<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
SCHEDULE TO
Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of the Securities
Exchange Act of 1934
____________________________
PROVANTAGE HEALTH SERVICES, INC.
(Name of Subject Company (Issuer))
MERCK & CO., INC. (OFFEROR PARENT)
PV ACQUISITION CORP. (OFFEROR)
(Names of Filing Persons (identifying status as offeror, issuer or other
person))
____________________________
Common Stock, Par Value $0.01 Per Share
(Including the Associated Rights)
(Title of Class of Securities)
743725 10 3
(CUSIP Number of Class of Securities)
____________________________
CELIA A. COLBERT
PV ACQUISITION CORP.
C/O MERCK & CO., INC.
ONE MERCK DRIVE
WHITEHOUSE STATION, NEW JERSEY 08889
(908) 423-1000
(Name, address and telephone number of person authorized
to receive notices and communications on behalf of filing persons)
WITH COPIES TO:
GARY P. COOPERSTEIN, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
(212) 859-8000
Calculation of Filing Fee
- -------------------------------------------------------------------------------
Transaction Valuation: * Amount of filing fee:
$226,724,985 $45,345
- -------------------------------------------------------------------------------
* For purposes of calculating fee only. This amount is based on a per
share offering price of $12.25 for 18,150,000 shares of common stock and
for options to purchase 358,162 options with strike prices lower than
$12.25 that may become exercisable before or during a subsequent offer
period, if any. Pursuant to the Agreement and Plan of Merger, dated as of
May 4, 2000, by and among ProVantage Health Services, Inc. (the "Company"),
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Merck & Co., Inc. and PV Acquisition Corp. (together, the "Bidders"), the
Company represented to the Bidders that, as of such date, it had
18,150,000 shares of common stock issued and outstanding and 873,309
shares of common stock reserved for issuance upon exercise of outstanding
stock options, none of which are currently exercisable and all of which
will become exercisable before or during a subsequent offer period, if
any. The amount of the filing fee, calculated in accordance with Rule 0-
11 under the Securities Exchange Act of 1934, as amended, equals 1/50 of
one percent of the aggregate of the cash offered by the Bidder.
[_] Check box if any part of the fee is offset as provided by Rule 0-
11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: None
Form or Registration No.: Not applicable
Filing Party: Not applicable
Dated Filed: Not applicable
[ ] Check the box if the filing relates solely to preliminary
communications made before the commencment of a tender offer.
Check the appropriate boxes below to designate any transactions to which the
statement relates:
[X] third-party offer subject to Rule 14d-1.
[_] issuer tender offer subject to Rule 13e-4.
[_] going-private transactions subject to Rule 13e-3.
[_] amendment to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment reporting the results
of the tender offer: [_]
This Tender Offer Statement on Schedule TO relates to the offer by PV
Acquisition Corp., a Delaware corporation ("Offeror") and indirect wholly owned
subsidiary of Merck & Co., Inc., a New Jersey corporation ("Parent"), to
purchase all of the outstanding shares of Common Stock, par value $0.01 per
share (the "Shares"), of ProVantage Health Services, Inc., a Delaware
corporation (the "Company"), at a price of $12.25 per Share, net to the seller
in cash and without interest thereon, on the terms and subject to the conditions
set forth in the Offer to Purchase, dated May 10, 2000 (the "Offer to
Purchase"), and the related Letter of Transmittal (the "Letter of Transmittal,"
which, together with the Offer to Purchase, constitutes the "Offer"), copies of
which are attached hereto as Exhibits (a)(1)(A) and (a)(1)(B)), respectively.
ITEM 1. SUMMARY TERM SHEET
The information set forth in the Offer to Purchase under "Summary Term
Sheet" is incorporated herein by reference.
ITEM 2. SUBJECT COMPANY INFORMATION
(a) The issuer is ProVantage Health Services, Inc., a Delaware corporation, with
its principal executive offices located at N19 W24130 Riverwood Drive, Waukesha,
Wisconsin 53188, telephone number (262) 312-3000.
(b) The information set forth in the Introduction of the Offer to Purchase is
incorporated herein by reference.
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(c) The information set forth in Section 6 "Price Range of Shares; Dividends on
the Shares" of the Offer to Purchase is incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON
(a), (b) and (c)(1), (c)(2) and (c)(5) The information set forth in the
Introduction, Section 9 "Certain Information Concerning Offeror and Parent," and
Annex I of the Offer to Purchase is incorporated herein by reference.
(c)(3) To the best knowledge of Offeror or Parent, no person listed in Annex I
of the Offer to Purchase has, during the past 5 years, been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
(c)(4) To the best knowledge of Offeror or Parent, no person listed in Annex I
of the Offer to Purchase has, during the past 5 years, been a party to any
judicial or administrative proceeding (except for matters that were dismissed
without sanction or settlement) that resulted in a judgment, decree or final
order enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws.
