claim for the Merger Consideration per Share,
without any interest thereon.
(e) To the fullest extent permitted by applicable law, none of Parent,
Merger Subsidiary, the Company or the Exchange Agent shall be liable to any
Person in respect of any cash delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(f) In the event that, subsequent to the date of this Agreement but
prior to the Effective Time, the outstanding Shares shall have been changed into
a different number of Shares or a different class as a result of a stock split,
reverse stock split, stock dividend, subdivision, reclassification, split,
combination, exchange, recapitalization or other similar transaction, the Merger
Consideration shall be appropriately adjusted.
Section 2.10. Stock Option and Other Plans.
----------------------------
(a) Effective as of the Effective Time, Parent shall assume each
outstanding option to acquire Common Stock (each, a "Company Option"), under any
stock option or similar
-8-
<PAGE>
plan of the Company (each, a "Stock Plan") in accordance with this Section 2.10
and with the terms of the Stock Plan under which such Company Option was granted
and the stock option agreement by which such Company Option is evidenced. Parent
acknowledges and agrees that each Company Option, to the extent currently not
exercisable, will become exercisable in accordance with its terms upon the
acceptance for payment of and payment for the Shares by Merger Subsidiary
pursuant to the Offer and, if applicable, the exercise of the Option as
contemplated by Section 1.01(e). The proceeds from the exercise of any Company
Option shall be excluded from the calculation of Company Net Working Capital.
(b) Effective as of the Effective Time, each Company Option shall be
deemed to constitute an option (a "New Parent Option") to purchase, on the same
terms and conditions as were applicable to such Company Option, the number of
shares of Parent common stock (rounded to the nearest whole number) equal to the
product of (A) and (B), where (A) is the number of shares of Common Stock
subject to such Company Option and (B) is the Offer Price divided by the average
of the closing sales prices of Parent common stock on the New York Stock
Exchange for the ten (10) consecutive days immediately prior to and including
the day preceding the Effective Time, at an exercise price per share of Parent
common stock (rounded to the nearest whole cent) equal to (x) divided by (y),
where (x) is the aggregate exercise price for the shares of Common Stock subject
to such Company Option and (y) is the aggregate number of shares of Parent
common stock purchasable pursuant to the New Parent Option (as calculated
immediately above); provided, however, that in the case of any Company Option to
which Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
applies, the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in accordance with the foregoing, subject to such adjustments as are
necessary in order to satisfy the requirements of Section 424(a) of the Code. At
or prior to the Effective Time, the Company shall take all necessary actions to
permit the assumption of the unexercised Company Options by Parent pursuant to
this Section. Section 2.10(b) of the Company Disclosure Schedule sets forth two
examples of the calculations contemplated by this paragraph.
(c) Not later than twenty-one calendar days after the Effective Time,
Parent shall file a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") on Form S-8 or other appropriate form covering
shares of Parent common stock subject to issuance upon the exercise of the New
Parent Options.
(d) All Stock Plans shall terminate as of the Effective Time and the
Company shall use commercially reasonable efforts to ensure that following the
Effective Time no holder of a Company Option or any participant in any Stock
Plans shall have any right thereunder to acquire any capital stock of the
Company or any Subsidiary or the Surviving Corporation.
-9-
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Except as set forth in the disclosure schedule of Parent and Merger
Subsidiary hereto (the "Parent Disclosure Schedule"), Parent and Merger
Subsidiary represent and warrant to the Company as follows:
Section 3.01. Corporate Existence and Power. Each of Parent and
-----------------------------
Merger Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power to carry on its business as it is now being conducted.
Each of Parent and Merger Subsidiary is duly qualified to do business as a
foreign corporation, and is in good standing in each jurisdiction where the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not or reasonably be expected to materially
delay or materially impair the ability of Parent or Merger Subsidiary to perform
their obligations under this Agreement or to consummate the transactions
contemplated by this Agreement (a "Parent Material Adverse Effect"). Merger
Subsidiary is a wholly-owned subsidiary of Parent.
Section 3.02. Corporate Authority. Each of Parent and Merger
-------------------
Subsidiary has the requisite corporate power and authority to execute and
deliver this Agreement and the Stockholder Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by
Parent and Merger Subsidiary of this Agreement and the Stockholder Agreement,
and the consummation by Parent and Merger Subsidiary of the transactions
contemplated hereby and thereby, have been duly authorized by their respective
Board of Directors and the sole stockholder of Merger Subsidiary, and no other
corporate action on the part of Parent or Merger Subsidiary is necessary to
authorize the execution and delivery of this Agreement and the Stockholder
Agreement and the consummation by each of Parent and Merger Subsidiary of the
transactions contemplated hereby (including the Offer) and thereby. Each of this
Agreement and the Stockholder Agreement has been duly executed and delivered by
each of Parent and Merger Subsidiary and constitutes a valid and binding
agreement of each of Parent and Merger Subsidiary, enforceable against each of
Parent and Merger Subsidiary in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting creditors' rights generally.
-10-
<PAGE>
Section 3.03. Governmental Authorization. No consent, approval, order
--------------------------
or authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity") is required by Parent or Merger Subsidiary in connection
with the execution and delivery of this Agreement and the Stockholder Agreement
by Parent or Merger Subsidiary or the consummation by Parent and Merger
Subsidiary of the transactions contemplated by this Agreement and the
Stockholder Agreement, except for (a) the filing of a premerger notification and
report form by Parent under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"); (b) requirements under the Exchange Act; (c)
the filing of the Certificate of Merger pursuant to the DGCL and appropriate
documents with the relevant authorities of other states in which Parent or any
of its subsidiaries is qualified to do business; and (d) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not, individually or in the
aggregate, have or reasonably be expected to have a Parent Material Adverse
Effect.
Section 3.04. Non-contravention. The execution, delivery and
-----------------
performance by Parent and Merger Subsidiary of this Agreement and the
Stockholder Agreement and the consummation by Parent and Merger Subsidiary of
the transactions contemplated hereby and thereby do not and will not (with or
without notice, lapse of time or both) (a) contravene or conflict with the
certificate of incorporation or bylaws or other equivalent organizational
document, in each case as amended, of Parent or any of its subsidiaries; (b)
assuming compliance with the matters referred to in Section 3.03, contravene or
conflict with or constitute a violation of any provision of any federal, state,
foreign or local law, regulation, judgment, injunction, order or decree binding
upon or applicable to Parent or any of its subsidiaries; (c) constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any obligation of Parent or any of its subsidiaries or require
consent of any third party or to a loss of a material benefit to which Parent or
any of its subsidiaries is entitled under any provision of any agreement,
contract or other instrument binding upon Parent or any of its subsidiaries or
any license, franchise, permit or other similar authorization held by Parent or
any of its subsidiaries; or (d) result in the creation or imposition of any Lien
on any asset of Parent or any of its subsidiaries, other than, in the case of
clauses (b), (c) and (d), any such conflict violation, default, right, loss or
Lien that, individually or in the aggregate, would not reasonably be expected to
have a Parent Material Adverse Effect.
Section 3.05. Offer Documents; Proxy Statement; Schedule 14D-9. None
------------------------------------------------
of the Offer Documents, the Schedule TO or the State Filings nor any information
supplied by Parent or Merger Subsidiary for inclusion in the Schedule 14D-9
will, at the time the Offer Documents, the Schedule TO, the State Filings, the
Schedule 14D-9 or any amendments or supplements thereto, are filed with the SEC
or any applicable state authority or are first published, sent or given to
stockholders of the Company, as the case may be, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading. The information
supplied by Parent and Merger Subsidiary for inclusion in the letter to
stockholders, notice of meeting, proxy statement and form of proxy, or the
information statement, as the case may be, to be distributed to stockholders in
connection with the Merger, or any schedule required to be filed with the SEC in
connection therewith (collectively, the "Proxy Statement"), will not, on the
date the Proxy Statement (or any amendment or supplement thereto)
-11-
<PAGE>
is first mailed to stockholders of the Company, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading, or shall, at the time
of the meeting of the Company's stockholders (the "Company Stockholder
Meeting"), omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of proxies for the
Company Stockholder Meeting which shall have become false or misleading.
Notwithstanding the foregoing, Parent and Merger Subsidiary make no
representation or warranty with respect to any information supplied by or on
behalf of the Company which is contained in any of the Offer Documents, the
Schedule TO, the State Filings, the Proxy Statement or any amendment or
supplement thereto. The Offer Documents and the Schedule TO shall comply as to
form in all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder.
Section 3.06. Financing. At each of (a) the time that Merger
---------
Subsidiary becomes obligated to accept for payment and pay for Shares pursuant
to the Offer and, if applicable, the exercise of the Option and (b) the
Effective Time, Parent will have, and will make available to Merger Subsidiary,
the funds necessary to consummate the Offer and, if applicable, the exercise of
the Option and the Merger and the transactions contemplated thereby, and to pay
related fees and expenses.
Section 3.07. Finders' Fees. Except for J. P. Morgan & Co., whose
-------------
fees will be paid by Parent, there is no investment banker, broker, finder or
other intermediary who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent or Merger Subsidiary.
Section 3.08. Delaware Law. As of the time immediately prior to the
------------
execution of this Agreement, neither Parent nor any of its subsidiaries was an
"interested stockholder" as such term is defined in Section 203 of the DGCL.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule of the Company hereto
(the "Company Disclosure Schedule"), the Company hereby represents and warrants
to Parent and Merger Subsidiary as follows:
Section 4.01. Corporate Existence and Power. The Company is a
-----------------------------
corporation duly organized, validly existing and in good standing under the laws
of the Stare of Delaware, and has the requisite corporate power to carry on its
<PAGE>
financial condition, assets (including intangible assets), liabilities
(contingent or otherwise), business or results of operations of the Company and
its Subsidiaries taken as a whole, or materially delay or materially impair the
ability of the Company to perform its obligations under this Agreement or to
consummate the transactions contemplated by this Agreement (a "Company Material
Adverse Effect"). For purposes of this Agreement, any payments made by the
Majority Stockholder or its affiliates pursuant to Section 5.13 of this
Agreement shall be ignored in determining whether there has been or is
reasonably likely to be a Company Material Adverse Effect. The Company has
heretofore delivered to Parent true and complete copies of the Company's
certificate of incorporation and bylaws as currently in effect.
Section 4.02. Corporate Authority. The Company has the requisite
-------------------
corporate power and authority to execute and deliver this Agreement and, subject
to any required approval of the Merger by the Company's stockholders, to
consummate the transactions contemplated hereby. The execution and delivery by
the Company of this Agreement, and the consummation by the Company of the
transactions contemplated hereby, have been duly authorized by its Board of
Directors, and except for any required approval of the Merger by the Company's
stockholders, no other corporate action on the part of the Company is necessary
to authorize the execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting
creditors' rights generally.
Section 4.03. Governmental Authorization. No consent, approval, order
--------------------------
or authorization of or registration, declaration or filing with, any
Governmental Entity is required by the Company or any Subsidiary in connection
with the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated by this Agreement,
except for (a) the filing of a premerger notification and report form by the
Company under the HSR Act; (b) requirements under the Exchange Act; (c) the
filing of the Certificate of Merger pursuant to the DGCL and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business; and (d) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
Section 4.04. Non-contravention. The execution, delivery and
-----------------
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby do not and will not (with or without
notice, lapse of time or both) (a) contravene or conflict with the certificate
of incorporation or bylaws of the Company or the comparable charter or
organizational documents of any Subsidiary; (b) assuming compliance with the
matters referred to in Section 4.03, contravene or conflict with or constitute a
violation of any provision of any federal, state, foreign or local law,
regulation, judgment, injunction, order or decree binding upon or applicable to
the Company or any Subsidiary; (c) constitute a default under or give rise to a
right of termination, cancellation or acceleration of any obligation of the
Company or any Subsidiary or require consent of any third party or to a loss of
a material benefit to which the Company or any Subsidiary is entitled under any
provision of any agreement, contract or other instrument binding upon the
Company or any Subsidiary or any license, franchise, permit or other
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<PAGE>
similar authorization held by the Company or any Subsidiary; or (d) result in
the creation or imposition of any Lien on any asset of the Company or any
Subsidiary, other than, in the case of clauses (b), (c) and (d), any such
conflict, violation, default, right, loss or Lien that, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect.
Section 4.05. Capitalization. The authorized capital stock of the
--------------
Company consists of 50,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"), of which
100,000 shares have been designated as Series B Junior Participating Preferred
Stock and reserved for issuance in connection with the Rights Agreement, dated
as of March 12, 1999, between the Company and Norwest Bank Minnesota, National
Association (the "Rights Agreement"). As of the date hereof, there were
outstanding 18,150,000 shares of Common Stock, no shares of Preferred Stock and
Stock Options to purchase an aggregate of 873,309 Shares (none of which were
exercisable). All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable (except
for certain statutory liabilities that may be imposed by Section 180.0622(2)(b)
of the Wisconsin Business Corporation Law (the "WBCL") for unpaid employee
wages). Except as set forth in this Section and except for the Company's
obligations under the Rights Agreement (including with respect to the preferred
share purchase rights issued thereunder (the "Rights")), there are outstanding
(a) no shares of capital stock or other voting securities of the Company, (b) no
securities of the Company convertible into or exchangeable for shares of capital
stock or voting securities of the Company, and (c) no preemptive rights, options
or other rights to acquire from the Company, and no obligation of the Company to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company (the
securities in clauses (a), (b) and (c) being referred to collectively as the
"Company Securities"). There are no outstanding (i) stock appreciation rights or
phantom stock units or (ii) obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any Company Securities. The Company and
its Subsidiaries do not have any bonds, debentures, notes or other obligations
outstanding that would give the holders of which the right to vote (or
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Company on any matter ("Voting Debt"). No Shares,
Preferred Stock or other securities of the Company, the Surviving Corporation,
Parent or any of their respective affiliates will be subject to issuance
pursuant to the Rights Agreement as a result of the Offer, the Merger or the
other transactions contemplated by this Agreement and the Stockholder Agreement
and no Distribution Date (as such term is defined in the Rights Agreement) shall
have occurred as a result of the Offer, the Merger or the other transactions
contemplated by this Agreement or the Stockholder Agreement.
Section 4.06. Subsidiaries. The Company Disclosure Schedule sets
------------
forth a list of each material Subsidiary of the Company. Each Subsidiary of the
Company is a corporation or limited liability company duly incorporated or
organized, as the case may be, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has all requisite
power and authority to carry on its business as now conducted and is duly
qualified to do business as a foreign corporation or foreign limited liability
company and is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where failure to be so
qualified would not have a Company Material Adverse Effect. All of the
outstanding shares of capital stock or other ownership interests in each of the
Subsidiaries have been validly issued, and are fully paid,
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non-assessable (except for certain statutory liabilities that may be imposed by
Section 180.0622(2)(b) of the WBCL for unpaid employee wages) and are owned by
the Company or another Subsidiary free and clear of all Liens.
Section 4.07. Company SEC Documents and Financial Statements. Since
----------------------------------------------
July 14, 1999, the Company has filed all required forms, reports, registration
statements, information statements and documents with the SEC required to be
filed by it pursuant to the federal securities laws and the SEC rules and
regulations thereunder (collectively, the "Company SEC Documents"), all of which
have complied as of their respective filing dates in all material respects with
all applicable requirements of the Securities Act, and the Exchange Act, and the
rules promulgated thereunder in effect as of the date of filing. None of the
Company SEC Documents required by the Exchange Act at the time filed, nor any of
the Company SEC Documents required by the Securities Act as of the date of their
effectiveness, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except to the extent that information contained in any
Company SEC Document has been revised or superseded by a later-filed Company SEC
Document filed and publicly available prior to the date hereof. The financial
statements of the Company included in the Company SEC Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations, retained earnings, changes in
financial position and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except for
(a) liabilities incurred in the ordinary course of business since January 29,
2000, (b) liabilities accrued or reserved against in the Company SEC Documents,
or (c) liabilities disclosed herein or in the Company Disclosure Schedule, the
Company does not have any liabilities (whether, direct, indirect, accrued or
contingent), except for such liabilities, individually or in the aggregate, that
would not have a Company Material Adverse Effect.
Section 4.08. Schedule 14D-9; Offer Documents; and Proxy Statement.
----------------------------------------------------
Neither the Schedule 14D-9 nor any information supplied by the Company for
inclusion in the Offer Documents, the Schedule TO or the State Filings will, at
the respective times the Schedule 14D-9, the Offer Documents, the Schedule TO,
the State Filings or any amendments or supplements thereto are filed with the
SEC or any applicable state authority are first published, sent or given to
stockholders of the Company, as the case may be, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading. The Proxy Statement
will not, on the date the Proxy Statement (or any amendment or supplement
thereto) is first mailed to the stockholders of the Company, contain any untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they are made, not misleading or will, at
the time of the Company Stockholder Meeting, omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Company Stockholder Meeting which shall be
become
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false or misleading in any material respect. The Schedule 14D-9 and the Proxy
Statement will, when filed by the Company with the SEC, comply as to form in all
material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to information supplied by or
on behalf of Parent or Merger Subsidiary which is contained in any of the
foregoing documents.
Section 4.09. Absence of Certain Changes. Except as disclosed in the
--------------------------
Company SEC Documents or as contemplated by this Agreement, since January 29,
2000, there has not been any event, occurrence or development that has had or
would be reasonably likely to result in a Company Material Adverse Effect,
except for general economic changes or changes that affect the industry of the
Company or any Subsidiary generally (collectively, "General Changes") and
changes in the Company's business after the date hereof attributable primarily
to actions taken by Parent or Merger Subsidiary, which shall include without
limitation any disruptions to the business of the Company and its Subsidiaries
primarily as a result of the execution of this Agreement or the announcement of
the transactions contemplated by this Agreement (collectively, the "Transaction
Changes"). Except as disclosed in the Company SEC Documents, since January 29,
2000, there has not been (a) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of the Company or
any redemption or other acquisition by the Company of any Shares, (b) any split,
combination, or reclassification of the Company's capital stock or any issuance
or the authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, (c) any granting by
the Company or any of the Subsidiaries to any officer or key employee of the
Company or any of the Subsidiaries of any increase in compensation, except in
the ordinary course of business consistent with past practice or as was required
under employment agreements in effect as of the date of the most recent
financial statements included in the Company SEC Documents, (d) any entry by the
Company or any Subsidiary into any employment, severance or termination
agreement with any such officer or key employee or granting by the Company or
any Subsidiary to any such officer or key employee of any increase in severance
or termination pay, except as was required under employment, severance or
termination agreements in effect as of the date of the most recent financial
statements included in the Company SEC Documents, (e) any damage, destruction or
loss, whether or not covered by insurance, that has or would be reasonably
likely to have a Company Material Adverse Effect or (f) any change in accounting
methods, principles or practices by the Company or any Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles.
Section 4.10. Litigation. Except as disclosed in the Company SEC
----------
Documents, as of the date hereof, there is no civil, criminal, administrative or
regulatory action, suit, claim, investigation or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary
before any court or arbitrator or before or by any governmental body, agency or
official that would have or be reasonably likely to have a Company Material
Adverse Effect.
Section 4.11. Proprietary Rights. The Company and its Subsidiaries
------------------
possess or have adequate rights to use all material trademarks, service marks,
brand marks, brand names, trade names, trade dress, domain names, inventions
(whether patentable or unpatentable), patents, databases, computer software and
related documents and data, and copyrights, and all applications
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<PAGE>
and registrations therefor (collectively, the "Proprietary Rights"), necessary
for the operation of the businesses of each of the Company and its Subsidiaries
as currently conducted free and clear of all Liens with such exceptions as would
not have a Company Material Adverse Effect. The use of such Proprietary Rights
by the Company or its Subsidiaries does not conflict with, infringe upon or
violate the Proprietary Rights of any other Person, except where such conflict,
infringement or violation would not have a Company Material Adverse Effect. The
Company has received no written notice that the use of any Proprietary Rights by
the Company or its Subsidiaries conflicts with, infringes upon or violates any
Proprietary Rights of any other Person. Neither the Company nor any of its
Subsidiaries is in default under the terms of any third party license or other
right to use any Proprietary Rights, except where such default would not have a
Company Material Adverse Effect. To the Company's knowledge, no third party has
infringed upon, violated or otherwise come into conflict with the Proprietary
Rights possessed or used by the Company or its Subsidiaries, except where such
conflict, infringement or violation would not have a Company Material Adverse
Effect.
Section 4.12. Benefit Plans; ERISA.
--------------------
(a) The Company Disclosure Schedule sets forth a complete list of all
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), bonus, pension, profit
sharing, deferred compensation, incentive compensation, excess benefit, stock,
stock option, severance, termination pay, change in control or other material
employee benefit plans, programs, arrangements or agreements currently
maintained, or contributed to, or required to be maintained or contributed to,
by the Company, the Majority Stockholder or any Person that, together with the
Company, is treated as a single employer under Section 414 of the Code for the
benefit of any current or former employees, officers, directors or independent
contractors of the Company or any Subsidiary and with respect to which the
Company or any Subsidiary has any liability (collectively, the "Benefit Plans").
The Company has delivered or made available to Parent true, complete and correct
copies of each Benefit Plan.
(b) Each Benefit Plan has been administered in accordance with its
terms and in compliance with the applicable provisions of ERISA, the Code and
other applicable law, except where the failure to so administer or comply would
not have a Company Material Adverse Effect.
(c) All Benefit Plans intended to be qualified under Section 401(a)
of the Code have been the subject of determination letters from the Internal
Revenue Service to the effect that such Benefit Plans are qualified and exempt
from federal income taxes under Section 401(a) and 501(a), respectively, of the
Code as amended at least through the statutory changes implemented under the Tax
Reform Act of 1986, and no such determination letter has been revoked nor, to
the knowledge of the Company, has revocation been threatened, nor has any such
Benefit Plan been amended since the date of its most recent determination letter
or application therefor in any respect that would adversely affect its
qualification.
(d) No Benefit Plan is subject to Title IV of ERISA or Section 412 of
the Code and no Benefit Plan is a "multiemployer plan" (as defined in Section
3(37) of ERISA).
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<PAGE>
(e) No Person has incurred any material liability under Title IV of
ERISA or Section 412 of the Code during the time such Person was required to be
treated as a single employer with the Company under Section 414 of the Code that
would have a Company Material Adverse Effect.
(f) With respect to any Benefit Plan that is an employee welfare
benefit plan (as defined in Section 3(l) of ERISA), (i) no such Benefit Plan
provides benefits, including without limitation, death or medical benefits,
beyond termination of employment or retirement other than (A) coverage mandated
by law or (B) death or retirement benefits under a Benefit Plan qualified under
Section 401(a) of the Code, and (ii) each such Benefit Plan (including any such
Plan covering retirees or other former employees) may be amended or terminated
without liability that would have a Company Material Adverse Effect.
(g) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) (i) constitute an event under any Benefit
Plan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any employee
of the Company or any of its Subsidiaries, or (ii) result in the triggering or
imposition of any restrictions or limitations on the right of the Company or
Parent to cause any such Benefit Plan to be amended or terminated (or which
would result in any materially adverse consequence for so doing). No payment or
benefit that will or may be made by the Company, Parent, or any of their
respective subsidiaries or affiliates with respect to any employee of the
Company or any of its Subsidiaries under any Benefit Plan in connection with the
Offer and the Merger will be characterized as an "excess parachute payment,"
within the meaning of Section 280G(b)(1) of the Code. The parties hereby agree
to use their commercially reasonable efforts to limit the application of Section
280G(b)(1) of the Code to the transactions contemplated hereby.
Section 4.13. Environmental Matters. Except as set forth in the
---------------------
Company SEC Documents, to the Company's knowledge, (a) the Company and each
Subsidiary is and has been in material compliance with, and has no material
liability under, any and all laws relating to the protection of human health or
the environment ("Environmental Laws"), and (b) neither the Company nor any
Subsidiary is the subject of any federal, state, local or foreign investigation,
and neither the Company nor any Subsidiary has received any written notice or
claim, or entered into any negotiations or agreements with any Person, relating
to any material liability or material remedial action or potential material
liability or material remedial action under any Environmental Laws.
Section 4.14. Taxes. The Company and each of its Subsidiaries, and
-----
any consolidated, combined or unitary group for tax purposes of which the
Company or any of its Subsidiaries is or has been a member, has timely filed,
taking into account all extensions of time to file, all Tax Returns required to
be filed by it in the manner provided by law, except any Tax Return with respect
to which no material Taxes were due. All such filed Tax Returns are true,
correct and complete in all material respects. The Company and each of its
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Subsidiaries have timely paid all Taxes shown as due on such Tax Returns, except
and, for Taxes that are adequately reserved for on the Company financial
statements in accordance with generally accepted accounting principles, for
which a notice of deficiency has been received. The Company and each of its
Subsidiaries have timely withheld and paid over to the appropriate taxing
authority where due all Taxes required to be withheld from amounts owing to any
employee, creditor or third party. Except as set forth in the Company Disclosure
Schedule, (a) no claim for material unpaid Taxes has become a Lien against the
property of the Company or any of its Subsidiaries or is being asserted against
the Company or any of its Subsidiaries; (b) no audit, examination, investigation
or other proceeding is pending, being conducted, or to the knowledge of the
Company, threatened by a Tax authority in connection with any examination of
Taxes paid by or on behalf of, or Tax Returns filed by or on behalf of, the
Company and its Subsidiaries; (c) no extension or waiver of the statute of
limitations on the assessment of any Taxes has been granted by the Company or
any of its Subsidiaries and is currently in effect; (d) neither the Company nor
any of its Subsidiaries is a party to, is bound by, or has any obligation under,
or potential liability with regards to, any Tax sharing agreement, Tax
indemnification agreement or similar contract or arrangement and neither the
Company nor any Subsidiary has any liability for Taxes under Treasury Regulation
Section 1.1502-6 (or an analogous provision of state, local or foreign law),
other than Taxes of the Company and its Subsidiaries; (e) no power of attorney
has been granted by or with respect to the Company or any of its Subsidiaries
with respect to any matter relating to Taxes; (f) neither the Company nor any of
its Subsidiaries has any material deferred intercompany gain or loss arising as
a result of a deferred intercompany transaction within the meaning of Treasury
Regulation Section 1.1502-13 (or similar provision under state, local or foreign
law) or any excess loss accounts within the meaning of Treasury Regulation
Section 1.1502-19; and (g) neither the Company nor any of its Subsidiaries has
been the subject of a Tax ruling or determination that has continuing effect.
Section 4.15. Certain Approvals. Except for Chapter 552 of the WBCL
-----------------
and Section 203 of the DGCL, no "fair price," "moratorium," "control share
acquisition" or other similar antitakeover statute or regulation ("Antitakeover
Statutes") is applicable to the Company, the Shares, the Offer, the Merger, this
Agreement, the Stockholder Agreement or the transactions hereby or thereby. The
Board of Directors of the Company has approved the Offer, the Merger and the
other transactions contemplated by this Agreement in accordance with the
provisions of Section 203 of the DGCL.
Section 4.16. Opinion of Financial Advisor. The Board of Directors of
----------------------------
the Company has received the opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), dated the date of this Agreement, to the effect
that the consideration to be received by the holders of Shares pursuant to this
Agreement is fair to such stockholders from a financial point of view.
Section 4.17. Rights Plan. The Board of Directors of the Company has
-----------
irrevocably and unconditionally amended the Rights Agreement to provide that so
long as this Agreement has not been terminated pursuant to Section 7.01, a
Distribution Date (as such term is defined in the Rights Agreement) shall not
occur or be deemed to occur, and neither Parent nor Merger Subsidiary shall
become an Acquiring Person (as such term is defined in the Rights Agreement), as
a result of the execution, delivery or performance of this Agreement, the
announcement, making or consummation of the Offer, the acquisition of the Shares
pursuant to the Offer or the Merger, the consummation of the Merger or any other
transaction contemplated by this Agreement.
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Section 4.18. Fees and Commissions. Other than fees payable to
--------------------
Merrill Lynch, no Person is entitled to receive from the Company or any
Subsidiary any investment banking, brokerage or finder's fee or commissions in
connection with this Agreement or the transactions contemplated hereby. Parent
has been provided with a true and correct copy of the Merrill Lynch engagement
letter.
Section 4.19. Compliance; Permits. Neither the Company nor any of its
-------------------
Subsidiaries is in default or violation of any federal, state, foreign or local
law, regulation, judgment, injunction, order or decree binding or applicable to
the Company or any of its Subsidiaries or by which its or any of their
respective properties are bound or affected (except, in each case, with respect
to environmental matters, which are governed by Section 4.13), except, with
respect to laws and regulations, for any such defaults or violations that,
individually or in the aggregate, would not have or reasonably be expected to
have a Company Material Adverse Effect. Each of the Company and its Subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its and their respective properties and to
carry on its and their respective businesses as such are now being conducted
(collectively, the "Company Permits"), except where the failure to possess such
Company Permits, individually or in the aggregate, would not have a Company
Material Adverse Effect.
Section 4.20. Contracts. (a) Each contract that is material to the
---------
business of the Company and the Subsidiaries (a "Company Material Contract") is
in full force and effect, other than as would not have, individually or in the
aggregate, a Company Material Adverse Effect. Neither the Company nor any
Subsidiary, nor, to the knowledge of the Company, any other party, is in default
under any Company Material Contract, except for such defaults which would not
have, individually or in the aggregate, a Company Material Adverse Effect and,
to the knowledge of the Company, no event has occurred which, with the passage
of time or the giving of notice or both, would constitute such a default.
(b) During the twelve months immediately prior to the date hereof, no
Significant Customer (as defined below) has cancelled or otherwise terminated or
threatened in writing to terminate its relationship with the Company or its
Subsidiaries. For purposes of this Section 4.20 "Significant Customer" means any
customer of the Company's pharmacy management business that, individually or in
the aggregate, accounted for 10.0% or more of the consolidated revenues of the
Company during the fiscal year ended January 29, 2000.
Section 4.21. Affiliate Transactions.
----------------------
(a) The Company Disclosure Schedule sets forth a complete and correct
list as of the date hereof of (A) all written contracts and agreements to which
the Company or any of its Subsidiaries, on the one hand, and the Majority
Stockholder or any of its affiliates (other than the Company or its
Subsidiaries), on the other hand, are a party that are in effect as of the date
hereof and (B) all material non-cash and non-cash equivalent assets, properties
and services of the Company or its Subsidiaries used by the Majority Stockholder
or any of its affiliates (other than the Company or its Subsidiaries) at any
time since January 29, 2000.
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<PAGE>
(b) The Company Disclosure Schedule sets forth (i) a description of
all intercompany payables or receivables (whether long term or short term, all
of which will be deemed short term for purposes of this Agreement) as of the
date hereof between the Majority Stockholder and its affiliates (other than the
Company and its Subsidiaries), on the one hand, and the Company and its
Subsidiaries, on the other hand, and (ii) the net amount of such intercompany
payables and/or receivables (the "Intercompany Balance") as of April 1, 2000.
Section 4.22. Working Capital. The Company Disclosure Schedule sets
---------------
forth the amount of Company Net Working Capital as of April 1, 2000. For
purposes of this Agreement, "Company Net Working Capital" shall mean current
assets less current liabilities. Current assets include without limitation cash
and cash equivalents, receivables (less allowance for losses), pharmaceutical
inventories, deferred tax benefits and other current assets. Current liabilities
include without limitation short-term debt, accounts payable, accrued
liabilities and all intercompany amounts due to and/or from the Majority
Stockholder and its affiliates other than the Company (whether short term or
long term). Except as expressly required to the contrary by this definition, the
accounting policies that are used in the definition of Company Net Working
Capital shall be consistent with those applied to the financial statements of
the Company as of and for the year ended January 29, 2000 (the "January 29, 2000
Financial Statements"). Company Net Working Capital on any particular date shall
be calculated as if such date were the Company's normal year-end.
ARTICLE 5
COVENANTS
Section 5.01. Conduct of Business of the Company. Except as
----------------------------------
contemplated by this Agreement or as approved in writing by Parent, during the
period from the date of this Agreement to the Effective Time (unless (i) Parent,
as controlling shareholder, directs the Company to the contrary or (ii) Parent's
designees on the Company's Board of Directors vote in favor of a contrary
action), the Company and the Subsidiaries will each conduct its operations
according to its ordinary and usual course of business and, to the extent
consistent therewith, will use their respective commercially reasonable efforts
to preserve its business organization substantially intact and substantially
maintain its existing relations and goodwill with customers, suppliers,
distributors, creditors, lessors, employees and business associates. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, neither the Company nor any Subsidiary, without the
prior written consent of Parent, will:
(a) issue, sell or pledge, or authorize or propose the issuance, sale
or pledge of (i) additional shares of capital stock of any class (including the
Shares), or securities convertible into any such shares, or any rights, warrants
or options to acquire any such shares or other convertible securities, or grant
or accelerate any right to convert or exchange any securities of the Company for
shares, other than (A) Shares issuable pursuant to the terms of outstanding
Company Options and commitments disclosed in Section 4.05, or (B) the issuance
of shares of capital stock to the Company by a wholly-owned Subsidiary, or (ii)
any other securities in respect of, in lieu of or in substitution for Shares
outstanding on the date thereof or split, combine or reclassify any of the
Company's capital stock or (iii) any Voting Debt or any other property or
assets;
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<PAGE>
(b) purchase, redeem or otherwise acquire, or propose to purchase or
otherwise acquire, any of its outstanding securities (including the Shares)
other than pursuant to the Stock Plans;
(c) declare, set aside or pay any dividend or other distribution on
any shares of capital stock of the Company, except that a direct or indirect
wholly-owned Subsidiary may pay a dividend or distribution to its parent;
(d) make (i) any acquisition of a material amount of assets or
securities, any disposition (including by way of any Lien) of a material amount
of assets or securities, or enter into a material contract or release or
relinquish any material contract rights, or make any amendments, or
modifications thereto, except in all instances for actions in the ordinary
course of business, or (ii) for the initial ninety days after the date hereof,
any individual capital expenditures in excess of $350,000 and $3.0 million in
the aggregate; provided, however, if the Offer has not been consummated within
ninety days of the date hereof, the parties will negotiate in good faith to
establish a reasonable capital expenditure budget.
(e) except in the ordinary course of business, (i) incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
Person or (ii) make any loans, advances of capital contributions to, or
investments in, any other Person, other than to the Company or any direct or
indirect wholly-owned Subsidiary;
(f) propose or adopt any amendments to the certificate of
incorporation or bylaws of the Company;
(g) except as provided in Section 5.01(g) of the Company Disclosure
Schedule, enter into any new employment, severance or termination agreements
with, or grant any increase in severance or termination pay to, any officers,
directors or key employees or grant any material increases in the compensation
(except in the ordinary course of business consistent with past practice) or
benefits to officers, directors and key employees or adopt any new employee
benefit plan, program, policy or arrangement;
(h) change any accounting methods, principles or practices materially
affecting their assets, liabilities or business, except insofar as may be
required by a change in generally accepted accounting principles;
(i) settle or compromise any material claims or litigation or modify,
amend or terminate any of its material contracts or waive, release or assign any
material rights or claims; or permit any insurance policy naming it as a
beneficiary or loss-payable payee to be canceled or terminated except in the
ordinary and usual course of business;
(j) make any material tax election or settle or compromise any
material income tax liability; or
(k) agree in writing or otherwise to take any of the foregoing
actions.
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Section 5.02. Acquisition Proposals.
---------------------
The Company shall, and shall use its best efforts to cause its
nonstockholder affiliates and the officers, directors and employees of the
Company and its Subsidiaries to, and shall instruct its stockholder affiliates
and the representatives and agents of the Company and its Subsidiaries
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its Subsidiaries) to, immediately cease and
terminate any existing activities, discussions or negotiations, if any, with any
parties (other than Parent and Merger Subsidiary, any affiliate or associate of
Parent and Merger Subsidiary or any designees of Parent and Merger Subsidiary)
conducted heretofore with respect to any acquisition or exchange of all or any
material portion of the assets of, or more than 20% of the equity interest in,
the Company or any of its Subsidiaries (by direct purchase from the Company,
tender or exchange offer or otherwise) or any business combination, merger or
similar transaction (including an exchange of stock or assets) with or involving
the Company or any Subsidiary or division of the Company (an "Acquisition
Transaction"), other than the Offer and the Merger. Except as set forth in this
Section 5.02, the Company shall not, and shall use its best efforts to cause its
nonstockholder affiliates and the officers, directors and employees of the
Company and its Subsidiaries not to, and shall instruct its stockholder
affiliates and the representatives and agents of the Company and its
Subsidiaries (including, without limitation, any investment banker, attorney or
accountant retained by the Company or any of its Subsidiaries) not to, directly
or indirectly, knowingly encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any nonpublic information or data
(other than the Company's standard public information package) to, any Person or
group of Persons (other than Parent and Merger Subsidiary, any affiliate or
associate of Parent and Merger Subsidiary or any designees of Parent and Merger
Subsidiary) with respect to any inquiries or the making of any offer or proposal
(including, without limitation, any offer or proposal to the stockholders of the
Company) concerning an Acquisition Transaction (an "Acquisition Proposal") or
otherwise knowingly facilitate any effort or attempt to make or implement an
Acquisition Proposal; provided, however, that prior to the date of acceptance
for payment of and payment for Shares by Merger Subsidiary pursuant to the
Offer, or, to the extent the Minimum Tender Condition is waived pursuant to
Section 1.01(e), the date on which the Option is exercised (the earliest of such
dates is referred to as the "Closing Date"), the Company may furnish information
and access, but only in response to a request for information or access, to any
Person making a bona fide written fully-financed (which for the purposes of this
Agreement shall mean the receipt of a commitment letter, from a reputable Person
capable of financing the transaction, subject only to normal and customary
exceptions) all-cash Acquisition Proposal to the board of directors of the
Company after the date hereof which was not knowingly encouraged, solicited or
initiated by the Company or any of its affiliates or any director, employee,
representative or agent of the Company or any of its Subsidiaries (including,
without limitation, any investment banker, attorney or accountant retained by
the Company or any of its Subsidiaries) on or after the date hereof and may
participate in discussions and negotiate with such Person concerning any such
bona fide written fully-financed all-cash Acquisition Proposal and the board of
directors of the Company may modify, amend or withdraw its recommendation
relative to the Offer or the Merger or authorize the Company, subject to Section
7.02(b), to enter into a binding written agreement concerning a Superior
Proposal (as defined below), if and only if, in any such case, (i) the board of
directors of the Company determines in good faith, (A) taking into account the
reasoned advice of outside counsel to the Company to the effect that failing to
provide such information or access or to participate in such discussions or
negotiations or so to authorize or modify, to amend or withdraw
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<PAGE>
such recommendation, as the case may be, is more likely than not to constitute a
breach of such board's fiduciary duties under applicable law, and (B) taking
into account the advice of financial advisors to the Company to such effect,
that such bona fide written all-cash fully-financed Acquisition Proposal, if
accepted, is reasonably likely to be consummated, taking into account all
financial aspects of the proposal and the Person making the proposal and would,
if consummated, result in a transaction more favorable to the Company's
stockholders from a financial point of view than the transaction contemplated by
this Agreement (any such more favorable bona fide written fully-financed all-
cash Acquisition Proposal as to which both of the determinations referred to in
subclauses (A) and (B) above have been made being referred to in this Agreement
as a "Superior Proposal"), and (ii) the board of directors of the Company
receives from the Person making such bona fide written all-cash fully-financed
Acquisition Proposal an executed confidentiality agreement the terms of which
are (without regard to the terms of such Acquisition Proposal) (A) no less
favorable to the Company, and (B) no less restrictive to the Person making such
bona fide written all-cash fully-financed Acquisition Proposal than those
contained in the Confidentiality Agreement, dated as of December 28, 1999
referring to Parent as the "Recipient" (the "Company Confidentiality
Agreement"), between the Company and Parent. The Company will notify Parent
within 48 hours if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with the Company and shall in such notice
indicate the identity of the offeror and the material terms and conditions of
any such proposal and thereafter shall keep Parent reasonably informed, on a
current basis, of the status and material terms of such proposals and the status
of such negotiations or discussions, providing copies to Parent of any
Acquisition Proposals made in writing. The Company shall provide Parent with
four business days advance notice of, in each and every case, its intention to
either enter into any agreement with or to provide any information to any Person
making any such inquiry or proposal. Subject to the provisions of Section 5.02,
the Company agrees not to release any third party from, or waive any provisions
of, any confidentiality or standstill agreement to which the Company is a party
and will use its best efforts to enforce any such agreements at the request of
and on behalf of Parent. The Company will inform the individuals or entities
referred to in the first sentence of this Section 5.02 of the obligations
undertaken in this Section 5.02. The Company also will, at the request of
Parent, promptly request each person or entity which has executed, within 12
months prior to the date of this Agreement, a confidentiality agreement in
connection with its consideration of acquiring the Company to return or destroy
all confidential information heretofore furnished to such person or entity by or
on behalf of the Company.
Section 5.03. Access to Information.
---------------------
(a) Except for competitively sensitive information or as limited by
applicable law, between the date of this Agreement and the Effective Time, the
Company will upon reasonable notice (i) give Parent and its authorized
representatives reasonable access during regular business hours to the Company's
and each Subsidiary's offices and other facilities and to its books and records,
(ii) permit Parent to make such inspections as it may require and (iii) cause
its officers and those of the Subsidiaries to furnish Parent with such financial
and operating data and other information with respect to the business and
properties of the Company and the Subsidiaries as Parent may from time to time
reasonably request (including any request related to implementation of Section
5.13 hereof). Parent and Merger Subsidiary will use their commercially
reasonable
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<PAGE>
efforts to minimize any disruption to the businesses of the Company and the
Subsidiaries that may result from the requests for data and information
hereunder.
(b) Information obtained by Parent pursuant to this Section 5.03
shall be subject to the provisions of the Company Confidentiality Agreement,
which remains in full force and effect.
Section 5.04. Commercially Reasonable Efforts.
-------------------------------
(a) Subject to the terms and conditions of this Agreement and
applicable law, each of the parties shall act in good faith and use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement as soon as
practicable. Without limiting the foregoing, the parties shall use commercially
reasonable efforts to (and shall use commercially reasonable efforts to cause
their respective subsidiaries, and use commercially reasonable efforts to cause
their respective affiliates, directors, officers, employees, agents, attorneys,
accountants and representatives, to) (i) consult and cooperate with and provide
assistance to each other in the preparation and filing with the SEC of the Offer
Documents, the Schedule TO, the State Filings, the Schedule 14D-9 and the Proxy
Statement and all necessary amendments or supplements thereto; (ii) obtain all
consents, approvals, waivers, licenses, permits, authorizations, registrations,
qualifications or other permissions or actions by, and give all necessary
notices to, and make all filings with and applications and submissions to, any
Governmental Entity or other Person necessary in connection with the
consummation of the transactions contemplated by this Agreement as soon as
reasonably practicable; (iii) provide all such information concerning such
party, its subsidiaries and its officers, directors, employees, partners and
affiliates as may be necessary or reasonably requested in connection with any of
the foregoing and (iv) avoid the entry of, or have vacated or terminated, any
decree, order or judgment that would restrain, prevent, or delay the
consummation of the Offer or the Merger. Prior to making any application to or
filing with a Governmental Entity or other entity in connection with this
Agreement (other than filing under the HSR Act), each party shall provide the
other party with drafts thereof and afford the other party a reasonable
opportunity to comment on such drafts.
(b) Parent shall take any and all commercially reasonable steps
necessary to avoid or eliminate every applicable impediment under any antitrust,
competition or trade regulation law that is asserted by any Governmental Entity
with respect to the Offer or the Merger so as to enable the consummation of the
Offer or the Merger to occur as expeditiously as possible. The parties agree
that such commercially reasonable efforts of Parent shall include (1) the
obligation of Parent to litigate with any Governmental Entity for a period from
the date hereof through and including December 31, 2000 and (2) the obligation
of Parent to divest assets or businesses of the Company as may be required in
order to facilitate the expiration of any applicable waiting period under any
antitrust, competition or trade regulation law, to secure the termination of any
investigation by any Governmental Entity or to avoid the filing of litigation by
any Governmental Entity seeking to enjoin the purchase of Shares pursuant to the
Offer or the consummation of the Merger, or to the entry of, or to effect the
dissolution of, any injunction, temporary restraining order or other order in
any suit or proceeding, which would otherwise have the effect of preventing or
delaying the purchase of Shares pursuant to the Offer or the consummation of the
Merger; provided, however, the parties further agree that nothing in this
-------- -------
section shall require that Parent (i)
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<PAGE>
divest, sell or hold separate any of its assets or properties other than assets
or properties of the Company, (ii) consent to Parent or the Company doing any of
the foregoing if any proposed divestiture of assets or businesses would have or
be reasonable likely to have a Company Material Adverse Effect, (iii) enter into
a consent decree or assume any other obligations with respect to the ongoing
operations of Parent, its subsidiaries or the Company or (iv) litigate with any
Governmental Entity for a period beyond December 31, 2000.
(c) Notwithstanding anything to the contrary in the foregoing
paragraph (b), Parent agrees that it will enter into a consent order if the sole
purpose of such order is to cause the Company to become subject to the existing
Federal Trade Commission consent order, In the Matter of Merck & Co., Inc. And
Merck-Medco Managed Care, L.L.C., File No. 951-0097, to the same extent that
Merck-Medco Managed Care, L.L.C. is currently subject to such consent order.
(d) The Company, Parent and Merger Subsidiary shall keep the other
reasonably apprised of the status of matters relating to completion of the
transactions contemplated hereby, including promptly furnishing the other with
copies of notices or other communications received by Parent, Merger Subsidiary
or the Company, as the case may be, or any of their respective Subsidiaries,
from any third party and/or any Governmental Entity with respect to the
transactions contemplated by this Agreement.
(e) The Company shall give prompt notice to Parent of any change that
has resulted in or would be reasonably likely to have a Company Material Adverse
Effect and Parent shall give the Company prompt notice of any change that has
resulted in or would be reasonably likely to have a Parent Material Adverse
Effect.
(f) If any Antitakeover Statute shall or may become applicable to the
Offer or the Merger or the other transactions contemplated by this Agreement or
the Stockholder Agreement, each of Parent and the Company and their respective
Board of Directors shall grant such approvals and take such lawful actions as
are necessary so that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement or the Stockholder
Agreement or by the Offer or the Merger and otherwise act to eliminate or
minimize the effects of such statute or regulation on such transactions.
Section 5.05. Indemnification Exculpation and Insurance.
-----------------------------------------
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date of this Agreement, or who becomes prior to the Effective Time, a
director, officer or employee of the Company or any of its Subsidiaries
(including in his or her role as a fiduciary of the employee benefit plans of
the Company, if applicable) (the "Indemnified Parties") is, or is threatened to
be, made a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to (i) the fact that he or she is or was a director,
officer or employee of the Company, any of its Subsidiaries or any of their
respective predecessors or (ii) this Agreement or any of the transactions
contemplated hereby, whether in any case asserted or arising before or after the
Effective Time, the parties hereto agree to cooperate and use their commercially
reasonable efforts to defend against and respond thereto. It is understood and
agreed that after the Effective
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<PAGE>
Time, Parent shall indemnify and hold harmless, to the fullest extent permitted
by law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and expenses
in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), the Indemnified Parties
may retain counsel satisfactory to them after consultation with Parent;
provided, however, that (A) Parent shall have the right to assume the defense
thereof and upon such assumption Parent shall not be liable to any Indemnified
Party for any legal expenses of other counsel or any other expenses subsequently
incurred by any Indemnified Party in connection with the defense thereof, except
that if Parent elects not to assume such defense or counsel for the Indemnified
Parties reasonably advises that there are issues which raise conflicts of
interest between Parent and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them after consultation with Parent, and Parent
shall pay the reasonable fees and expenses of such counsel for the Indemnified
Parties, (B) Parent shall in all cases be obligated pursuant to this Section
5.05(a) to pay for only one firm of counsel for all Indemnified Parties, (C)
Parent shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld) and (D) Parent shall
have no obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim indemnification under this Section 5.05(a),
upon learning of any such claim, action, suit, proceeding or investigation,
shall promptly notify Parent thereof, provided that the failure to so notify
shall not affect the obligations of Parent under this Section 5.05(a) except to
the extent such failure to notify materially prejudices Parent. Upon written
request by an Indemnified Party, Parent shall advance all expenses incurred by
such Indemnified Party in connection with any such claim, action, suit,
proceeding or investigation to which such Indemnified Party is a party or is
entitled to indemnification pursuant to this Section 5.05(a). The right to
indemnification and the advancement of expenses conferred by this Section
5.05(a) shall not be exclusive of any other rights that any Indemnified Party
seeking indemnification or advancement of expenses may be entitled to or
hereafter acquire under any statute, agreement or provision of the Company's or
the Surviving Corporation's certificate of incorporation or bylaws or otherwise.
Parent's obligations under this Section 5.05(a) shall continue in full force and
effect for a period of six (6) years from the Effective Time; provided, however,
that all rights to indemnification in respect of any claim (a "Claim") asserted
or made within such period shall continue until the final disposition of such
Claim.
(b) Without limiting the foregoing, Merger Subsidiary and Parent
agree that (i) the certificate of incorporation and bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification and
limitation of liability set forth in the Company's certificate of incorporation
and bylaws on the date hereof, which provisions shall not be amended, repealed
or otherwise modified for a period of six (6) years after the Effective Time in
any manner that would adversely affect the rights thereunder of individuals who
at any time prior to the Effective Time were directors or officers of the
Company, and (ii) all rights to indemnification and exculpation from liabilities
for acts or omissions occurring at or prior to the Effective Time now
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<PAGE>
existing in favor of the current or former directors or officers of the Company
and the Subsidiaries as provided in any indemnification agreements of the
Company shall be assumed by the Surviving Corporation in the Merger, without
further action, as of the Effective Time and shall survive the Merger and shall
continue in full force and effect (to the extent consistent with applicable law)
in accordance with their terms. In the event that Parent or the Surviving
Corporation or any of their respective successors or assigns (A) consolidates
with or merges into any other Person and is not the continuing or surviving
corporation or entity of such consolidation or merger or (B) transfers or
conveys all or substantially all of its properties and assets to any Person,
then, and in each such case, proper provision will be made so that the
successors and assigns of Parent or the Surviving Corporation, as the case may
be, assume the obligations set forth in this Section 5.05.
(c) For six (6) years after the Effective Time, the Surviving
Corporation shall provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time, including
but not limited to the transactions contemplated by this Agreement, covering
each person currently covered by the Company's officers' and directors'
liability insurance policy, or who becomes covered by such policy prior to the
Effective Time, on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date hereof, provided, however, that
in satisfying its obligation under this Section 5.05 the Surviving Corporation
shall not be obligated to pay annual premiums in excess of 200% of the amount
per annum the Company is currently paying for such coverage (the "Insurance
Amount"); provided further, that if the Insurance Amount is insufficient to
maintain or procure the coverage contemplated by this Section 5.05(c), then the
Surviving Corporation shall use commercially reasonable efforts to obtain as
much comparable insurance as is available for the Insurance Amount.
(d) For six (6) years after the Effective Time, Parent shall cause
the Surviving Corporation to honor its commitments and obligations pursuant to
this Section 5.05. The provisions of this Section 5.05 are (i) intended to be
for the benefit of, and will be enforceable by, each indemnified party, his or
her heirs and his or her representatives and (ii) in addition to, and not in
substitution or, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
Section 5.06. Employee Plans and Benefits and Employment Contracts.
----------------------------------------------------
(a) From and after the Effective Time, Parent shall cause the
Surviving Corporation to honor in accordance with their terms all existing
employment, severance, consulting or other compensation agreements, plans or
contracts between the Company or any Subsidiary and any officer, director or
employee of the Company or any Subsidiary set forth on Section 5.06 of the
Company Disclosure Schedule.
(b) Parent agrees that, on and following the Effective Time, all
employees of the Company and its subsidiaries as of the Effective Time (whether
or not on disability or leave of absence) (the "Current Employees") shall be
immediately eligible to participate in employee benefit plans and programs of
Parent and its Affiliates on substantially the same terms and conditions as are
applicable to similarly situated non-bargained employees (i) with crediting of
prior employment with the Company and the Majority Stockholder, to the extent
credited by either of them, for purposes of eligibility waiting periods and
vesting requirements, (ii) with recognition of
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<PAGE>
all co-payments and deductibles so that Current Employees are not treated as new
employees of Parent and its affiliates but as if they had been employees of such
entitles throughout the period that they were employed with the Company and the
Majority Stockholder and (iii) without application of preexisting condition and
similar exclusion provisions that did not apply to the Current Employees prior
to the Effective Time, but, in the case of each of (i) and (ii) only to the
extent that employment, co-payments and deductibles are recognized in respect of
employees of Parent and its affiliates other than the Current Employees; and
provided, that this Section 5.06(b) shall not apply to (x) eligibility to
- --------
receive retiree medical benefits, (y) the application of the cost-sharing
features applicable to such retiree medical benefits and (z) application of the
provisions of all stock option programs of Parent and its affiliates relating to
retirement.
(c) The Company will take all action necessary such that, effective
as of the Closing Date, the Company shall cease to participate in the employee
benefit plans, programs, policies and arrangements sponsored and maintained by
the Majority Stockholder (collectively, the "ShopKo Plans").
(d) Except as provided in Section 5.06(e), the Company shall use
commercially reasonable efforts to cause the Majority Stockholder to retain,
bear and be responsible for all liabilities and obligations under the ShopKo
Plans. Without limiting the generality of the foregoing sentence, the Company
shall use commercially reasonable efforts to cause the Majority Stockholder to
bear and be responsible for all liabilities and obligations under the ShopKo
Stores, Inc. Deferred Compensation Plan. Prior to the Closing Date, the Company
shall cause any accrued liabilities applicable to the Shopko Plans to be removed
from its and its Subsidiaries' books.
(e) Prior to the Closing Date, the Company shall 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. The Company shall 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, the Company shall
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.
Section 5.07. Meeting of the Company's Stockholders.
-------------------------------------
(a) After consummation of the Offer, to the extent required by
applicable law, the Company shall promptly take all action necessary in
accordance with the DGCL and the Company's certificate of incorporation and
bylaws to convene the Company Stockholder Meeting to consider and vote on the
Merger and this Agreement. At the Company Stockholder Meeting, all
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<PAGE>
of the Shares then owned by Parent, Merger Subsidiary or any other subsidiary of
Parent shall be voted to approve the Merger and this Agreement. Subject to
Section 5.02, the Board of Directors of the Company shall recommend that the
Company's stockholders vote to approve the Merger and this Agreement if such
vote is sought, shall use commercially reasonable efforts to solicit from
stockholders of the Company proxies in favor of the Merger and shall take all
other reasonable action in its judgment necessary and appropriate to secure the
vote of stockholders required by the DGCL to effect the Merger.
(b) If required under applicable law, the Company and Parent shall
prepare the Proxy Statement, file it with the SEC under the Exchange Act as
promptly as practicable after Merger Subsidiary purchases Shares pursuant to the
Offer, and use all reasonable efforts to have it cleared by the SEC. As promptly
as practicable after the Proxy Statement has been cleared by the SEC, the
Company shall mail the Proxy Statement to the stockholders of the Company as of
the record date for the Company Stockholder Meeting.
(c) Parent and Merger Subsidiary shall not, and they shall cause
their subsidiaries not to, sell, transfer, assign, encumber or otherwise dispose
of the Shares acquired pursuant to the Offer or otherwise prior to the Company
Stockholder Meeting; provided, however, that this Section 5.07(c) shall not
apply to the sale, transfer, assignment, encumbrance or other disposition of any
or all such Shares in transactions involving solely Parent, Merger Subsidiary
and/or one or more of their wholly-owned subsidiaries.
(d) Notwithstanding the foregoing, in the event that Merger
Subsidiary shall acquire Shares representing at least 90% of the votes
represented by all outstanding Common Stock, the parties hereto agree, at the
request of Merger Subsidiary, to take all necessary and appropriate action to
cause the Merger to become effective, in accordance with Section 253 of the
DGCL, as soon as reasonably practicable after such acquisition, without a
meeting of the stockholders of the Company.
Section 5.08. De-registration. The Company shall use commercially
---------------
reasonable efforts to cause the Shares to be de-registered from the New York
Stock Exchange and de-registered under the Exchange Act as soon as practicable
following the Effective Time.
Section 5.09. Certain Actions. The Company shall settle the
---------------
Intercompany Balance and terminate all ongoing contracts, commitments and
arrangements between the Majority Stockholder and its affiliates (other than the
Company or its Subsidiaries) and the Company and its Subsidiaries (including,
without limitation, those listed on the Company Disclosure Schedule) as of the
acceptance for payment of and payment for any Shares by Merger Subsidiary
pursuant to the Offer, except for transactions contemplated by this Agreement
and the following agreements as contemplated by the Side Letter: (a)
Indemnification and Hold Harmless Agreement dated July 19, 1999, which shall
remain in full force and effect after the Change of Control Date (as defined in
the Side Letter); (b) Tax Sharing Agreement dated July 19, 1999, which shall
remain in full force and effect after the Change of Control Date (as defined in
the Side Letter); (c) Prescription Benefit Management Agreement dated March 4,
1996, which shall be amended as of the Change of Control Date (as defined in the
Side Letter); (d) Lease Agreement dated August 1, 1999, which shall be amended
as of the Change of Control Date (as defined in the Side Letter); (e)
Information Technology Services Agreement dated July 19, 1999, which shall be
amended as of the Change of
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<PAGE>
Control Date (as defined in the Side Letter) and (f) End User License Agreement
dated as of January 29, 2000, which shall be amended as of the Change of Control
Date (as defined in the Side Letter) (collectively, the "Affiliate Agreements").
Section 5.10. Affiliate Transactions. Except as contemplated by this
----------------------
Agreement or the Side Letter or as approved in writing by Parent, after the date
of this Agreement to the consummation of the Offer, the Company:
(a) will not terminate, amend, modify, or grant any waivers of the
Affiliate Agreements or the Employment Contracts in any respects; or
(b) will not permit the Intercompany Balance to be increased or
decreased other than as a result of cash advances or payments required to be
made in the ordinary course of business pursuant to the terms of the agreements
listed in the Company Disclosure Schedule.
Section 5.11. Public Announcements. Parent and the Company shall
--------------------
consult with each other before issuing, and provide each other the opportunity
to review, comment upon and concur with, any press release or other public
statement with respect to the transactions contemplated by this Agreement,
including the Offer and the Merger, and shall not issue any such press release
or make any such public statement prior to such consultation, except as either
party may determine is required by applicable law or by obligations pursuant to
any listing agreement with any national securities exchange.
Section 5.12. Performance by Merger Subsidiary. Parent hereby agrees
--------------------------------
to cause Merger Subsidiary to comply with its obligations hereunder and under
the Offer and to cause Merger Subsidiary to consummate the Merger as
contemplated herein.
Section 5.13. Working Capital.
---------------
(a) The Company will, within five business days after the end of each
Company Fiscal Period (including, without limitation, the Company Fiscal Period
immediately prior to the scheduled expiration date of the Offer), deliver to
Parent a certificate providing the Company's good faith calculation of Company
Net Working Capital on a line-item by line-item basis at the end of such
immediately prior Company Fiscal Period.
(b) Parent shall cause Arthur Andersen L.L.P. ("Arthur Andersen") to,
within five business days of receipt by Parent of the certificate of the Company
contemplated by paragraph (a) of this Section 5.13 with regard to the Company
Fiscal Period immediately prior to expiration of the Offer, deliver to the
Company and the Majority Stockholder Arthur Andersen's calculation of Company
Net Working Capital on a line-item by line-item basis for such Company Fiscal
Period.
(c) If Arthur Andersen's calculation of Company Net Working Capital
discloses that Company Net Working Capital is less than $55.0 million (a
"Working Capital Shortfall"), the Majority Stockholder may within one business
day, in its sole discretion, make a payment to Parent in the amount of the
Working Capital Shortfall by immediately available funds. If the Majority
Stockholder timely makes such a payment or if Arthur Andersen's calculation of
Company Net Working Capital discloses no Working Capital Shortfall, the Company
will be deemed to have
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<PAGE>
satisfied the condition to the Offer set forth in paragraph (c)(x) of Annex A.
The provisions of this Section 5.13(c) are exclusive of the provisions contained
in Section 5.13(d).
(d) If Arthur Andersen's calculation of Company Net Working Capital
discloses that there is a Working Capital Shortfall, the Majority Stockholder
may within one business day, in its sole discretion, agree to the audit and
indemnification procedures set forth in Section 9 of the Side Letter. If the
Majority Stockholder timely so agrees in writing, the Company will be deemed to
have satisfied the condition to the Offer set forth in paragraph (c)(x) of Annex
A. The provisions of this Section 5.13(d) are exclusive of the provisions
contained in Section 5.13(c).
ARTICLE 6
CONDITIONS TO THE MERGER
Section 6.01. Conditions to Each Party's Obligation to Effect the
---------------------------------------------------
Merger. The respective obligations of each party to consummate the Merger are
- ------
subject to the satisfaction or waiver, where permissible, prior to the Effective
Time, of the following conditions:
(a) if required by applicable law, this Agreement shall have been
approved by the affirmative vote of the stockholders of the Company by the
requisite vote in accordance with applicable law;
(b) any applicable waiting period under the HSR Act relating to the
Merger shall have expired;
(c) Merger Subsidiary shall have purchased Shares tendered pursuant
to the Offer, except that this condition shall not be a condition to Parent's
and Merger Subsidiary's obligations to effect the Merger if Merger Subsidiary
shall have failed to purchase Shares pursuant to the Offer or, if applicable,
pursuant to the exercise of the Option, in breach of its obligations under this
Agreement; and
(d) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger.
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER
Section 7.01. Termination. This Agreement may be terminated and the
-----------
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time (notwithstanding approval thereof by the stockholders of the Company):
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent upon notification to the other
party, if the Offer has not been consummated by December 31, 2000; provided,
however, that the right to terminate this Agreement pursuant to this Section
7.01(b) shall not be available to any party whose
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<PAGE>
failure to fulfill any obligation under this Agreement or the Offer has been the
cause of, or resulted in, the failure of the Shares to have been purchased
pursuant to the Offer;
(c) by either the Company or Parent, if there shall be any law or
regulation that makes consummation of the Offer or the Merger illegal or
otherwise prohibited or if any judgment, injunction, order or decree enjoining
Parent or the Company from consummating the Offer or the Merger is entered and
such judgment, injunction, order or decree shall become final and unappealable;
provided, however, that the party seeking to terminate this Agreement pursuant
to this Section 7.01(c) shall have used commercially reasonable efforts to
remove such order, decree, ruling or injunction and shall not be in violation of
Section 5.04; or
(d) by the Company: if (i) the Company is not in material breach of
any of its covenants or agreements in this Agreement, (ii) the board of
directors of the Company authorizes the Company, prior to the Closing Date, and
subject to complying with the terms of this Agreement, to enter into a binding
written agreement concerning a Superior Proposal and the Company notifies Parent
in writing that it intends to enter into such an agreement, attaching the most
current version of such agreement to such notice, and (iii) Parent does not
make, within four business days of receipt of the Company's written notification
of its intention to enter into such an agreement, a written and binding offer
that is at least as favorable, from a financial point of view, to the
stockholders of the Company as the Superior Proposal. The Company agrees (x)
that it will not enter into a binding agreement referred to in clause (ii) of
the previous sentence until at least the first calendar day following the fourth
business day after it has provided the written notice to Parent required
thereby, (y) to notify Parent promptly if its intention to enter into a written
agreement referred to in such notice shall change at any time after giving such
notification and (z) that it will not terminate this Agreement or enter into a
binding agreement referred to in clause (ii) of the previous sentence if Parent
has, within the period referred to in clause (x) of this sentence, made a
written and binding offer that is at least as favorable to the Company's
stockholders from a financial point of view as the Superior Proposal; or
(e) by Parent, at any time prior to the Closing Date, if the board of
directors of the Company shall have failed to recommend, or shall have withdrawn
or adversely modified its approval or recommendation of, the Offer or the Merger
or failed to reconfirm its recommendation of the Offer or the Merger within four
business days after a written request by Parent to do so, or shall have resolved
to do any of the foregoing.
Section 7.02. Effect of Termination.
---------------------
(a) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article 7, this Agreement shall become void and
of no effect with no liability of any party hereto (or any of its directors,
officers, employees, agents, legal and financial advisors or other
representatives) except as set forth below; provided, however, that except as
otherwise provided herein, no such termination shall relieve any party hereto of
any liability or damages resulting from any willful breach of this Agreement.
(b) In the event that (i) a bona fide written fully-financed all-cash
Acquisition Proposal shall have been made to the Company or any of its
stockholders or any Person shall have announced an intention (whether or not
conditional) to make a fully-financed all-cash Acquisition
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<PAGE>
Proposal with respect to the Company, and on or following the date of this
Agreement but prior to the Closing Date, such Acquisition Proposal, announcement
or intention is or becomes publicly known and (ii) on or following the date on
which such fully-financed all-cash Acquisition Proposal, announcement or
intention is or becomes publicly known, (A) this Agreement is terminated by
either Parent or the Company pursuant to Section 7.01(b) and if terminated by
Parent or Merger Subsidiary, such termination shall be prior to the Closing
Date, and within 6 months after such termination, the Company either enters into
a definitive agreement with respect to, or consummates, an Acquisition
Transaction or (B) this Agreement is terminated (x) by the Company pursuant to
Section 7.01(d) or (y) by Parent pursuant to Section 7.01(e), or (z) as a result
of the failure of the Company to satisfy any one of the conditions set forth in
paragraphs (iii) or (vii) of Annex A, then, subject to subsection (c) of this
Section 7.02, the Company (p) shall promptly, but in no event later than two
business days after the date of such termination if terminated by Parent or
Merger Subsidiary and simultaneously with such termination if terminated by
Company (except as otherwise provided in the proviso to this sentence) in the
case of a termination pursuant to clause (B) and on the next business day after
either a definitive agreement with respect to an Acquisition Transaction is
executed or an Acquisition Transaction is consummated in the case of a
termination pursuant to clause (A), pay Parent a termination fee of $8.0 million
in cash payable by wire transfer of same day funds, and (q) shall promptly, but
in no event later than two business days after being notified of such by Parent,
pay all of the documented out-of-pocket third party charges and expenses
reasonably incurred by Parent or Merger Subsidiary in connection with this
Agreement and the Stockholders Agreement and the transactions contemplated by
this Agreement and the Stockholders Agreement, including, without limitation,
fees and expenses of accountants, attorneys and financial advisors, up to a
maximum of $1,500,000, in the aggregate. The Company acknowledges that the
agreements contained in this Section 7.02(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent and Merger Subsidiary would not enter into this Agreement; accordingly,
if the Company fails to promptly pay the amount due pursuant to this Section
7.02, and, in order to obtain such payment, Parent or Merger Sub commences a
suit which results in a binding nonappealable judgment rendered by a court of
competent jurisdiction against the Company for the fee set forth in this
paragraph (b) the Company shall pay to Parent or Merger Subsidiary its
reasonable costs and expenses (including attorneys' fees) in connection with
such suit, together with interest on the amount of the fee at the prime rate of
Citibank, N.A. in effect on the date such payment was required to be made.
(c) Parent agrees that the payment provided for in paragraph (b) of
this Section shall be the sole and exclusive remedy of Parent upon termination
of this Agreement pursuant to Sections 7.01(b), 7.01 (d) or 7.01(e) and such
remedy shall be limited to the aggregate of the sums stipulated in paragraph (b)
of this Section. Except as contemplated by the immediately preceding sentence,
nothing herein shall relieve any party from liability for the willful and
knowing breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement. In no event shall the Company be
required to pay to Parent more than one termination fee pursuant to this
Section.
Section 7.03. Amendment. To the extent permitted by applicable law,
---------
this Agreement may be amended by the parties at any time before or after
approval of this Agreement by the stockholders of the Company; provided,
however, that after any such stockholder approval, no amendment shall be made
which by law requires further approval of the Company's stockholders without the
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
Section 7.04. Extension; Waiver. At any time prior to the Effective
-----------------
Time, a party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the
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<PAGE>
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto by any
other party or (c) subject to Section 7.03, waive compliance by any other party
with any of the agreements or conditions contained herein. Any agreement on the
part of any party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure of
any party to this Agreement assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
Section 7.05. Procedure for Termination, Extension or Waiver. A
----------------------------------------------
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 in order to be effective shall require, in the case of Parent or the
Company, action by its Board of Directors or, with respect to any amendment of
this Agreement, a duly authorized committee of its Board of Directors.
ARTICLE 8
MISCELLANEOUS
Section 8.01. Non-Survival of Representations and Warranties. None of
----------------------------------------------
the representations and warranties made in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive after the Effective Time.
This Section 8.01 shall not limit any covenant or agreement of the parties
hereto that by its terms contemplates performance after the Effective Time.
Section 8.02. Entire Agreement; Assignment. This Agreement (including
----------------------------
the Company Disclosure Schedule and the Parent Disclosure Schedule), the
Stockholder Agreement and, to the extent contemplated in Section 5.03(b), the
Confidentiality Agreement, (a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise, provided, however, that Parent or Merger
Subsidiary may assign any of their rights and obligations to any direct or
indirect wholly-owned subsidiary of Parent, but no such assignment shall relieve
Parent or Merger Subsidiary of its obligations hereunder. Any of Parent, Merger
Subsidiary or any direct or indirect wholly-owned subsidiary of Parent may
purchase Shares under the Offer.
Section 8.03. Validity. The invalidity or unenforceability of any
--------
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
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<PAGE>
Section 8.04. Notices. All notices, requests, claims, demands and
-------
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person, by facsimile transmission with
confirmation of receipt, by overnight courier (with delivery confirmed), or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
(a) To Parent or the Merger Subsidiary:
Merck & Co., Inc.
One Merck Drive
P.O. Box 100 W53AB-05
Whitehouse Station, NJ 08889
Attention: Celia A. Colbert
Assistant General Counsel and
Secretary
Fax: (908) 735-1246
With a copy to:
Fried, Frank, Harris, Shriver
& Jacobson
One New York Plaza
New York, New York 10004
Attention: Gary P. Cooperstein, Esq.
Facsimile: (212) 859-4000
(b) if to the Company:
ProVantage Health Services, Inc.
N19 W24130 Riverwood Dr.,
Waukesha, WI 53188
Attention: Jeffrey A. Jones
President and Chief Executive Officer
Fax: (262) 312-3858
With a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Jay O. Rothman, Esq.
Fax: (414) 297-4900
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
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<PAGE>
Section 8.05. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
Section 8.06. Jurisdiction. Any suit, action or proceeding seeking to
------------
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may be brought
against any of the parties in any federal court located in the State of Delaware
or any Delaware state court, and each of the parties hereto hereby consents to
the exclusive jurisdiction of such courts (and of the appropriate appellate
courts therefrom) in any such suit, action or proceeding and waives any
objection to venue laid therein. Process in any such suit, action or proceeding
may be served on any party anywhere in the world, whether within or without the
State of Delaware. Without limiting the generality of the foregoing, each party
hereto agrees that service of process upon such party at the address referred to
in Section 8.04, together with written notice of such service to such party,
shall be deemed effective service of process upon such party.
Section 8.07. Descriptive Headings. The descriptive headings herein
--------------------
are inserted for convenience of reference only and shall not constitute a part
of or affect the meaning or interpretation of this Agreement.
Section 8.08. Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other Person any
rights or remedies of any nature whatsoever under or by reason of this Agreement
except for Sections 2.10, 5.05 and 5.06 (which are intended to be for the
benefit of the Persons entitled to therein, and may be enforced by such
Persons).
Section 8.09. Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 8.10. Fees and Expenses. Subject to Section 7.02, all fees,
-----------------
costs and expenses incurred in connection with the transactions contemplated by
this Agreement shall be paid by the party incurring such fees and expenses,
whether or not the Offer or the Merger is consummated.
Section 8.11. Enforcement of Agreement. The parties hereto agree that
------------------------
money damages or other remedy at law would not be sufficient or adequate remedy
for any breach or violation of, or a default under, this Agreement by them and
that in addition to all other remedies available to them, each of them shall be
entitled to the fullest extent permitted by law to an injunction restraining
such breach, violation or default or threatened breach, violation or default and
to any other equitable relief, including, without limitation, specific
performance, without bond or other security being required.
Section 8.12. Waiver of Jury Trial. To the extent permitted by
--------------------
applicable law, the parties hereby irrevocably waive any and all rights to trial
by jury in any legal proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby.
Section 8.13. Certain Definitions. For purposes of this Agreement
-------------------
(including Annex A hereto), the following terms shall have the meanings ascribed
to them below:
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<PAGE>
(a) "affiliate" of a Person shall mean (i) a Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first-mentioned Person and (ii) an
"associate", as that term is defined in Rule 12b-2 promulgated under the
Exchange Act as in effect on the date of this Agreement.
(b) "control" (including the terms "controlling", "controlled by" and
"under common control with" or correlative terms) shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract, or otherwise.
(c) "fully diluted" in reference to the Shares means all outstanding
securities entitled generally to vote in the election of directors of the
Company on a fully diluted basis, after giving effect to the exercise or
conversion of all options, rights and securities exercisable or convertible into
such voting securities.
(d) "knowledge" shall mean the actual knowledge of the executive
officers of the Company after reasonable investigation, including consultation
with the principal executive officers of each of the operating Subsidiaries.
(e) "Lien" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset.
(f) "Person" shall mean an individual, a corporation, a limited
liability company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
(g) "subsidiary" shall mean, when used with reference to a Person
means a corporation (or other entity) the majority of the outstanding voting
securities (or equity interests) of which are owned directly or indirectly by
such Person.
(h) "Subsidiary" shall mean 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 other persons performing similar functions
are directly or indirectly owned by the Company.
(i) "Taxes" means any taxes of any kind, including but not limited to
those on or measured by or referred to as income, gross receipts, capital,
sales, use, ad valorem, franchise, profits, license, withholding, employment,
payroll, premium, value added, property or windfall profits taxes, environmental
transfer taxes, customs, duties or similar fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any governmental authority, domestic or
foreign.
(j) "Tax Return" means any return, report or statement required to be
filed with any governmental authority with respect to Taxes.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officer thereunto duly authorized, on the day
and year first above written.
MERCK & CO., INC.
By: /s/ Judy C. Lewent
-----------------------------------------------
Name: Judy C. Lewent
Title: Senior Vice President and
Chief Financial Officer
PV ACQUISITION CORP.
By: /s/ Judy C. Lewent
-----------------------------------------------
Name: Judy C. Lewent
Title: President
PROVANTAGE HEALTH SERVICES, INC.