ITEM 4. TERMS OF THE TRANSACTION
(a)(1)(i) through (v) The information set forth in the Introduction and Section
1 "Terms of the Offer; Expiration Date" of the Offer to Purchase is incorporated
herein by reference.
(a)(1)(vi) and (vii) The information set forth in Section 4 "Withdrawal Rights"
of the Offer to Purchase is incorporated herein by reference.
(a)(1)(viii) The information set forth in Section 2 "Acceptance for Payment and
Payment of Shares" of the Offer to Purchase is incorporated herein by reference.
(a)(1)(ix), (x), (xi) Not applicable.
(a)(1)(xii) The information set forth in Section 5 "Certain Federal Income Tax
Consequences" of the Offer to Purchase is incorporated herein by reference.
ITEM 5. PAST CONTRACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
(a) and (b) The information set forth in Section 9 "Certain Information
Concerning Offeror and Parent," Section 11 "Background of Offer" and Section 13
"The Transaction Documents" of the Offer to Purchase is incorporated herein by
reference.
ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
(a) and (c)(1) through (7) The information set forth in Section 12 "Purpose of
the Offer; The Merger; Plans for the Company," Section 13 "The Transaction
Documents," and Section 14 "Dividends and Distributions" of the Offer to
Purchase is incorporated herein by reference.
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ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a), (b) and (d) The information set forth in Section 10 "Source and Amount of
Funds" of the Offer to Purchase is incorporated herein by reference.
ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
The information set forth in Section 9 "Certain Information Concerning Offeror
and Parent" and in Section 13 "The Transaction Documents" of the Offer to
Purchase is incorporated herein by reference.
ITEM 9. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED
The information set forth in Section 17 "Fees and Expenses" of the Offer to
Purchase is incorporated herein by reference.
ITEM 10. FINANCIAL STATEMENTS
Not applicable because (a) the consideration offered consists solely of cash,
(b) the offer is not subject to any financing condition and (c) the offer is for
all outstanding securities of the subject class. However, the information set
forth in Section 9 "Certain Information Concerning Offeror and Parent" of the
Offer to Purchase is incorporated herein by reference.
ITEM 11. ADDITIONAL INFORMATION
(a)(1) Other than as elsewhere disclosed in this statement, none.
(a)(2) through (5) The information set forth in Section 16 "Certain Regulatory
and Legal Matters" of the Offer to Purchase is incorporated herein by reference.
(b) None or not applicable.
ITEM 12. EXHIBITS
(a)(1)(A) -Offer to Purchase dated May 10, 2000.
(a)(1)(B) -Letter of Transmittal.
(a)(1)(C) -Notice of Guaranteed Delivery.
(a)(1)(D) -Letter from J.P. Morgan & Co. as Dealer Manager to Brokers,
Dealers, Banks, Trust Companies and Other Nominees.
(a)(1)(E) -Letter to Clients from Brokers, Dealers, Banks, Trust Companies
and Other Nominees.
(a)(1)(F) - Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(a)(1)(G) - Joint Press Release issued by Parent and the Company on May 4,
2000.
(a)(1)(H) - Press Release issued by Parent on May 11, 2000.
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(b) -None or not applicable.
(c) -None or not applicable.
(d)(1) -Agreement and Plan of Merger, dated as of May 4, 2000, among
Offeror, Parent and the Company.
(d)(2) -Stockholder Agreement, dated as of May 4, 2000, among
Offeror, Parent, SKO Holdings, Inc. and ShopKo Stores, Inc.
(d)(3) -Side Letter, dated as of May 4, 2000, among ShopKo Stores,
Inc., SKO Holdings, Inc. and the Company.
(d)(4) -Amended and Restated Tax Matters Agreement, dated as of May
4, 2000, between SKO Holdings, Inc., ShopKo Stores, Inc. and
the Company.
(d)(5) -Lease Amendment, dated May 4, 2000, between ShopKo Stores,
Inc. and the Company.
(d)(6) -First Amendment to Rights Agreement, dated as of May 4, 2000,
between Norwest Bank Minnesota, National Association, and the
Company.
(d)(7) -Employment Agreement, dated as of May 4, 2000, between Merck-
Medco Managed Care, L.L.C., a Delaware limited liability
company ("Merck-Medco"), and Matthew Zirpoli.
(d)(8) -Employment Agreement, dated as of May 4, 2000, between Merck-
Medco and Peter F. Hoffman.
(d)(9) -Employment Agreement, dated as of May 4, 2000, between Merck-
Medco and Joseph A. Coffini.
(d)(10) -Employment Agreement, dated as of May 4, 2000, between Merck-
Medco and Jeffrey A. Jones.
(d)(11) -Employment Agreement, dated as of May 4, 2000, between Merck-
Medco and Glen Laschober.