By: /s/ Jeffrey A. Jones
-----------------------------------------------
Name: Jeffrey A. Jones
Title: President and Chief Executive Officer
-39-
<PAGE>
ANNEX A
-------
CONDITIONS TO THE OFFER
The capitalized terms used in this Annex A have the meanings set forth
in the attached Agreement, except that the term "the Agreement" shall be deemed
to refer to the attached Agreement. Notwithstanding any other provision of the
Offer, Merger Subsidiary shall not be obligated to accept for payment or pay
for, subject to Rule 14e-l(c) of the Exchange Act, any Shares, not theretofore
accepted for payment and may terminate or amend the Offer if (a) that number of
Shares, which would represent at least a majority of the Shares entitled to vote
that are outstanding on a fully diluted basis after giving effect to the
exercise or conversion of all options, rights and securities exercisable or
convertible into or exchangeable for Shares or such voting securities, shall not
have been validly tendered and not withdrawn immediately prior to the expiration
of the Offer (the "Minimum Tender Condition"), (b) any applicable waiting period
under the HSR Act shall not have expired or been terminated prior to the
expiration of the Offer or (c) prior to the expiration of the Offer (immediately
prior to the Offer in the case of clause (viii)), any of the following
conditions exist or shall occur:
(i) there shall have been entered, enforced or issued by any
Governmental Entity any final non-appealable judgment, order, injunction or
decree, (A) which makes illegal, restrains or prohibits the making of the
Offer, the acceptance for payment of, or payment for, any Shares by Parent
or Merger Subsidiary, or the consummation of the Merger, or (B) which
imposes limitations on the ability of Parent or Merger Subsidiary or their
respective affiliates to exercise full rights of ownership of, any Shares
accepted for payment pursuant to the Offer including, without limitation,
the right to vote the Shares accepted for payment by it on all matters
properly presented to the stockholders of the Company or (C) which
prohibits or imposes any material limitation on Parent's, Merger
Subsidiary's or any of their respective affiliates' ownership or operation
of all or any material portion of the business or assets of the Company and
its Subsidiaries taken as a whole or Parent and its Subsidiaries taken as a
whole except as contemplated by clause (b)(2) of Section 5.04(b) of the
Merger Agreement (as limited by proviso (ii) of clause (b)(2) of such
Section 5.04(b));
(ii) there shall have been any pending action, litigation or
proceeding brought by any Governmental Entity or any action, litigation or
proceeding threatened in writing by the FTC seeking to achieve any of the
consequences referred to in clauses (A) through (C) of paragraph (i) above;
provided, however, Parent may not terminate this Agreement as a result of
the failure to satisfy this condition prior to December 31, 2000; and
further provided, however, that Parent shall comply with its obligations
under Section 5.04 of the Agreement;
(iii) the Company's Board of Directors shall have modified or
amended its recommendation of the Offer in any manner adverse to Parent or
Merger Subsidiary or shall have withdrawn its recommendation of the Offer
or shall have recommended acceptance of any Acquisition Proposal or shall
have failed to reconfirm its recommendation of the Offer within four
business days after a written request by Parent to do so, or shall have
resolved to do any of the foregoing; or
(iv) (A) the representations and warranties of the Company set
forth in this Agreement shall have failed to be true and correct as of the
date of this Agreement and as of the consummation of the Offer (except for
those representations and warranties made as of a specific date, which
shall have failed to be true and correct as of such date),
-1-
<PAGE>
considered without regard to any qualification by, or references to,
"material," "in all material respects" or "Company Material Adverse
Effect," except for such failures of such representations and warranties to
be true and correct that individually or in the aggregate, do not have a
Company Material Adverse Effect and except for General Changes or
Transaction Changes or (B) the Company shall have breached or failed to
comply in any material respect with any of its material obligations,
covenants or agreements under the Agreement and any such breach or failure
shall not have been substantially cured by the Company within five business
days after Parent provides written notice to the Company of such breach or
failure;
(v) the Merger Agreement shall have been terminated in
accordance with its terms;
(vi) there shall have occurred any event which could reasonably
be expected to have a Company Material Adverse Effect, except for General
Changes or Transaction Changes;
(vii) any corporation, entity, "group" or "person" (as defined
in the Exchange Act), other than Parent, Merger Sub, or the shareholder
that is party to the Stockholder Agreement (so long as such shareholder
does not breach any of the provisions of the Stockholder Agreement), shall
have acquired beneficial ownership of more than 25% of the outstanding
Shares;
(viii) there shall exist (A) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or in the over the counter market in the United States (other than
shortening of trading hours or any trading halt resulting from a specified
increase or decrease in a market index), (B) a declaration of any banking
moratorium by federal or state authorities or any suspension of payments in
respect of banks or any limitation (whether or not mandatory) imposed by
federal or state authorities on the extension of credit by lending
institutions in the United States, or (C) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof;
(ix) any provision in the Side Letter or Affiliate Agreements
shall have been amended, terminated, modified or waived in a manner not
contemplated by the Side Letter; or
(x) subject to the ability of the Majority Stockholder to
timely cure any shortfall in Company Net Working Capital pursuant to
Section 5.13(c) or (d) of the Merger Agreement, Company Net Working Capital
on the last day of the Company Fiscal Period immediately preceding the
scheduled expiration of the Offer shall be less than $55.0 million.
which, in the reasonable good faith judgment of Parent and regardless of the
circumstances giving rise to any such condition, makes it inadvisable to proceed
with the Offer or with such acceptance for payment, purchase of, or payment for
Shares. The failure by Parent or Merger Subsidiary at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right, the
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<PAGE>
waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances, and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
-3-
<PAGE>
EXHIBIT (e)(2)
--------------
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT (this "Agreement") dated as of May 4, 2000 among
ShopKo Stores, Inc., a Wisconsin corporation, SKO Holdings, Inc. a Delaware
corporation and a wholly owned subsidiary of ShopKo Stores, Inc. (collectively,
"Holder"), Merck & Co., Inc., a New Jersey corporation ("Parent"), and PV
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("Merger Sub"). Parent, Merger Sub and ProVantage Health Services, Inc.,
a Delaware corporation (the "Company"), propose to enter into a Merger Agreement
(the "Merger Agreement") on the date of this Agreement providing for the making
of a tender offer by Merger Sub (the "Offer") for shares of Common Stock, par
value $0.01 per share, of the Company (the "Company Common Stock"), at a
purchase price of $12.25 per share, and a subsequent merger (the "Merger")
between the Company and the Merger Sub.
Holder owns the number of shares of Company Common Stock (the "Shares") or
options to purchase Company Common Stock (the "Stock Options" and collectively,
with the Shares, the "Optioned Securities"), or has the right to vote the number
of Shares or other securities (the "Voting Securities"), listed on Schedule 1.
Parent and the Merger Sub have required, as a condition to entering into the
Merger Agreement, that the Holder enter into this Agreement. The Holder believes
that it is in the best interest of the Company and its stockholders to induce
Parent and the Merger Sub to enter into the Merger Agreement and, therefore, the
Holder is willing to enter into this Agreement.
Accordingly, in consideration of the mutual covenants and agreements set
forth herein and in consideration of $1.00 and such other valuable consideration
the receipt of which is hereby acknowledged, the parties hereto agree as
follows:
1. The Option. Subject to the terms of this Agreement, Holder hereby
----------
grants the Merger Sub an irrevocable option (the "Option") to purchase all, and
not less than all, of the Optioned Securities of Holder at the price of $12.25
per share (or such higher price as may be paid pursuant to the Offer), payable
in cash, without interest. The obligation to pay the exercise price for the
Option shall be a joint and several obligation of Parent and Merger Sub.
2. Exercise of the Option; Term.
----------------------------
(a) On the terms and subject to the conditions of this Agreement, the
Merger Sub may exercise the Option at any time after the date on which all
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), applicable to the exercise of the Option have
expired or been terminated by written notice to Holder specifying a date and
time for the closing not later than thirty
<PAGE>
(30) business days from the date of such notice (which date and time may be two
business days after the delivery of such notice) and after the Offer has expired
or been terminated; provided, however, that the Option may not be exercised
after it has expired in accordance with the terms hereof.
(b) The Option shall expire on the earliest of:
(1) the purchase of the Optioned Securities by the Merger Sub
pursuant to the Offer;
(2) the Effective Time (as defined in the Merger Agreement);
(3) the termination of the Merger Agreement:
(A) pursuant to the mutual consent of the Company and
Parent pursuant to Section 7.01(a) of the Merger Agreement;
(B) pursuant to Section 7.01(b) of the Merger Agreement
(regarding failure of the Offer to be consummated by December 31,
2000);
(C) pursuant to Section 7.01(c) of the Merger Agreement
(regarding illegality or prohibition of the Offer or the Merger);
(D) pursuant to Section 7.01(d) of the Merger Agreement
(regarding a Superior Proposal);
(E) pursuant to Section 7.01(e) of the Merger Agreement
(regarding termination by Parent on the happening of certain events);
or
(4) thirty (30) days after termination or expiration of the
Offer (such earliest date being referred to in this Agreement as the "Expiration
Date").
(c) If the Company receives an Acquisition Proposal (as defined in
the Merger Agreement) which the Company in good faith, after compliance with
Section 5.02 of the Merger Agreement, believes is a Superior Proposal (as
defined in the Merger Agreement) and gives written notice to Parent of such
Superior Proposal in compliance with Section 5.02 of the Merger Agreement,
Parent and Merger Sub will not exercise the Option (if it is then exercisable)
for a period commencing on the date of such written notice and ending on the
first to occur of: (1) one business day after the Company can properly terminate
the Merger Agreement pursuant to Section 7.01(d), (2) written notice to Parent
and Merger Sub from the Company that such Superior Proposal is not being
pursued, which notice shall be provided by the Company to Parent and Merger Sub
in writing promptly upon any such determination, and (3) the date on which the
Company
-2-
<PAGE>
receives a written and binding offer that is at least as favorable, from a
financial point of view, to the stockholders of the Company as the Superior
Proposal (such period is referred to herein as the "Review Period").
(d) Merger Sub and Parent agree that if Merger Sub exercises the
Option and the Merger Agreement remains in full force and effect (i) the Shares
purchased by Merger Sub pursuant to the Option shall be treated for purposes of
the Merger Agreement and the Offer as if such Shares were purchased by Merger
Sub in the Offer and (ii) Parent and Merger Sub will ensure that the
transactions contemplated by the Merger Agreement (including the Offer and the
Merger) are consummated. Merger Sub and Parent further agree that if Merger Sub
exercises the Option and the Merger Agreement is not in full force and effect
(i) Parent and Merger Sub will cause the Merger Agreement to again become in
full force and effect (or to cause a merger agreement containing the same
economic terms to become in force and effect) and (ii) Parent and Merger Sub
will ensure that the transactions contemplated by the Merger Agreement (or any
replacement merger agreement), including the Offer and the Merger, are fully
consummated.
3. Closing. At the closing:
-------
(a) against delivery of the Optioned Securities, free and clear of
all liens, claims, charges and encumbrances of any kind or nature
whatsoever, Parent shall cause the Merger Sub to make payment to Holder of
the aggregate price for Holder's Optioned Securities by wire transfer of
immediately available funds; and
(b) Holder shall deliver to the Merger Sub a duly executed
certificate or certificates representing the number of Optioned Securities
purchased from Holder, together with transfer powers endorsed in blank
relating to such certificates and, if requested by the Merger Sub, an
irrevocable proxy duly executed by Holder, authorizing such persons as the
Merger Sub shall designate to act for Holder as his lawful agents,
attorneys and proxies, with full power of substitution, to vote in such
manner as each such agent, attorney and proxy or his substitute shall in
his sole discretion deem proper, and otherwise act with respect to the
Optioned Securities at any meeting (whether annual or special and whether
or not an adjourned meeting) of the Company's stockholders or otherwise,
and revoking any prior proxies granted by Holder with respect to the
Holder's Optioned Securities.
Notwithstanding any provision of this Agreement to the contrary, the Holder
shall validly tender its Shares pursuant to the Offer and shall not withdraw
such Shares prior to the expiration of the Offer, and its obligation to sell any
Optioned Securities shall be satisfied, solely with respect to the Shares so
tendered, upon the purchase of such Shares by the Merger Sub pursuant to the
Offer.
-3-
<PAGE>
4. Covenants of the Holder.
-----------------------
(a) During the period from the date of this Agreement until the
Expiration Date, except in accordance with the provisions of this
Agreement, Holder agrees that it will not:
(i) sell, sell short, transfer, pledge, hypothecate, assign or
otherwise dispose of, or enter into any contract, option, hedging
arrangement or other arrangement or understanding with respect to the
sale, transfer, pledge, hypothecation, assignment or other disposition
of, any Optioned Securities or Voting Securities;
(ii) deposit any Optioned Securities or Voting Securities into
a voting trust, or grant any proxies or enter into a voting agreement
with respect to any Optioned Securities or Voting Securities; or
(iii) except for actions permitted by Section 5.02 of the Merger
Agreement, initiate, solicit or knowingly encourage, directly or
indirectly, any inquiries or the making or implementation of any
proposal that constitutes, or may reasonably be expected to lead to,
any Acquisition Proposal (as defined in the Merger Agreement) or enter
into discussions or negotiate with any person or entity in furtherance
of such inquiries or to obtain a Acquisition Proposal, or agree to or
endorse any Acquisition Proposal.
(b) Any additional shares of Company Common Stock, warrants, options
or other securities or rights exercisable for, exchangeable for or
convertible into shares of Company Common Stock (collectively, "Equity
Securities") acquired by Holder will become subject to this Agreement and
shall, for all purposes of this Agreement, be considered Optioned
Securities or Voting Securities, as the case may be.
(c) Holder agrees not to engage in any action or omit to take any
action which would have the effect of preventing or disabling Holder from
delivering its Optioned Securities to the Merger Sub or otherwise
performing its obligations under this Agreement. To the extent that any
Optioned Securities (other than Company Common Stock) may not be assigned
by Holder to the Merger Sub without exercising, exchanging or converting
such Optioned Securities for or into Company Common Stock, Holder agrees to
exercise, exchange or convert such Optioned Securities for or into Company
Common Stock prior to the closing of the purchase of such Optioned
Securities upon exercise of the Option.
-4-
<PAGE>
5. Representations and Warranties of Holder. Holder represents and
----------------------------------------
warrants to Parent and the Merger Sub as follows:
(a) (i) Holder is the record or beneficial owner of the Optioned
Securities, or has the right to vote the Voting Securities, listed on
Schedule 1, (ii) such Optioned Securities or Voting Securities are the only
Equity Securities owned of record or beneficially by Holder or in which
Holder has any interest or which Holder has the right to vote, as the case
may be, and (iii) Holder does not have any option or other right to acquire
any other Equity Securities;
(b) Holder has the right, power and authority to execute and deliver
this Agreement and to perform its obligations hereunder; the execution,
delivery and performance of this Agreement by Holder will not require the
consent of any other person and will not constitute a violation of,
conflict with or result in a default under (i) any contract, understanding
or arrangement to which Holder is a party or by which Holder is bound, (ii)
any judgment, decree or order applicable to Holder, or (iii) any law, rule
or regulation of any governmental body applicable to Holder; and this
Agreement constitutes a valid and binding agreement on the part of Holder,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights
and general principles of equity;
(c) any Shares included in the Optioned Securities owned by Holder
have been validly issued and are fully paid and nonassessable (except as
otherwise provided by Wisconsin law) and any shares of Company Common Stock
issuable upon exercise, exchange or conversion of any other Equity
Securities, when issued and upon payment of the exercise price therefor,
will be validly issued, fully paid and nonassessable (except as otherwise
provided by Wisconsin law);
(d) the Optioned Securities owned by Holder are now, and at all times
during the term of this Agreement will be, held by Holder free and clear of
all adverse claims, liens, encumbrances and security interests, and none of
the Optioned Securities or Voting Securities are subject to any voting
trust or other agreement or arrangement (except as created by this
Agreement) with respect to the voting or disposition of the Optioned
Securities or Voting Securities; and there are no outstanding options,
warrants or rights to purchase or acquire, or agreements (except for this
Agreement) relating to, such Optioned Securities or Voting Securities; and
(e) upon purchase of the Optioned Securities owned by Holder, the
Merger Sub will obtain good and marketable title to such Optioned
Securities, free
-5-
<PAGE>
and clear of all adverse claims, liens, encumbrances and security interests
(except any created by the Merger Sub).
6. Representations and Warranties of Parent and the Merger Sub. Each of
-----------------------------------------------------------
Parent and the Merger Sub hereby represents and warrants to Holder that: it is a
corporation duly formed under the laws of the states of their respective
incorporations; it has all requisite corporate power and authority to enter into
and perform all its obligations under this Agreement; the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on its part; this
Agreement has been duly executed and delivered by it; and this Agreement
constitutes a valid and binding agreement on its part, enforceable in accordance
with its terms, subject to applicable bankruptcy insolvency, moratorium or other
similar laws relating to creditors' rights and general principles of equity.
7. Voting of Equity Securities. Holder hereby agrees that, from the date
---------------------------
hereof until the Expiration Date, at any meeting of the stockholders of the
Company, however called, and in any action by written consent of the
stockholders of the Company, it shall (a) vote all Voting Securities of Holder
in favor of the Merger; (b) not vote any Voting Securities in favor of any
action or agreement which would result in a breach in any material respect of
any covenant, representation or warranty or any other obligation of the Company
under the Merger Agreement; and (c) vote all Voting Securities of Holder against
any action or agreement which would impede, interfere with or attempt to
discourage the Offer or the Merger, including, but not limited to: (i) any
Acquisition Proposal (other than the Offer and the Merger) involving the Company
or any of its subsidiaries; (ii) any change in the management or board of
directors of the Company, except as otherwise agreed to in writing by the Merger
Sub; (iii) any material change in the present capitalization or dividend policy
of the Company; or (iv) any other material change in the Company's corporate
structure or business. Holder hereby irrevocably (except as set forth below)
appoints designees of Merger Sub, the attorneys, agents and proxies, with full
power of substitution, for the undersigned and in the name, place and stead of
the Holder to vote in such manner as such attorneys, agents and proxies or their
substitutes shall in their sole discretion deem proper and otherwise act,
including the execution of written consents, with respect to all Voting
Securities of the Company which the Holder is or may be entitled to vote at any
meeting of the Company with a record date after the date hereof, whether annual
or special and whether or not an adjourned meeting, or in respect of which the
Holder is or may be entitled to act by written consent. This proxy is coupled
with an interest and shall be irrevocable (except as set forth below) and
binding on any successor in interest of the Holder. This proxy shall operate to
revoke any prior proxy as to Voting Securities heretofore granted by the Holder
other than any proxy provided with respect to the Company's currently scheduled
annual meeting with respect to the agenda items disclosed on the Company's April
19, 2000 Proxy Statement. Such
-6-
<PAGE>
proxy shall terminate upon the termination of this Agreement. The obligations of
this Section 7 shall not apply to Holder during any Review Period and Holder may
revoke this Proxy during any such Review Period as long as Holder reinstates
such proxy promptly upon expiration of such Review Period (unless the Company
accepts a Superior Proposal, in which case the proxy shall terminate).
8. Adjustments. In the event of any increase or decrease or other change
-----------
in the Optioned Securities by reason of stock dividends, split-up,
recapitalizations, combinations, exchanges of shares or the like, the number of
Optioned Securities and Voting Securities subject to this Agreement shall be
adjusted appropriately.
9. Other Agreements.
----------------
(a) As a condition to Parent's willingness to enter into the Merger
Agreement, Holder shall, on the date hereof, enter into a letter, in the form
attached hereto, with the Company, providing for certain changes in their
existing contractual arrangements upon the consummation of the Merger (the "Side
Letter"). Holder agrees that Parent is a third party beneficiary to the Side
Letter and neither it nor the Company will terminate, amend or modify the Side
Letter, or waive any of the provisions thereof, without the prior consent of
Parent, which consent may be withheld for any reason or no reason.
(b) Holder shall indemnify and hold harmless Parent and its
affiliates (including the Company) against any liability arising by reason of
the Company and any of its Subsidiaries (i) having been members of a "controlled
group of corporations," under "common control" or members of an "affiliated
service group" with Holder within the meaning of Sections 414(b), (c) or (m) of
the Code, or having been required to be aggregated with Holder under Section
414(o) of the Code, or having been under "common control" with Holder, within
the meaning of Section 4001(a)(14) if ERISA and (ii) having participated in
employee benefit plans and programs of Holder prior to the Effective Time (for
purpose of this clause (ii), regardless of whether clause (i) applies).
(c) Holder agrees to indemnify and hold harmless Parent, Merger Sub,
the Company, each of their affiliates and each officer, director and employee
thereof from and against any liability, claim, loss, cost, or expense arising
out of or related to any breach by the Company of the representation set forth
in Section 4.21(b) of the Merger Agreement or the covenant of the Company set
forth in Section 5.10(b) of the Merger Agreement.
(d) Holder shall take all actions necessary to cause the covenants in
Sections 5.10(b) and Section 7 of the Side Letter to be complied with.
-7-
<PAGE>
10. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the law of the State of Delaware without regard to its rules of
conflict of laws.
11. Further Assurances. Each party hereto shall perform such further acts
------------------
and execute such further documents as may reasonably be required to carry out
the provisions of this Agreement, including, without limitation, using
commercially reasonable efforts to obtain all necessary consents, approvals or
waivers under the HSR Act. Without limiting the generality of the foregoing, the
Holder, to the extent it "controls" the Company, according to the HSR Act and
the rules and regulations promulgated by the Federal Trade Commission to
implement the HSR Act, shall, to the extent required by the HSR Act, file a
premerger notification and report form under the HSR Act with respect to the
Merger as promptly as reasonably possible following execution and delivery of
this Agreement and shall use commercially reasonable efforts to promptly respond
to any request for additional information pursuant to Section (e)(1) of the HSR
Act.
12. Legend. As soon as practicable after the execution of this Agreement,
------
the following legend shall be placed on the certificates representing the
Optioned Securities:
"The Securities represented by this certificate are subject to
certain transfer and other restrictions contained in an Stockholder
Agreement, dated as of May 4, 2000, among Merck & Co., Inc., P.V.
Acquisition Corp. and ShopKo Stores, Inc."
13. Assignment. This Agreement may not be assigned by any party hereto,
----------
except that the Merger Sub may assign its right to purchase the Optioned
Securities to one or more of its affiliates.
14. Remedies. The parties agree that legal remedies for breach of this
--------
Agreement will be inadequate and that this Agreement may be enforced by Parent
and the Merger Sub by injunctive or other equitable relief.
15. Notices. All notices or other communications required or permitted
-------
hereunder shall be in writing (except as otherwise provided herein) and shall be
deemed duly given if delivered in person, by confirmed facsimile transmission or
by overnight courier service, addressed as follows:
-8-
<PAGE>
To Parent or the Merger Sub:
Merck & Co., Inc.
One Merck Drive
P.O. Box 100 W53AB-05
Whitehouse Station, NJ 08889
Attention: Celia A. Colbert
Assistant General
Counsel and Secretary
Fax: (908) 735-1246
With a copy to:
Fried, Frank, Harris, Shriver
& Jacobson
One New York Plaza
New York, New York 10004
Attention: Gary P. Cooperstein, Esq.
Facsimile: (212) 859-4000
To Holder:
ShopKo Stores, Inc.
700 Pilgrim Way
Green Bay, Wisconsin 54307-9060
Attention: Richard D. Schepp
Senior Vice President
General Counsel, Secretary
Facsimile: (920) 429-5664
With copies to:
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
Attention: Randall J. Erickson
Facsimile: (414) 273-5198
16. Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any
-9-
<PAGE>
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
17. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original, but all of which together shall
constitute one and the same agreement.
18. Binding Effect; Benefits. This Agreement shall be binding upon the
------------------------
parties hereto and their respective heirs, legal representatives, successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is intended
to or shall confer on any person other than the parties hereto and their
respective heirs, legal representatives and successors and permitted assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
IN WITNESS WHEREOF, the Holder, Parent and Merger Sub have entered into
this Agreement as of the date first written above.
SHOPKO STORES, INC.
By: Richard D. Schepp
---------------------------------------------
Name: Richard D. Schepp
Title: Senior Vice President, General
Counsel/Secretary
MERCK & CO., INC.
By: /s/ Judy C. Lewent
---------------------------------------------
Name: Judy C. Lewent
Title: Senior Vice President and
Chief Financial Officer
PV ACQUISITION CORP.
By: /s/ Judy C. Lewent
---------------------------------------------
Name: Judy C. Lewent
Title: President
-10-
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
Number Number
of of Total
Shares Stock Options Voting Securities
- ------ ------------- -----------------
<S> <C> <C>
11,710,000 0 11,710,000
</TABLE>
-12-
<PAGE>
EXHIBIT (e)(3)
[CAPS LETTERHEAD]
May 4, 2000
ShopKo Stores, Inc.
ShopKo Holdings, Inc.
700 Pilgrim Way
Green Bay, Wisconsin 54307-9060
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
----------------
Jersey corporation ("Parent"), PV Acquisition Corp., a Delaware corporation and
------
a wholly owned indirect subsidiary of Parent ("Merger Sub"), and ProVantage
----------
Health Services, Inc., a Delaware corporation (the "Company"). Capitalized terms
-------
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,
------
commitments and arrangements between the parties (the "Affiliate Agreements")
--------------------
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
<PAGE>
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
-ii-
<PAGE>
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
------------------------------------
2.1. The Lease Agreement shall be amended as set forth in Exhibit A.
3. Tax Sharing Agreement dated July 19, 1999
-----------------------------------------
The Tax Sharing Agreement shall be amended and restated in its entirety
in the form attached as Exhibit B.
-iii-
<PAGE>
4. Information Technology Services Agreement dated July 19, 1999
-------------------------------------------------------------
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
---------
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
-iv-
<PAGE>
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
--------
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
-----------------------------------------------------
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
-v-
<PAGE>
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
---------------------------------------------------------------
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
--------------------------
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
--------------------
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
---------------
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 Arthur Andersen 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
-vi-
<PAGE>
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,
-----------------------------------------------------------------------
2000.
----
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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<PAGE>
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.
-----------------------
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.
-viii-
<PAGE>
12. Microstrategy Contract
----------------------
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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<PAGE>
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/ Jeffrey A. Jones
----------------------------------
Name: Jeffrey A. Jones
Title: President and
Chief Executive Officer
Accepted and acknowledged:
SHOPKO STORES, INC.
By: /s/ Richard D. Schepp
--------------------------------------
Name: Richard D. Schepp
Title: Senior Vice President, General
Counsel/Secretary
-i-
<PAGE>
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/ Judy C. Lewent
-----------------------------------
Name: Judy C. Lewent
Title: Senior Vice President and
Chief Financial Officer
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<PAGE>
EXHIBIT (e)(4)
--------------
AMENDED AND RESTATED TAX MATTERS AGREEMENT
------------------------------------------
THIS AMENDED AND RESTATED TAX MATTERS AGREEMENT ("Agreement") dated as of
May 4, 2000 is entered into by SHOPKO STORES, INC., a Wisconsin corporation
("ShopKo") and PROVANTAGE HEALTH SERVICES, INC., a Delaware corporation
("ProVantage").
RECITALS
WHEREAS, on July 19, 1999 ProVantage and ShopKo entered into a Tax Matters
Agreement (the "July Agreement") relating to certain tax matters; and
WHEREAS, ProVantage, Merck & Co., Inc. ("Parent") and PV Acquisition Corp.
("Merger Sub") propose to enter into a Merger Agreement (the "Merger Agreement")
on the date of this Agreement providing for the making of a tender offer by
Merger Sub for shares of Common Stock, par value $0.01 per share, of ProVantage,
at a purchase price of $12.25 per share, and a subsequent merger between
ProVantage and the Merger Sub; and
WHEREAS, as a condition to Parent and Merger Sub entering into the Merger
Agreement, Parent has asked that ShopKo and ProVantage amend and restate the
July Agreement by executing and delivering this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree to amend
and restate the July Agreement in its entirety as follows:
1. Effective Date. This Agreement shall become effective on the date
--------------
that Merger Sub purchases shares in the Offer (as defined in the Merger
Agreement).
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
<PAGE>
(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.
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 companies in which ProVantage owned at any time
beginning on the Distribution Date and ending on the Effective Date stock
representing at least 80% of the vote and value (within the meaning of Code (S)
1504).
(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 which creates a tax benefit to
ProVantage 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, to the extent of
such tax benefit, pay and indemnify ShopKo from and against any such increase in
Taxes for which ShopKo is liable. This payment is due within thirty (30) days
after receipt by ProVantage of notice specifying in reasonable detail the nature
and amount of the correlative tax detriment suffered by ShopKo.
(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,
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<PAGE>
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)(2)(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)(2)(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
for any such period 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 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 arising in a tax
period ending on or before the Distribution Date which (x) 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), (2) result in a change of accounting method (as defined in Section 446
of the Code and applicable
-3-
<PAGE>
Treasury Regulations promulgated thereunder) that would cause a net increase in
ProVantage's tax liability in excess of $25,000.00 or (3) result in any other
Tax liability for ProVantage in any period ending after the Distribution Date in
excess of $25,000.00 or (y) relates to a Tax or period with respect to which
ProVantage did not file a consolidated or combined tax return with ShopKo;
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 with respect to a tax period beginning on or after the Distribution
Date. 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.
Notwithstanding anything to the contrary in this Section 3(e), ProVantage shall
have the right to participate at its own expense in any Tax audit relating to
ProVantage.
(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 certain tax
returns of ProVantage including returns which relate to tax periods which begin
on or after the Distribution Date and end on the date on which ShopKo ceases to
beneficially own a majority of ProVantage's outstanding common stock, for a fee.
With respect to such periods, ShopKo shall deliver such returns to ProVantage
for its review and 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 and ProVantage shall
control any tax audits or contests with respect thereto. 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 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
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<PAGE>
(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
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<PAGE>
extent known to ShopKo) describing in reasonable detail the proposed adjustment
and shall include copies of any notice or other document received from any
taxing authority in respect of such proposed adjustment. If ShopKo fails to give
ProVantage a Tax Adjustment Notice as required by this Section 3(i), and if such
failure results in a detriment to ProVantage, then any amount which ProVantage
would otherwise be required to pay pursuant to Section 3(b) hereof with respect
to an adjustment that should have been the subject of a Tax Adjustment Notice
shall be reduced by the amount of such detriment. ShopKo may elect to direct,
through counsel of its own choosing and at its own expense, the compromise or
contest, either administratively or in the courts, of any Asserted Tax
Liability. If ShopKo elects to direct the compromise or contest of any Asserted
Tax Liability, it shall, either within 30 calendar days after receiving the Tax
Claim Notice with respect to such Asserted Tax Liability (or sooner, if the
nature of the Asserted Tax Liability so requires) or within 30 calendar days
after giving the Tax Adjustment Notice, whichever is applicable, notify
ProVantage of its intent to do so, and ProVantage shall cooperate at its own
expense in the compromise or contest of such Asserted Tax Liability. ShopKo, in
its discretion, may enter into a settlement agreement with respect to, or
otherwise resolve, any Asserted Tax Liability without the consent of ProVantage,
except that ShopKo, shall not without the prior consent of ProVantage compromise
or agree to any adjustment to the treatment of a Tax item arising in a tax
period ending on or before the Distribution Date which (x) 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), (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
or (3) result in any other Tax liability for ProVantage in any period ending
after the Distribution Date in excess of $25,000.00 or (y) relates to a Tax or
period with respect to which ProVantage did not file a consolidated or combined
tax return with ShopKo; 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 with respect to a tax period beginning on or after
the Distribution Date. 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,
-6-
<PAGE>
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. Notwithstanding anything to the contrary in
this Section 3(i), ProVantage shall have the right to participate at its own
expense in any Tax audit relating to ProVantage.
(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 this
paragraph, tax benefit shall mean thirty percent (30%) of the claimed
compensation expense. Such tax benefit shall be paid to ShopKo within thirty
(30) days after the filing of the Tax return on which ProVantage is able to
claim such compensation expense. In the event that there is any subsequent
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<PAGE>
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 (so calculated)
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 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
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<PAGE>
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
in either case,
with a copy to: Merck & Co. Inc.
One Merck Drive
Whitehouse Station, N.J. 08889-0100
Telecopy: (908) 735-1246
Attention: Celia A. Colbert
Any party may from time to time designate another address to which notice or
other communication shall be addressed or delivered to such party and such new
designation shall be effective on the later of (i) the date specified in the
notice or (ii) receipt of such notice by the intended recipient.
5. General.
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(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.
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<PAGE>
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 dated as of July 19,
1999.
(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 maybe 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,
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<PAGE>
respectively, as their interests may appear, and shall not be deemed for the
benefit of any other person or entity or group of persons or entities.
(k) Construction. Descriptive headings to sections and paragraphs
------------
are for convenience only and shall not control or affect the meaning or
construction of any provisions in this Agreement.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties as of the date first written above.
SHOPKO STORES, INC.
By: /s/ Richard D. Schepp
------------------------------------
Name: Richard D. Schepp
Title: Sr. Vice President,
General Counsel/Secretary
PROVANTAGE HEALTH SERVICES, INC.
By: /s/ Jeffrey A. Jones
------------------------------------
Name: Jeffrey A. Jones
Title: President and
Chief Executive Officer
<PAGE>
EXHIBIT (e)(5)
--------------
AMENDMENT
This AMENDMENT is made as of the 4th day of May, 2000 and amends the
Lease Agreement entered into as of the 1/st/ day of August, 1999 by and between
ShopKo Stores, Inc., a Wisconsin corporation, whose mailing address is P.O. Box
19060, Green Bay, Wisconsin 54307-9060 ("Lessor") and ProVantage Health
Services, Inc., a Delaware corporation, whose mailing address is N19 W24130
Riverwood Drive, Waukesha, Wisconsin 53188 ("Lessee").
WHEREAS, Lessor and Lessee desire to amend certain provisions of the
Lease Agreement in connection with the transactions contemplated by that certain
Agreement and Plan of Merger among Merck & Co., Inc., a New Jersey corporation,
PV Acquisition Corp., a Delaware corporation and Lessee, dated as of May 4,
2000.
NOW, THEREFORE, in consideration of the mutual premises set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledges, the parties do hereby agree as follows:
1. Section 2 of the Lease is hereby deleted in its entirety and replaced
by the following:
A. Initial Term. The initial term of this Lease shall expire two
------------
(2) years from the date on which Lessor ceases to beneficially
own at least a majority of the outstanding common stock of Lessee
(the "Change of Control Date"). At the end of the initial term,
Lessee may (i) terminate this Lease, (ii) purchase the Premises
in accordance with Section 4 or (iii) extend the term of the
Lease in accordance with Section 2B. Until the end of the initial
term, which shall be amended as set forth below, the annual Rent
(as defined in the Lease Agreement) shall remain at $200,000.00,
payable in equal monthly installments of $16,666.67, as provided
in Section 3 of the Lease Agreement.
B. Options to Extend. Provided that Lessee is not then in default
-----------------
under this Lease at the time of exercise of the option and that
Lessee continues in possession of the Premises pursuant to the
terms of the Lease at such time, Lessee shall have the option to
extend the term of this Lease for an additional term of two (2)
years (an "Extended Term"), upon the terms and conditions set
forth herein (other than the option to extend), subject to any
increase in Base Rent as set forth in Section 4C and commencing
upon the expiration of the initial term. If Lessee desires to
exercise its option to extend, Lessee shall give written notice
to Lessor not later than one hundred eighty (180) days prior to
the expiration of the initial term. Any reference in the Lease to
the "term" of the Lease shall be deemed
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<PAGE>
to include the initial term (subject to the provisions of the
last sentence of Section 2.A. above) and the Extended Term for
which Lessee has exercised the option granted under this Section,
unless it is expressly provided otherwise.
2. Section 4 of the Lease Agreement is hereby deleted in its entirety and
replaced by the following:
At the end of the initial term of this Lease, Lessee shall have the
right and the option to purchase the Premises in accordance with this Section 4.
A. Determination of Fair market Value and Rent. Not later than one
-------------------------------------------
hundred eighty (180) days prior to the end of the initial term,
Lessee shall give Lessor written notice thereof indicating in
such notice whether Lessee desires to exercise its option to
purchase the Premises. Within thirty (30) days of its receipt of
such notice, Lessor shall notify Lessee in writing what it
considers to be (i) the Fair Market Value of the Premises and
(ii) the Fair Market Rent for the Premises. For purposes of this
Agreement, the "Fair Market Value" shall mean the highest
purchase price a third party would be willing to pay for the
Premises in an arms length transaction and "Fair Market Rent"
shall mean the highest annual rental rate a third party would be
willing to pay for the Premises in an arms length transaction. If
Lessee objects to the Fair Market Value or Fair Market Rent
delivered by Lessor, Lessee shall notify Lessor within thirty
(30) days after receipt of Lessor's notice to Lessee, together
with an appraisal, from an appraiser bearing MAI designation, as
to the such appraiser's conclusions regarding Fair Market Value
and/or Fair Market Rent. If Lessee does not object within such
time, the Fair Market Value and the Fair Market Rent shall be as
specified in Lessor's notice. If Lessee notifies Lessor within
such time of an objection, Lessor, at its sole option, but within
twenty (20) days of Lessor's receipt of such objection, may
accept the conclusions of Lessee's appraiser or appoint another
appraiser, in which case the two appraisers shall promptly meet
and attempt to agree on the disputed amount or amounts. If they
are able to agree, they shall jointly notify each of the parties
of the conclusions they have reached, and the amount so agreed
upon shall be deemed the Fair Market Value and Fair Market Rent,
as applicable. If they are unable to agree within twenty (20)
days of the appointment by Lessor, the average of the appraisers'
final conclusions with respect to any disputed amount shall be
deemed the Fair Market Value and Fair Market Rent, as applicable.
B. Option to Purchase. Within thirty (30) days after final
------------------
determination of the Fair Market Value, Lessee shall give Lessor
written notice if it desires to exercise its option to purchase
the Premises. If Lessee timely notifies Lessor that it is
exercising the option hereunder, the parties shall
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<PAGE>
reasonably agree on and promptly enter into a Purchase Agreement
with respect to the Premises, with a purchase price equal to the
Fair Market Value (as determined in accordance with Section 4A),
upon commercially reasonable terms and conditions, and with a
closing date to be no later than sixty (60) days after final
determination of the Fair Market Value.
C. Base Rent Increases. If Lessee exercises its option to extend
-------------------
the term of this Lease pursuant to Section 2B, then the annual
Base Rent due under this Lease shall automatically be adjusted as
of the first day of the Extended Term to reflect the Fair Market
Rent (as determined in accordance with Section 4A). During the
determination of the Fair Market Rent as set forth in Section 4A,
Lessee shall continue to pay the then current Base Rent as it
becomes due; provided, however, that upon final determination of
the Fair Market Rent, Lessee shall pay to Lessor within thirty
(30) days, any Base Rent amount that may be in arrears due to the
retroactive adjustment of the annual Base Rent back to the first
day of the Extended Term.
3. Section 9 of the Lease Agreement is hereby deleted in its entirety and
replaced by the following:
Lessee shall not make any additions, alterations or improvements in or
to the Building or the Premises at any time during the initial term of
the Lease or the Extended Term, if any, without the prior written
consent of Lessor, such consent not to be unreasonably withheld.
4. Section 16 of the Lease Agreement is hereby deleted in its entirety
and replaced by the following:
Lessee shall not alter, remove or replace any signs currently on the
Premises or the Building, or install or affix any additional signs on
the Premises or the Building, without the prior written consent of
Lessor, such consent not to be unreasonably withheld.
5. Section 24A of the Lease Agreement is hereby deleted in its entirety
and replaced by the following:
A. Lessee shall not assign, sell, mortgage, pledge or in any manner
transfer this Lease or any right, title, or interest of Lessee
hereunder, by operation of law or otherwise, or any part or parts
thereof, nor may Lessee sublet all or any portion of the
Premises, without the prior written consent of Lessor (which
consent shall not be unreasonably withheld). If consent is
granted, Lessee shall remain fully and directly responsible for
all covenants and obligations hereunder during the entire Lease
Term.