(d)(12) -Confidentiality Agreement with the Company, dated as of
December 8, 1999 and delivered on December 28, 1999 by
Parent.
(e)
through (h) -None or not applicable.
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SIGNATURES
After due inquiry and to the best of the knowledge and belief of each of
the undersigned, each of the undersigned certifies that the information set
forth in this statement is true, complete and correct.
May 10, 2000
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
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EXHIBIT INDEX
-------------
EXHIBIT PAGE
------- ----
(a)(1)(A) -Offer to Purchase dated May 10, 2000.
(a)(1)(B) -Letter of Transmittal.
(a)(1)(C) -Notice of Guaranteed Delivery.
(a)(1)(D) -Letter from J.P. Morgan & Co. as Dealer Manager to Brokers,
Dealers, Banks, Trust Companies and Other Nominees.
(a)(1)(E) -Letter to Clients from Brokers, Dealers, Banks, Trust Companies
and Other Nominees.
(a)(1)(F) -Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(a)(1)(G) -Joint Press Release issued by Parent and the Company on
May 4, 2000.
(a)(1)(H) -Press Release issued by Parent on May 11, 2000.
(b) -None or not applicable.
(c) -None or not applicable.
(d)(1) -Agreement and Plan of Merger, dated as of May 4, 2000, among
Offeror, Parent and the Company.
(d)(2) -Stockholder Agreement, dated as of May 4, 2000, among Offeror,
Parent, SKO Holdings, Inc. and ShopKo Stores, Inc.
(d)(3) -Side Letter, dated as of May 4, 2000, among ShopKo Stores, Inc.,
SKO Holdings, Inc. and the Company.
(d)(4) -Amended and Restated Tax Matters Agreement, dated as of
May 4, 2000, between SKO Holdings, Inc., ShopKo Stores, Inc.
and the Company.
(d)(5) -Lease Amendment, dated May 4, 2000, between ShopKo Stores, Inc.
and the Company.
(d)(6) -First Amendment to Rights Agreement, dated as of May 4, 2000,
between Norwest Bank Minnesota, National Association, and the
Company.
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(d)(7) -Employment Agreement, dated as of May 4, 2000, between
Merck-Medco Managed Care, L.L.C., a Delaware limited
liability company ("Merck-Medco"), and Matthew Zirpoli.
(d)(8) -Employment Agreement, dated as of May 4, 2000,
between Merck-Medco and Peter F. Hoffman.
(d)(9) -Employment Agreement, dated as of May 4, 2000, between
Merck-Medco and Joseph A. Coffini.
(d)(10) -Employment Agreement, dated as of May 4, 2000, between
Merck-Medco and Jeffrey A. Jones.
(d)(11) -Employment Agreement, dated as of May 4, 2000, between
Merck-Medco and Glen Laschober.
(d)(12) -Confidentiality Agreement with the Company, dated as of
December 8, 1999 and delivered on December 28, 1999 by
Parent.
(e)
through (h) -None or not applicable.
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EXHIBIT 99.(a)(1)(A)
OFFER TO PURCHASE FOR CASH
All Outstanding Shares of Common Stock
(Including the Associated Rights)
of
ProVantage Health Services, Inc.
at
$12.25 Net Per Share
by
PV Acquisition Corp
an indirect wholly owned subsidiary of
Merck & Co., Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, JUNE 14, 2000, UNLESS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN IMMEDIATELY PRIOR TO THE EXPIRATION OF THE OFFER
THAT NUMBER OF SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE (THE "COMMON
STOCK"), INCLUSIVE OF THEIR RESPECTIVE ASSOCIATED PREFERRED SHARE PURCHASE
RIGHTS (THE "RIGHTS," AND THE SHARES OF COMMON STOCK INCLUSIVE OF THEIR
RESPECTIVE RIGHTS, THE "SHARES"), OF PROVANTAGE HEALTH SERVICES, INC. (THE
"COMPANY"), 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, AND
(II) THE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT
OF 1976, AS AMENDED, AND THE REGULATIONS THEREUNDER HAVING EXPIRED OR BEEN
TERMINATED PRIOR TO THE TERMINATION OF THE OFFER. THE OFFER IS ALSO SUBJECT TO
CERTAIN OTHER CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. SEE INTRODUCTION
AND SECTIONS 1 AND 15 HEREOF.
THIS OFFER IS BEING MADE IN CONNECTION WITH THE AGREEMENT AND PLAN OF
MERGER, DATED AS OF MAY 4, 2000 (THE "MERGER AGREEMENT"), AMONG MERCK & CO.,
INC., PV ACQUISITION CORP. AND THE COMPANY.
---------------
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY (BY ALL THOSE
DIRECTORS PRESENT) APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT,
HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN
THE BEST INTERESTS OF, THE COMPANY'S STOCKHOLDERS, AND HAS RECOMMENDED
ACCEPTANCE OF THE OFFER AND APPROVAL OF THE MERGER AND THE MERGER AGREEMENT BY
THE STOCKHOLDERS OF THE COMPANY.
---------------
IMPORTANT
Any stockholder of the Company desiring to tender all or any portion of
such stockholder's Shares should either (i) complete and sign the Letter of
Transmittal or a facsimile thereof in accordance with the instructions in the
Letter of Transmittal and mail or deliver the Letter of Transmittal with the
certificates representing the tendered Shares, and all other required
documents, to Norwest Bank Minnesota, N.A., the Depositary, or follow the
procedure for book-entry transfers set forth in Section 3, "Procedures for
Tendering Shares," or (ii) request such stockholder's broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
the stockholder. Stockholders having Shares registered in the name of a
broker, dealer, commercial bank, trust company or other nominee must contact
such person if they desire to tender their Shares.
Any stockholder of the Company who desires to tender Shares and whose
certificates representing such Shares are not immediately available or who
cannot comply with the procedure for book-entry transfers on a timely basis or
who cannot deliver all required documents to the Depositary, in each case
prior to the expiration of the Offer, must tender such Shares pursuant to the
guaranteed delivery procedures set forth in Section 3, "Procedures for
Tendering Shares."
Questions and requests for assistance may be directed to J.P. Morgan
Securities Inc., the Dealer Manager, or Morrow & Co., Inc., the Information
Agent, at their respective addresses and telephone numbers set forth on the
back cover of this Offer to Purchase. Additional copies of this Offer to
Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and
other related materials may be obtained from the Information Agent or from
brokers, dealers, commercial banks and trust companies.
---------------
The Dealer Manager for the Offer is:
J.P. Morgan & Co.
May 10, 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
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<C> <S> <C>
SUMMARY TERM SHEET...................................................... 3
INTRODUCTION............................................................ 7
1. Terms of the Offer; Expiration Date............................ 9
2. Acceptance for Payment and Payment for Shares.................. 11
3. Procedures for Tendering Shares................................ 12
4. Withdrawal Rights.............................................. 15
5. Certain United States Federal Income Tax Consequences.......... 15
6. Price Range of Shares; Dividends on the Shares................. 16
7. Effect of Offer on Market for Shares; New York Stock Exchange
Listing; SEC Registration; Margin Regulations................. 17
8. Certain Information Concerning the Company..................... 18
9. Certain Information Concerning Offeror, Parent and Merck-
Medco......................................................... 21
10. Source and Amount of Funds..................................... 23
11. Background of Offer............................................ 23
12. Purpose of the Offer; The Merger; Plans for the Company........ 24
13. The Transaction Documents...................................... 26
14. Dividends and Distributions.................................... 41
15. Certain Conditions to Offeror's Obligations.................... 41
16. Certain Regulatory and Legal Matters........................... 43
17. Fees and Expenses.............................................. 45
18. Miscellaneous.................................................. 46
Annex I Directors and Executive Officers of Parent, Merck-Medco and
Offeror....................................................... 47
</TABLE>
2
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SUMMARY TERM SHEET
PV Acquisition Corp. is offering to purchase all of the outstanding common
stock of ProVantage Health Services, Inc., including the associated preferred
share purchase rights, for $12.25 per share in cash. The following are some of
the questions you, as a stockholder of ProVantage Health Services, may have
and answers to those questions. We urge you to read carefully the remainder of
this Offer to Purchase and the Letter of Transmittal because the information
in this summary term sheet is not complete. Additional important information
is contained in the remainder of this Offer to Purchase and the Letter of
Transmittal.
WHO IS OFFERING TO BUY MY SECURITIES?
Our name is PV Acquisition Corp. We are a Delaware corporation formed for
the purpose of making a tender offer for all of the common stock, including
the associated preferred share purchase rights, of ProVantage Health Services
and have carried on no activities other than in connection with the merger
agreement among us, Merck & Co., Inc. and ProVantage Health Services. We are
an indirect wholly owned subsidiary of Merck & Co., Inc., a New Jersey
corporation. See the "Introduction" to this Offer to Purchase and Section 9,
"Certain Information Concerning Offeror, Parent and Merck-Medco."
WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER?
We are seeking to purchase all of the outstanding shares of common stock of
ProVantage Health Services and the rights to purchase preferred shares that
are associated with those common shares. See the "Introduction" to this Offer
to Purchase and Section 1, "Terms of the Offer; Expiration Date."
HOW MUCH ARE YOU OFFERING TO PAY? WHAT IS THE FORM OF PAYMENT? WILL I HAVE TO
PAY ANY FEES OR COMMISSIONS?
We are offering to pay $12.25 per share, net to you, in cash. If you are
the record owner of your shares and you tender your shares to us in the offer,
you will not have to pay brokerage fees or similar expenses. If you own your
shares through a broker or other nominee, and your broker tenders your shares
on your behalf, your broker or nominee may charge you a fee for doing so. You
should consult your broker or nominee to determine whether any charges will
apply. See the "Introduction" to this Offer to Purchase.
DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
Yes. Merck & Co., our parent company, will provide us with sufficient funds
to purchase all shares validly tendered and not withdrawn in the offer and to
provide funding for the merger, which is expected to follow the successful
completion of the offer in accordance with the terms and conditions of the
merger agreement. We anticipate that these funds will be obtained from the
existing resources and internally generated funds of Merck & Co. See Section
10, "Source and Amount of Funds."
IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER?
We do not think our financial condition is relevant to your decision
whether to tender in the offer because the form of payment consists solely of
cash, because the offer is not subject to any financing condition, and because
the offer is for all outstanding shares. Merck & Co. has arranged for our
funding to come from its existing resources and internally generated funds.
See Section 10, "Source and Amount of Funds."
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
Unless the offer is extended, you will have until 12:00 midnight, New York
City time, on Wednesday, June 14, 2000, to tender your shares in the offer.
Further, if you cannot deliver everything that is required in order to make a
valid tender by that time, you may be able to use a guaranteed delivery
procedure, which is described later in this Offer to Purchase. See Section 1,
"Terms of the Offer; Expiration Date," and Section 3, "Procedures for
Tendering Shares."
3
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CAN THE OFFER BE EXTENDED AND UNDER WHAT CIRCUMSTANCES?
Subject to the terms of the merger agreement, we can extend the offer. We
have agreed in the merger agreement that:
. we must extend the offer beyond the scheduled expiration date if at that
date any of the conditions to our obligation to accept for payment and to
pay for the shares is not satisfied or, to the extent permitted by the
merger agreement, waived, and we reasonably believe that the unsatisfied
condition can be satisfied in a reasonable time. That extension will not
exceed the number of days that we reasonably believe is necessary to
cause the conditions of the offer to be satisfied. In any event, such
extension will not be more than ten business days.
. we may extend the offer for any period required by any rule, regulation,
interpretation or position of the Securities and Exchange Commission or
its staff applicable to the offer.
. if all conditions to the offer have been satisfied or waived, we will
accept for payment and pay for all shares validly tendered and not
withdrawn at such time, and we may, with the Company's consent, provide a
"subsequent offering period" during which stockholders whose shares have
not been accepted for payment may tender, but not withdraw, their shares
and receive the offer consideration. We are not permitted under the
federal securities laws to provide a subsequent offering period of less
than three or more than 20 business days.
Our rights and obligations to extend the Offer are subject to the rights of
Merck & Co. and ProVantage Health Services to terminate the Merger Agreement
if the Offer is not consummated by December 31, 2000. For more details on our
ability to extend the offer, see Section 1, "Terms of the Offer; Expiration
Date."
HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
If we extend the offer, we will inform Norwest Bank Minnesota, N.A. (the
depositary for the offer) of that fact and will make a public announcement of
the extension not later than 9:00 a.m., New York City time, on the next
business day after the day on which the offer was scheduled to expire. See
Section 1, "Terms of the Offer; Expiration Date."
WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
There is no financing condition to the offer. However, we are not obligated
to purchase any shares that are validly tendered:
. unless the number of shares validly tendered and not withdrawn before the
expiration date of the offer represents at least a majority of the then
outstanding shares on a fully diluted basis. We call this condition the
"minimum condition."
. if, among other things, there is a material adverse change in ProVantage
Health Services or its business (subject to certain exceptions).
. if, among other things, the applicable waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, has not
expired or been terminated.
. if, among other things, the net working capital of ProVantage Health
Services at the specified time is less than $55.0 million, unless the
majority stockholder of ProVantage Health Services reimburses Merck & Co.
for the shortfall (or agrees to make the reimbursement if an audit
confirms the shortfall).
The offer is also subject to a number of other conditions. We can waive all
of the conditions to the offer without the consent of ProVantage Health
Services, other than the Minimum Condition, which we can waive as long as
certain conditions are met. See Section 1, "Terms of the Offer; Expiration
Date," and Section 15, "Certain Conditions to Offeror's Obligations."
4
<PAGE>
HOW DO I TENDER MY SHARES?
To tender shares, you must deliver the certificates representing your
shares, together with a completed letter of transmittal and any other
documents required by the letter of transmittal, to Norwest Bank Minnesota,
N.A., the depositary for the offer, not later than the time the tender offer
expires. If your shares are held in street name, the shares can be tendered by
your nominee through The Depository Trust Company. If you are unable to
deliver any required document or instrument to the depositary by the
expiration of the tender offer, you may gain some extra time by having a
broker, a bank or other fiduciary that is an eligible institution guarantee
that the missing items will be received by the depositary within three New
York Stock Exchange trading days. For the tender to be valid, however, the
depositary must receive the missing items within that three trading day
period. See Section 3, "Procedures for Tendering Shares."