-3-
<PAGE>
6. Each reference in the Lease to "this Lease" or the like shall be
deemed a reference to the Lease as amended by this Amendment.
7. Except as expressly modified or amended herein, the Lease shall
continue in effect and shall continue to bind the parties hereto.
8. This Amendment shall be effective when executed by Lessor and Lessee
and upon the Change of Control Date.
-4-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and delivered on the
date first written above.
SHOPKO STORES, INC.
/s/ Richard D. Schepp
----------------------------------
Name: Richard D. Schepp
Title: Senior Vice President,
General Counsel/Secretary
PV ACQUISITION CORP.
/s/ Judy C. Lewent
----------------------------------
Name: Judy C. Lewent
Title: President
-i-
<PAGE>
EXHIBIT (e)(6)
--------------
FIRST AMENDMENT TO RIGHTS AGREEMENT
AMENDMENT made and entered into as of the 4th day of May, 2000, by and
between ProVantage Health Services, Inc. (the "Company") and Norwest Bank
Minnesota, National Association (the "Right Agent"), under the Rights Agreement,
dated as of March 12, 1999, by and between the Company and the Rights Agent (the
"Agreement").
WHEREAS, the Company and the Rights Agent have heretofore executed and
entered into the Rights Agreement;
WHEREAS, pursuant to Section 27 of the Rights Agreement, the Company
may from time to time prior to any person becoming an Acquiring Person (as
defined in the Rights Agreement) supplement or amend the Rights Agreement in
accordance with the provisions of Section 27 thereof;
WHEREAS, it is proposed that the Company enter into an Agreement and
Plan of Merger (the "Merger Agreement"), among the Company, Merck & Co., Inc.
("Parent") and PV Acquisition Corp., a wholly-owned subsidiary of Parent;
WHEREAS, Parent has required, as a condition to its willingness to
enter into the Merger Agreement, that ShopKo Stores, Inc. and ShopKo Holdings,
Inc enter into a Stockholder Agreement (the "Stockholder Agreement") with
Parent;
WHEREAS, the Board of Directors of the Company has determined that the
transactions contemplated by the Merger Agreement are fair to and in the best
interests of the Company and its stockholders; and
WHEREAS, the Board of Directors has determined that it is in the best
interests of the Company and its stockholders to amend the Agreement to exempt
the Merger Agreement and the Stockholder Agreement and the transactions
contemplated thereby from the application of the Rights Agreement.
NOW THEREFORE, the Company and the Rights Agent hereby amend the
Rights Agreement as follows:
A. Section 1(c) of the Agreement is hereby amended by adding the
following at the end of such Section:
Notwithstanding the foregoing, for purposes of this
Agreement, neither Merck & Co., Inc. ("Parent") nor PV
Acquisition Corp., a wholly-owned subsidiary of Parent, nor
any other wholly-owned subsidiary of Parent (collectively,
the "Permitted Purchasers"), shall be deemed to be the
Beneficial Owner of or to beneficially own any Common Shares
as a result of (i) that certain Agreement and Plan of Merger
(the "Merger Agreement"), dated as of May 4, 2000, among the
Company and the Permitted Purchasers, or any purchase of
Common Shares thereunder, or (ii) that certain Stockholder
<PAGE>
Agreement (the "Stockholder Agreement"), dated as of May 4,
2000, among the Company and the Permitted Purchasers, or any
purchase of Common Shares thereunder.
B. The Agreement is hereby further amended to add a new Section 34
to the Agreement which shall read in its entirety as follows:
Section 34. Excluded Transactions. Nothing in this
---------------------
Agreement shall be construed to create or cause a
Distribution Date or Shares Acquisition Date or to
constitute an event pursuant to which any Person becomes an
Acquiring Person for purposes of Section 11(a)(ii) or any of
the events described in clauses (a), (b) or (c) of Section
13 or give any holder of Rights or any other Person a legal
or equitable right, remedy or claim as a result of the
execution of the Merger Agreement and/or the Stockholder
Agreement or the commencement or consummation of the
transactions contemplated by the Merger Agreement and/or the
Stockholder Agreement.
C. This Amendment shall be irrevocable and deemed to be a contract
made under the laws of the State of Delaware and for all purpose shall be
governed by and construed in accordance with the laws of such state applicable
to contracts to be made and performed entirely within such state.
D. This Amendment may be executed in any number of counterparts,
each of which shall for all purposes be deemed an original, and all of which
together shall constitute but one and the same instrument.
E. Except as expressly set forth herein, this Amendment shall not by
implication or otherwise alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the
Agreement, all of which are ratified and affirmed in all respects and shall
continue in full force and effect.
F. Parent and the Permitted Purchasers are intended third party
beneficiaries of this Amendment.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date first above written.
Attest: PROVANTAGE HEALTH SERVICES, INC.
By: /s/ Patricia A. Nussle By: /s/ Jeffrey A. Jones
--------------------------- ----------------------------------
Name: Patricia A. Nussle Name: Jeffrey A. Jones
Title: Secretary Title: President and Chief Executive
Officer
Attest: NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
By: /s/ Susan J. Roeder By: /s/ Karri Vansell
--------------------------- ----------------------------------
Name: Susan J. Roeder Name:
Title: Assistant Secretary Title: AVP
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<PAGE>
Exhibit (e)(7)
--------------
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT ("Agreement"), dated as of May 4, 2000, is
entered into by and between Merck-Medco Managed Care, L.L.C. ("Merck-Medco" or
"Company"), a Delaware corporation with offices at 100 Parsons Pond Drive,
Franklin Lakes, New Jersey 07417 and Jeffrey A. Jones ("Executive").
RECITALS
WHEREAS, Executive has been and is presently employed by ProVantage
Health Services, Inc. ("PV"); and
WHEREAS, PV, Merck-Medco and a subsidiary of Merck-Medco ("Merger
Sub") have entered into an Agreement and Plan of Merger, dated as of May 4, 2000
(the "Merger Agreement"), pursuant to which, at the "Effective Time" (as defined
in the Merger Agreement) (the "Effective Time"), Merger Sub will be merged with
and into PV (the "Merger") and PV will thereby become a wholly owned subsidiary
of Merck-Medco; and
WHEREAS, pursuant to the Merger Agreement, it is intended that the
acquisition of PV by Merck-Medco be accomplished by means of a cash tender offer
by Merger Sub for all of the issued and outstanding common stock of PV (the
consummation of such tender offer, the "Consummation Date"), followed by the
Merger; and
WHEREAS, Executive is currently a party to a Change of Control
Agreement with PV, dated as of December 22, 1998 (the "Change of Control
Agreement"); and
WHEREAS, Merck-Medco desires to secure the continued services and
employment of the Executive on its behalf following the Consummation Date, and
the Executive is willing to render such services on the terms and conditions set
forth herein; and
WHEREAS, the Executive and Merck-Medco have agreed that this Agreement
shall supersede the Change of Control Agreement in its entirety and that, upon
and following the Consummation Date, the Change of Control Agreement shall cease
to be of any force or effect;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows, effective as of the Consummation
Date:
TERMS OF AGREEMENT
In consideration of the Recitals (which are incorporated herein) and
the mutual covenants in this Agreement, the parties agree as follows:
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<PAGE>
1. Definitions. For the purpose of this Agreement, the terms used as
headings in this Section 1, and parenthetically defined elsewhere in this
Agreement, shall have the indicated meanings and may be used in the singular or
plural.
"Affiliate." Any business entity controlled by, controlling, or
under common control or in joint venture with, the Company.
"Business of the Company." The Company and/or its Affiliates are
engaged in: (i) the third party prescription drug claims processing business;
(ii) the design, development or marketing of or consulting as to, prescription
drug benefit plans; (iii) the provision of mail service pharmacy, including,
without limitation, internet-based services (including all those products and
services that are presently or hereafter marketed by the Company or any of its
Affiliates, or that are in the development stage at the time of termination of
Executive's employment and are actually marketed by the Company or any of its
Affiliates thereafter); (iv) the collection, analysis and/or sale of data
relating to prescription drug utilization; (v) the pharmacy benefit management
and disease management businesses; (vi) the organization and administration of
retail pharmacy networks; and (vii) any other business in which the Company or
any of its Affiliates is then engaged as to which Executive has involvement in
the course of his employment hereunder and/or acquired or received Confidential
Information.
"Confidential Information." All confidential and proprietary
information of the Company and its Affiliates, in whatever form, tangible or
intangible, not otherwise publicly disclosed or generally available (other than
as a result of a wrongful disclosure by the Executive), whether or not
discovered or developed by the Executive, including information entrusted to the
Company and/or its Affiliates by others. Without limiting the generality of the
foregoing, Confidential Information shall include but shall not be limited to:
(a) customer lists, lists of potential customers and details of agreements with
customers; (b) acquisition, expansion, marketing, financial and other business
information and plans of the Company or any of its Affiliates; (c) research and
development; (d) data concerning usage of prescription drugs and any other data
compiled by the Company or any of its Affiliates; (e) computer programs; (f)
sources of supply; (g) identity of specialized consultants and contractors and
Confidential Information developed by them for the Company or any of its
Affiliates; (h) purchasing, operating and other cost data; (i) special customer
needs, cost and pricing data; (j) employee information (including, but not
limited to, personnel, payroll, compensation and benefit data and plans); and
(k) patient records and data, including all such information recorded in
manuals, memoranda, projections, minutes, plans, drawings, designs, formula
books, specifications, computer programs and records, whether or not legended or
otherwise identified by the Company or any of its Affiliates as Confidential
-2-
<PAGE>
Information, as well as such information that is the subject of meetings and
discussions and not recorded.
"Developments." All data, discoveries, findings, reports,
designs, inventions, improvements, methods, practices, techniques, developments,
programs (computer or otherwise), formulas, plans, concepts, and ideas, whether
or not patentable, relating to the present and planned future activities and the
Products and Services of the Company or any of its Affiliates.
"Employment Period." The period from the Consummation Date (the
"Commencement Date") through the second anniversary of the Commencement Date
(or, if later, through the second anniversary of the Effective Time), unless
terminated prior thereto as set forth in Section 6.
"Products and Services." All products or services sold, rented,
leased, rendered or otherwise made available to customers by the Company or any
of its Affiliates, as well as products and services in any stage of development
by the Company or any of its Affiliates, although not yet commercialized or not
generally available.
"Territory." The United States of America, its territories and
possessions.
2. Employment. The Company hereby employs the Executive during the
Employment Period subject to the terms of this Agreement, and thereafter as an
employee-at-will, and to perform those duties and services as may be designated
from time-to-time by its President or his designee. Executive hereby accepts
said employment. The Executive shall use his best and most diligent efforts to
promote the interests of the Company and its Affiliates and shall devote his
full business time and attention to his employment under this Agreement. The
Executive will not, without the prior written approval of the President of
Merck-Medco, engage in any other business activity which would interfere with
the performance of his duties, services and responsibilities hereunder or which
is in violation of policies established from time to time by Merck-Medco. It is
understood that the Executive is Chair-Elect of PCMA and will serve as Chair of
that association.
3. Title. The Executive presently has been assigned the title of
President and Chief Executive Officer - ProVantage. In the future, the Company
may assign the Executive to other positions and titles, as required by the
Company's business.
4. Compensation and Benefits; Disability.
4.1 Base Compensation. During the Employment Period, the Company
shall pay the Executive base compensation commencing at an annual rate of
$449,350.00; the Executive shall be eligible for annual merit increases at the
discretion of the Company. Such base compensation shall be payable in equal
installments pursuant to the Company's customary payroll policies in force at
the time of payment (but not less frequently than monthly). Such base
-3-
<PAGE>
compensation and any other payments made hereunder shall be less all required
and/or authorized payroll deductions.
4.2 Retention Arrangement. Not later than the close of business
on May 15, 2000, the Executive shall notify the Company substantially in the
form of the notice attached hereto as Exhibit A that he has irrevocably elected
one of the Retention Arrangements set forth therein. If the Executive fails to
provide timely notice to the Company substantially in form of the notice
attached hereto as Exhibit A, the Executive will be deemed to have elected
Retention Arrangement No. 1 described in the form of notice attached as Exhibit
A. Lump sum payments payable to the Executive hereunder shall be payable
(subject to applicable withholding) as soon as practicable after the second
anniversary of the Consummation Date (or, if later, after the second anniversary
of the Effective Time), so long as the Executive has remained an employee of
Merck-Medco through the entire Employment Period and is an employee of Merck-
Medco on the second anniversary of the Consummation Date (or, if later, after
the second anniversary of the Effective Time).
4.3 Incentive Bonus and Stock Options. In addition to the
Retention Arrangement set forth in Paragraph 4.2, the Executive shall be
eligible to receive the following during the Employment Period:
(a) Bonus. During the Employment Period, the Executive shall be
eligible to receive performance-based bonuses on the same
terms and conditions generally afforded other similarly
situated employees of Merck-Medco under the Merck & Co.,
Inc. Annual Incentive Plan.
(b) Stock Options. Any options granted in connection with the
applicable Retention Arrangement set forth on Exhibit A
attached hereto shall be subject to the terms and conditions
set forth in Exhibit B attached hereto and made a part
hereof. During the Employment Period, the Executive will be
eligible to receive other grants of options to purchase
shares of Merck & Co., Inc. common stock under the Merck &
Co., Inc. Incentive Stock Plan (the "Merck Stock Plan") at
an exercise price equal to the fair market value of such
common stock on the date of grant. The number of shares
covered by any such option shall be determined by the
Company in its sole and absolute discretion. All the terms
and conditions of such options shall be governed by the
terms and conditions of the Merck Stock Plan in effect at
the time of the applicable grant, as summarized in the
option grant letter provided to the Executive at the time of
each such option grant, which terms and conditions shall be
the same as those that apply to similarly situated employees
of Merck-Medco at the time of such grant.
4.4 Other Benefits. During the Employment Period, the Executive
shall be eligible to participate in the employee benefit plans and programs of
the Company, including, but
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<PAGE>
not limited to, its medical, dental, disability, life insurance and retirement
benefit plans and programs of the Company on the same terms and conditions as
are generally afforded similarly situated employees of the Company, subject to
any contribution requirements applicable to participants of such plans and
programs.
4.5 Vacation. The Executive may take such vacation period or
periods during each year in accordance with the Company's vacation policies or
practices for similarly situated employees of the Company. Prior employment with
PV shall be considered as employment with the Company for this purpose.
5. Expenses. Pursuant to the Company's customary policies in force
at the time of payment, the Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all expenses properly and
reasonably incurred by him on behalf of the Company and its Affiliates in the
performance of his duties hereunder.
6. Termination of Employment Period. This Agreement shall continue
through the Employment Period, unless terminated prior to such date by the
earlier of (a) the Executive's termination pursuant to Sections 7.1, 7.2, 7.3 or
7.5; or (b) the Executive's death. In all events, the provisions of Section 9
shall survive termination of this Agreement, and shall remain in effect during
and after any continued employment by the Company subsequent to the termination
of the Employment Period.
7. Termination.
7.1 By the Company for Cause. Upon written notice, the Company
may discharge the Executive and terminate this Agreement for Cause. As used in
this Section 7, Cause shall mean any one or more than one of the following: (i)
an act or acts of personal dishonesty or misrepresentation taken by the
Executive and intended to result in substantial personal enrichment of the
Executive at the expense of the Company; (ii) repeated violations by the
Executive of the Executive's obligations under this Agreement which are
demonstrably willful and deliberate on the Executive's part and which are not
remedied within thirty (30) days after receipt of notice from the Company, or
(iii) the conviction of the Executive of a felony.
7.2 By the Company Without Cause or By the Executive for Good
Reason. The Company on written notice to the Executive may discharge the
Executive and terminate this Agreement without Cause at any time during the
Employment Period. The Executive may terminate this Agreement during the
Employment Period for "Good Reason," which shall mean any one of the following:
(i) the Executive's transfer to a place of employment more than fifty (50) miles
from the Executive's current place of employment; or (ii) a reduction in the
Executive's job title from the title currently specified in paragraph 2 of this
Agreement; however, Executive may terminate the Employment Period for Good
Reason only after the passage of sixty (60) days following written notice from
the Executive to the Company of the event giving rise to the Termination and a
failure by the Company to cure such event.
-5-
<PAGE>
7.3 Disability. If during the Employment Period, (i) the
Executive shall become ill, mentally or physically disabled, or otherwise
incapacitated so as to be unable to perform regularly the duties of his position
for a period in excess of 90 consecutive days or more than 120 days in any
consecutive 12 month period, or (ii) a duly licensed physician (who does not
have any business or other previous relationship with the Company and is
associated with a teaching hospital in the New York City metropolitan area)
selected by the Company determines that the Executive is mentally or physically
disabled so as to be unable to perform regularly the duties of his position and
such condition is expected to be of a permanent duration (each a "Permanent
Disability"), then the Company shall have the right to discharge the Executive
and terminate this Agreement upon 30 days' written notice to the Executive. In
the absence of termination, the Executive shall receive full compensation and
benefits while disabled; provided, however, that any payments to the Executive
pursuant to the Company's disability plans shall be offset from amounts payable
to the Executive under this Paragraph 7.3. Upon a request by the Company, the
Executive will submit to a medical examination to determine whether the
Executive is subject to a Permanent Disability.
7.4 Death. The Employment Period and this Agreement shall
terminate forthwith upon the death of the Executive.
7.5 By the Executive. The Executive may terminate the Employment
Period and this Agreement at any time upon 30 days' written notice to the
Company for any reason other than Good Reason. Section 7.2 shall be the sole
basis for termination for Good Reason.
8. Effect of Termination.
8.1 Effect of Termination under Section 7.1. In the event of
termination of this Agreement by the Company pursuant to Section 7.1, the
Executive shall be entitled to receive only his earned and unpaid compensation
to the effective date of such termination.
8.2 Effect of Termination under Section 7.2. In the event of
termination of this Agreement during the Employment Period pursuant to Section
7.2, the Executive shall be entitled to:
(a) receive his earned and unpaid compensation to the effective
date of such termination;
(b) a lump sum payment in the amount of $675,000 (less
applicable withholding) in consideration of the covenants of
the Employee set forth in Section 9 below (and subject in
any event to the last sentence of Section 9.6 hereof);
(c) an additional lump sum payment in the amount of $834,837.00
(less applicable withholding);
-6-
<PAGE>
(d) 1/24th of the amount equal to the remainder, if any, of (x)
the lump sum amount, if any, that would have been payable
under the Retention Arrangement the Executive elects
pursuant to Section 4.2 and (y) $1,698,567 for each full
calendar month during which the Executive actually performs
services for the Company (less applicable withholding); and
(e) Continued coverage (in an inactive, unpaid employee status)
under the Company's medical, dental and prescription plans
for twelve (12) months or until the Executive obtains other
employment with comparable coverages, whichever is earlier.
8.3 Effect of Termination under Sections 7.3 or 7.4. In the
event of termination of this Agreement during the Employment Period pursuant to
Sections 7.3 or 7.4, the Executive (or the personal representative of his estate
or his heirs at law, as appropriate, in the case of a termination pursuant to
Section 7.4) shall be entitled to the amounts referred to in Sections 8.2(a)
through 8.2(c) of this Agreement. In addition, in the event of a termination of
this Agreement during the Employment Period pursuant to Section 7.4, and so long
as the Executive has elected Retention Arrangement No. 1 or Retention
Arrangement No. 3 described on Exhibit A attached hereto, the Executive's estate
or heirs at law, as appropriate, shall be entitled to an amount equal to the
excess of the lump sum payment payable under the applicable Retention
Arrangement over the lump sum payments payable under Sections 8.2(b) and 8.2(c)
(less applicable withholding).
8.4 Effect of Termination Under Section 7.5.
(a) In the event of Termination of this Agreement under Section
7.5 within the first six months of the Employment Period, the Executive shall be
entitled to receive only his earned and unpaid compensation to the effective
date of such termination.
(b) In the event of Termination of this Agreement under Section
7.5 after the first six months of the Employment Period have elapsed, but before
the expiration of the Employment Period, the Executive shall be entitled to
receive:
(i) his earned and unpaid compensation to the effective
date of such termination; and
(ii) a lump sum payment in the amount of $675,000 (less
applicable withholding) in consideration of the covenants of the
Employee set forth in Section 9 below (and subject in any event
to the last sentence of Section 9.6 hereof);
(iii) an additional lump sum payment in the amount of
$834,837.00 (less applicable withholding).
-7-
<PAGE>
8.5 Conditions Applicable to Sections 8.2, 8.3 and 8.4. Any
payments required under Section 8.2, 8.3 or 8.4 will be conditioned upon the
Executive (or the personal representative of his estate or his heirs at law, as
appropriate) executing and delivering a general release of the Company and its
Affiliates, and their Managers, officers, employees and agents, from any claims
or obligations other than (i) the expressed obligation of the Company under
Section 8.2, 8.3 or 8.4 of this Agreement, as appropriate, (ii) to pay the
Executive his earned and unpaid compensation to the effective date of
termination, (iii) the obligations of the Company and its Affiliates with
respect to all Stock Options, (iv) the obligations of the Company and its
Affiliates to continue to provide director and officer indemnification (if
applicable) and (v) the obligations of the Company and its Affiliates to comply
with the requirements of COBRA and any other law or regulation applicable to
employee benefit plans in connection with the termination of employment
generally. Such general release shall be in a form acceptable to the Company.
The Executive acknowledges that the payments under Section 8.2, 8.3 or 8.4, as
appropriate, are in lieu of all such released claims that the Executive may have
against the Company and are liquidated damages (and not a penalty).
Notwithstanding any termination hereunder, the Company shall have no obligation
under Section 8.2, 8.3 or 8.4 in the event of a material breach by the Executive
of his covenants in Section 9. For purposes of this Section 8, the term Stock
Options shall mean all options to purchase common stock of Merck & Co., Inc.
previously or hereafter granted to the Executive by the Company and/or any of
its Affiliates.
8.6 Consulting Period. In the event of (i) termination of this
Agreement at any time before the expiration of the Employment Period in
connection with the termination of the Executive's employment by the Company
without Cause or by the Executive with Good Reason under Section 7.2, or (ii)
termination of the Agreement after the first six months of the Employment Period
have elapsed but before the expiration of the Employment Period in connection
with termination of the Executive's employment by the Executive for any reason
other than Good Reason under Section 7.5, the Executive will be retained as a
Consultant by the Company for a period of four (4) months commencing on the date
of Termination of his employment (the "Consulting Period"). During the
Consulting Period, the Executive will make himself available to provide services
to the Company at the Company's reasonable request, and at mutually agreeable
times and places, for not less than 40 hours per month. As compensation for
these consulting services, the Executive will receive payments in the amount of
$47,182.42 per month during the Consulting Period (less any applicable
withholding).
9. Developments, Confidential Information and Related Matters.
9.1 Assignment of Developments. All Developments that are at any
time made, conceived or suggested by the Executive, whether acting alone or in
conjunction with others, during or as a result of the Executive's employment
under this Agreement or thereafter, shall be the sole and absolute property of
the Company, free of any reserved or other rights of any kind on the Executive's
part. During the Executive's employment by the Company and thereafter, the
Executive shall promptly make full disclosure of any such Developments to the
Company and, at its cost and expense, do all acts and things (including, among
others, the execution and delivery under oath of patent and copyright
applications and instruments of assignment) deemed
-8-
<PAGE>
by the Company to be necessary or desirable at any time in order to effect the
full assignment to the Company of the Executive's right and title, if any, to
such Developments.
9.2 Restrictions on Use and Disclosure. The Executive
acknowledges that the Confidential Information is valuable and proprietary to
the Company (or to third parties that have entrusted Confidential Information to
the Company), and, except as required by the Executive's duties hereunder, the
Executive shall not at any time, directly or indirectly, use, copy, publish,
summarize, disseminate, describe or otherwise disclose any Confidential
Information or Developments without the prior written consent of the Company.
9.3 Return of Documents. Upon termination of the Executive's
employment with the Company, or at the Company's request, whichever is sooner,
the Executive shall forthwith deliver to the Company all manuals, memoranda,
projections, minutes, plans, drawings, designs, formula books, specifications,
listings, records, notebooks, computer programs and similar repositories of, or
containing Confidential Information and Developments, including all copies, then
in the Executive's possession or control, whether prepared by the Executive or
others. Upon such termination, the Executive shall not retain any copies or
abstracts of any such documents or materials.
9.4 Restrictions on Competitive Employment. During the term of
the Executive's employment and for a period of twelve (12) months after the
termination of the Executive's employment for any reason, pursuant to this
Agreement or thereafter, absent the Company's prior written approval, the
Executive shall not (as an individual, principal, agent, employee, consultant or
otherwise) within the Territory, directly or indirectly, engage in activities
competitive with, nor render services to any firm or business engaged or about
to become engaged in the Business of the Company. In addition, the Executive
shall not have an equity interest in any such firm or business other than as a
1% or less shareholder of a public corporation.
9.5 Inducement; Enticement. During the term of the Executive's
employment and for a period of twelve (12) months after the termination of the
Executive's employment for any reason, pursuant to this Agreement or thereafter,
the Executive shall not, directly or indirectly: (a) solicit or contact any
customer or prospective customer of the Company or any of its Affiliates as to
matters that relate to the Business of the Company or which is in any way
inconsistent or interferes therewith; (b) induce, or attempt to induce, any
employees or agents or consultants of the Company or any of its Affiliates to do
anything from which the Executive is restricted by reason of Sections 9.1
through 9.5; or (c) offer or aid others to offer employment to any employees of
the Company or any of its Affiliates.
9.6 Survival and Other Matters. The provisions of Sections 9.1
through 9.5 shall survive the termination of this Agreement and shall continue
in effect during and after any employment of the Executive after the end of the
Employment Period and the termination of this Agreement. This provision shall
not be construed to limit the survival of any other provisions that also survive
the termination of this Agreement by the express or implied terms of such
provisions. In addition, it is understood that the value to the Company of the
Executive agreeing
-9-
<PAGE>
to and abiding by the restrictions set forth in this Section 9 is equal to at
least $675,000, but it is further understood that (i) the Executive has agreed
to abide by such restrictions in consideration of the Company's entering into
this Agreement, and (ii) such restrictions shall remain in effect irrespective
of whether the Executive becomes entitled to any payments or benefits hereunder.
10. Notices. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given on the date that they are delivered personally or sent by registered or
certified mail (return receipt requested) postage prepaid to the parties at the
following addresses (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) If to the Company:
Merck-Medco Managed Care, L.L.C.
100 Parsons Pond Drive
Franklin Lakes, New Jersey 07417
Attention: Senior Vice President -
Chief Financial Officer
With a copy at the same address to:
President.
(b) If to the Executive, at the last address included on the
Company's payroll records.
11. [intentionally omitted.]
12. Miscellaneous.
12.1 Representations and Covenants. In order to induce the
Company to enter into this Agreement, the Executive makes the following
representations and covenants to the Company and acknowledges that the Company
is relying upon said representations and covenants:
(a) No agreements or obligations exist to which the Executive is
a party or otherwise bound, in writing or otherwise, which
in any way interfere with, impede or preclude him from
fulfilling all of the terms and conditions of this
Agreement.
(b) The Executive, during his employment by the Company, shall
use his best efforts to disclose to the President in writing
or by other effective method any bona fide information known
by him that
-10-
<PAGE>
would have any material negative impact on the Company or an
Affiliate.
12.2 Entire Agreement. This Agreement contains the entire
understanding of the parties as to the subject matter hereof and fully
supersedes all prior oral and written agreements and understandings between the
parties with respect to such subject matter. This Agreement also supersedes and
nullifies any and all change-of-control, severance or other employment-related
agreements entered into by Executive with PV or any of its predecessor or
affiliated corporations (including, without limitation, the Change of Control
Agreement), it being agreed between Executive and Merck-Medco that, following
the Consummation Date, (i) the consideration provided to the Executive as set
forth in this Agreement is in lieu of any consideration provided by such other
agreements and (ii) all such agreements shall cease to be of any force and
effect.
12.3 Amendment; Waiver. This Agreement may not be amended,
supplemented, cancelled or discharged, except by written instrument executed by
the party as to whom enforcement is sought. No failure to exercise, and no delay
in exercising, any right, power or privilege hereunder shall operate as a waiver
thereof. No waiver of any breach of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of this Agreement.
12.4 Binding Effect; Assignment. The rights and obligations of
this Agreement shall bind and inure to the benefit of the surviving corporation
in any merger or consolidation in which the Company is a party, or any assignee
of all or substantially all of the Company's business and properties. The
Executive's rights and obligations under this Agreement may not be assigned by
him, except that his right to receive accrued but unpaid compensation,
unreimbursed expenses and other rights, if any, provided under this Agreement
which survive termination of this Agreement shall pass after death to the
personal representatives of his estate.
12.5 Headings. The headings contained in this Agreement (except
those in Section 1) are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
12.6 Counterparts. This Agreement may be executed in one or
more copies, each of which shall be deemed an original.
12.7 Governing Law; Interpretation. This Agreement shall be
construed in accordance with and governed for all purposes by the laws and
public policy of the State of New Jersey, without regard to any principles of
conflict of laws. Service of process in any dispute shall be effective (a) upon
the Company, if served upon the Chairman of the Board, the President or any
Executive Vice President of the Company (other than the Executive); and (b) upon
the Executive, if delivered to the Executive's residence last known to the
Company. The Executive acknowledges that a breach of Sections 9.1 through 9.5
would cause grave and irreparable injury to the Company that would not be
compensable in money damages, and therefore, in addition to the Company's other
express and implied remedies, the Company shall be entitled to injunctive
-11-
<PAGE>
and other equitable relief to prevent any actual, intended or likely injuries
that may result from such breach. However, nothing in this Section shall limit
any other right or remedy to which the Company may be entitled.
12.8 Further Assurances. Each party agrees at any time, and
from time-to-time, to execute, acknowledge, deliver and perform, and/or cause to
be executed, acknowledged, delivered and performed, all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney and/or assurances
as may be necessary, and/or proper to carry out the provisions and/or intent of
this Agreement.
12.9 Gender; Singular; Plural. In this Agreement, the use of one
gender (e.g., "he", "she" and "it") shall mean each other gender; and the
singular shall mean the plural, and vice versa, all as the context may require.
12.10 Severability. The parties acknowledge that the terms of
this Agreement are fair and reasonable at the date signed by them. However, in
light of the possibility of a change of conditions or differing interpretations
by a court of what is fair and reasonable, the parties stipulate as follows: if
any one or more of the terms, provisions, covenants or restrictions of this
Agreement shall be determined by a court of competent jurisdiction 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; further, if any
one or more of the terms, provisions, covenants or restrictions contained in
this Agreement shall for any reason be determined by a court of competent
jurisdiction to be excessively broad as to duration, geographical scope,
activity or subject, it shall be construed, by limiting or reducing it, so as to
be enforceable to the maximum extent compatible with then applicable law.
12.11 Consents. Any consent, approval or authorizations
required hereunder shall mean the written consent, approval or authorization of
the Chairman of the Board of the Company or such other officer as may be
designated in writing by the Board of Managers.
EXECUTION
The parties, intending to be legally bound in accordance with its terms
as of the date first above written, executed this Agreement, to be effective as
of the Consummation Date.
MERCK-MEDCO MANAGED CARE, L.L.C.
DATE: May __, 2000 /s/ Richard T. Clark
--------------------------------
By: Richard T. Clark
Its: President
DATE: May __, 2000 /s/ Jeffrey A. Jones
--------------------------------
Jeffrey A. Jones
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<PAGE>
Exhibit A to Employment Agreement
NOTICE OF RETENTION ARRANGEMENT ELECTION
----------------------------------------
Date: _______________, 2000
Certified Mail/Return Receipt Requested
Mr. Thomas DiDonato
Senior Vice President - Human Resources
Merck-Medco Managed Care, L.L.C.
100 Parsons Pond Drive
Franklin Lakes, New Jersey 07417
Dear Mr. DiDonato:
Pursuant to Section 4.2 of that certain employment agreement (the
"Employment Agreement") dated __________, 2000 between me and Merck-Medco
Managed Care, L.L.C. (the "Company"), I hereby irrevocably elect the Retention
Arrangement indicated by a check mark below:
[_] Retention Arrangement No. 1
A lump sum payment of $2,264,756.00
[_] Retention Arrangement No. 2
(A) A lump sum payment of $1,698,567.00; and
(B) an option to purchase 40,442/1/ shares of Merck & Co., Inc.
common stock under the Merck Stock Plan, on the terms set forth
on Exhibit B attached to the Employment Agreement, which option
shall be granted at the Consummation Date, provided I am an
employee of Merck-Medco on that date.
[_] Retention Arrangement No. 3
(A) A lump sum payment of $1,981,662.00; and
(B) an option to purchase 20,221 shares of Merck & Co., Inc. common
stock under the Merck Stock Plan, on the terms set forth on
Exhibit B attached to the Employment Agreement, which option
shall be granted at the
- -------------------
/1/ The number of shares subject to the option referenced in subparagraph
(B) of Retention Arrangement Nos. 2 and 3 is an estimate based upon a closing
price of $70.00 per share. The actual number of shares subject to the option may
vary.
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<PAGE>
Consummation Date, provided I am an employee of Merck-Medco on
that date.
I understand, acknowledge and agree that:
(1) The Retention Arrangement I have irrevocably elected above is
subject to the terms and conditions set forth in the Employment
Agreement and that nothing in this letter agreement in any way
affects the terms and conditions of the Employment Agreement;
(2) Upon execution of this letter agreement by me and the Company,
this letter agreement shall be incorporated into and deemed a
part of the Employment Agreement;
(3) This letter agreement may be executed in one or more copies, each
of which shall be deemed an original; and
(4) Capitalized terms not specifically defined herein shall have the
meaning ascribed to them in the Employment Agreement.
Please indicate your election, and your agreement with and acceptance
of the foregoing, by executing a copy of this letter agreement below as
indicated.
Sincerely,
______________________
Jeffrey A. Jones
Agreed to and accepted this ___ day of
_________, 2000
Merck-Medco Managed Care, L.L.C.
By:________________________
Name:______________________
Title:_______________________
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<PAGE>
Exhibit B to Employment Agreement
Option Terms
------------
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C>
Option Type: Non-qualified stock option
- -------------------------------------------------------------------------------------------------
Term: 10 years from date of grant (the "Expiration
Date")
- -------------------------------------------------------------------------------------------------
Vesting Date: Earlier of date of death and 2nd anniversary of
grant date, provided the Executive is an
employee of Merck-Medco on the applicable date
- -------------------------------------------------------------------------------------------------
Exercise Price: Fair market value on date of grant
- -------------------------------------------------------------------------------------------------
Effect of termination of Employment: see chart below
- -------------------------------------------------------------------------------------------------
</TABLE>
Effect of Termination of Employment:
-----------------------------------
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Due to death options are exercisable by the estate for 3 years from
date of death (but not later than the Expiration Date)
- ------------------------------------------------------------------------------------------------------------------
By the Company for "Cause" (as defined in the options lapse on the termination of employment date
Employment Agreement).
- ------------------------------------------------------------------------------------------------------------------
By the Company without Cause (other than death) or by Options to purchase a number of shares equal to the
the Executive for "Good Reason" (as defined in the product (rounded to the nearest whole number) of (a) the
Employment Agreement) during the 2-year period total number of shares subject to the option multiplied
beginning on the date of grant. by (b) a fraction, the numerator of which is the number
of full calendar months the Executive has been employed
by the Company (excluding any period the Executive is on
unpaid inactive status due to the application of
Paragraph 8.2(e) of the Employment Agreement) since the
option grant date and the denominator of which is 24,
are exercisable by the Executive for a period beginning
on the date the Executive's active employment with the
Company is terminated and ending on the 5th anniversary
of the grant date. The remaining options lapse on the
date the Executive's active employment with the Company
terminates. For purposes of this section, the
Executive's active employment ends on the earlier of (x)
the date his employment terminates or (y) the day his
period of unpaid inactive employment with the Company
begins in accordance with Paragraph 8.2(e) of the
Employment Agreement.
- ------------------------------------------------------------------------------------------------------------------
By the Executive for any reason (other than death or options lapse on termination of employment date
Good Reason) during the 2-year period beginning on
date of grant
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
By the Company without cause (other than death or options are exercisable for the following period,
disability) during the period beginning on the 2nd whichever is longer: (a) 3 months from the termination
anniversary of grant date and ending on the 5th of employment date or (b) 5th anniversary of grant date
anniversary of grant date
- ------------------------------------------------------------------------------------------------------------------
By the Executive for any reason (other than death) or options are exercisable for 3 months from termination of
by the Company for disability, in each case during employment date
the period beginning on the 2nd anniversary of grant
date and ending on the 5th anniversary of grant date
- ------------------------------------------------------------------------------------------------------------------
By the Company due to "separation" (as defined by the options are exercisable for 1 year from termination of
Merck Stock Plan) during the period beginning on the employment date (but not later than the Expiration Date)
5th Anniversary and ending on the Expiration Date
- ------------------------------------------------------------------------------------------------------------------
By the Executive due to retirement at or after age 55 options are exercisable until the Expiration Date
with at least 7 years of employment with Merck-Medco
during the period beginning on the 5th Anniversary
and ending on the Expiration Date
- ------------------------------------------------------------------------------------------------------------------
By the Company or Executive for any reason (other than options are exercisable for 3 months from termination of
death, separation or retirement) during the period employment date (but not later than the Expiration Date)
beginning on the 5th Anniversary and ending on the
Expiration Date
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
EXHIBIT (e)(8)
--------------
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT ("Agreement"), dated as of May 4, 2000, is
entered into by and between Merck-Medco Managed Care, L.L.C. ("Merck-Medco" or
"Company"), a Delaware corporation with offices at 100 Parsons Pond Drive,
Franklin Lakes, New Jersey 07417 and Joseph A. Coffini ("Executive").