UNTIL WHAT TIME MAY I WITHDRAW PREVIOUSLY TENDERED SHARES?
You may withdraw shares at any time until the offer has expired and, if we
have not accepted your shares for payment by July 9, 2000, you may withdraw
them at any time after that date until we accept shares for payment. This
right to withdraw will not apply to the subsequent offering period, if one is
included. See Section 1, "Terms of the Offer; Expiration Date," and Section 4,
"Withdrawal Rights."
HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
To withdraw shares, you must deliver a written notice of withdrawal, or a
facsimile of one, with the required information to the depositary while you
still have the right to withdraw the shares. See Section 4, "Withdrawal
Rights."
WHAT DOES THE BOARD OF DIRECTORS OF PROVANTAGE HEALTH SERVICES THINK OF THE
OFFER?
We are making the offer pursuant to the merger agreement among us, Merck &
Co. and ProVantage Health Services. The board of directors of ProVantage
Health Services has unanimously (by all those directors present) approved the
offer, the merger and the merger agreement. The board of directors of
ProVantage Health Services has determined that the terms of the offer and the
merger are fair to, and in the best interests of, the stockholders of
ProVantage Health Services and has recommended that the stockholders of
ProVantage Health Services accept the offer and approve the merger and the
merger agreement. See the "Introduction" to this Offer to Purchase.
HAVE ANY STOCKHOLDERS AGREED TO TENDER THEIR SHARES?
Yes. A stockholder that owns shares representing approximately 64.5% of the
outstanding common stock of ProVantage Health Services has agreed to tender
its shares in the offer, which will constitute a sufficient number of shares
to meet the minimum condition described above. See the "Introduction" to this
Offer to Purchase.
IF A MAJORITY OF THE SHARES ARE TENDERED AND ACCEPTED FOR PAYMENT, WILL
PROVANTAGE HEALTH SERVICES CONTINUE AS A PUBLIC COMPANY?
No. Following the purchase of shares in the offer we expect to consummate
the merger. If the merger takes place, ProVantage Health Services no longer
will be publicly owned. Even if for some reason the merger does not take
place, if we purchase all of the tendered shares, there may be so few
remaining stockholders and publicly held shares that (i) ProVantage Health
Services common stock may no longer be eligible to be traded on the New York
Stock Exchange or any other securities exchange, (ii) there may not be a
public trading market for ProVantage Health Services common stock, and (iii)
ProVantage Health Services may cease making filings with the Securities and
Exchange Commission or otherwise cease being required to comply with the SEC
rules relating to publicly held companies. See Section 7, "Effect of Offer on
Market for Shares; New York Stock Exchange Listing; SEC Registration; Margin
Regulations."
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WILL THE TENDER OFFER BE FOLLOWED BY A MERGER IF ALL SHARES OF PROVANTAGE
HEALTH SERVICES ARE NOT TENDERED IN THE OFFER?
If we accept for payment and pay for at least a majority of the shares of
ProVantage Health Services on a fully diluted basis, we will be merged with
and into ProVantage Health Services. If that merger takes place, Merck & Co.
will own all of the shares of ProVantage Health Services, and all other
persons who were stockholders of ProVantage Health Services immediately prior
to the merger (other than stockholders properly exercising appraisal rights)
will receive $12.25 per share in cash (or any higher price per share that is
paid in the offer). See the "Introduction" to this Offer to Purchase.
IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES?
If the merger described above takes place, stockholders not tendering in
the offer will receive the same amount of cash per share that they would have
received had they tendered their shares in the offer, subject to any appraisal
rights properly exercised under Delaware law. Therefore, if the merger takes
place and you do not perfect your appraisal rights, the only difference to you
between tendering your shares and not tendering your shares is that you will
be paid earlier if you tender your shares. If the merger does not take place,
however, the number of stockholders and the number of shares of ProVantage
Health Services that are still in the hands of the public may be so small that
there may no longer be an active public trading market (or, possibly, there
may not be any public trading market) for the ProVantage Health Services
common stock. Also, as described above, ProVantage Health Services may cease
making filings with the Securities and Exchange Commission or otherwise cease
being required to comply with the SEC rules relating to publicly held
companies. See the "Introduction" to this Offer to Purchase and Section 7,
"Effect of Offer on Market for Shares; New York Stock Exchange Listing; SEC
Registration; Margin Regulations."
There are no appraisal rights in connection with the offer. However, if the
merger takes place, stockholders who have not sold their shares in the offer
will have appraisal rights under Delaware law. See Section 12, "Purpose of the
Offer; The Merger; Plans for the Company."
WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE?