RECITALS
WHEREAS, Executive has been and is presently employed by ProVantage
Health Services, Inc. ("PV"); and
WHEREAS, PV, Merck-Medco and a subsidiary of Merck-Medco ("Merger Sub")
have entered into an Agreement and Plan of Merger, dated as of May 4, 2000 (the
"Merger Agreement"), pursuant to which, at the "Effective Time" (as defined in
the Merger Agreement) (the "Effective Time"), Merger Sub will be merged with and
into PV (the "Merger") and PV will thereby become a wholly owned subsidiary of
Merck-Medco; and
WHEREAS, pursuant to the Merger Agreement, it is intended that the
acquisition of PV by Merck-Medco be accomplished by means of a cash tender offer
by Merger Sub for all of the issued and outstanding common stock of PV (the
consummation of such tender offer, the "Consummation Date"), followed by the
Merger; and
WHEREAS, Executive is currently a party to a Change of Control
Agreement with PV, dated as of December 22, 1998 (the "Change of Control
Agreement"); and
WHEREAS, Merck-Medco desires to secure the continued services and
employment of the Executive on its behalf following the Consummation Date, and
the Executive is willing to render such services on the terms and conditions set
forth herein; and
WHEREAS, the Executive and Merck-Medco have agreed that this Agreement
shall supersede the Change of Control Agreement in its entirety and that, upon
and following the Consummation Date, the Change of Control Agreement shall cease
to be of any force or effect;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows, effective as of the Consummation
Date:
TERMS OF AGREEMENT
In consideration of the Recitals (which are incorporated herein) and
the mutual covenants in this Agreement, the parties agree as follows:
1
<PAGE>
1. Definitions. For the purpose of this Agreement, the terms used as
-----------
headings in this Section 1, and parenthetically defined elsewhere in this
Agreement, shall have the indicated meanings and may be used in the singular or
plural.
"Affiliate." Any business entity controlled by, controlling, or
---------
under common control or in joint venture with, the Company.
"Business of the Company." The Company and/or its Affiliates are
-----------------------
engaged in : (i) the third party prescription drug claims processing business;
(ii) the design, development or marketing of or consulting as to, prescription
drug benefit plans; (iii) the provision of mail service pharmacy, including,
without limitation, internet-based services (including all those products and
services that are presently or hereafter marketed by the Company or any of its
Affiliates, or that are in the development stage at the time of termination of
Executive's employment and are actually marketed by the Company or any of its
Affiliates thereafter); (iv) the collection, analysis and/or sale of data
relating to prescription drug utilization; (v) the pharmacy benefit management
and disease management businesses; (vi) the organization and administration of
retail pharmacy networks; and (vii) any other business in which the Company or
any of its Affiliates is then engaged as to which Executive has involvement in
the course of his employment hereunder and/or acquired or received Confidential
Information.
"Confidential Information." All confidential and proprietary
------------------------
information of the Company and its Affiliates, in whatever form, tangible or
intangible, not otherwise publicly disclosed or generally available (other than
as a result of a wrongful disclosure by the Executive), whether or not
discovered or developed by the Executive, including information entrusted to the
Company and/or its Affiliates by others. Without limiting the generality of the
foregoing, Confidential Information shall include but shall not be limited to:
(a) customer lists, lists of potential customers and details of agreements with
customers; (b) acquisition, expansion, marketing, financial and other business
information and plans of the Company or any of its Affiliates; (c) research and
development; (d) data concerning usage of prescription drugs and any other data
compiled by the Company or any of its Affiliates; (e) computer programs; (f)
sources of supply; (g) identity of specialized consultants and contractors and
Confidential Information developed by them for the Company or any of its
Affiliates; (h) purchasing, operating and other cost data; (i) special customer
needs, cost and pricing data; (j) employee information (including, but not
limited to, personnel, payroll, compensation and benefit data and plans); and
(k) patient records and data, including all such information recorded in
manuals,
2
<PAGE>
memoranda, projections, minutes, plans, drawings, designs, formula books,
specifications, computer programs and records, whether or not legended or
otherwise identified by the Company or any of its Affiliates as Confidential
Information, as well as such information that is the subject of meetings and
discussions and not recorded.
"Developments." All data, discoveries, findings, reports,
------------
designs, inventions, improvements, methods, practices, techniques, developments,
programs (computer or otherwise), formulas, plans, concepts, and ideas, whether
or not patentable, relating to the present and planned future activities and the
Products and Services of the Company or any of its Affiliates.
"Employment Period." The period from the Consummation Date (the
-----------------
"Commencement Date") through the second anniversary of the Commencement Date
(or, if later, through the second anniversary of the Effective Time), unless
terminated prior thereto as set forth in Section 6.
"Products and Services." All products or services sold, rented,
---------------------
leased, rendered or otherwise made available to customers by the Company or any
of its Affiliates, as well as products and services in any stage of development
by the Company or any of its Affiliates, although not yet commercialized or not
generally available.
"Territory." The United States of America, its territories and
---------
possessions.
2. Employment. The Company hereby employs the Executive during the
----------
Employment Period subject to the terms of this Agreement, and thereafter as an
employee-at-will, and to perform those duties and services as may be designated
from time-to-time by its President or his designee. Executive hereby accepts
said employment. The Executive shall use his best and most diligent efforts to
promote the interests of the Company and its Affiliates and shall devote his
full business time and attention to his employment under this Agreement. The
Executive will not, without the prior written approval of the President of
Merck-Medco, engage in any other business activity which would interfere with
the performance of his duties, services and responsibilities hereunder or which
is in violation of policies established from time to time by Merck-Medco.
3. Title. The Executive presently has been assigned the title of
-----
Senior Vice President - ProVantage/Vice President - Merck-Medco. In the future,
the Company may assign the Executive to other positions and titles, as required
by the Company's business.
3
<PAGE>
4. Compensation and Benefits; Disability.
-------------------------------------
4.1 Base Compensation. During the Employment Period, the Company
-----------------
shall pay the Executive base compensation commencing at an annual rate of
$186,419.00; the Executive shall be eligible for annual merit increases at the
discretion of the Company. Such base compensation shall be payable in equal
installments pursuant to the Company's customary payroll policies in force at
the time of payment (but not less frequently than monthly). Such base
compensation and any other payments made hereunder shall be less all required
and/or authorized payroll deductions.
4.2 Retention Arrangement. Not later than the close of business
---------------------
on May 15, 2000, the Executive shall notify the Company substantially in the
form of the notice attached hereto as Exhibit A that he has irrevocably elected
one of the Retention Arrangements set forth therein. If the Executive fails to
provide timely notice to the Company substantially in form of the notice
attached hereto as Exhibit A, the Executive will be deemed to have elected
Retention Arrangement No. 1 described in the form of notice attached as Exhibit
A. Lump sum payments payable to the Executive hereunder shall be payable
(subject to applicable withholding) as soon as practicable after the second
anniversary of the Consummation Date (or, if later, after the second anniversary
of the Effective Time), so long as the Executive has remained an employee of
Merck-Medco through the entire Employment Period and is an employee of Merck-
Medco on the second anniversary of the Consummation Date (or, if later, after
the second anniversary of the Effective Time).
4.3 Incentive Bonus and Stock Options. In addition to the
---------------------------------
Retention Arrangement set forth in Paragraph 4.2, the Executive shall be
eligible to receive the following during the Employment Period:
(a) Bonus. During the Employment Period, the Executive shall be
-----
eligible to receive performance-based bonuses on the same
terms and conditions generally afforded other similarly
situated employees of Merck-Medco under the Merck & Co.,
Inc. Annual Incentive Plan.
(b) Stock Options. Any options granted in connection with the
-------------
applicable Retention Arrangement set forth on Exhibit A
attached hereto shall be subject to the terms and conditions
set forth in Exhibit B attached hereto and made a part
hereof. During the Employment Period, the Executive will be
eligible to receive other grants of options to purchase
shares of Merck & Co., Inc. common
4
<PAGE>
stock under the Merck & Co., Inc. Incentive Stock Plan (the
"Merck Stock Plan") at an exercise price equal to the fair
market value of such common stock on the date of grant. The
number of shares covered by any such option shall be
determined by the Company in its sole and absolute
discretion. All the terms and conditions of such options
shall be governed by the terms and conditions of the Merck
Stock Plan in effect at the time of the applicable grant, as
summarized in the option grant letter provided to the
Executive at the time of each such option grant, which terms
and conditions shall be the same as those that apply to
similarly situated employees of Merck-Medco at the time of
such grant.
4.4 Other Benefits. During the Employment Period, the Executive
--------------
shall be eligible to participate in the employee benefit plans and programs of
the Company, including, but not limited to, its medical, dental, disability,
life insurance and retirement benefit plans and programs of the Company on the
same terms and conditions as are generally afforded similarly situated employees
of the Company, subject to any contribution requirements applicable to
participants of such plans and programs.
4.5 Vacation. The Executive may take such vacation period or
--------
periods during each year in accordance with the Company's vacation policies or
practices for similarly situated employees of the Company. Prior employment
with PV shall be considered as employment with the Company for this purpose.
5. Expenses. Pursuant to the Company's customary policies in force
--------
at the time of payment, the Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all expenses properly and
reasonably incurred by him on behalf of the Company and its Affiliates in the
performance of his duties hereunder.
6. Termination of Employment Period. This Agreement shall continue
--------------------------------
through the Employment Period, unless terminated prior to such date by the
earlier of (a) the Executive's termination pursuant to Sections 7.1, 7.2 7.3 or
7.5; or (b) the Executive's death. In all events, the provisions of Section 9
shall survive termination of this Agreement, and shall remain in effect during
and after any continued employment by the Company subsequent to the termination
of the Employment Period.
5
<PAGE>
7. Termination.
-----------
7.1 By the Company for Cause. Upon written notice, the Company
------------------------
may discharge the Executive and terminate this Agreement for Cause. As used in
this Section 7, Cause shall mean any one or more than one of the following: (i)
an act or acts of personal dishonesty or misrepresentation taken by the
Executive and intended to result in substantial personal enrichment of the
Executive at the expense of the Company; (ii) repeated violations by the
Executive of the Executive's obligations under this Agreement which are
demonstrably willful and deliberate on the Executive's part and which are not
remedied within thirty (30) days after receipt of notice from the Company, or
(iii) the conviction of the Executive of a felony.
7.2 By the Company Without Cause or By the Executive for Good
---------------------------------------------------------
Reason. The Company on written notice to the Executive may discharge the
- ------
Executive and terminate this Agreement without Cause at any time during the
Employment Period. The Executive may terminate this Agreement during the
Employment Period for "Good Reason," which shall mean any one of the following:
(i) the Executive's transfer to a place of employment more than fifty (50) miles
from the Executive's current place of employment; or (ii) a reduction in the
Executive's job title from the title currently specified in paragraph 2 of this
Agreement; however, Executive may terminate the Employment Period for Good
Reason only after the passage of sixty (60) days following written notice from
the Executive to the Company of the event giving rise to the Termination and a
failure by the Company to cure such event.
7.3 Disability. If during the Employment Period, (i) the
----------
Executive shall become ill, mentally or physically disabled, or otherwise
incapacitated so as to be unable to perform regularly the duties of his position
for a period in excess of 90 consecutive days or more than 120 days in any
consecutive 12 month period, or (ii) a duly licensed physician (who does not
have any business or other previous relationship with the Company and is
associated with a teaching hospital in the New York City metropolitan area)
selected by the Company determines that the Executive is mentally or physically
disabled so as to be unable to perform regularly the duties of his position and
such condition is expected to be of a permanent duration (each a "Permanent
Disability"), then the Company shall have the right to discharge the Executive
and terminate this Agreement upon 30 days' written notice to the Executive. In
the absence of termination, the Executive shall receive full compensation and
benefits while disabled; provided, however, that any payments to the Executive
pursuant to the Company's disability plans shall be offset from amounts payable
to the Executive under this Paragraph 7.3. Upon a request by the Company, the
Executive will submit to a medical examination to determine whether the
Executive is subject to a
6
<PAGE>
Permanent Disability.
7.4 Death. The Employment Period and this Agreement shall
-----
terminate forthwith upon the death of the Executive.
7.5 By the Executive. The Executive may terminate the
----------------
Employment Period and this Agreement at any time upon 30 days' written notice to
the Company for any reason other than Good Reason. Section 7.2 shall be the sole
basis for termination for Good Reason.
8. Effect of Termination.
---------------------
8.1 Effect of Termination under Section 7.1. In the event of
---------------------------------------
termination of this Agreement by the Company pursuant to Section 7.1, the
Executive shall be entitled to receive only his earned and unpaid compensation
to the effective date of such termination.
8.2 Effect of Termination under Section 7.2. In the event of
---------------------------------------
termination of this Agreement during the Employment Period pursuant to Section
7.2, the Executive shall be entitled to:
(a) receive his earned and unpaid compensation to the effective
date of such termination;
(b) a lump sum payment in the amount of $280,000.00 (less
applicable withholding) in consideration of the covenants of
the Employee set forth in Section 9 below (and subject in
any event to the last sentence of Section 9.6 hereof);
(c) an additional lump sum payment in the amount of $135,862.00
(less applicable withholding);
(d) 1/24th of the amount equal to the remainder, if any, of (x)
the lump sum amount, if any, that would have been payable
under the Retention Arrangement the Executive elects
pursuant to Section 4.2 and (y) $415,862.00 for each full
calendar month during which the Executive actually performs
services for the Company (less applicable withholding); and
(e) Continued coverage (in an inactive, unpaid employee status)
under the Company's medical, dental and prescription plans
for twelve (12) months or until the Executive obtains other
employment with comparable coverages, whichever is earlier.
7
<PAGE>
8.3 Effect of Termination under Sections 7.3 or 7.4. In the
-----------------------------------------------
event of termination of this Agreement during the Employment Period pursuant to
Sections 7.3 or 7.4, the Executive (or the personal representative of his estate
or his heirs at law, as appropriate, in the case of a termination pursuant to
Section 7.4) shall be entitled to the amounts referred to in Sections 8.2(a)
through 8.2(c) of this Agreement. In addition, in the event of a termination of
this Agreement during the Employment Period pursuant to Section 7.4, and so long
as the Executive has elected Retention Arrangement No. 1 or Retention
Arrangement No. 3 described on Exhibit A attached hereto, the Executive's estate
or heirs at law, as appropriate, shall be entitled to an amount equal to the
excess of the lump sum payments payable under the applicable Retention
Arrangement over the lump sum payment payable under Sections 8.2(b) and 8.2(c)
(less applicable withholding).
8.4 Effect of Termination Under Section 7.5. In the event of
---------------------------------------
Termination of this Agreement under Section 7.5, the Executive shall be entitled
to receive only his earned and unpaid compensation to the effective date of such
termination.
8.5 Conditions Applicable to Sections 8.2 or 8.3. The payments
--------------------------------------------
required under Sections 8.2 or 8.3 will be conditioned upon the Executive (or
the personal representative of his estate or his heirs at law, as appropriate)
executing and delivering a general release of the Company and its Affiliates,
and their Managers, officers, employees and agents, from any claims or
obligations other than (i) the expressed obligation of the Company under Section
8.2 or 8.3 of this Agreement as appropriate, (ii) to pay the Executive his
earned and unpaid compensation to the effective date of termination, (iii) the
obligations of the Company and its Affiliates with respect to all Stock Options,
(iv) the obligations of the Company and its Affiliates to continue to provide
director and officer indemnification (if applicable) and (v) the obligations of
the Company and its Affiliates to comply with the requirements of COBRA and any
other law or regulation applicable to employee benefit plans in connection with
the termination of employment generally. Such general release shall be in a
form acceptable to the Company. The Executive acknowledges that the payments
under Sections 8.2 or 8.3, as appropriate, are in lieu of all such released
claims that the Executive may have against the Company and are liquidated
damages (and not a penalty). Notwithstanding any termination hereunder, the
Company shall have no obligation under Sections 8.2 or 8.3 in the event of a
material breach by the Executive of his covenants in Section 9. For purposes of
this Section 8, the term Stock Options shall mean all options to purchase common
stock of Merck & Co., Inc. previously or hereafter granted to the Executive by
the Company and/or any of its Affiliates.
9. Developments, Confidential Information and Related Matters.
----------------------------------------------------------
8
<PAGE>
9.1 Assignment of Developments. All Developments that are at any
--------------------------
time made, conceived or suggested by the Executive, whether acting alone or in
conjunction with others, during or as a result of the Executive's employment
under this Agreement or thereafter, shall be the sole and absolute property of
the Company, free of any reserved or other rights of any kind on the Executive's
part. During the Executive's employment by the Company and thereafter, the
Executive shall promptly make full disclosure of any such Developments to the
Company and, at its cost and expense, do all acts and things (including, among
others, the execution and delivery under oath of patent and copyright
applications and instruments of assignment) deemed by the Company to be
necessary or desirable at any time in order to effect the full assignment to the
Company of the Executive's right and title, if any, to such Developments.
9.2 Restrictions on Use and Disclosure. The Executive
----------------------------------
acknowledges that the Confidential Information is valuable and proprietary to
the Company (or to third parties that have entrusted Confidential Information to
the Company), and, except as required by the Executive's duties hereunder, the
Executive shall not at any time, directly or indirectly, use, copy, publish,
summarize, disseminate, describe or otherwise disclose any Confidential
Information or Developments without the prior written consent of the Company.
9.3 Return of Documents. Upon termination of the Executive's
-------------------
employment with the Company, or at the Company's request, whichever is sooner,
the Executive shall forthwith deliver to the Company all manuals, memoranda,
projections, minutes, plans, drawings, designs, formula books, specifications,
listings, records, notebooks, computer programs and similar repositories of, or
containing Confidential Information and Developments, including all copies, then
in the Executive's possession or control, whether prepared by the Executive or
others. Upon such termination, the Executive shall not retain any copies or
abstracts of any such documents or materials.
9.4 Restrictions on Competitive Employment. During the term of
--------------------------------------
the Executive's employment and for a period of twelve (12) months after the
termination of the Executive's employment for any reason, pursuant to this
Agreement or thereafter, absent the Company's prior written approval, the
Executive shall not (as an individual, principal, agent, employee, consultant or
otherwise) within the Territory, directly or indirectly, engage in activities
competitive with, nor render services to any firm or business engaged or about
to become engaged in the Business of the Company. In addition, the Executive
shall not have an equity interest in any such firm or business other than as a
1% or less shareholder of a public corporation.
9.5 Inducement; Enticement. During the term of the
----------------------
9
<PAGE>
Executive's employment and for a period of twelve (12) months after the
termination of the Executive's employment for any reason, pursuant to this
Agreement or thereafter, the Executive shall not, directly or indirectly: (a)
solicit or contact any customer or prospective customer of the Company or any of
its Affiliates as to matters that relate to the Business of the Company or which
is in any way inconsistent or interferes therewith; (b) induce, or attempt to
induce, any employees or agents or consultants of the Company or any of its
Affiliates to do anything from which the Executive is restricted by reason of
Sections 9.1 through 9.5; or (c) offer or aid others to offer employment to any
employees of the Company or any of its Affiliates.
9.6 Survival and Other Matters. The provisions of Sections 9.1
--------------------------
through 9.5 shall survive the termination of this Agreement and shall continue
in effect during and after any employment of the Executive after the end of the
Employment Period and the termination of this Agreement. This provision shall
not be construed to limit the survival of any other provisions that also survive
the termination of this Agreement by the express or implied terms of such
provisions. In addition, it is understood that the value to the Company of the
Executive agreeing to and abiding by the restrictions set forth in this Section
9 is equal to at least $280,000.00, but it is further understood that (i) the
Executive has agreed to abide by such restrictions in consideration of the
Company's entering into this Agreement, and (ii) such restrictions shall remain
in effect irrespective of whether the Executive becomes entitled to any payments
or benefits hereunder.
10. Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given on the date that they are delivered personally or sent by registered or
certified mail (return receipt requested) postage prepaid to the parties at the
following addresses (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) If to the Company:
Merck-Medco Managed Care, L.L.C.
100 Parsons Pond Drive
Franklin Lakes, New Jersey 07417
Attention: Senior Vice President -
Chief Financial Officer
With a copy at the same address to:
President.
10
<PAGE>
(b) If to the Executive, at the last address included on the
Company's payroll records.
11. [intentionally omitted.]
12. Miscellaneous.
-------------
12.1 Representations and Covenants. In order to induce the
-----------------------------
Company to enter into this Agreement, the Executive makes the following
representations and covenants to the Company and acknowledges that the Company
is relying upon said representations and covenants:
(a) No agreements or obligations exist to which the Executive is
a party or otherwise bound, in writing or otherwise, which
in any way interfere with, impede or preclude him from
fulfilling all of the terms and conditions of this
Agreement.
(b) The Executive, during his employment by the Company, shall
use his best efforts to disclose to the President in writing
or by other effective method any bona fide information known
by him that would have any material negative impact on the
Company or an Affiliate.
12.2 Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties as to the subject matter hereof and fully
supersedes all prior oral and written agreements and understandings between the
parties with respect to such subject matter. This Agreement also supersedes and
nullifies any and all change-of-control, severance or other employment-related
agreements entered into by Executive with PV or any of its predecessor or
affiliated corporations (including, without limitation, the Change of Control
Agreement), it being agreed between Executive and Merck-Medco that, following
the Consummation Date, (i) the consideration provided to the Executive as set
forth in this Agreement is in lieu of any consideration provided by such other
agreements and (ii) all such agreements shall cease to be of any force and
effect.
12.3 Amendment; Waiver. This Agreement may not be amended,
-----------------
supplemented, cancelled or discharged, except by written instrument executed by
the party as to whom enforcement is sought. No failure to exercise, and no delay
in exercising, any right, power or privilege hereunder shall operate as a waiver
thereof. No waiver of any breach of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of this Agreement.
12.4 Binding Effect; Assignment. The rights and obligations of
--------------------------
this Agreement shall bind and inure to the benefit
11
<PAGE>
of the surviving corporation in any merger or consolidation in which the Company
is a party, or any assignee of all or substantially all of the Company's
business and properties. The Executive's rights and obligations under this
Agreement may not be assigned by him, except that his right to receive accrued
but unpaid compensation, unreimbursed expenses and other rights, if any,
provided under this Agreement which survive termination of this Agreement shall
pass after death to the personal representatives of his estate.
12.5 Headings. The headings contained in this Agreement (except
--------
those in Section 1) are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
12.6 Counterparts. This Agreement may be executed in one or
------------
more copies, each of which shall be deemed an original.
12.7 Governing Law; Interpretation. This Agreement shall be
-----------------------------
construed in accordance with and governed for all purposes by the laws and
public policy of the State of New Jersey, without regard to any principles of
conflict of laws. Service of process in any dispute shall be effective (a) upon
the Company, if served upon the Chairman of the Board, the President or any
Executive Vice President of the Company (other than the Executive); and (b) upon
the Executive, if delivered to the Executive's residence last known to the
Company. The Executive acknowledges that a breach of Sections 9.1 through 9.5
would cause grave and irreparable injury to the Company that would not be
compensable in money damages, and therefore, in addition to the Company's other
express and implied remedies, the Company shall be entitled to injunctive and
other equitable relief to prevent any actual, intended or likely injuries that
may result from such breach. However, nothing in this Section shall limit any
other right or remedy to which the Company may be entitled.
12.8 Further Assurances. Each party agrees at any time, and
------------------
from time-to-time, to execute, acknowledge, deliver and perform, and/or cause to
be executed, acknowledged, delivered and performed, all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney and/or assurances
as may be necessary, and/or proper to carry out the provisions and/or intent of
this Agreement.
12.9 Gender; Singular; Plural. In this Agreement, the use of one
------------------------
gender (e.g., "he", "she" and "it") shall mean each other gender; and the
singular shall mean the plural, and vice versa, all as the context may require.
12.10 Severability. The parties acknowledge that the terms of
------------
this Agreement are fair and reasonable at the date signed by them. However, in
light of the possibility of a change of conditions or differing interpretations
by a court of what is
12
<PAGE>
fair and reasonable, the parties stipulate as follows: if any one or more of the
terms, provisions, covenants or restrictions of this Agreement shall be
determined by a court of competent jurisdiction 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; further, if any one or more of
the terms, provisions, covenants or restrictions contained in this Agreement
shall for any reason be determined by a court of competent jurisdiction to be
excessively broad as to duration, geographical scope, activity or subject, it
shall be construed, by limiting or reducing it, so as to be enforceable to the
maximum extent compatible with then applicable law.
12.11 Consents. Any consent, approval or authorizations
--------
required hereunder shall mean the written consent, approval or authorization of
the Chairman of the Board of the Company or such other officer as may be
designated in writing by the Board of Managers.
[SIGNATURE PAGE FOLLOWS]
13
<PAGE>
EXECUTION
The parties, intending to be legally bound in accordance with its terms
as of the date first above written, executed this Agreement, to be effective as
of the Consummation Date.
MERCK-MEDCO MANAGED CARE, L.L.C.
DATE: May 4, 2000 /s/ Richard T. Clark
--------------------------------
By: Richard T. Clark
Its: President
DATE: May 4, 2000 /s/ Joseph F. Coffini
--------------------------------
Joseph F. Coffini
14
<PAGE>
Exhibit A to Employment Agreement
NOTICE OF RETENTION ARRANGEMENT ELECTION
----------------------------------------
Date: _______________, 2000
Certified Mail/Return Receipt Requested
Mr. Thomas DiDonato
Senior Vice President - Human Resources
Merck-Medco Managed Care, L.L.C.
100 Parsons Pond Drive
Franklin Lakes, New Jersey 07417
Dear Mr. DiDonato:
Pursuant to Section 4.2 of that certain employment agreement (the
"Employment Agreement") dated __________, 2000 between me and Merck-Medco
Managed Care, L.L.C. (the "Company"), I hereby irrevocably elect the Retention
Arrangement indicated by a check mark below:
[_] Retention Arrangement No. 1
A lump sum payment of $623,793.00
[_] Retention Arrangement No. 2
(A) A lump sum payment of $415,862.00; and
(B) an option to purchase 14,852/1/ shares of Merck & Co., Inc.
common stock under the Merck Stock Plan, on the terms set forth
on Exhibit B attached to the Employment Agreement, which option
shall be granted at the Consummation Date, provided I am an
employee of Merck-Medco on that date.
[_] Retention Arrangement No. 3
(A) A lump sum payment of $519,828.00; and
(B) an option to purchase 7,426 shares of Merck & Co., Inc. common
stock under the Merck Stock Plan, on the terms set forth on
Exhibit B attached to the Employment Agreement, which option
shall be granted at the Consummation Date, provided I am an
employee of Merck-Medco on that date.
__________________
/1/ The number of shares subject to the option referenced in subparagraph (B)
of Retention Arrangement Nos. 2 and 3 is an estimate based upon a closing
price of $70.00 per share. The actual number of shares subject to the
option may vary.
15
<PAGE>
I understand, acknowledge and agree that:
(1) The Retention Arrangement I have irrevocably elected above is
subject to the terms and conditions set forth in the Employment
Agreement and that nothing in this letter agreement in any way
affects the terms and conditions of the Employment Agreement;
(2) Upon execution of this letter agreement by me and the Company,
this letter agreement shall be incorporated into and deemed a
part of the Employment Agreement;
(3) This letter agreement may be executed in one or more copies, each
of which shall be deemed an original; and
(4) Capitalized terms not specifically defined herein shall have the
meaning ascribed to them in the Employment Agreement.
Please indicate your election, and your agreement with and acceptance
of the foregoing, by executing a copy of this letter agreement below as
indicated.
Sincerely,
______________________
Joseph A. Coffini
Agreed to and accepted this ___
day of _________, 2000
Merck-Medco Managed Care, L.L.C.
By:________________________
Name:______________________
Title:_______________________
16
<PAGE>
Exhibit B to Employment Agreement
Option Terms
------------
- --------------------------------------------------------------------------------
Option Type: Non-qualified stock option
- --------------------------------------------------------------------------------
Term: 10 years from date of grant (the
"Expiration Date")
- --------------------------------------------------------------------------------
Vesting Date: Earlier of date of death and 2nd
anniversary of grant date, provided the
Executive is an employee of Merck-Medco
on the applicable date
- --------------------------------------------------------------------------------
Exercise Price: Fair market value on date of grant
- --------------------------------------------------------------------------------
Effect of termination of see chart below
Employment:
- --------------------------------------------------------------------------------
Effect of Termination of Employment:
-----------------------------------
- --------------------------------------------------------------------------------
Due to death options are exercisable by the estate
for 3 years from date of death (but not
later than the Expiration Date)
- --------------------------------------------------------------------------------
By the Company for "Cause" (as defined options lapse on the termination of
in the Employment Agreement). employment date
- --------------------------------------------------------------------------------
By the Company without Cause (other Options to purchase a number of shares
than death) or by the Executive for equal to the product (rounded to the
"Good Reason" (as defined in the nearest whole number) of (a) the total
Employment Agreement) during the number of shares subject to the option
2-year period beginning on the date of multiplied by (b) a fraction, the
grant. numerator of which is the number of
full calendar months the Executive has
been employed by the Company (excluding
any period the Executive is on unpaid
inactive status due to the application
of Paragraph 8.2(e) of the Employment
Agreement) since the option grant date
and the denominator of which is 24, are
exercisable by the Executive for a
period beginning on the date the
Executive's active employment with the
Company is terminated and ending on the
5th anniversary of the grant date. The
remaining options lapse on the date the
Executive's active employment with
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
the Company terminates. For purposes
of this section, the Executive's
active employment ends on the earlier
of (x) the date his employment
terminates or (y) the day his period
of unpaid inactive employment with the
Company begins in accordance with
Paragraph 8.2(e) of the Employment
Agreement.
- --------------------------------------------------------------------------------
By the Executive for any reason (other options lapse on termination of
than death or Good Reason) during the employment date
2-year period beginning on date of
grant
- --------------------------------------------------------------------------------
By the Company without cause (other options are exercisable for the
than death or disability) during the following period, whichever is longer:
period beginning on the 2nd (a) 3 months from the termination of
anniversary of grant date and ending employment date or (b) 5th anniversary
on the 5th anniversary of grant date of grant date
- --------------------------------------------------------------------------------
By the Executive for any reason (other options are exercisable for 3 months
than death) or by the Company for from termination of employment date
disability, in each case during the
period beginning on the 2nd
anniversary of grant date and ending
on the 5th anniversary of grant date
- --------------------------------------------------------------------------------
By the Company due to "separation" (as options are exercisable for 1 year
defined by the Merck Stock Plan) from termination of employment date
during the period beginning on the 5th (but not later than the Expiration
Anniversary and ending on the Date)
Expiration Date
-------------------------------------------------------------------------------
By the Executive due to retirement at options are exercisable until the
or after age 55 with at least 7 years Expiration Date
of employment with Merck-Medco during
the period beginning on the 5th
Anniversary and ending on the
Expiration Date
- --------------------------------------------------------------------------------
By the Company or Executive for any options are exercisable for 3 months
reason (other than death, separation from termination of employment date
or retirement) during the period (but not later than the Expiration
beginning on the 5th Anniversary and Date)
ending on the Expiration Date
- --------------------------------------------------------------------------------
18
<PAGE>
EXHIBIT (e)(9)
--------------
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT ("Agreement"), dated as of May 4, 2000, is
entered into by and between Merck-Medco Managed Care, L.L.C. ("Merck-Medco" or
"Company"), a Delaware corporation with offices at 100 Parsons Pond Drive,
Franklin Lakes, New Jersey 07417 and Peter F. Hoffman ("Executive").
RECITALS
WHEREAS, Executive has been and is presently employed by ProVantage
Health Services, Inc. ("PV"); and
WHEREAS, PV, Merck-Medco and a subsidiary of Merck-Medco ("Merger Sub")
have entered into an Agreement and Plan of Merger, dated as of May 4, 2000 (the
"Merger Agreement"), pursuant to which, at the "Effective Time" (as defined in
the Merger Agreement) (the "Effective Time"), Merger Sub will be merged with and
into PV (the "Merger") and PV will thereby become a wholly owned subsidiary of
Merck-Medco; and
WHEREAS, pursuant to the Merger Agreement, it is intended that the
acquisition of PV by Merck-Medco be accomplished by means of a cash tender offer
by Merger Sub for all of the issued and outstanding common stock of PV (the
consummation of such tender offer, the "Consummation Date"), followed by the
Merger; and
WHEREAS, Executive is currently a party to a Change of Control
Agreement with PV, dated as of December 22, 1998 (the "Change of Control
Agreement"); and
WHEREAS, Merck-Medco desires to secure the continued services and
employment of the Executive on its behalf following the Consummation Date, and
the Executive is willing to render such services on the terms and conditions set
forth herein; and
WHEREAS, the Executive and Merck-Medco have agreed that this Agreement
shall supersede the Change of Control Agreement in its entirety and that, upon
and following the Consummation Date, the Change of Control Agreement shall cease
to be of any force or effect;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows, effective as of the Consummation
Date:
TERMS OF AGREEMENT
In consideration of the Recitals (which are incorporated herein) and
the mutual covenants in this Agreement, the parties agree as follows:
1
<PAGE>
1. Definitions. For the purpose of this Agreement, the terms used as
-----------
headings in this Section 1, and parenthetically defined elsewhere in this
Agreement, shall have the indicated meanings and may be used in the singular or
plural.
"Affiliate." Any business entity controlled by, controlling, or
---------
under common control or in joint venture with, the Company.
"Business of the Company." The Company and/or its Affiliates are
-----------------------
engaged in: (i) the third party prescription drug claims processing business;
(ii) the design, development or marketing of or consulting as to, prescription
drug benefit plans; (iii) the provision of mail service pharmacy, including,
without limitation, internet-based services (including all those products and
services that are presently or hereafter marketed by the Company or any of its
Affiliates, or that are in the development stage at the time of termination of
Executive's employment and are actually marketed by the Company or any of its
Affiliates thereafter); (iv) the collection, analysis and/or sale of data
relating to prescription drug utilization; (v) the pharmacy benefit management
and disease management businesses; (vi) the organization and administration of
retail pharmacy networks; and (vii) any other business in which the Company or
any of its Affiliates is then engaged as to which Executive has involvement in
the course of his employment hereunder and/or acquired or received Confidential
Information.
"Confidential Information." All confidential and proprietary
------------------------
information of the Company and its Affiliates, in whatever form, tangible or
intangible, not otherwise publicly disclosed or generally available (other than
as a result of a wrongful disclosure by the Executive), whether or not
discovered or developed by the Executive, including information entrusted to the
Company and/or its Affiliates by others. Without limiting the generality of the
foregoing, Confidential Information shall include but shall not be limited to:
(a) customer lists, lists of potential customers and details of agreements with
customers; (b) acquisition, expansion, marketing, financial and other business
information and plans of the Company or any of its Affiliates; (c) research and
development; (d) data concerning usage of prescription drugs and any other data
compiled by the Company or any of its Affiliates; (e) computer programs; (f)
sources of supply; (g) identity of specialized consultants and contractors and
Confidential Information developed by them for the Company or any of its
Affiliates; (h) purchasing, operating and other cost data; (i) special customer
needs, cost and pricing data; (j) employee information (including, but not
limited to, personnel, payroll, compensation and benefit data and plans); and
(k) patient records and data, including all such information recorded in
manuals,
2
<PAGE>
memoranda, projections, minutes, plans, drawings, designs, formula books,
specifications, computer programs and records, whether or not legended or
otherwise identified by the Company or any of its Affiliates as Confidential
Information, as well as such information that is the subject of meetings and
discussions and not recorded.
"Developments." All data, discoveries, findings, reports,
------------
designs, inventions, improvements, methods, practices, techniques, developments,
programs (computer or otherwise), formulas, plans, concepts, and ideas, whether
or not patentable, relating to the present and planned future activities and the
Products and Services of the Company or any of its Affiliates.
"Employment Period." The period from the Consummation Date (the
-----------------
"Commencement Date") through the second anniversary of the Commencement Date
(or, if later, through the second anniversary of the Effective Time), unless
terminated prior thereto as set forth in Section 6.
"Products and Services." All products or services sold, rented,
---------------------
leased, rendered or otherwise made available to customers by the Company or any
of its Affiliates, as well as products and services in any stage of development
by the Company or any of its Affiliates, although not yet commercialized or not
generally available.
"Territory." The United States of America, its territories and
---------
possessions.
2. Employment. The Company hereby employs the Executive during the
----------
Employment Period subject to the terms of this Agreement, and thereafter as an
employee-at-will, and to perform those duties and services as may be designated
from time-to-time by its President or his designee. Executive hereby accepts
said employment. The Executive shall use his best and most diligent efforts to
promote the interests of the Company and its Affiliates and shall devote his
full business time and attention to his employment under this Agreement. The
Executive will not, without the prior written approval of the President of
Merck-Medco, engage in any other business activity which would interfere with
the performance of his duties, services and responsibilities hereunder or which
is in violation of policies established from time to time by Merck-Medco.
3. Title. The Executive presently has been assigned the title of
-----
Senior Vice President - ProVantage/Vice President - Merck-Medco. In the future,
the Company may assign the Executive to other positions and titles, as required
by the Company's business.
3
<PAGE>
4. Compensation and Benefits; Disability.
-------------------------------------
4.1 Base Compensation. During the Employment Period, the Company
-----------------
shall pay the Executive base compensation commencing at an annual rate of
$219,725.00; the Executive shall be eligible for annual merit increases at the
discretion of the Company. Such base compensation shall be payable in equal
installments pursuant to the Company's customary payroll policies in force at
the time of payment (but not less frequently than monthly). Such base
compensation and any other payments made hereunder shall be less all required
and/or authorized payroll deductions.
4.2 Retention Arrangement. Not later than the close of business
---------------------
on May 15, 2000, the Executive shall notify the Company substantially in the
form of the notice attached hereto as Exhibit A that he has irrevocably elected
one of the Retention Arrangements set forth therein. If the Executive fails to
provide timely notice to the Company substantially in form of the notice
attached hereto as Exhibit A, the Executive will be deemed to have elected
Retention Arrangement No. 1 described in the form of notice attached as Exhibit
A. Lump sum payments payable to the Executive hereunder shall be payable
(subject to applicable withholding) as soon as practicable after the second
anniversary of the Consummation Date (or, if later, after the second anniversary
of the Effective Time), so long as the Executive has remained an employee of
Merck-Medco through the entire Employment Period and is an employee of Merck-
Medco on the second anniversary of the Consummation Date (or, if later, after
the second anniversary of the Effective Time).
4.3 Incentive Bonus and Stock Options. In addition to the
---------------------------------
Retention Arrangement set forth in Paragraph 4.2, the Executive shall be
eligible to receive the following during the Employment Period:
(a) Bonus. During the Employment Period, the Executive shall be
-----
eligible to receive performance-based bonuses on the same
terms and conditions generally afforded other similarly
situated employees of Merck-Medco under the Merck & Co., Inc.
Annual Incentive Plan.
(b) Stock Options. Any options granted in connection with the
-------------
applicable Retention Arrangement set forth on Exhibit A
attached hereto shall be subject to the terms and conditions
set forth in Exhibit B attached hereto and made a part
hereof. During the Employment Period, the Executive will be
eligible to receive other grants of options to purchase
shares of Merck & Co., Inc. common
4
<PAGE>
stock under the Merck & Co., Inc. Incentive Stock Plan (the
"Merck Stock Plan") at an exercise price equal to the fair
market value of such common stock on the date of grant. The
number of shares covered by any such option shall be
determined by the Company in its sole and absolute
discretion. All the terms and conditions of such options
shall be governed by the terms and conditions of the Merck
Stock Plan in effect at the time of the applicable grant, as
summarized in the option grant letter provided to the
Executive at the time of each such option grant, which terms
and conditions shall be the same as those that apply to
similarly situated employees of Merck-Medco at the time of
such grant.
4.4 Other Benefits. During the Employment Period, the Executive
--------------
shall be eligible to participate in the employee benefit plans and programs of
the Company, including, but not limited to, its medical, dental, disability,
life insurance and retirement benefit plans and programs of the Company on the
same terms and conditions as are generally afforded similarly situated employees
of the Company, subject to any contribution requirements applicable to
participants of such plans and programs.
4.5 Vacation. The Executive may take such vacation period or
--------
periods during each year in accordance with the Company's vacation policies or
practices for similarly situated employees of the Company. Prior employment
with PV shall be considered as employment with the Company for this purpose.
5. Expenses. Pursuant to the Company's customary policies in force
--------
at the time of payment, the Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all expenses properly and
reasonably incurred by him on behalf of the Company and its Affiliates in the
performance of his duties hereunder.
6. Termination of Employment Period. This Agreement shall continue
--------------------------------
through the Employment Period, unless terminated prior to such date by the
earlier of (a) the Executive's termination pursuant to Sections 7.1, 7.2 7.3 or
7.5; or (b) the Executive's death. In all events, the provisions of Section 9
shall survive termination of this Agreement, and shall remain in effect during
and after any continued employment by the Company subsequent to the termination
of the Employment Period.
5
<PAGE>
7. Termination.
-----------
7.1 By the Company for Cause. Upon written notice, the Company
------------------------
may discharge the Executive and terminate this Agreement for Cause. As used in
this Section 7, Cause shall mean any one or more than one of the following: (i)
an act or acts of personal dishonesty or misrepresentation taken by the
Executive and intended to result in substantial personal enrichment of the
Executive at the expense of the Company; (ii) repeated violations by the
Executive of the Executive's obligations under this Agreement which are
demonstrably willful and deliberate on the Executive's part and which are not
remedied within thirty (30) days after receipt of notice from the Company, or
(iii) the conviction of the Executive of a felony.
7.2 By the Company Without Cause or By the Executive for Good
---------------------------------------------------------
Reason. The Company on written notice to the Executive may discharge the
- ------
Executive and terminate this Agreement without Cause at any time during the
Employment Period. The Executive may terminate this Agreement during the
Employment Period for "Good Reason," which shall mean any one of the following:
(i) the Executive's transfer to a place of employment more than fifty (50) miles
from the Executive's current place of employment; or (ii) a reduction in the
Executive's job title from the title currently specified in paragraph 2 of this
Agreement; however, Executive may terminate the Employment Period for Good
Reason only after the passage of sixty (60) days following written notice from
the Executive to the Company of the event giving rise to the Termination and a
failure by the Company to cure such event.
7.3 Disability. If during the Employment Period, (i) the
----------
Executive shall become ill, mentally or physically disabled, or otherwise
incapacitated so as to be unable to perform regularly the duties of his position
for a period in excess of 90 consecutive days or more than 120 days in any
consecutive 12 month period, or (ii) a duly licensed physician (who does not
have any business or other previous relationship with the Company and is
associated with a teaching hospital in the New York City metropolitan area)
selected by the Company determines that the Executive is mentally or physically
disabled so as to be unable to perform regularly the duties of his position and
such condition is expected to be of a permanent duration (each a "Permanent
Disability"), then the Company shall have the right to discharge the Executive
and terminate this Agreement upon 30 days' written notice to the Executive. In
the absence of termination, the Executive shall receive full compensation and
benefits while disabled; provided, however, that any payments to the Executive
pursuant to the Company's disability plans shall be offset from amounts payable
to the Executive under this Paragraph 7.3. Upon a request by the Company, the
Executive will submit to a medical examination to determine whether the
Executive is subject to a
6
<PAGE>
Permanent Disability.
7.4 Death. The Employment Period and this Agreement shall
-----
terminate forthwith upon the death of the Executive.
7.5 By the Executive. The Executive may terminate the Employment
----------------
Period and this Agreement at any time upon 30 days' written notice to the
Company for any reason other than Good Reason. Section 7.2 shall be the sole
basis for termination for Good Reason.
8. Effect of Termination.
---------------------
8.1 Effect of Termination under Section 7.1. In the event of
---------------------------------------
termination of this Agreement by the Company pursuant to Section 7.1, the
Executive shall be entitled to receive only his earned and unpaid compensation
to the effective date of such termination.
8.2 Effect of Termination under Section 7.2. In the event of
---------------------------------------
termination of this Agreement during the Employment Period pursuant to Section
7.2, the Executive shall be entitled to:
(a) receive his earned and unpaid compensation to the effective
date of such termination;
(b) a lump sum payment in the amount of $330,000.00 (less
applicable withholding) in consideration of the covenants of
the Employee set forth in Section 9 below (and subject in any
event to the last sentence of Section 9.6 hereof);
(c) an additional lump sum payment in the amount of $170,074.00
(less applicable withholding);
(d) 1/24th of the amount equal to the remainder, if any, of (x)
the lump sum amount, if any, that would have been payable
under the Retention Arrangement the Executive elects pursuant
to Section 4.2 and (y) $500,074.00 for each full calendar
month during which the Executive actually performs services
for the Company (less applicable withholding); and
(e) Continued coverage (in an inactive, unpaid employee status)
under the Company's medical, dental and prescription plans
for twelve (12) months or until the Executive obtains other
employment with comparable coverages, whichever is earlier.
7
<PAGE>
8.3 Effect of Termination under Sections 7.3 or 7.4. In the event of
-----------------------------------------------
termination of this Agreement during the Employment Period pursuant to Sections
7.3 or 7.4, the Executive (or the personal representative of his estate or his
heirs at law, as appropriate, in the case of a termination pursuant to Section
7.4) shall be entitled to the amounts referred to in Sections 8.2(a) through
8.2(c) of this Agreement. In addition, in the event of a termination of this
Agreement during the Employment Period pursuant to Section 7.4, and so long as
the Executive has elected Retention Arrangement No. 1 or Retention Arrangement
No. 3 described on Exhibit A attached hereto, the Executive's estate or heirs at
law, as appropriate, shall be entitled to an amount equal to the excess of the
lump sum payments payable under the applicable Retention Arrangement over the
lump sum payment payable under Sections 8.2(b) and 8.2(c) (less applicable
withholding).
8.4 Effect of Termination Under Section 7.5. In the event of
---------------------------------------
Termination of this Agreement under Section 7.5, the Executive shall be entitled
to receive only his earned and unpaid compensation to the effective date of such
termination.
8.5 Conditions Applicable to Sections 8.2 or 8.3. The payments
--------------------------------------------
required under Sections 8.2 or 8.3 will be conditioned upon the Executive (or
the personal representative of his estate or his heirs at law, as appropriate)
executing and delivering a general release of the Company and its Affiliates,
and their Managers, officers, employees and agents, from any claims or
obligations other than (i) the expressed obligation of the Company under Section
8.2 or 8.3 of this Agreement as appropriate, (ii) to pay the Executive his
earned and unpaid compensation to the effective date of termination, (iii) the
obligations of the Company and its Affiliates with respect to all Stock Options,
(iv) the obligations of the Company and its Affiliates to continue to provide
director and officer indemnification (if applicable) and (v) the obligations of
the Company and its Affiliates to comply with the requirements of COBRA and any
other law or regulation applicable to employee benefit plans in connection with
the termination of employment generally. Such general release shall be in a
form acceptable to the Company. The Executive acknowledges that the payments
under Sections 8.2 or 8.3, as appropriate, are in lieu of all such released
claims that the Executive may have against the Company and are liquidated
damages (and not a penalty). Notwithstanding any termination hereunder, the
Company shall have no obligation under Sections 8.2 or 8.3 in the event of a
material breach by the Executive of his covenants in Section 9. For purposes of
this Section 8, the term Stock Options shall mean all options to purchase common
stock of Merck & Co., Inc. previously or hereafter granted to the Executive by
the Company and/or any of its Affiliates.
9. Developments, Confidential Information and Related Matters.
----------------------------------------------------------
8
<PAGE>
9.1 Assignment of Developments. All Developments that are at any
--------------------------
time made, conceived or suggested by the Executive, whether acting alone or in
conjunction with others, during or as a result of the Executive's employment
under this Agreement or thereafter, shall be the sole and absolute property of
the Company, free of any reserved or other rights of any kind on the Executive's
part. During the Executive's employment by the Company and thereafter, the
Executive shall promptly make full disclosure of any such Developments to the
Company and, at its cost and expense, do all acts and things (including, among
others, the execution and delivery under oath of patent and copyright
applications and instruments of assignment) deemed by the Company to be
necessary or desirable at any time in order to effect the full assignment to the
Company of the Executive's right and title, if any, to such Developments.
9.2 Restrictions on Use and Disclosure. The Executive
----------------------------------
acknowledges that the Confidential Information is valuable and proprietary to
the Company (or to third parties that have entrusted Confidential Information to
the Company), and, except as required by the Executive's duties hereunder, the
Executive shall not at any time, directly or indirectly, use, copy, publish,
summarize, disseminate, describe or otherwise disclose any Confidential
Information or Developments without the prior written consent of the Company.
9.3 Return of Documents. Upon termination of the Executive's
-------------------
employment with the Company, or at the Company's request, whichever is sooner,
the Executive shall forthwith deliver to the Company all manuals, memoranda,
projections, minutes, plans, drawings, designs, formula books, specifications,
listings, records, notebooks, computer programs and similar repositories of, or
containing Confidential Information and Developments, including all copies, then
in the Executive's possession or control, whether prepared by the Executive or
others. Upon such termination, the Executive shall not retain any copies or
abstracts of any such documents or materials.
9.4 Restrictions on Competitive Employment. During the term of
--------------------------------------
the Executive's employment and for a period of twelve (12) months after the
termination of the Executive's employment for any reason, pursuant to this
Agreement or thereafter, absent the Company's prior written approval, the
Executive shall not (as an individual, principal, agent, employee, consultant or
otherwise) within the Territory, directly or indirectly, engage in activities
competitive with, nor render services to any firm or business engaged or about
to become engaged in the Business of the Company. In addition, the Executive
shall not have an equity interest in any such firm or business other than as a
1% or less shareholder of a public corporation.
9.5 Inducement; Enticement. During the term of the
----------------------
9
<PAGE>
Executive's employment and for a period of twelve (12) months after the
termination of the Executive's employment for any reason, pursuant to this
Agreement or thereafter, the Executive shall not, directly or indirectly: (a)
solicit or contact any customer or prospective customer of the Company or any of
its Affiliates as to matters that relate to the Business of the Company or which
is in any way inconsistent or interferes therewith; (b) induce, or attempt to
induce, any employees or agents or consultants of the Company or any of its
Affiliates to do anything from which the Executive is restricted by reason of
Sections 9.1 through 9.5; or (c) offer or aid others to offer employment to any
employees of the Company or any of its Affiliates.
9.6 Survival and Other Matters. The provisions of Sections 9.1
--------------------------
through 9.5 shall survive the termination of this Agreement and shall continue
in effect during and after any employment of the Executive after the end of the
Employment Period and the termination of this Agreement. This provision shall
not be construed to limit the survival of any other provisions that also survive
the termination of this Agreement by the express or implied terms of such
provisions. In addition, it is understood that the value to the Company of the
Executive agreeing to and abiding by the restrictions set forth in this Section
9 is equal to at least $330,000.00, but it is further understood that (i) the
Executive has agreed to abide by such restrictions in consideration of the
Company's entering into this Agreement, and (ii) such restrictions shall remain
in effect irrespective of whether the Executive becomes entitled to any payments
or benefits hereunder.
10. Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given on the date that they are delivered personally or sent by registered or
certified mail (return receipt requested) postage prepaid to the parties at the
following addresses (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) If to the Company:
Merck-Medco Managed Care, L.L.C.
100 Parsons Pond Drive
Franklin Lakes, New Jersey 07417
Attention: Senior Vice President -
Chief Financial Officer
With a copy at the same address to:
President.
10
<PAGE>
(b) If to the Executive, at the last address included on the Company's
payroll records.
11. [intentionally omitted.]
12. Miscellaneous.
-------------
12.1 Representations and Covenants. In order to induce the
-----------------------------
Company to enter into this Agreement, the Executive makes the following
representations and covenants to the Company and acknowledges that the Company
is relying upon said representations and covenants:
(a) No agreements or obligations exist to which the Executive is
a party or otherwise bound, in writing or otherwise, which in
any way interfere with, impede or preclude him from
fulfilling all of the terms and conditions of this Agreement.
(b) The Executive, during his employment by the Company, shall
use his best efforts to disclose to the President in writing
or by other effective method any bona fide information known
by him that would have any material negative impact on the
Company or an Affiliate.
12.2 Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties as to the subject matter hereof and fully
supersedes all prior oral and written agreements and understandings between the
parties with respect to such subject matter. This Agreement also supersedes and
nullifies any and all change-of-control, severance or other employment-related
agreements entered into by Executive with PV or any of its predecessor or
affiliated corporations (including, without limitation, the Change of Control
Agreement), it being agreed between Executive and Merck-Medco that, following
the Consummation Date, (i) the consideration provided to the Executive as set
forth in this Agreement is in lieu of any consideration provided by such other
agreements and (ii) all such agreements shall cease to be of any force and
effect.
12.3 Amendment; Waiver. This Agreement may not be amended,
-----------------
supplemented, cancelled or discharged, except by written instrument executed by
the party as to whom enforcement is sought. No failure to exercise, and no delay
in exercising, any right, power or privilege hereunder shall operate as a waiver
thereof. No waiver of any breach of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of this Agreement.
12.4 Binding Effect; Assignment. The rights and obligations of
--------------------------
this Agreement shall bind and inure to the benefit
11
<PAGE>
of the surviving corporation in any merger or consolidation in which the Company
is a party, or any assignee of all or substantially all of the Company's
business and properties. The Executive's rights and obligations under this
Agreement may not be assigned by him, except that his right to receive accrued
but unpaid compensation, unreimbursed expenses and other rights, if any,
provided under this Agreement which survive termination of this Agreement shall
pass after death to the personal representatives of his estate.
12.5 Headings. The headings contained in this Agreement (except
--------
those in Section 1) are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
12.6 Counterparts. This Agreement may be executed in one or more
------------
copies, each of which shall be deemed an original.
12.7 Governing Law; Interpretation. This Agreement shall be
-----------------------------
construed in accordance with and governed for all purposes by the laws and
public policy of the State of New Jersey, without regard to any principles of
conflict of laws. Service of process in any dispute shall be effective (a) upon
the Company, if served upon the Chairman of the Board, the President or any
Executive Vice President of the Company (other than the Executive); and (b) upon
the Executive, if delivered to the Executive's residence last known to the
Company. The Executive acknowledges that a breach of Sections 9.1 through 9.5
would cause grave and irreparable injury to the Company that would not be
compensable in money damages, and therefore, in addition to the Company's other
express and implied remedies, the Company shall be entitled to injunctive and
other equitable relief to prevent any actual, intended or likely injuries that
may result from such breach. However, nothing in this Section shall limit any
other right or remedy to which the Company may be entitled.
12.8 Further Assurances. Each party agrees at any time, and from
------------------
time-to-time, to execute, acknowledge, deliver and perform, and/or cause to be
executed, acknowledged, delivered and performed, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and/or assurances as may
be necessary, and/or proper to carry out the provisions and/or intent of this
Agreement.
12.9 Gender; Singular; Plural. In this Agreement, the use of one
------------------------
gender (e.g., "he", "she" and "it") shall mean each other gender; and the
-----
singular shall mean the plural, and vice versa, all as the context may require.
12.10 Severability. The parties acknowledge that the terms of
------------
this Agreement are fair and reasonable at the date signed by them. However, in
light of the possibility of a change of conditions or differing interpretations
by a court of what is
12
<PAGE>
fair and reasonable, the parties stipulate as follows: if any one or more of the
terms, provisions, covenants or restrictions of this Agreement shall be
determined by a court of competent jurisdiction 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; further, if any one or more of
the terms, provisions, covenants or restrictions contained in this Agreement
shall for any reason be determined by a court of competent jurisdiction to be
excessively broad as to duration, geographical scope, activity or subject, it
shall be construed, by limiting or reducing it, so as to be enforceable to the
maximum extent compatible with then applicable law.
12.11 Consents. Any consent, approval or authorizations required
--------
hereunder shall mean the written consent, approval or authorization of the
Chairman of the Board of the Company or such other officer as may be designated
in writing by the Board of Managers.
[SIGNATURE PAGE FOLLOWS]
13
<PAGE>
EXECUTION
The parties, intending to be legally bound in accordance with its terms
as of the date first above written, executed this Agreement, to be effective as
of the Consummation Date.
MERCK-MEDCO MANAGED CARE, L.L.C.
DATE: May 4, 2000 /s/ Richard T. Clark
--------------------------------------
By: Richard T. Clark
Its: President
DATE: May 4, 2000 /s/ Peter F. Hoffman
--------------------------------------
Peter F. Hoffman
14
<PAGE>
Exhibit A to Employment Agreement
NOTICE OF RETENTION ARRANGEMENT ELECTION
----------------------------------------
Date: _______________, 2000
Certified Mail/Return Receipt Requested
Mr. Thomas DiDonato
Senior Vice President - Human Resources
Merck-Medco Managed Care, L.L.C.
100 Parsons Pond Drive
Franklin Lakes, New Jersey 07417
Dear Mr. DiDonato:
Pursuant to Section 4.2 of that certain employment agreement (the
"Employment Agreement") dated __________, 2000 between me and Merck-Medco
Managed Care, L.L.C. (the "Company"), I hereby irrevocably elect the Retention
Arrangement indicated by a check mark below:
[_] Retention Arrangement No. 1
A lump sum payment of $750,111.00
[_] Retention Arrangement No. 2
(A) A lump sum payment of $500,074.00; and
(B) an option to purchase 17,860/1/ shares of Merck & Co., Inc.
common stock under the Merck Stock Plan, on the terms set forth
on Exhibit B attached to the Employment Agreement, which option
shall be granted at the Consummation Date, provided I am an
employee of Merck-Medco on that date.
[_] Retention Arrangement No. 3
(A) A lump sum payment of $625,093.00; and
(B) an option to purchase 8,930 shares of Merck & Co., Inc. common
stock under the Merck Stock Plan, on the terms set forth on
Exhibit B attached to the Employment Agreement, which option
shall be granted at the Consummation Date, provided I am an
employee of Merck-Medco on that date.
___________________
/1/ The number of shares subject to the option referenced in subparagraph (B) of
Retention Arrangement Nos. 2 and 3 is an estimate based upon a closing price of
$70.00 per share. The actual number of shares subject to the option may vary.
15
<PAGE>
I understand, acknowledge and agree that:
(1) The Retention Arrangement I have irrevocably elected above is
subject to the terms and conditions set forth in the Employment
Agreement and that nothing in this letter agreement in any way
affects the terms and conditions of the Employment Agreement;
(2) Upon execution of this letter agreement by me and the Company,
this letter agreement shall be incorporated into and deemed a
part of the Employment Agreement;
(3) This letter agreement may be executed in one or more copies, each
of which shall be deemed an original; and
(4) Capitalized terms not specifically defined herein shall have the
meaning ascribed to them in the Employment Agreement.
Please indicate your election, and your agreement with and acceptance
of the foregoing, by executing a copy of this letter agreement below as
indicated.
Sincerely,
______________________
Peter F. Hoffman
Agreed to and accepted this ___
day of _________, 2000
Merck-Medco Managed Care, L.L.C.
By:______________________________
Name:____________________________
Title:___________________________
16
<PAGE>
Exhibit B to Employment Agreement
Option Terms
------------
- --------------------------------------------------------------------------------
Option Type: Non-qualified stock option
- --------------------------------------------------------------------------------
Term: 10 years from date of grant (the
"Expiration Date")
- --------------------------------------------------------------------------------
Vesting Date: Earlier of date of death and 2nd
anniversary of grant date, provided
the Executive is an employee of
Merck-Medco on the applicable date
- --------------------------------------------------------------------------------
Exercise Price: Fair market value on date of grant
- --------------------------------------------------------------------------------
Effect of termination of see chart below
Employment:
- --------------------------------------------------------------------------------
Effect of Termination of Employment:
-----------------------------------
- --------------------------------------------------------------------------------
Due to death options are exercisable by the estate
for 3 years from date of death (but
not later than the Expiration Date)
- --------------------------------------------------------------------------------
By the Company for "Cause" (as defined options lapse on the termination of
in the Employment Agreement). employment date
- --------------------------------------------------------------------------------
By the Company without Cause (other Options to purchase a number of shares
than death) or by the Executive for equal to the product (rounded to the
"Good Reason" (as defined in the nearest whole number) of (a) the total
Employment Agreement) during the number of shares subject to the option
2-year period beginning on the date of multiplied by (b) a fraction, the
grant. numerator of which is the number of
full calendar months the Executive has
been employed by the Company
(excluding any period the Executive is
on unpaid inactive status due to the
application of Paragraph 8.2(e) of the
Employment Agreement) since the option
grant date and the denominator of
which is 24, are exercisable by the
Executive for a period beginning on
the date the Executive's active
employment with the Company is
terminated and ending on the 5th
anniversary of the grant date. The
remaining options lapse on the date
the Executive's active employment with
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
the Company terminates. For purposes
of this section, the Executive's
active employment ends on the earlier
of (x) the date his employment
terminates or (y) the day his period
of unpaid inactive employment with the
Company begins in accordance with
Paragraph 8.2(e) of the Employment
Agreement.
- --------------------------------------------------------------------------------
By the Executive for any reason (other options lapse on termination of
than death or Good Reason) during the employment date
2-year period beginning on date of
grant
- --------------------------------------------------------------------------------
By the Company without cause (other options are exercisable for the
than death or disability) during the following period, whichever is longer:
period beginning on the 2nd (a) 3 months from the termination of
anniversary of grant date and ending employment date or (b) 5th anniversary
on the 5th anniversary of grant date of grant date
- --------------------------------------------------------------------------------
By the Executive for any reason (other options are exercisable for 3 months
than death) or by the Company for from termination of employment date
disability, in each case during the
period beginning on the 2nd
anniversary of grant date and ending
on the 5th anniversary of grant date
- --------------------------------------------------------------------------------
By the Company due to "separation" (as options are exercisable for 1 year
defined by the Merck Stock Plan) from termination of employment date
during the period beginning on the 5th (but not later than the Expiration
Anniversary and ending on the Date)
Expiration Date
- --------------------------------------------------------------------------------
By the Executive due to retirement at options are exercisable until the
or after age 55 with at least 7 years Expiration Date
of employment with Merck-Medco during
the period beginning on the 5th
Anniversary and ending on the
Expiration Date
- --------------------------------------------------------------------------------
By the Company or Executive for any options are exercisable for 3 months
reason (other than death, separation from termination of employment date
or retirement) during the period (but not later than the Expiration
beginning on the 5th Anniversary and Date)
ending on the Expiration Date
- --------------------------------------------------------------------------------
18
<PAGE>
EXHIBIT (e)(10)
---------------
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT ("Agreement"), dated as of May 4, 2000, is
entered into by and between Merck-Medco Managed Care, L.L.C. ("Merck-Medco" or
"Company"), a Delaware corporation with offices at 100 Parsons Pond Drive,
Franklin Lakes, New Jersey 07417 and Glen Laschober ("Executive").
RECITALS
WHEREAS, Executive has been and is presently employed by ProVantage
Health Services, Inc. ("PV"); and
WHEREAS, PV, Merck-Medco and a subsidiary of Merck-Medco ("Merger Sub")
have entered into an Agreement and Plan of Merger, dated as of May 4, 2000 (the
"Merger Agreement"), pursuant to which, at the "Effective Time" (as defined in
the Merger Agreement) (the "Effective Time"), Merger Sub will be merged with and
into PV (the "Merger") and PV will thereby become a wholly owned subsidiary of
Merck-Medco; and
WHEREAS, pursuant to the Merger Agreement, it is intended that the
acquisition of PV by Merck-Medco be accomplished by means of a cash tender offer
by Merger Sub for all of the issued and outstanding common stock of PV (the
consummation of such tender offer, the "Consummation Date"), followed by the
Merger; and
WHEREAS, Executive is currently a party to a Change of Control
Agreement with PV, dated as of December 22, 1998 (the "Change of Control
Agreement"); and
WHEREAS, Merck-Medco desires to secure the continued services and
employment of the Executive on its behalf following the Consummation Date, and
the Executive is willing to render such services on the terms and conditions set
forth herein; and
WHEREAS, the Executive and Merck-Medco have agreed that this Agreement
shall supersede the Change of Control Agreement in its entirety and that, upon
and following the Consummation Date, the Change of Control Agreement shall cease
to be of any force or effect;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows, effective as of the Consummation
Date:
TERMS OF AGREEMENT
In consideration of the Recitals (which are incorporated herein) and
the mutual covenants in this Agreement, the parties agree as follows:
1
<PAGE>
1. Definitions. For the purpose of this Agreement, the terms used as
-----------
headings in this Section 1, and parenthetically defined elsewhere in this
Agreement, shall have the indicated meanings and may be used in the singular or
plural.
"Affiliate." Any business entity controlled by, controlling, or
---------
under common control or in joint venture with, the Company.
"Business of the Company." The Company and/or its Affiliates are
-----------------------
engaged in : (i) the third party prescription drug claims processing business;
(ii) the design, development or marketing of or consulting as to, prescription
drug benefit plans; (iii) the provision of mail service pharmacy, including,
without limitation, internet-based services (including all those products and
services that are presently or hereafter marketed by the Company or any of its
Affiliates, or that are in the development stage at the time of termination of
Executive's employment and are actually marketed by the Company or any of its
Affiliates thereafter); (iv) the collection, analysis and/or sale of data
relating to prescription drug utilization; (v) the pharmacy benefit management
and disease management businesses; (vi) the organization and administration of
retail pharmacy networks; and (vii) any other business in which the Company or
any of its Affiliates is then engaged as to which Executive has involvement in
the course of his employment hereunder and/or acquired or received Confidential
Information.
"Confidential Information." All confidential and proprietary
------------------------
information of the Company and its Affiliates, in whatever form, tangible or
intangible, not otherwise publicly disclosed or generally available (other than
as a result of a wrongful disclosure by the Executive), whether or not
discovered or developed by the Executive, including information entrusted to the
Company and/or its Affiliates by others. Without limiting the generality of the
foregoing, Confidential Information shall include but shall not be limited to:
(a) customer lists, lists of potential customers and details of agreements with
customers; (b) acquisition, expansion, marketing, financial and other business
information and plans of the Company or any of its Affiliates; (c) research and
development; (d) data concerning usage of prescription drugs and any other data
compiled by the Company or any of its Affiliates; (e) computer programs; (f)
sources of supply; (g) identity of specialized consultants and contractors and
Confidential Information developed by them for the Company or any of its
Affiliates; (h) purchasing, operating and other cost data; (i) special customer
needs, cost and pricing data; (j) employee information (including, but not
limited to, personnel, payroll, compensation and benefit data and plans); and
(k) patient records and data, including all such information recorded in
manuals,
2
<PAGE>
memoranda, projections, minutes, plans, drawings, designs, formula books,
specifications, computer programs and records, whether or not legended or
otherwise identified by the Company or any of its Affiliates as Confidential
Information, as well as such information that is the subject of meetings and
discussions and not recorded.
"Developments." All data, discoveries, findings, reports, designs,
------------
inventions, improvements, methods, practices, techniques, developments, programs
(computer or otherwise), formulas, plans, concepts, and ideas, whether or not
patentable, relating to the present and planned future activities and the
Products and Services of the Company or any of its Affiliates.
"Employment Period." The period from the Consummation Date (the
-----------------
"Commencement Date") through the second anniversary of the Commencement Date
(or, if later, through the second anniversary of the Effective Time), unless
terminated prior thereto as set forth in Section 6.
"Products and Services." All products or services sold, rented,
---------------------
leased, rendered or otherwise made available to customers by the Company or any
of its Affiliates, as well as products and services in any stage of development
by the Company or any of its Affiliates, although not yet commercialized or not
generally available.
"Territory." The United States of America, its territories and
---------
possessions.
2. Employment. The Company hereby employs the Executive during the
----------
Employment Period subject to the terms of this Agreement, and thereafter as an
employee-at-will, and to perform those duties and services as may be designated
from time-to-time by its President or his designee. Executive hereby accepts
said employment. The Executive shall use his best and most diligent efforts to
promote the interests of the Company and its Affiliates and shall devote his
full business time and attention to his employment under this Agreement. The
Executive will not, without the prior written approval of the President of
Merck-Medco, engage in any other business activity which would interfere with
the performance of his duties, services and responsibilities hereunder or which
is in violation of policies established from time to time by Merck-Medco.
3. Title. The Executive presently has been assigned the title of
-----
Executive Vice President - ProVantage/Vice President - Merck-Medco. In the
future, the Company may assign the Executive to other positions and titles, as
required by the Company's business.
3
<PAGE>
4. Compensation and Benefits; Disability.
-------------------------------------
4.1 Base Compensation. During the Employment Period, the Company
-----------------
shall pay the Executive base compensation commencing at an annual rate of
$244,310.00; the Executive shall be eligible for annual merit increases at the
discretion of the Company. Such base compensation shall be payable in equal
installments pursuant to the Company's customary payroll policies in force at
the time of payment (but not less frequently than monthly). Such base
compensation and any other payments made hereunder shall be less all required
and/or authorized payroll deductions.
4.2 Retention Arrangement. Not later than the close of
---------------------
business on May 15, 2000, the Executive shall notify the Company substantially
in the form of the notice attached hereto as Exhibit A that he has irrevocably
elected one of the Retention Arrangements set forth therein. If the Executive
fails to provide timely notice to the Company substantially in form of the
notice attached hereto as Exhibit A, the Executive will be deemed to have
elected Retention Arrangement No. 1 described in the form of notice attached as
Exhibit A. Lump sum payments payable to the Executive hereunder shall be payable
(subject to applicable withholding) as soon as practicable after the second
anniversary of the Consummation Date (or, if later, after the second anniversary
of the Effective Time), so long as the Executive has remained an employee of
Merck-Medco through the entire Employment Period and is an employee of Merck-
Medco on the second anniversary of the Consummation Date (or, if later, after
the second anniversary of the Effective Time).
4.3 Incentive Bonus and Stock Options. In addition to the
---------------------------------
Retention Arrangement set forth in Paragraph 4.2, the Executive shall be
eligible to receive the following during the Employment Period:
(a) Bonus. During the Employment Period, the Executive shall be
-----
eligible to receive performance-based bonuses on the same
terms and conditions generally afforded other similarly
situated employees of Merck-Medco under the Merck & Co.,
Inc. Annual Incentive Plan.
(b) Stock Options. Any options granted in connection with the
-------------
applicable Retention Arrangement set forth on Exhibit A
attached hereto shall be subject to the terms and conditions
set forth in Exhibit B attached hereto and made a part
hereof. During the Employment Period, the Executive will be
eligible to receive other grants of options to purchase
shares of Merck & Co., Inc. common
4
<PAGE>
stock under the Merck & Co., Inc. Incentive Stock Plan (the
"Merck Stock Plan") at an exercise price equal to the fair
market value of such common stock on the date of grant. The
number of shares covered by any such option shall be
determined by the Company in its sole and absolute
discretion. All the terms and conditions of such options
shall be governed by the terms and conditions of the Merck
Stock Plan in effect at the time of the applicable grant, as
summarized in the option grant letter provided to the
Executive at the time of each such option grant, which terms
and conditions shall be the same as those that apply to
similarly situated employees of Merck-Medco at the time of
such grant.
4.4 Other Benefits. During the Employment Period, the
--------------
Executive shall be eligible to participate in the employee benefit plans and
programs of the Company, including, but not limited to, its medical, dental,
disability, life insurance and retirement benefit plans and programs of the
Company on the same terms and conditions as are generally afforded similarly
situated employees of the Company, subject to any contribution requirements
applicable to participants of such plans and programs.
4.5 Vacation. The Executive may take such vacation period
--------
or periods during each year in accordance with the Company's vacation policies
or practices for similarly situated employees of the Company. Prior employment
with PV shall be considered as employment with the Company for this purpose.
5. Expenses. Pursuant to the Company's customary policies in force
--------
at the time of payment, the Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all expenses properly and
reasonably incurred by him on behalf of the Company and its Affiliates in the
performance of his duties hereunder.
6. Termination of Employment Period. This Agreement shall continue
--------------------------------
through the Employment Period, unless terminated prior to such date by the
earlier of (a) the Executive's termination pursuant to Sections 7.1, 7.2 7.3 or
7.5; or (b) the Executive's death. In all events, the provisions of Section 9
shall survive termination of this Agreement, and shall remain in effect during
and after any continued employment by the Company subsequent to the termination
of the Employment Period.
5
<PAGE>
7. Termination.
-----------
7.1 By the Company for Cause. Upon written notice, the
------------------------
Company may discharge the Executive and terminate this Agreement for Cause. As
used in this Section 7, Cause shall mean any one or more than one of the
following: (i) an act or acts of personal dishonesty or misrepresentation taken
by the Executive and intended to result in substantial personal enrichment of
the Executive at the expense of the Company; (ii) repeated violations by the
Executive of the Executive's obligations under this Agreement which are
demonstrably willful and deliberate on the Executive's part and which are not
remedied within thirty (30) days after receipt of notice from the Company, or
(iii) the conviction of the Executive of a felony.
7.2 By the Company Without Cause or By the Executive for
----------------------------------------------------
Good Reason. The Company on written notice to the Executive may discharge the
- -----------
Executive and terminate this Agreement without Cause at any time during the
Employment Period. The Executive may terminate this Agreement during the
Employment Period for "Good Reason," which shall mean any one of the following:
(i) the Executive's transfer to a place of employment more than fifty (50) miles
from the Executive's current place of employment; or (ii) a reduction in the
Executive's job title from the title currently specified in paragraph 2 of this
Agreement; however, Executive may terminate the Employment Period for Good
Reason only after the passage of sixty (60) days following written notice from
the Executive to the Company of the event giving rise to the Termination and a
failure by the Company to cure such event.
7.3 Disability. If during the Employment Period, (i) the
----------
Executive shall become ill, mentally or physically disabled, or otherwise
incapacitated so as to be unable to perform regularly the duties of his position
for a period in excess of 90 consecutive days or more than 120 days in any
consecutive 12 month period, or (ii) a duly licensed physician (who does not
have any business or other previous relationship with the Company and is
associated with a teaching hospital in the New York City metropolitan area)
selected by the Company determines that the Executive is mentally or physically
disabled so as to be unable to perform regularly the duties of his position and
such condition is expected to be of a permanent duration (each a "Permanent
Disability"), then the Company shall have the right to discharge the Executive
and terminate this Agreement upon 30 days' written notice to the Executive. In
the absence of termination, the Executive shall receive full compensation and
benefits while disabled; provided, however, that any payments to the Executive
pursuant to the Company's disability plans shall be offset from amounts payable
to the Executive under this Paragraph 7.3. Upon a request by the Company, the
Executive will submit to a medical examination to determine whether the
Executive is subject to a
6
<PAGE>
Permanent Disability.
7.4 Death. The Employment Period and this Agreement shall
-----
terminate forthwith upon the death of the Executive.
7.5 By the Executive. The Executive may terminate the
----------------
Employment Period and this Agreement at any time upon 30 days' written notice to
the Company for any reason other than Good Reason. Section 7.2 shall be the sole
basis for termination for Good Reason.
8. Effect of Termination.
---------------------
8.1 Effect of Termination under Section 7.1. In the event of
---------------------------------------
termination of this Agreement by the Company pursuant to Section 7.1, the
Executive shall be entitled to receive only his earned and unpaid compensation
to the effective date of such termination.
8.2 Effect of Termination under Section 7.2. In the event of
---------------------------------------
termination of this Agreement during the Employment Period pursuant to Section
7.2, the Executive shall be entitled to:
(a) receive his earned and unpaid compensation to the
effective date of such termination;
(b) a lump sum payment in the amount of $367,000.00 (less
applicable withholding) in consideration of the covenants
of the Employee set forth in Section 9 below (and subject
in any event to the last sentence of Section 9.6 hereof);
(c) an additional lump sum payment in the amount of
$192,940.00 (less applicable withholding);
(d) 1/24th of the amount equal to the remainder, if any, of
(x) the lump sum amount, if any, that would have been
payable under the Retention Arrangement the Executive
elects pursuant to Section 4.2 and (y) $559,940.00 for
each full calendar month during which the Executive
actually performs services for the Company (less
applicable withholding); and
(e) Continued coverage (in an inactive, unpaid employee
status) under the Company's medical, dental and
prescription plans for twelve (12) months or until the
Executive obtains other employment with comparable
coverages, whichever is earlier.
7
<PAGE>
8.3 Effect of Termination under Sections 7.3 or 7.4. In the
-----------------------------------------------
event of termination of this Agreement during the Employment Period pursuant to
Sections 7.3 or 7.4, the Executive (or the personal representative of his estate
or his heirs at law, as appropriate, in the case of a termination pursuant to
Section 7.4) shall be entitled to the amounts referred to in Sections 8.2(a)
through 8.2(c) of this Agreement. In addition, in the event of a termination of
this Agreement during the Employment Period pursuant to Section 7.4, and so long
as the Executive has elected Retention Arrangement No. 1 or Retention
Arrangement No. 3 described on Exhibit A attached hereto, the Executive's estate
or heirs at law, as appropriate, shall be entitled to an amount equal to the
excess of the lump sum payments payable under the applicable Retention
Arrangement over the lump sum payment payable under Sections 8.2(b) and 8.2(c)
(less applicable withholding).