On May 3, 2000, the last trading day before we announced the signing of the
merger agreement, the last sale price of ProVantage Health Services common
stock reported on the New York Stock Exchange was $7.63 per share. On May 9,
2000, the closing price of ProVantage Health Services common stock reported on
the New York Stock Exchange was $12.00. We encourage you to obtain a recent
quotation for shares of ProVantage Health Services common stock in deciding
whether to tender your shares. See Section 6, "Price Range of Shares;
Dividends on the Shares."
WHAT ARE CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF TENDERING
SHARES?
The receipt of cash for shares pursuant to the tender offer or the merger
will be a taxable transaction for United States federal income tax purposes
and possibly for state, local and foreign income tax purposes as well. In
general, a stockholder who sells shares pursuant to the tender offer or
receives cash in exchange for shares pursuant to the merger will recognize
gain or loss for United States federal income tax purposes equal to the
difference, if any, between the amount of cash received and the stockholder's
adjusted tax basis in the shares sold pursuant to the tender offer or
exchanged for cash pursuant to the merger. If the shares exchanged constitute
capital assets in the hands of the stockholder, such gain or loss will be
capital gain or loss. In general, capital gains recognized by an individual
will be subject to a maximum United States federal income tax rate of 20% if
the shares were held for more than one year, and if held for one year or less
they will be subject to tax at ordinary income tax rates. See Section 5,
"Certain United States Federal Income Tax Consequences."
TO WHOM MAY I SPEAK IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
You may call Morrow & Co., Inc. at (800) 662-5200 (toll free) or J.P.
Morgan Securities Inc. at (212) 648-9449. Morrow & Co. is acting as the
information agent and J.P. Morgan is acting as the dealer manager for our
tender offer. See the back cover of this Offer to Purchase.
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To the Holders of Common Stock of
PROVANTAGE HEALTH SERVICES, INC.:
INTRODUCTION
PV Acquisition Corp., a Delaware corporation ("Offeror") and an indirect
wholly owned subsidiary of Merck & Co., Inc., a New Jersey corporation
("Parent"), hereby offers to purchase all of the outstanding shares of common
stock, par value $0.01 per share (the "Common Stock"), inclusive of their
respective associated preferred share purchase rights (the "Rights," and the
shares of Common Stock inclusive of their respective Rights, the "Shares"), of
ProVantage Health Services, Inc., a Delaware corporation (the "Company"), at a
purchase price of $12.25 per share, net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth in this Offer
to Purchase and in the related Letter of Transmittal (this Offer to Purchase
and the Letter of Transmittal, and any amendments or supplements hereto or
thereto, collectively constitute the "Offer"). The Rights were issued pursuant
to the Rights Agreement, dated as of March 12, 1999, as amended as of May 4,
2000 (the "Rights Agreement"), between the Company and Norwest Bank Minnesota,
N.A., as Rights Agent, and are currently evidenced by and trade with
certificates evidencing the Common Stock.
Offeror is a corporation newly formed by Parent in connection with the
Offer and the transactions contemplated by the Merger Agreement (as
hereinafter defined). For information concerning Offeror and the Parent, see
Section 9, "Certain Information Concerning Offeror, Parent and Merck-Medco."
Tendering stockholders who are record owners of their Shares and who tender
directly to the Depositary (as defined below) will not be obligated to pay
brokerage fees or commissions or, except as set forth in Instruction 6 of the
Letter of Transmittal, stock transfer taxes with respect to the purchase of
Shares by Offeror pursuant to the Offer. Stockholders who hold their Shares
through a broker or bank should consult such institution as to whether it
charges any service fees. Offeror will pay all fees and expenses of J.P.
Morgan Securities Inc. ("J.P. Morgan" or the "Dealer Manager"), Norwest Bank
Minnesota, N.A. (the "Depositary") and Morrow & Co., Inc. (the "Information
Agent") for their respective services in connection with the Offer and the
Merger (as hereinafter defined). See Section 17, "Fees and Expenses."
The Board of Directors of the Company has unanimously (by all those
directors present) approved the Offer, the Merger and the Merger Agreement,
has determined that the terms of the Offer and the Merger are fair to, and in
the best interests of, the Company's stockholders, and has recommended
acceptance of the Offer and approval of the Merger and the Merger Agreement by
the stockholders of the Company.
The Board of Directors of the Company has received the written opinion of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), the
Company's financial advisor, dated May 3, 2000, that, as of that date, and
based on and subject to the various assumptions, limitations and
qualifications set forth therein, the $12.25 per share in cash 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. A copy of that opinion is set forth
in full as an exhibit to the Company's Solicitation/Recommendation Statement
on Schedule 14D-9 (the "Schedule 14D-9") which is being mailed to the
Company's stockholders, and stockholders are urged to read the opinion in its
entirety.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn immediately prior to the expiration of the Offer
that number of Shares (the "Minimum 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 (the "Minimum Condition") and (ii) the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the regulations thereunder (the "Hart-Scott-Rodino Act")
having expired or been terminated prior to the expiration of the Offer. The
Offer is also subject to the satisfaction of certain other conditions. See
Section 15, "Certain Conditions to Offeror's Obligations."