8.4 Effect of Termination Under Section 7.5. In the event of
---------------------------------------
Termination of this Agreement under Section 7.5, the Executive shall be entitled
to receive only his earned and unpaid compensation to the effective date of such
termination.
8.5 Conditions Applicable to Sections 8.2 or 8.3. The
--------------------------------------------
payments required under Sections 8.2 or 8.3 will be conditioned upon the
Executive (or the personal representative of his estate or his heirs at law, as
appropriate) executing and delivering a general release of the Company and its
Affiliates, and their Managers, officers, employees and agents, from any claims
or obligations other than (i) the expressed obligation of the Company under
Section 8.2 or 8.3 of this Agreement as appropriate, (ii) to pay the Executive
his earned and unpaid compensation to the effective date of termination, (iii)
the obligations of the Company and its Affiliates with respect to all Stock
Options, (iv) the obligations of the Company and its Affiliates to continue to
provide director and officer indemnification (if applicable) and (v) the
obligations of the Company and its Affiliates to comply with the requirements of
COBRA and any other law or regulation applicable to employee benefit plans in
connection with the termination of employment generally. Such general release
shall be in a form acceptable to the Company. The Executive acknowledges that
the payments under Sections 8.2 or 8.3, as appropriate, are in lieu of all such
released claims that the Executive may have against the Company and are
liquidated damages (and not a penalty). Notwithstanding any termination
hereunder, the Company shall have no obligation under Sections 8.2 or 8.3 in the
event of a material breach by the Executive of his covenants in Section 9. For
purposes of this Section 8, the term Stock Options shall mean all options to
purchase common stock of Merck & Co., Inc. previously or hereafter granted to
the Executive by the Company and/or any of its Affiliates.
9. Developments, Confidential Information and Related Matters.
----------------------------------------------------------
8
<PAGE>
9.1 Assignment of Developments. All Developments that are at any
--------------------------
time made, conceived or suggested by the Executive, whether acting alone or in
conjunction with others, during or as a result of the Executive's employment
under this Agreement or thereafter, shall be the sole and absolute property of
the Company, free of any reserved or other rights of any kind on the Executive's
part. During the Executive's employment by the Company and thereafter, the
Executive shall promptly make full disclosure of any such Developments to the
Company and, at its cost and expense, do all acts and things (including, among
others, the execution and delivery under oath of patent and copyright
applications and instruments of assignment) deemed by the Company to be
necessary or desirable at any time in order to effect the full assignment to the
Company of the Executive's right and title, if any, to such Developments.
9.2 Restrictions on Use and Disclosure. The Executive acknowledges
----------------------------------
that the Confidential Information is valuable and proprietary to the Company (or
to third parties that have entrusted Confidential Information to the Company),
and, except as required by the Executive's duties hereunder, the Executive shall
not at any time, directly or indirectly, use, copy, publish, summarize,
disseminate, describe or otherwise disclose any Confidential Information or
Developments without the prior written consent of the Company.
9.3 Return of Documents. Upon termination of the Executive's
-------------------
employment with the Company, or at the Company's request, whichever is sooner,
the Executive shall forthwith deliver to the Company all manuals, memoranda,
projections, minutes, plans, drawings, designs, formula books, specifications,
listings, records, notebooks, computer programs and similar repositories of, or
containing Confidential Information and Developments, including all copies, then
in the Executive's possession or control, whether prepared by the Executive or
others. Upon such termination, the Executive shall not retain any copies or
abstracts of any such documents or materials.
9.4 Restrictions on Competitive Employment. During the term of the
--------------------------------------
Executive's employment and for a period of twelve (12) months after the
termination of the Executive's employment for any reason, pursuant to this
Agreement or thereafter, absent the Company's prior written approval, the
Executive shall not (as an individual, principal, agent, employee, consultant or
otherwise) within the Territory, directly or indirectly, engage in activities
competitive with, nor render services to any firm or business engaged or about
to become engaged in the Business of the Company. In addition, the Executive
shall not have an equity interest in any such firm or business other than as a
1% or less shareholder of a public corporation.
9.5 Inducement; Enticement. During the term of the
----------------------
9
<PAGE>
Executive's employment and for a period of twelve (12) months after the
termination of the Executive's employment for any reason, pursuant to this
Agreement or thereafter, the Executive shall not, directly or indirectly: (a)
solicit or contact any customer or prospective customer of the Company or any of
its Affiliates as to matters that relate to the Business of the Company or which
is in any way inconsistent or interferes therewith; (b) induce, or attempt to
induce, any employees or agents or consultants of the Company or any of its
Affiliates to do anything from which the Executive is restricted by reason of
Sections 9.1 through 9.5; or (c) offer or aid others to offer employment to any
employees of the Company or any of its Affiliates.
9.6 Survival and Other Matters. The provisions of Sections 9.1
--------------------------
through 9.5 shall survive the termination of this Agreement and shall continue
in effect during and after any employment of the Executive after the end of the
Employment Period and the termination of this Agreement. This provision shall
not be construed to limit the survival of any other provisions that also survive
the termination of this Agreement by the express or implied terms of such
provisions. In addition, it is understood that the value to the Company of the
Executive agreeing to and abiding by the restrictions set forth in this Section
9 is equal to at least $367,000.00, but it is further understood that (i) the
Executive has agreed to abide by such restrictions in consideration of the
Company's entering into this Agreement, and (ii) such restrictions shall remain
in effect irrespective of whether the Executive becomes entitled to any payments
or benefits hereunder.
10. Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given on the date that they are delivered personally or sent by registered or
certified mail (return receipt requested) postage prepaid to the parties at the
following addresses (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) If to the Company:
Merck-Medco Managed Care, L.L.C.
100 Parsons Pond Drive
Franklin Lakes, New Jersey 07417
Attention: Senior Vice President -
Chief Financial Officer
With a copy at the same address to:
President.
10
<PAGE>
(b) If to the Executive, at the last address included on the
Company's payroll records.
11. [intentionally omitted.]
12. Miscellaneous.
-------------
12.1 Representations and Covenants. In order to induce the
-----------------------------
Company to enter into this Agreement, the Executive makes the following
representations and covenants to the Company and acknowledges that the Company
is relying upon said representations and covenants:
(a) No agreements or obligations exist to which the Executive is
a party or otherwise bound, in writing or otherwise, which
in any way interfere with, impede or preclude him from
fulfilling all of the terms and conditions of this
Agreement.
(b) The Executive, during his employment by the Company, shall
use his best efforts to disclose to the President in writing
or by other effective method any bona fide information known
by him that would have any material negative impact on the
Company or an Affiliate.
12.2 Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties as to the subject matter hereof and fully
supersedes all prior oral and written agreements and understandings between the
parties with respect to such subject matter. This Agreement also supersedes and
nullifies any and all change-of-control, severance or other employment-related
agreements entered into by Executive with PV or any of its predecessor or
affiliated corporations (including, without limitation, the Change of Control
Agreement), it being agreed between Executive and Merck-Medco that, following
the Consummation Date, (i) the consideration provided to the Executive as set
forth in this Agreement is in lieu of any consideration provided by such other
agreements and (ii) all such agreements shall cease to be of any force and
effect.
12.3 Amendment; Waiver. This Agreement may not be amended,
-----------------
supplemented, cancelled or discharged, except by written instrument executed by
the party as to whom enforcement is sought. No failure to exercise, and no delay
in exercising, any right, power or privilege hereunder shall operate as a waiver
thereof. No waiver of any breach of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of this Agreement.
12.4 Binding Effect; Assignment. The rights and obligations of
--------------------------
this Agreement shall bind and inure to the benefit
11
<PAGE>
of the surviving corporation in any merger or consolidation in which the Company
is a party, or any assignee of all or substantially all of the Company's
business and properties. The Executive's rights and obligations under this
Agreement may not be assigned by him, except that his right to receive accrued
but unpaid compensation, unreimbursed expenses and other rights, if any,
provided under this Agreement which survive termination of this Agreement shall
pass after death to the personal representatives of his estate.
12.5 Headings. The headings contained in this Agreement (except
--------
those in Section 1) are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
12.6 Counterparts. This Agreement may be executed in one or
------------
more copies, each of which shall be deemed an original.
12.7 Governing Law; Interpretation. This Agreement shall be
-----------------------------
construed in accordance with and governed for all purposes by the laws and
public policy of the State of New Jersey, without regard to any principles of
conflict of laws. Service of process in any dispute shall be effective (a) upon
the Company, if served upon the Chairman of the Board, the President or any
Executive Vice President of the Company (other than the Executive); and (b) upon
the Executive, if delivered to the Executive's residence last known to the
Company. The Executive acknowledges that a breach of Sections 9.1 through 9.5
would cause grave and irreparable injury to the Company that would not be
compensable in money damages, and therefore, in addition to the Company's other
express and implied remedies, the Company shall be entitled to injunctive and
other equitable relief to prevent any actual, intended or likely injuries that
may result from such breach. However, nothing in this Section shall limit any
other right or remedy to which the Company may be entitled.
12.8 Further Assurances. Each party agrees at any time, and
------------------
from time-to-time, to execute, acknowledge, deliver and perform, and/or cause to
be executed, acknowledged, delivered and performed, all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney and/or assurances
as may be necessary, and/or proper to carry out the provisions and/or intent of
this Agreement.
12.9 Gender; Singular; Plural. In this Agreement, the use of
------------------------
one gender (e.g., "he", "she" and "it") shall mean each other gender; and the
-----
singular shall mean the plural, and vice versa, all as the context may require.
12.10 Severability. The parties acknowledge that the terms of
------------
this Agreement are fair and reasonable at the date signed by them. However, in
light of the possibility of a change of conditions or differing interpretations
by a court of what is
12
<PAGE>
fair and reasonable, the parties stipulate as follows: if any one or more of the
terms, provisions, covenants or restrictions of this Agreement shall be
determined by a court of competent jurisdiction 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; further, if any one or more of
the terms, provisions, covenants or restrictions contained in this Agreement
shall for any reason be determined by a court of competent jurisdiction to be
excessively broad as to duration, geographical scope, activity or subject, it
shall be construed, by limiting or reducing it, so as to be enforceable to the
maximum extent compatible with then applicable law.
12.11 Consents. Any consent, approval or authorizations
--------
required hereunder shall mean the written consent, approval or authorization of
the Chairman of the Board of the Company or such other officer as may be
designated in writing by the Board of Managers.
[SIGNATURE PAGE FOLLOWS]
13
<PAGE>
EXECUTION
The parties, intending to be legally bound in accordance with its
terms as of the date first above written, executed this Agreement, to be
effective as of the Consummation Date.
<TABLE>
<CAPTION>
MERCK-MEDCO MANAGED CARE, L.L.C.
<S> <C>
DATE: May 4, 2000 /s/ Richard T. Clark
------------------------------------------------
By: Richard T. Clark
Its: President
DATE: May 4, 2000 /s/ Glen Laschober
------------------------------------------------
Glen Laschober
</TABLE>
14
<PAGE>
Exhibit A to Employment Agreement
NOTICE OF RETENTION ARRANGEMENT ELECTION
-----------------------------------------
Date: _______________, 2000
Certified Mail/Return Receipt Requested
Mr. Thomas DiDonato
Senior Vice President - Human Resources
Merck-Medco Managed Care, L.L.C.
100 Parsons Pond Drive
Franklin Lakes, New Jersey 07417
Dear Mr. DiDonato:
Pursuant to Section 4.2 of that certain employment agreement (the
"Employment Agreement") dated __________, 2000 between me and Merck-Medco
Managed Care, L.L.C. (the "Company"), I hereby irrevocably elect the Retention
Arrangement indicated by a check mark below:
[_] Retention Arrangement No. 1
A lump sum payment of $839,910.00
[_] Retention Arrangement No. 2
(A) A lump sum payment of $559,940.00; and
(B) an option to purchase 19,998/1/ shares of Merck & Co., Inc.
common stock under the Merck Stock Plan, on the terms set
forth on Exhibit B attached to the Employment Agreement,
which option shall be granted at the Consummation Date,
provided I am an employee of Merck-Medco on that date.
[_] Retention Arrangement No. 3
(A) A lump sum payment of $699,925.00; and
(B) an option to purchase 9,999 shares of Merck & Co., Inc.
common stock under the Merck Stock Plan, on the terms set
forth on Exhibit B attached to the Employment Agreement,
which option shall be granted at the Consummation Date,
provided I am an employee of Merck-Medco on that date.
- ---------------------------
/1/ The number of shares subject to the option referenced in subparagraph (B)
of Retention Arrangement Nos. 2 and 3 is an estimate based upon a closing price
of $70.00 per share. The actual number of shares subject to the option may vary.
15
<PAGE>
I understand, acknowledge and agree that:
(1) The Retention Arrangement I have irrevocably elected above is
subject to the terms and conditions set forth in the Employment
Agreement and that nothing in this letter agreement in any way
affects the terms and conditions of the Employment Agreement;
(2) Upon execution of this letter agreement by me and the Company,
this letter agreement shall be incorporated into and deemed a
part of the Employment Agreement;
(3) This letter agreement may be executed in one or more copies, each
of which shall be deemed an original; and
(4) Capitalized terms not specifically defined herein shall have the
meaning ascribed to them in the Employment Agreement.
Please indicate your election, and your agreement with and acceptance
of the foregoing, by executing a copy of this letter agreement below as
indicated.
Sincerely,
______________________
Glen Laschober
Agreed to and accepted this ___
day of _________, 2000
Merck-Medco Managed Care, L.L.C.
By:________________________
Name:______________________
Title:_______________________
16
<PAGE>
Exhibit B to Employment Agreement
Option Terms
------------
- --------------------------------------------------------------------------------
Option Type: Non-qualified stock option
- --------------------------------------------------------------------------------
Term: 10 years from date of grant (the
"Expiration Date")
- --------------------------------------------------------------------------------
Vesting Date: Earlier of date of death and 2nd
anniversary of grant date, provided the
Executive is an employee of Merck-Medco
on the applicable date
- --------------------------------------------------------------------------------
Exercise Price: Fair market value on date of grant
- --------------------------------------------------------------------------------
Effect of termination of see chart below
Employment:
- --------------------------------------------------------------------------------
Effect of Termination of Employment:
-----------------------------------
- --------------------------------------------------------------------------------
Due to death options are exercisable by the estate
for 3 years from date of death (but not
later than the Expiration Date)
- --------------------------------------------------------------------------------
By the Company for "Cause" (as defined options lapse on the termination of
in the Employment Agreement). employment date
- --------------------------------------------------------------------------------
By the Company without Cause (other Options to purchase a number of shares
than death) or by the Executive for equal to the product (rounded to the
"Good Reason" (as defined in the nearest whole number) of (a) the total
Employment Agreement) during the number of shares subject to the option
2-year period beginning on the date of multiplied by (b) a fraction, the
grant. numerator of which is the number of
full calendar months the Executive has
been employed by the Company (excluding
any period the Executive is on unpaid
inactive status due to the application
of Paragraph 8.2(e) of the Employment
Agreement) since the option grant date
and the denominator of which is 24, are
exercisable by the Executive for a
period beginning on the date the
Executive's active employment with
the Company is terminated and ending on
the 5th anniversary of the grant date.
The remaining options lapse on the date
the Executive's active employment with
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
the Company terminates. For purposes of
this section, the Executive's active
employment ends on the earlier of (x)
the date his employment terminates or
(y) the day his period of unpaid
inactive employment with the Company
begins in accordance with Paragraph
8.2(e) of the Employment Agreement.
- --------------------------------------------------------------------------------
By the Executive for any reason (other options lapse on termination of
than death or Good Reason) during the employment date
2-year period beginning on date of
grant
- --------------------------------------------------------------------------------
By the Company without cause (other options are exercisable for the
than death or disability) during the following period, whichever is longer:
period beginning on the 2nd (a) 3 months from the termination of
anniversary of grant date and ending employment date or (b) 5th anniversary
on the 5th anniversary of grant date of grant date
- --------------------------------------------------------------------------------
By the Executive for any reason (other options are exercisable for 3 months
than death) or by the Company for from termination of employment date
disability, in each case during the
period beginning on the 2nd
anniversary of grant date and ending
on the 5th anniversary of grant date
- --------------------------------------------------------------------------------
By the Company due to "separation" (as options are exercisable for 1 year from
defined by the Merck Stock Plan) termination of employment date (but not
during the period beginning on the 5th later than the Expiration Date)
Anniversary and ending on the
Expiration Date
- --------------------------------------------------------------------------------
By the Executive due to retirement at options are exercisable until the
or after age 55 with at least 7 years Expiration Date
of employment with Merck-Medco during
the period beginning on the 5th
Anniversary and ending on the
Expiration Date
- --------------------------------------------------------------------------------
By the Company or Executive for any options are exercisable for 3 months
or retirement) during the period reason (other than death, separation
beginning on the 5th Anniversary and from termination of employment date
ending on the Expiration Date (but not later than the Expiration
Date)
- --------------------------------------------------------------------------------
18
<PAGE>
EXHIBIT (e)(11)
---------------
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT ("Agreement"), dated as of May 4, 2000, is
entered into by and between Merck-Medco Managed Care, L.L.C. ("Merck-Medco" or
"Company"), a Delaware corporation with offices at 100 Parsons Pond Drive,
Franklin Lakes, New Jersey 07417 and Matthew Zirpoli ("Executive").
RECITALS
WHEREAS, Executive has been and is presently employed by ProVantage
Health Services, Inc. ("PV"); and
WHEREAS, PV, Merck-Medco and a subsidiary of Merck-Medco ("Merger Sub")
have entered into an Agreement and Plan of Merger, dated as of May 4, 2000 (the
"Merger Agreement"), pursuant to which, at the "Effective Time" (as defined in
the Merger Agreement) (the "Effective Time"), Merger Sub will be merged with and
into PV (the "Merger") and PV will thereby become a wholly owned subsidiary of
Merck-Medco; and
WHEREAS, pursuant to the Merger Agreement, it is intended that the
acquisition of PV by Merck-Medco be accomplished by means of a cash tender offer
by Merger Sub for all of the issued and outstanding common stock of PV (the
consummation of such tender offer, the "Consummation Date"), followed by the
Merger; and
WHEREAS, Executive is currently a party to a Change of Control
Agreement with PV, dated as of September 17, 1997 (the "Change of Control
Agreement"); and
WHEREAS, Merck-Medco desires to secure the continued services and
employment of the Executive on its behalf following the Consummation Date, and
the Executive is willing to render such services on the terms and conditions set
forth herein; and
WHEREAS, the Executive and Merck-Medco have agreed that this Agreement
shall supersede the Change of Control Agreement in its entirety and that, upon
and following the Consummation Date, the Change of Control Agreement shall cease
to be of any force or effect;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows, effective as of the Consummation
Date:
TERMS OF AGREEMENT
In consideration of the Recitals (which are incorporated herein) and
the mutual covenants in this Agreement, the parties agree as follows:
1
<PAGE>
1. Definitions. For the purpose of this Agreement, the terms used
-----------
as headings in this Section 1, and parenthetically defined elsewhere in this
Agreement, shall have the indicated meanings and may be used in the singular or
plural.
"Affiliate." Any business entity controlled by, controlling,
---------
or under common control or in joint venture with, the Company.
"Business of the Company." The Company and/or its Affiliates are
-----------------------
engaged in : (i) the third party prescription drug claims processing business;
(ii) the design, development or marketing of or consulting as to, prescription
drug benefit plans; (iii) the provision of mail service pharmacy, including,
without limitation, internet-based services (including all those products and
services that are presently or hereafter marketed by the Company or any of its
Affiliates, or that are in the development stage at the time of termination of
Executive's employment and are actually marketed by the Company or any of its
Affiliates thereafter); (iv) the collection, analysis and/or sale of data
relating to prescription drug utilization; (v) the pharmacy benefit management
and disease management businesses; (vi) the organization and administration of
retail pharmacy networks; and (vii) any other business in which the Company or
any of its Affiliates is then engaged as to which Executive has involvement in
the course of his employment hereunder and/or acquired or received Confidential
Information.
"Confidential Information." All confidential and proprietary
------------------------
information of the Company and its Affiliates, in whatever form, tangible or
intangible, not otherwise publicly disclosed or generally available (other than
as a result of a wrongful disclosure by the Executive), whether or not
discovered or developed by the Executive, including information entrusted to the
Company and/or its Affiliates by others. Without limiting the generality of the
foregoing, Confidential Information shall include but shall not be limited to:
(a) customer lists, lists of potential customers and details of agreements with
customers; (b) acquisition, expansion, marketing, financial and other business
information and plans of the Company or any of its Affiliates; (c) research and
development; (d) data concerning usage of prescription drugs and any other data
compiled by the Company or any of its Affiliates; (e) computer programs; (f)
sources of supply; (g) identity of specialized consultants and contractors and
Confidential Information developed by them for the Company or any of its
Affiliates; (h) purchasing, operating and other cost data; (i) special customer
needs, cost and pricing data; (j) employee information (including, but not
limited to, personnel, payroll, compensation and benefit data and plans); and
(k) patient records and data, including all such information recorded in
manuals,
2
<PAGE>
memoranda, projections, minutes, plans, drawings, designs, formula books,
specifications, computer programs and records, whether or not legended or
otherwise identified by the Company or any of its Affiliates as Confidential
Information, as well as such information that is the subject of meetings and
discussions and not recorded.
"Developments." All data, discoveries, findings, reports,
------------
designs, inventions, improvements, methods, practices, techniques, developments,
programs (computer or otherwise), formulas, plans, concepts, and ideas, whether
or not patentable, relating to the present and planned future activities and the
Products and Services of the Company or any of its Affiliates.
"Employment Period." The period from the Consummation Date (the
-----------------
"Commencement Date") through the second anniversary of the Commencement Date
(or, if later, through the second anniversary of the Effective Time), unless
terminated prior thereto as set forth in Section 6.
"Products and Services." All products or services sold, rented,
---------------------
leased, rendered or otherwise made available to customers by the Company or any
of its Affiliates, as well as products and services in any stage of development
by the Company or any of its Affiliates, although not yet commercialized or not
generally available.
"Territory." The United States of America, its territories and
---------
possessions.
2. Employment. The Company hereby employs the Executive during the
----------
Employment Period subject to the terms of this Agreement, and thereafter as an
employee-at-will, and to perform those duties and services as may be designated
from time-to-time by its President or his designee. Executive hereby accepts
said employment. The Executive shall use his best and most diligent efforts to
promote the interests of the Company and its Affiliates and shall devote his
full business time and attention to his employment under this Agreement. The
Executive will not, without the prior written approval of the President of
Merck-Medco, engage in any other business activity which would interfere with
the performance of his duties, services and responsibilities hereunder or which
is in violation of policies established from time to time by Merck-Medco.
3. Title. The Executive presently has been assigned the title of
-----
Senior Vice President - ProVantage/Vice President - Merck-Medco. In the future,
the Company may assign the Executive to other positions and titles, as required
by the Company's business.
3
<PAGE>
4. Compensation and Benefits; Disability.
-------------------------------------
4.1 Base Compensation. During the Employment Period, the
-----------------
Company shall pay the Executive base compensation commencing at an annual rate
of $185,130.00; the Executive shall be eligible for annual merit increases at
the discretion of the Company. Such base compensation shall be payable in equal
installments pursuant to the Company's customary payroll policies in force at
the time of payment (but not less frequently than monthly). Such base
compensation and any other payments made hereunder shall be less all required
and/or authorized payroll deductions.
4.2 Retention Arrangement. Not later than the close of business
---------------------
on May 15, 2000, the Executive shall notify the Company substantially in the
form of the notice attached hereto as Exhibit A that he has irrevocably elected
one of the Retention Arrangements set forth therein. If the Executive fails to
provide timely notice to the Company substantially in form of the notice
attached hereto as Exhibit A, the Executive will be deemed to have elected
Retention Arrangement No. 1 described in the form of notice attached as Exhibit
A. Lump sum payments payable to the Executive hereunder shall be payable
(subject to applicable withholding) as soon as practicable after the second
anniversary of the Consummation Date (or, if later, after the second anniversary
of the Effective Time), so long as the Executive has remained an employee of
Merck-Medco through the entire Employment Period and is an employee of Merck-
Medco on the second anniversary of the Consummation Date (or, if later, after
the second anniversary of the Effective Time).
4.3 Incentive Bonus and Stock Options. In addition to the
---------------------------------
Retention Arrangement set forth in Paragraph 4.2, the Executive shall be
eligible to receive the following during the Employment Period:
(a) Bonus. During the Employment Period, the Executive shall be
-----
eligible to receive performance-based bonuses on the same
terms and conditions generally afforded other similarly
situated employees of Merck-Medco under the Merck & Co.,
Inc. Annual Incentive Plan.
(b) Stock Options. Any options granted in connection with the
-------------
applicable Retention Arrangement set forth on Exhibit A
attached hereto shall be subject to the terms and conditions
set forth in Exhibit B attached hereto and made a part
hereof. During the Employment Period, the Executive will be
eligible to receive other grants of options to purchase
shares of Merck & Co., Inc. common
4
<PAGE>
stock under the Merck & Co., Inc. Incentive Stock Plan (the
"Merck Stock Plan") at an exercise price equal to the fair
market value of such common stock on the date of grant. The
number of shares covered by any such option shall be
determined by the Company in its sole and absolute
discretion. All the terms and conditions of such options
shall be governed by the terms and conditions of the Merck
Stock Plan in effect at the time of the applicable grant, as
summarized in the option grant letter provided to the
Executive at the time of each such option grant, which terms
and conditions shall be the same as those that apply to
similarly situated employees of Merck-Medco at the time of
such grant.
4.4 Other Benefits. During the Employment Period, the Executive
--------------
shall be eligible to participate in the employee benefit plans and programs of
the Company, including, but not limited to, its medical, dental, disability,
life insurance and retirement benefit plans and programs of the Company on the
same terms and conditions as are generally afforded similarly situated employees
of the Company, subject to any contribution requirements applicable to
participants of such plans and programs.
4.5 Vacation. The Executive may take such vacation period or
--------
periods during each year in accordance with the Company's vacation policies or
practices for similarly situated employees of the Company. Prior employment
with PV shall be considered as employment with the Company for this purpose.
5. Expenses. Pursuant to the Company's customary policies in force
--------
at the time of payment, the Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all expenses properly and
reasonably incurred by him on behalf of the Company and its Affiliates in the
performance of his duties hereunder.
6. Termination of Employment Period. This Agreement shall continue
--------------------------------
through the Employment Period, unless terminated prior to such date by the
earlier of (a) the Executive's termination pursuant to Sections 7.1, 7.2 7.3 or
7.5; or (b) the Executive's death. In all events, the provisions of Section 9
shall survive termination of this Agreement, and shall remain in effect during
and after any continued employment by the Company subsequent to the termination
of the Employment Period.
5
<PAGE>
7. Termination.
-----------
7.1 By the Company for Cause. Upon written notice, the Company
------------------------
may discharge the Executive and terminate this Agreement for Cause. As used in
this Section 7, Cause shall mean any one or more than one of the following: (i)
an act or acts of personal dishonesty or misrepresentation taken by the
Executive and intended to result in substantial personal enrichment of the
Executive at the expense of the Company; (ii) repeated violations by the
Executive of the Executive's obligations under this Agreement which are
demonstrably willful and deliberate on the Executive's part and which are not
remedied within thirty (30) days after receipt of notice from the Company, or
(iii) the conviction of the Executive of a felony.
7.2 By the Company Without Cause or By the Executive for Good
---------------------------------------------------------
Reason. The Company on written notice to the Executive may discharge the
- ------
Executive and terminate this Agreement without Cause at any time during the
Employment Period. The Executive may terminate this Agreement during the
Employment Period for "Good Reason," which shall mean any one of the following:
(i) the Executive's transfer to a place of employment more than fifty (50) miles
from the Executive's current place of employment; or (ii) a reduction in the
Executive's job title from the title currently specified in paragraph 2 of this
Agreement; however, Executive may terminate the Employment Period for Good
Reason only after the passage of sixty (60) days following written notice from
the Executive to the Company of the event giving rise to the Termination and a
failure by the Company to cure such event.
7.3 Disability. If during the Employment Period, (i) the
----------
Executive shall become ill, mentally or physically disabled, or otherwise
incapacitated so as to be unable to perform regularly the duties of his position
for a period in excess of 90 consecutive days or more than 120 days in any
consecutive 12 month period, or (ii) a duly licensed physician (who does not
have any business or other previous relationship with the Company and is
associated with a teaching hospital in the New York City metropolitan area)
selected by the Company determines that the Executive is mentally or physically
disabled so as to be unable to perform regularly the duties of his position and
such condition is expected to be of a permanent duration (each a "Permanent
Disability"), then the Company shall have the right to discharge the Executive
and terminate this Agreement upon 30 days' written notice to the Executive. In
the absence of termination, the Executive shall receive full compensation and
benefits while disabled; provided, however, that any payments to the Executive
pursuant to the Company's disability plans shall be offset from amounts payable
to the Executive under this Paragraph 7.3. Upon a request by the Company, the
Executive will submit to a medical examination to determine whether the
Executive is subject to a
6
<PAGE>
Permanent Disability.
7.4 Death. The Employment Period and this Agreement shall
-----
terminate forthwith upon the death of the Executive.
7.5 By the Executive. The Executive may terminate the
----------------
Employment Period and this Agreement at any time upon 30 days' written notice to
the Company for any reason other than Good Reason. Section 7.2 shall be the sole
basis for termination for Good Reason.
8. Effect of Termination.
---------------------
8.1 Effect of Termination under Section 7.1. In the event of
---------------------------------------
termination of this Agreement by the Company pursuant to Section 7.1, the
Executive shall be entitled to receive only his earned and unpaid compensation
to the effective date of such termination.
8.2 Effect of Termination under Section 7.2. In the event of
---------------------------------------
termination of this Agreement during the Employment Period pursuant to Section
7.2, the Executive shall be entitled to:
(a) receive his earned and unpaid compensation to the effective
date of such termination;
(b) a lump sum payment in the amount of $278,000.00 (less
applicable withholding) in consideration of the covenants of
the Employee set forth in Section 9 below (and subject in
any event to the last sentence of Section 9.6 hereof);
(c) an additional lump sum payment in the amount of $97,114.00
(less applicable withholding);
(d) 1/24th of the amount equal to the remainder, if any, of (x)
the lump sum amount, if any, that would have been payable
under the Retention Arrangement the Executive elects
pursuant to Section 4.2 and (y) $375,114.00 for each full
calendar month during which the Executive actually performs
services for the Company (less applicable withholding); and
(e) Continued coverage (in an inactive, unpaid employee status)
under the Company's medical, dental and prescription plans
for twelve (12) months or until the Executive obtains other
employment with comparable coverages, whichever is earlier.
7
<PAGE>
8.3 Effect of Termination under Sections 7.3 or 7.4. In the event of
-----------------------------------------------
termination of this Agreement during the Employment Period pursuant to Sections
7.3 or 7.4, the Executive (or the personal representative of his estate or his
heirs at law, as appropriate, in the case of a termination pursuant to Section
7.4) shall be entitled to the amounts referred to in Sections 8.2(a) through
8.2(c) of this Agreement. In addition, in the event of a termination of this
Agreement during the Employment Period pursuant to Section 7.4, and so long as
the Executive has elected Retention Arrangement No. 1 or Retention Arrangement
No. 3 described on Exhibit A attached hereto, the Executive's estate or heirs at
law, as appropriate, shall be entitled to an amount equal to the excess of the
lump sum payments payable under the applicable Retention Arrangement over the
lump sum payment payable under Sections 8.2(b) and 8.2(c) (less applicable
withholding).
8.4 Effect of Termination Under Section 7.5. In the event of
---------------------------------------
Termination of this Agreement under Section 7.5, the Executive shall be entitled
to receive only his earned and unpaid compensation to the effective date of such
termination.
8.5 Conditions Applicable to Sections 8.2 or 8.3. The payments
--------------------------------------------
required under Sections 8.2 or 8.3 will be conditioned upon the Executive (or
the personal representative of his estate or his heirs at law, as appropriate)
executing and delivering a general release of the Company and its Affiliates,
and their Managers, officers, employees and agents, from any claims or
obligations other than (i) the expressed obligation of the Company under Section
8.2 or 8.3 of this Agreement as appropriate, (ii) to pay the Executive his
earned and unpaid compensation to the effective date of termination, (iii) the
obligations of the Company and its Affiliates with respect to all Stock Options,
(iv) the obligations of the Company and its Affiliates to continue to provide
director and officer indemnification (if applicable) and (v) the obligations of
the Company and its Affiliates to comply with the requirements of COBRA and any
other law or regulation applicable to employee benefit plans in connection with
the termination of employment generally. Such general release shall be in a
form acceptable to the Company. The Executive acknowledges that the payments
under Sections 8.2 or 8.3, as appropriate, are in lieu of all such released
claims that the Executive may have against the Company and are liquidated
damages (and not a penalty). Notwithstanding any termination hereunder, the
Company shall have no obligation under Sections 8.2 or 8.3 in the event of a
material breach by the Executive of his covenants in Section 9. For purposes of
this Section 8, the term Stock Options shall mean all options to purchase common
stock of Merck & Co., Inc. previously or hereafter granted to the Executive by
the Company and/or any of its Affiliates.
9. Developments, Confidential Information and Related Matters.
----------------------------------------------------------
8
<PAGE>
9.1 Assignment of Developments. All Developments that are at
--------------------------
any time made, conceived or suggested by the Executive, whether acting alone or
in conjunction with others, during or as a result of the Executive's employment
under this Agreement or thereafter, shall be the sole and absolute property of
the Company, free of any reserved or other rights of any kind on the Executive's
part. During the Executive's employment by the Company and thereafter, the
Executive shall promptly make full disclosure of any such Developments to the
Company and, at its cost and expense, do all acts and things (including, among
others, the execution and delivery under oath of patent and copyright
applications and instruments of assignment) deemed by the Company to be
necessary or desirable at any time in order to effect the full assignment to the
Company of the Executive's right and title, if any, to such Developments.
9.2 Restrictions on Use and Disclosure. The Executive
----------------------------------
acknowledges that the Confidential Information is valuable and proprietary to
the Company (or to third parties that have entrusted Confidential Information to
the Company), and, except as required by the Executive's duties hereunder, the
Executive shall not at any time, directly or indirectly, use, copy, publish,
summarize, disseminate, describe or otherwise disclose any Confidential
Information or Developments without the prior written consent of the Company.
9.3 Return of Documents. Upon termination of the Executive's
-------------------
employment with the Company, or at the Company's request, whichever is sooner,
the Executive shall forthwith deliver to the Company all manuals, memoranda,
projections, minutes, plans, drawings, designs, formula books, specifications,
listings, records, notebooks, computer programs and similar repositories of, or
containing Confidential Information and Developments, including all copies, then
in the Executive's possession or control, whether prepared by the Executive or
others. Upon such termination, the Executive shall not retain any copies or
abstracts of any such documents or materials.
9.4 Restrictions on Competitive Employment. During the term of
--------------------------------------
the Executive's employment and for a period of twelve (12) months after the
termination of the Executive's employment for any reason, pursuant to this
Agreement or thereafter, absent the Company's prior written approval, the
Executive shall not (as an individual, principal, agent, employee, consultant or
otherwise) within the Territory, directly or indirectly, engage in activities
competitive with, nor render services to any firm or business engaged or about
to become engaged in the Business of the Company. In addition, the Executive
shall not have an equity interest in any such firm or business other than as a
1% or less shareholder of a public corporation.
9.5 Inducement; Enticement. During the term of the
----------------------
9
<PAGE>
Executive's employment and for a period of twelve (12) months after the
termination of the Executive's employment for any reason, pursuant to this
Agreement or thereafter, the Executive shall not, directly or indirectly: (a)
solicit or contact any customer or prospective customer of the Company or any of
its Affiliates as to matters that relate to the Business of the Company or which
is in any way inconsistent or interferes therewith; (b) induce, or attempt to
induce, any employees or agents or consultants of the Company or any of its
Affiliates to do anything from which the Executive is restricted by reason of
Sections 9.1 through 9.5; or (c) offer or aid others to offer employment to any
employees of the Company or any of its Affiliates.
9.6 Survival and Other Matters. The provisions of Sections 9.1
--------------------------
through 9.5 shall survive the termination of this Agreement and shall continue
in effect during and after any employment of the Executive after the end of the
Employment Period and the termination of this Agreement. This provision shall
not be construed to limit the survival of any other provisions that also survive
the termination of this Agreement by the express or implied terms of such
provisions. In addition, it is understood that the value to the Company of the
Executive agreeing to and abiding by the restrictions set forth in this Section
9 is equal to at least $278,000.00, but it is further understood that (i) the
Executive has agreed to abide by such restrictions in consideration of the
Company's entering into this Agreement, and (ii) such restrictions shall remain
in effect irrespective of whether the Executive becomes entitled to any payments
or benefits hereunder.
10. Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given on the date that they are delivered personally or sent by registered or
certified mail (return receipt requested) postage prepaid to the parties at the
following addresses (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) If to the Company:
Merck-Medco Managed Care, L.L.C.
100 Parsons Pond Drive
Franklin Lakes, New Jersey 07417
Attention: Senior Vice President -
Chief Financial Officer
With a copy at the same address to:
President.
10
<PAGE>
(b) If to the Executive, at the last address included on the
Company's payroll records.
11. [intentionally omitted.]
12. Miscellaneous.
-------------
12.1 Representations and Covenants. In order to induce the
-----------------------------
Company to enter into this Agreement, the Executive makes the following
representations and covenants to the Company and acknowledges that the Company
is relying upon said representations and covenants:
(a) No agreements or obligations exist to which the Executive is
a party or otherwise bound, in writing or otherwise, which
in any way interfere with, impede or preclude him from
fulfilling all of the terms and conditions of this
Agreement.
(b) The Executive, during his employment by the Company, shall
use his best efforts to disclose to the President in writing
or by other effective method any bona fide information known
by him that would have any material negative impact on the
Company or an Affiliate.
12.2 Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties as to the subject matter hereof and fully
supersedes all prior oral and written agreements and understandings between the
parties with respect to such subject matter. This Agreement also supersedes and
nullifies any and all change-of-control, severance or other employment-related
agreements entered into by Executive with PV or any of its predecessor or
affiliated corporations (including, without limitation, the Change of Control
Agreement), it being agreed between Executive and Merck-Medco that, following
the Consummation Date, (i) the consideration provided to the Executive as set
forth in this Agreement is in lieu of any consideration provided by such other
agreements and (ii) all such agreements shall cease to be of any force and
effect.
12.3 Amendment; Waiver. This Agreement may not be amended,
-----------------
supplemented, cancelled or discharged, except by written instrument executed by
the party as to whom enforcement is sought. No failure to exercise, and no delay
in exercising, any right, power or privilege hereunder shall operate as a waiver
thereof. No waiver of any breach of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of this Agreement.
12.4 Binding Effect; Assignment. The rights and obligations of
--------------------------
this Agreement shall bind and inure to the benefit
11
<PAGE>
of the surviving corporation in any merger or consolidation in which the Company
is a party, or any assignee of all or substantially all of the Company's
business and properties. The Executive's rights and obligations under this
Agreement may not be assigned by him, except that his right to receive accrued
but unpaid compensation, unreimbursed expenses and other rights, if any,
provided under this Agreement which survive termination of this Agreement shall
pass after death to the personal representatives of his estate.
12.5 Headings. The headings contained in this Agreement (except
--------
those in Section 1) are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
12.6 Counterparts. This Agreement may be executed in one or
------------
more copies, each of which shall be deemed an original.
12.7 Governing Law; Interpretation. This Agreement shall be
-----------------------------
construed in accordance with and governed for all purposes by the laws and
public policy of the State of New Jersey, without regard to any principles of
conflict of laws. Service of process in any dispute shall be effective (a) upon
the Company, if served upon the Chairman of the Board, the President or any
Executive Vice President of the Company (other than the Executive); and (b) upon
the Executive, if delivered to the Executive's residence last known to the
Company. The Executive acknowledges that a breach of Sections 9.1 through 9.5
would cause grave and irreparable injury to the Company that would not be
compensable in money damages, and therefore, in addition to the Company's other
express and implied remedies, the Company shall be entitled to injunctive and
other equitable relief to prevent any actual, intended or likely injuries that
may result from such breach. However, nothing in this Section shall limit any
other right or remedy to which the Company may be entitled.
12.8 Further Assurances. Each party agrees at any time, and
------------------
from time-to-time, to execute, acknowledge, deliver and perform, and/or cause to
be executed, acknowledged, delivered and performed, all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney and/or assurances
as may be necessary, and/or proper to carry out the provisions and/or intent of
this Agreement.
12.9 Gender; Singular; Plural. In this Agreement, the use of
------------------------
one gender (e.g., "he", "she" and "it") shall mean each other gender; and the
-----
singular shall mean the plural, and vice versa, all as the context may require.
12.10 Severability. The parties acknowledge that the terms of
------------
this Agreement are fair and reasonable at the date signed by them. However, in
light of the possibility of a change of conditions or differing interpretations
by a court of what is
12
<PAGE>
fair and reasonable, the parties stipulate as follows: if any one or more of the
terms, provisions, covenants or restrictions of this Agreement shall be
determined by a court of competent jurisdiction 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; further, if any one or more of
the terms, provisions, covenants or restrictions contained in this Agreement
shall for any reason be determined by a court of competent jurisdiction to be
excessively broad as to duration, geographical scope, activity or subject, it
shall be construed, by limiting or reducing it, so as to be enforceable to the
maximum extent compatible with then applicable law.
12.11 Consents. Any consent, approval or authorizations required
--------
hereunder shall mean the written consent, approval or authorization of the
Chairman of the Board of the Company or such other officer as may be designated
in writing by the Board of Managers.
[SIGNATURE PAGE FOLLOWS]
13
<PAGE>
EXECUTION
The parties, intending to be legally bound in accordance with its
terms as of the date first above written, executed this Agreement, to be
effective as of the Consummation Date.
MERCK-MEDCO MANAGED CARE, L.L.C.
DATE: May 4, 2000 /s/ Richard T. Clark
------------------------------------
By: Richard T. Clark
Its: President
DATE: May 4, 2000 /s/ Matthew Zirpoli
------------------------------------
Matthew Zirpoli
14
<PAGE>
Exhibit A to Employment Agreement
NOTICE OF RETENTION ARRANGEMENT ELECTION
----------------------------------------
Date: _______________, 2000
Certified Mail/Return Receipt Requested
Mr. Thomas DiDonato
Senior Vice President - Human Resources
Merck-Medco Managed Care, L.L.C.
100 Parsons Pond Drive
Franklin Lakes, New Jersey 07417
Dear Mr. DiDonato:
Pursuant to Section 4.2 of that certain employment agreement (the
"Employment Agreement") dated __________, 2000 between me and Merck-Medco
Managed Care, L.L.C. (the "Company"), I hereby irrevocably elect the Retention
Arrangement indicated by a check mark below:
[_] Retention Arrangement No. 1
A lump sum payment of $562,671.00
[_] Retention Arrangement No. 2
(A) A lump sum payment of $375,114.00; and
(B) an option to purchase 13,397/1/ shares of Merck & Co., Inc.
common stock under the Merck Stock Plan, on the terms set forth
on Exhibit B attached to the Employment Agreement, which option
shall be granted at the Consummation Date, provided I am an
employee of Merck-Medco on that date.
[_] Retention Arrangement No. 3
(A) A lump sum payment of $468,893.00; and
(B) an option to purchase 6,698 shares of Merck & Co., Inc. common
stock under the Merck Stock Plan, on the terms set forth on
Exhibit B attached to the Employment Agreement, which option
shall be granted at the Consummation Date, provided I am an
employee of Merck-Medco on that date.
_____________________________
/1/ The number of shares subject to the option referenced in subparagraph (B) of
Retention Arrangement Nos. 2 and 3 is an estimate based upon a closing price of
$70.00 per share. The actual number of shares subject to the option may vary.
15
<PAGE>
I understand, acknowledge and agree that:
(1) The Retention Arrangement I have irrevocably elected above is
subject to the terms and conditions set forth in the Employment
Agreement and that nothing in this letter agreement in any way
affects the terms and conditions of the Employment Agreement;
(2) Upon execution of this letter agreement by me and the Company,
this letter agreement shall be incorporated into and deemed a
part of the Employment Agreement;
(3) This letter agreement may be executed in one or more copies, each
of which shall be deemed an original; and
(4) Capitalized terms not specifically defined herein shall have the
meaning ascribed to them in the Employment Agreement.
Please indicate your election, and your agreement with and acceptance
of the foregoing, by executing a copy of this letter agreement below as
indicated.
Sincerely,
___________________________
Matthew Zirpoli
Agreed to and accepted this ___
day of _________, 2000
Merck-Medco Managed Care, L.L.C.
By:_____________________________
Name:___________________________
Title:__________________________
16
<PAGE>
Exhibit B to Employment Agreement
Option Terms
------------
- --------------------------------------------------------------------------------
Option Type: Non-qualified stock option
- --------------------------------------------------------------------------------
Term: 10 years from date of grant (the
"Expiration Date")
- --------------------------------------------------------------------------------
Vesting Date: Earlier of date of death and 2nd
anniversary of grant date, provided the
Executive is an employee of Merck-Medco
on the applicable date
- --------------------------------------------------------------------------------
Exercise Price: Fair market value on date of grant
- --------------------------------------------------------------------------------
Effect of termination of see chart below
Employment:
- --------------------------------------------------------------------------------
Effect of Termination of Employment:
-----------------------------------
- --------------------------------------------------------------------------------
Due to death options are exercisable by the estate
for 3 years from date of death (but not
later than the Expiration Date)
- --------------------------------------------------------------------------------
By the Company for "Cause" (as defined options lapse on the termination of
in the Employment Agreement). employment date
- --------------------------------------------------------------------------------
By the Company without Cause (other Options to purchase a number of shares
than death) or by the Executive for equal to the product (rounded to the
"Good Reason" (as defined in the nearest whole number) of (a) the total
Employment Agreement) during the number of shares subject to the option
2-year period beginning on the date of multiplied by (b) a fraction, the
grant. numerator of which is the number of
full calendar months the Executive has
been employed by the Company (excluding
any period the Executive is on unpaid
inactive status due to the application
of Paragraph 8.2(e) of the Employment
Agreement) since the option grant date
and the denominator of which is 24, are
exercisable by the Executive for a
period beginning on the date the
Executive's active employment with the
Company is terminated and ending on the
5th anniversary of the grant date. The
remaining options lapse on the date the
Executive's active employment with
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
the Company terminates. For purposes of
this section, the Executive's active
employment ends on the earlier of (x)
the date his employment terminates or
(y) the day his period of unpaid
inactive employment with the Company
begins in accordance with Paragraph
8.2(e) of the Employment Agreement.
- --------------------------------------------------------------------------------
By the Executive for any reason (other options lapse on termination of
than death or Good Reason) during the employment date
2-year period beginning on date of
grant
- --------------------------------------------------------------------------------
By the Company without cause (other options are exercisable for the
than death or disability) during the following period, whichever is longer:
period beginning on the 2nd (a) 3 months from the termination of
anniversary of grant date and ending employment date or (b) 5th anniversary
on the 5th anniversary of grant date of grant date
- --------------------------------------------------------------------------------
By the Executive for any reason (other options are exercisable for 3 months
than death) or by the Company for from termination of employment date
disability, in each case during the
period beginning on the 2nd
anniversary of grant date and ending
on the 5th anniversary of grant date
- --------------------------------------------------------------------------------
By the Company due to "separation" (as options are exercisable for 1 year from
defined by the Merck Stock Plan) termination of employment date (but not
during the period beginning on the 5th later than the Expiration Date)
Anniversary and ending on the
Expiration Date
- --------------------------------------------------------------------------------
By the Executive due to retirement at options are exercisable until the
or after age 55 with at least 7 years Expiration Date
of employment with Merck-Medco during
the period beginning on the 5th
Anniversary and ending on the
Expiration Date
- --------------------------------------------------------------------------------
By the Company or Executive for any options are exercisable for 3 months
reason (other than death, separation from termination of employment date
or retirement) during the period (but not later than the Expiration
beginning on the 5th Anniversary and Date)
ending on the Expiration Date
- --------------------------------------------------------------------------------
18
<PAGE>
EXHIBIT (e)(12)
PROVANTAGE HEALTH SERVICES, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT by and between PROVANTAGE HEALTH SERVICES,
INC., a Delaware corporation (the "Company"), and__________________ (the
"Executive"), is entered into on this _____ day of __________________, 2000.
WHEREAS, in order to retain capable executives, the Company desires to
enter into agreements to protect its executives upon a change of control of the
Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, the parties
agree as follows:
1. Definitions.
------------
(a) The "Change of Control Date" shall be the first date on which a Change
of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is
terminated by the Company within one hundred eighty (180) days before
the date on which a Change of Control occurs, and the Executive can
demonstrate that such termination arose in connection with or in
anticipation of a Change of Control then the "Change of Control Date"
shall mean the date immediately prior to the date of such termination.
(b) The "Board" means the Board of Directors of the Company.
(c) A "Control Acquisition" means the acquisition by an individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of either (i) the
then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power
of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Control Acquisition: (i) any
acquisition directly from the Company (including, without limitation,
any acquisition through an underwritten public offering of the
Company's securities by the Company), (ii) any acquisition by the
Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (iv) any acquisition by ShopKo
Stores, Inc., a Wisconsin corporation ("ShopKo"), or any corporation
controlled by ShopKo, or any employee benefit plan (or related trust)
sponsored or maintained by ShopKo or any corporation controlled by
ShopKo, (v) any acquisition pursuant to a
<PAGE>
public distribution of the Company's securities as a dividend to
ShopKo's shareholders, or (vi) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of Section 2(b) below.
2. Change of Control. For the purpose of this Agreement, a "Change of Control"
-----------------
shall mean:
(a) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then constituting the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of:
(i) an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other
than the Board, or (ii) a Control Acquisition; or
(b) consummation of a reorganization, merger, statutory share exchange, or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company for which approval of the shareholders of
the Company is required (a "Business Combination"), in each case,
unless, immediately following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock")
and the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities") immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (excluding
any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding Common Stock of the Corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination, and
(iii) at
2
<PAGE>
least a majority of the members of the Board of Directors of
the corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(c) approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
3. Protected Period. Subject to Section 7 hereof, the Company hereby agrees
----------------
to provide to the Executive the benefits and protections described herein
for the period commencing on the Change of Control Date and ending on the
second anniversary of the Change of Control Date (the "Protected Period").
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Protected Period, (A) the Executive's position,
authority, duties and responsibilities shall be at least
commensurate in all material respects with those held, exercised
and assigned immediately preceding the Change of Control Date and
(B) except when traveling in the normal course of business, the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Change of
Control Date or any office or location not more than fifty (50)
miles from such location.
(ii) During the Protected Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote full-time attention during normal
business hours to the business and affairs of the Company and, to
use the Executive's best efforts to perform the responsibilities
assigned to the Executive hereunder faithfully and efficiently.
(b) Compensation.
------------
(i) Base Salary. During the Protected Period, the Executive shall
-----------
receive an annual base salary ("Base Salary") at least equal to
the annualized rate of pay received by the Executive from the
Company immediately prior to the Change of Control Date. During
the Protected Period, the Base Salary shall be reviewed at least
annually and shall be increased from time to time consistent with
increases in base salary awarded in the ordinary course of
business to other key executives of the Company. During the
Protected Period, Base Salary shall not be reduced after any
increase.
3
<PAGE>
(ii) Annual Bonus. During the Protected Period, the Executive shall
------------
be awarded an annual bonus (an "Annual Bonus") in cash
determined pursuant to a bonus program at least as advantageous
to the Executive as the bonus program in place immediately prior
to the Change of Control Date.
(iii) Benefits. During the Protected Period, the Executive shall be
--------
entitled to participate in all welfare benefit plans, incentive,
savings, fringe benefit and retirement plans and programs
applicable to other key executives of the Company (including,
without limitation, vacation, automobile allowance, medical,
dental, disability, salary continuance, executive life, group
life, accidental death and travel accident insurance plans and
programs). Such plans and programs, in the aggregate, shall
provide the Executive with benefits at least as favorable as the
benefits provided by the Company to the Executive immediately
prior to the Change of Control Date.
(iv) Expenses. During the Protected Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the
policies and procedures of the Company in effect immediately
prior to the Change of Control Date.
5. Termination of Employment. Prior to the Change of Control Date, the
-------------------------
Executive is an "at will" employee whose employment may be terminated at
any time by either the Company or the Employee. During the Protected
Period, the following provisions shall apply:
(a) Death or Disability. This Agreement shall terminate automatically upon
--------------------
the Executive's death. The Company may terminate this Agreement, after
having established the Executive's Disability (pursuant to the
definition of "Disability" set forth below), by giving to the
Executive written notice of its intention to terminate the Executive's
employment. In such a case, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of
such notice (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" means disability which, at least 26 weeks
after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment for
-----
"Cause." For purposes of this Agreement, "Cause" means (i) an act or
acts of personal dishonesty taken by the Executive and intended to
result in substantial personal enrichment of the Executive at the
expense of the Company, (ii) repeated violations by the Executive of
the Executive's obligations under Section 4(a) of this Agreement which
are demonstrably willful and deliberate on the Executive's part and
which are not
4
<PAGE>
remedied after receipt of notice from the Company, or (iii) the
conviction of the Executive of a felony.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good
Reason" means:
(i) the Executive's authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement are materially
and adversely reduced, excluding for this purpose an isolated,
insubstantial or inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated,
insubstantial or inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive; or
(iii) the Company's requiring the Executive to be based at any office
other than that described in Section 4(a)(i)(B) hereof, except
for travel reasonably required in the performance of the
Executive's responsibilities.
(d) Notice of Termination. Any termination by the Company for Cause or by
---------------------
the Executive for Good Reason shall be communicated by Notice of
Termination to the other party in accordance with Section 15(b) of
this Agreement. A "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and (iii) if
the termination date is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
fifteen (15) days after the giving of such notice).
(e) Date of Termination. "Date of Termination" means the date of receipt
-------------------
of the Notice of Termination or any later date specified therein, as
the case may be. If the Executive's employment is terminated by the
Company other than for Cause or Disability, the Date of Termination
shall be the date on which the Company notifies the Executive of such
termination. If the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of
death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Death. If, during the Protected Period, the Executive's employment is
-----
terminated by reason of the Executive's death, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than those obligations
accrued or earned by the Executive hereunder as of the Date of
5
<PAGE>
Termination. During the Protected Period, the Executive's family
shall be entitled to receive benefits at least equal to the benefits
provided by the Company to surviving families of executives of the
Company under such plans, programs and policies relating to family
death benefits, if any, as in effect immediately prior to the Change
of Control Date.
(b) Disability. If, during the Protected Period, the Executive's
----------
employment is terminated by reason of the Executive's Disability, this
Agreement shall terminate without further obligations to the
Executive, other than those obligations accrued or earned by the
Executive hereunder as of the Date of Termination. During the
Protected Period, the Executive shall be entitled to receive
disability and other benefits at least equal to those provided by the
Company to disabled employees and/or their families in accordance with
such plans, programs and policies relating to disability, if any, as
in effect immediately prior to the Change of Control Date.
(c) Cause and Other Than for Good Reason. If, during the Protected Period,
------------------------------------
the Executive's employment shall be terminated for Cause, this
Agreement shall terminate without further obligations to the Executive
other than the obligation to pay to the Executive amounts accrued to
the Executive through the Date of Termination. If the Executive
terminates employment other than for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than
those obligations accrued or earned by the Executive through the Date
of Termination.
(d) Good Reason and Other Than for Cause or Disability. If, during the
---------------------------------------------------
Protected Period, the Company shall terminate the Executive's
employment other than for Cause or Disability, or the employment of
the Executive shall be terminated by the Executive for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. to the extent not therefore paid, the Executive's Base
Salary through the Date of Termination; and
B. _________ times the smaller of the following amounts:
(1) the average of the Annual Bonuses payable to the
Executive in respect of the three fiscal years
preceding the fiscal year in which the Date of
Termination occurs; and
(2) the average of Executive's annual bonus "norm" for each
of the three fiscal years preceding the fiscal year in
which the Date of Termination occurs, regardless of the
actual Annual Bonus payable for such years; and
6
<PAGE>
C. _________ times the current Base Salary; and
D. An additional .5 times the sum of B and C in consideration
for the covenants in section 11 below (but subject in any
event to the last sentence of paragraph 11(c) below), and
E. all other amounts accrued or earned by the Executive through
the Date of Termination and amounts otherwise owing under
the then existing plans and policies of the Company; and
(ii) for 18 months after the Date of Termination the Company shall
continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in
accordance with the health and dental plans, programs and
policies provided by the Company to employees and/or their
families if the Executive's employment had not been terminated,
including health insurance and dental insurance, as in effect
immediately prior to the Change of Control Date; provided,
however, that such benefit continuation shall cease when and to
the extent the Executive obtains coverage through a new employer.
7. Termination of Agreement at Election of the Company. The Executive agrees
---------------------------------------------------
that prior to a Change of Control Date occurring the Company may terminate
this Agreement on not less than one hundred eighty (180) days prior written
notice to Executive which notice shall designate the date this Agreement is
to terminate; provided, however, that such termination shall be of no force
or effect whatsoever, and this Agreement shall remain in full force and
effect, if a Change of Control Date occurs on or before the date set forth
in such notice as the date of termination of this Agreement.
8. Mitigation; Attorney's Fees. The Executive shall not be obligated to seek
---------------------------
other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement. The Company agrees to pay all reasonable legal fees and
expenses which the Executive may reasonably incur as a result of any action
brought by the Executive to enforce the provisions of this Agreement
provided that Executive is successful on the merits of any such action.
9. Certain Reduction of Payments by the Company.
--------------------------------------------
(a) For purposes of this section, (i) "Payment" shall mean any payment or
distribution in the nature of compensation to or for the benefit of
Executive, whether paid or payable pursuant to this Agreement or
otherwise; (ii) "Agreement Payment" shall mean a Payment paid or
payable pursuant to this Agreement (disregarding this Section 9);
(iii) "Net After Tax Receipt" shall mean the Present Value of a
Payment net of all taxes imposed on Executive with respect thereto
under Sections 1 and 4999 of the Code, determined by applying the
highest marginal rate under Section 1 of the Code which applied to the
Executive's taxable income for the immediately
7
<PAGE>
preceding taxable year; (iv) "Present Value" shall mean such value
determined in accordance with Section 280G(d)(4) of the Code; and (v)
"Reduced Amount" shall mean the smallest aggregate amount of Payments
which (a) is less than the sum of all Payments and (b) results in
aggregate Net After Tax Receipts which are equal to or greater than
the Net After Tax Receipts which would result if the aggregate
Payments were any other amount less than the sum of all Payments.
(b) Anything in this Agreement to the contrary notwithstanding, in the
event Deloitte & Touche (the "Accounting Firm") shall determine that
receipt of all Payments would subject Executive to tax under Section
4999 of the Code, it shall determine whether some amount of Payments
would meet the definition of a "Reduced Amount." If the Accounting
Firm determines that there is a Reduced Amount, the aggregate
Agreement Payments shall be reduced to such Reduced Amount; provided,
however, that if the Reduced Amount exceeds the aggregate Agreement
Payments, the aggregate Payments shall, after the reduction of all
Agreement Payments, be reduced (but not below zero) in the amount of
such excess.
(c) If the Accounting Firm determines that aggregate Agreement Payments or
Payments, as the case may be, should be reduced to the Reduced Amount,
the Company shall promptly give Executive notice to that effect and a
copy of the detailed calculation thereof, and the Executive may then
elect, in his sole discretion, which and how much of the Payments
shall be eliminated or reduced (as long as after such election the
present value of the aggregate Payments equals the Reduced Amount) and
shall advise the Company in writing of his election within ten days of
his receipt of notice. If no such election is made by the Executive
within such ten-day period, the Company may elect which of the
Agreement Payments or Payments, as the case may be, shall be
eliminated or reduced (as long as after such election the present
value of the aggregate Agreement Payments or Payments, as the case may
be, equals the Reduced Amount) and shall notify the Executive promptly
of such election. All determinations made by the Accounting Firm under
this Section shall be binding upon the Company and Executive and shall
be made within 60 days of a termination of employment of the
Executive. As promptly as practicable following such determination,
the Company shall pay to or distribute for the benefit of Executive
such Payments as are then due to Executive under this Agreement and
shall promptly pay to or distribute for the benefit of Executive in
the future such Payments as become due to Executive under this
Agreement.
(d) While it is the intention of the Company and the Executive to reduce
the amounts payable or distributable to Executive hereunder only if
the aggregate Net After Tax Receipts to Executive would thereby be
increased, as a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that amounts will have
been paid or distributed by the Company to or for the benefit of
Executive pursuant to this Agreement which should not have been so
paid or distributed ("Overpayment") or that additional amounts which
will have not been paid or distributed by the
8
<PAGE>
Company to or for the benefit of Executive pursuant to this Agreement
could have been so paid or distributed ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. In
the event that the Accounting Firm, based either upon the assertion of
a deficiency by the Internal Revenue Service against the Company or
Executive which the Accounting Firm believes has a high probability of
success or controlling precedent or other substantial authority,
determines that an Overpayment has been made, any such Overpayment
paid or distributed by the Company to or for the benefit of Executive
shall be treated for all purposes as a loan ab initio to Executive
---------
which Executive shall repay to the Company together with interest at
the applicable federal rate provided for in Section 7872(f)(2) of the
Code; provided, however, that no such loan shall be deemed to have
been made and no amount shall be payable by Executive to the Company
if and to the extent such deemed loan and payment would not either
reduce the amount on which the Executive is subject to tax under
Section 1 and Section 4999 of the Code or generate a refund of such
taxes. In the event that the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive together
with interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a fiduciary capacity
------------------------
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained
by the Executive during the Executive's employment by the Company or any of
its affiliated companies and which shall not be public knowledge (other
than by acts by the Executive or his representatives in violation of this
Agreement) ("Confidential Information"). After termination of the
Executive's employment with the Company, the Executive shall not, without
the prior written consent of the Company, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it.
11. Covenant Not to Compete.
-----------------------
(a) Definitions. For purposes of this Section 11, the following terms
-----------
shall have the indicated meanings:
"Affiliate." Any business entity controlled by, controlling, or
---------
under common control or in joint venture with, the Company.
"Business of the Company." The Company and/or its Affiliates are
-----------------------
engaged in: (i) the third party prescription drug claims processing
business; (ii) the design, development or marketing of or consulting
as to, prescription drug benefit plans; (iii) the provision of mail
service pharmacy, including, without limitation, internet-based
services (including all those products and services that are presently
or hereafter marketed by the Company or any of its Affiliates, or that
9
<PAGE>
are in the development stage at the time of termination of Executive's
employment and are actually marketed by the Company or any of its
Affiliates thereafter); (iv) the collection, analysis and/or sale of
data relating to prescription drug utilization; (v) the pharmacy
benefit management and disease management businesses; (vi) the
organization and administration of retail pharmacy networks; and (vii)
any other business in which the Company or any of its Affiliates is
then engaged as to which Executive has involvement in the course of
his employment hereunder and/or acquired or received Confidential
Information.
"Territory." The United States of America, its territories and
---------
possessions.
(b) Restrictions. The Executive agrees that he or she shall not at any
------------
time after a Change of Control Date and while the Executive is
employed by the Company and for an additional period of two years
following the termination of his or her employment with the Company
for any reason (as an individual, principal, agent, employee,
consultant or otherwise) within the Territory, directly or indirectly,
engage in activities competitive with, nor render services to any firm
or business engaged or about to become engaged in the Business of the
Company. In addition, the Executive shall not have an equity interest
in any such firm or business other than as a 1% or less shareholder of
a public corporation.
(c) Acknowledgement of Scope. Executive acknowledges the nature of the
------------------------
Company's business and the nature and scope of the restrictions set
forth in this Section 11. Executive acknowledges and represents that
the scope of the restrictions are appropriate, necessary and
reasonable for the protection of the Company's business, goodwill, and
property rights. Executive further acknowledges that the restrictions
imposed will not prevent him or her from earning a living in the event
of, and after, termination of his or her employment with the Company.
It is understood that the value to the Company of agreeing to and
abiding by the restrictions set forth in this Section 11 is equal to
at least the amount set forth in sub-clause 6(d)(i)(D) above, but it
is further understood that (i) the Executive has agreed to abide by
such restrictions in consideration of the Company's entering into this
Agreement, and (ii) such restrictions shall remain in effect
irrespective of whether the Executive becomes entitled to any payments
or benefits hereunder.
(d) Notice to Future Employers. Executive agrees, during the term of any
--------------------------
restriction contained in this Section 11, to disclose this Agreement
to any future prospective employer. Executive further agrees that the
Company may send a copy of this Agreement to, or otherwise make the
provisions hereof known to, any such employer.
(e) Injunctive Relief. The parties agree that damages will be an
-----------------
inadequate remedy for breaches of this Section 11 and in addition to
damages and any other available relief, a court shall be empowered to
grant injunctive relief.
10
<PAGE>
(f) Severability. Any term or provision of this Section 11 which is
------------
invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the
validity or enforceability of any of the terms and provisions of this
Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
(g) Effectiveness. This Section 11 shall not create any rights or
-------------
obligations of the Executive or the Company prior to a Change of
Control Date.
12. Exclusive Remedy, Waiver of Claims. During the Protected Period, severance
----------------------------------
benefits provided to the Executive pursuant to this Agreement are to be
paid and provided in lieu of any severance payments, severance benefits and
severance protections provided in any other plan or policy of the Company,
except as expressly provided in writing under the terms of any plan or
policy of the Company, or in a written agreement between the Company and
the Executive entered into after the date of this Agreement. Additionally,
any payments due to Executive hereunder may be conditioned upon Executive's
execution and delivery of a waiver of any and all claims the Executive may
have against the Company.
13. Statement of Intention. It is the intention of the parties hereto that
----------------------
prior to the Change of Control Date, this Agreement shall not create any
rights or obligations in the Executive or the Company, or require any
payments by the Company to the Executive, except as expressly provided
herein.
14. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
11
<PAGE>
15. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Wisconsin, without reference to principles of
conflict of laws. This Agreement contains the entire understanding of
the Company and the Executive with respect to the subject matter
hereof and may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Executive: c/o ProVantage Health Services, Inc.
-------------------
N19 W 24130 Riverwood Drive
Waukesha, WI 53188
If to the Company: ProVantage Health Services, Inc.
-----------------
N19 W 24130 Riverwood Drive
Waukesha, WI 53188
Attention: Secretary
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) It is expressly agreed that this Agreement supersedes and replaces any
other form of Change of Control Agreement which may have previously
been entered into between Company and Executive. In addition, as of
July 19, 1999, any Change of Control Severance Agreement between
Executive and ShopKo was terminated and was of no further force or
effect whatsoever. ShopKo was and is an intended third-party
beneficiary of the foregoing provision.
12
<PAGE>
IN WITNESS WHEREOF, the Executive and the Company have caused this
Agreement to be executed as of the day and year first above written.
PROVANTAGE HEALTH SERVICES, INC.
By: ____________________________________
Jeffrey A. Jones
President, Chief Executive Officer
EXECUTIVE
____________________________________
13
<PAGE>
EXHIBIT (e)(13)
---------------
CONFIDENTIALITY AGREEMENT
-------------------------
THIS CONFIDENTIALITY AGREEMENT (this "Agreement") is made as of this
8/th/ day of December, 1999, between PROVANTAGE HEALTH SERVICES, INC., a
Delaware corporation with its principal place of business at N19 W24130
Riverwood Drive, Waukesha, Wisconsin 53188 ("ProVantage") and MERCK & CO., INC.,
and its Affiliates with offices at One Merck Drive, Whitehouse Station, New
Jersey 08889-0100 ("Company").
WHEREAS, Company has requested certain information about the business
activities of ProVantage in connection with the possibility of establishing a
business relationship between ProVantage and the Company. This information is
being collected from ProVantage for the sole purpose of evaluation of such a
transaction (the "Permitted Use"). The information being requested may include,
without limitation, descriptions of ProVantage's strategic and business plans,
the identity of one or more other parties with whom ProVantage does business,
descriptions of non-public transaction structure proposals, descriptions of
ProVantage's business operations, descriptions of ProVantage's products and
services, financial performance figures, financial projections, descriptions of
ProVantage's computer systems and systems development, distribution networks,
strategies, operations, and billing and receivable operations, software,
technical systems and product development methodologies and strategies,
marketing and operational procedures and strategies, client lists and other
similar information. Any such information disclosed by ProVantage to Company,
whether provided before or after the date of this Agreement, either orally or in
writing, is hereinafter referred to as the "Confidential Information"; and
WHEREAS, ProVantage has agreed to provide to Company, such
Confidential Information with respect to its current and future operations, but
only upon the terms and conditions set forth herein; and
WHEREAS, the parties wish to set forth in this Agreement their
agreements concerning the use and protection of the Confidential Information.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
ProVantage and Company hereby agree that:
1. Acknowledgement. The Confidential Information is proprietary to
---------------
ProVantage. Any disclosure or unauthorized use thereof may cause irreparable
harm and loss to ProVantage.
2. Use of the Confidential Information.
-----------------------------------
a. Company will hold all of the Confidential Information in
strict confidence, and except as expressly set forth herein, will not
disclose such Confidential Information to any third person(s) (which
term as used in this
<PAGE>
Agreement will be broadly interpreted to include without limitation
any corporation, company, group, partnership, agency, or individual).
b. Company shall: (i) use the Confidential Information only in
connection with the Permitted Use; (ii) disclose the Confidential
Information only to its officers, directors, employees and advisors
who need to know the Confidential Information to accomplish the
Permitted Use; and (iii) safeguard the Confidential Information with
the same degree of care to avoid unauthorized disclosure as Company
uses to protect its own Confidential Information of a similar nature;
but in no case less than reasonable care. It is Company's
responsibility to ensure that any officers, directors, or employees to
have access to the Confidential Information will, prior to being
provided with any or all of the Confidential Information, agree to be
bound by the terms of this Agreement. Company shall not use the
Confidential Information in any respect to compete with ProVantage at
any time or provide such Information to a third party to compete with
ProVantage.
c. Immediately after Company's use of the Confidential
Information for the Permitted Use, or earlier upon written request by
ProVantage, Company shall return to ProVantage all of the Confidential
Information, together with summaries of the Confidential Information
or shall destroy such summaries; provided, however that the Company
may retain one copy of all of the Confidential Information in its
legal files in order to monitor compliance with this Agreement.
d. ProVantage will use its best efforts to ensure the accuracy
and completeness of the Confidential Information, but ProVantage does
not make and will not be deemed to have made any warranty as to the
accuracy or completeness of any of the Confidential Information.
ProVantage will not be liable for any damages arising out of the use
of the Confidential Information disclosed hereunder.
e. Company will assume the liability for all damages, losses,
costs, or expenses which result from (i) the use of the Confidential
Information by Company for any purpose other than the Permitted Use;
(ii) disclosure of the Confidential Information by Company to third
parties or entities; or (iii) the use of the Confidential Information
by any person or entity other than Company, caused by the unauthorized
disclosure or dissemination of same by any employees, agents, or
contractors of Company.
f. The foregoing obligations of Company will not apply to the
extent that the Confidential Information: (i) which, at the time of
its disclosure, is in the public domain or which, after disclosure,
becomes part of the public domain by publication or otherwise through
no action or fault of Company; (ii) which Company can show was in its
possession at the time of disclosure and
-2-
<PAGE>
was not acquired, directly or indirectly, from ProVantage; or (iii)
which was received by Company from a third party having a legal right
to transmit the information.
g. Subject to Section 4 below, the foregoing obligations of
Company will not apply to the extent that Company is required by law
to provide the Confidential Information to a government agency or
regulatory body.
h. Company acknowledges its responsibilities under the federal
securities laws, including without limitation, Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder, with
respect to trading ProVantage's securities while in possession of
material non-public information.
3. Communication With ShopKo and ProVantage Employees. Company
--------------------------------------------------
agrees that unless specifically authorized to the contrary, all communications
with ProVantage shall be channeled only through designated ShopKo and ProVantage
associates at ShopKo and ProVantage's headquarters in Green Bay, Wisconsin.
4. Legally Compelled Information. In the event that Company or
-----------------------------
anyone to whom it transmits any Confidential Information becomes legally
compelled to disclose any of the Confidential Information, Company will provide
ProVantage, with prompt written notice before such Confidential Information is
disclosed so that ProVantage can seek a protective order or other appropriate
remedy. In the absence of a protective order obtained by ProVantage or
ProVantage's failure to quash the legal process requiring disclosure or other
measure effectively removing the legal compulsion, Company shall have no duty to
resist the production of Confidential Information and the production thereof
shall not constitute a breach of this Agreement.
5. Reasonableness; Remedies. Company acknowledges that these
------------------------
covenants are reasonable and necessary for the protection of the proprietary
interests of ProVantage and that irreparable injury will result to ProVantage
and its business if any provision of this Agreement is breached and agrees that
if there should be any breach or threatened breach thereof, ProVantage shall be
entitled to an ex parte injunction prohibiting such conduct, and in the event
final judgement is entered in favor of ProVantage, the Company will reimburse
ProVantage for all court costs and legal fees, including reasonable attorney's
fees, incurred in enforcing this Agreement or obtaining relief hereunder other
than in connection with ProVantage exercising its rights under Section 4 hereof.
6. Other Commitments. Nothing contained in this Agreement or in any
-----------------
discussions undertaken or disclosures made pursuant hereto shall be deemed a
commitment by ProVantage to engage in any business relationship, contract or
future dealing with Company.
7. Solicitation of Employees. Company agrees that, without
-------------------------
ProVantage's prior written consent, you will not for a period of two years from
the date of this Agreement directly or indirectly solicit for employment or
employ any person who is now employed by ProVantage or any of ProVantage's
subsidiaries and who the Company came in contact with as
-3-
<PAGE>
a result of your evaluation or otherwise in connection with the Permitted Use;
provided, however, that you shall not be prohibited from employing any such
person who contacts you on his or her own initiative and without any direct
solicitation by you.
8. Miscellaneous.
-------------
a. No patent, copyright, trademark or other proprietary right
is licensed, granted or otherwise transferred directly, or by
implication, estoppel or otherwise, by this Agreement or any
disclosure hereunder, except for the right to use such information in
accordance with this Agreement. No warranties of any kind are given
with respect to the Confidential Information disclosed under this
Agreement of any use thereof, except as may be otherwise agreed to in
writing.
b. This Agreement shall be effective as of the date first
written above and shall continue for a period of 5 years.
c. This Agreement may not be assigned by either party without
the prior written consent of the other, except to any of its
affiliates upon prior written notice. No permitted assignment shall
relieve a party of its obligations hereunder with respect to
Confidential Information disclosed to that party prior to the
assignment. Any assignment in violation of this Section shall be
void. This Agreement shall be binding upon the parties and their
respective successors and assigns.
d. If any provision of this Agreement shall be held invalid or
unenforceable, such provision shall be deemed deleted from this
Agreement and replaced by a valid and enforceable provision which so
far as possible achieves the parties' intent in agreeing to the
original provision. The remaining provisions of this Agreement shall
continue in full force and effect.
e. Each party warrants that it has the authority to enter into
this Agreement and to lawfully make the disclosures contemplated
hereunder.
f. This Agreement represents the entire understanding between
the parties with respect to the subject matter hereof and supersedes
all prior communications, agreements and understandings relating
hereto. The provisions of this Agreement may not be modified, amended
or waived, except by a written instrument duly executed by both
parties. This Agreement shall be governed in all respects by the laws
of the State of Wisconsin without regard for conflict of laws
principles.
g. The parties expressly agree that facsimile signatures are
binding on the parties.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first written above.
PROVANTAGE HEALTH SERVICES, INC.
a Delaware corporation
By:__________________________________________
Name and Title:________________________
MERCK & CO., INC.
By: /s/ Barbara Yanni
--------------------------------------
Name and Title: Executive Director, Corporate
-----------------------------
Development
-----------
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