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The Company has represented to Parent and Offeror that, as of May 4, 2000,
there were 18,150,000 Shares issued and outstanding, no preferred shares
outstanding, and options to purchase 873,309 Shares outstanding, none of which
were exercisable. Based on the foregoing, Offeror believes that approximately
9,511,655 Shares must be validly tendered and not withdrawn prior to the
expiration of the Offer in order for the Minimum Condition to be satisfied.
See Section 1, "Terms of the Offer; Expiration Date."
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. The Merger Agreement provides, among other things, for the making of
the Offer by Offeror, and further provides that, upon the terms and subject to
certain conditions of the Merger Agreement, Offeror will be merged with and
into the Company (the "Merger"), with the Company continuing as the surviving
corporation (the "Surviving Corporation"). Parent and Offeror may assign any
of their rights and obligations under the Merger Agreement to any direct or
indirect wholly owned subsidiary of Parent, but no such assignment will
relieve Parent or Offeror of its obligations under the Merger Agreement. The
Merger Agreement is more fully described in Section 13, "The Transaction
Documents--The Merger Agreement." The Merger is subject to a number of
conditions, including the approval of the Merger Agreement by stockholders of
the Company, if such approval is required by applicable law. See Section 12,
"Purpose of the Offer; The Merger; Plans for the Company." In the Merger, each
issued and outstanding Share (other than Shares held by the Company as
treasury stock or owned by Parent, Offeror or any subsidiary of Parent, which
shall be cancelled and retired, with no payment made with respect thereto, and
other than Shares with respect to which appraisal rights are properly
exercised) will be converted into the right to receive from the Surviving
Corporation $12.25 or any greater amount per Share paid pursuant to the Offer
(the "Offer Price"), in cash, without interest thereon, each issued and
outstanding share of common stock of Offeror will be converted into one share
of common stock of the Surviving Corporation, and the Surviving Corporation
will become an indirect wholly owned subsidiary of Parent.
Concurrently with the execution and delivery of the Merger Agreement,
ShopKo Stores, Inc. and SKO Holdings, Inc. (together, the "Majority
Stockholder") entered into a Stockholder Agreement, dated as of May 4, 2000
(the "Stockholder Agreement"), with Parent and Offeror. As of May 4, 2000, the
Majority Stockholder was the owner of record or beneficial owner (as defined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of 11,710,000 Shares, or approximately 64.5% of the
outstanding Shares (approximately 61.5% of the Shares on a fully diluted
basis). Pursuant to the Stockholder Agreement, the Majority Stockholder has,
among other things, entered into a voting agreement with Parent and Offeror
and granted a proxy (subject to revocation in certain limited instances) to
Offeror's designees with respect to their Shares, which permits such proxies
to vote the Shares at any meeting with a record date after May 4, 2000. Also,
the Majority Stockholder has agreed to tender its Shares in the Offer and to
grant to Offeror an option (the "Option") to purchase the Shares held by the
Majority Stockholder at the Offer Price under specified circumstances. If the
Majority Stockholder tenders in the Offer, as it has agreed to do, the Minimum
Condition will be satisfied even if no Shares are tendered in the Offer by
other stockholders. For purposes of this Offer to Purchase, any reference to
beneficial ownership of Parent or Offeror of Shares or similar references
shall exclude Shares subject to the Stockholder Agreement.
The Company has distributed one Right for each outstanding share of Common
Stock pursuant to the Rights Agreement. Based on the information disclosed by
the Company in the Merger Agreement, in connection with the Company's entering
into the Merger Agreement, the Board of Directors of the Company irrevocably
and unconditionally amended the Rights Agreement to provide that, as long as
the Merger Agreement has not been terminated pursuant to the terms thereof,
the provisions of the Rights Agreement will not be triggered as a result of
the execution, delivery or performance of the Merger 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 the Merger Agreement. If the Rights
Agreement had not been so amended, a distribution of Rights certificates
separate from the Common Stock might have resulted from the Offer, the Merger
Agreement or the Stockholder Agreement or any of the respective transactions
contemplated thereby.
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This Offer to Purchase and the related Letter of Transmittal contain
important information which should be read carefully before any decision is
made with respect to the Offer. This Offer to Purchase contains forward-
looking statements that involve risks and uncertainties, including the risks
associated with satisfying the various conditions to the Offer. Certain of
these factors, as well as additional risks and uncertainties, are detailed in
the Company's periodic filings with the Securities and Exchange Commission
(the "Commission"). See Section 8, "Certain Information Concerning the
Company--Available Information."
1. Terms of the Offer; Expiration Date.
Upon the terms and subject to the conditions set forth in the Offer
(including, if the Offer is extended or amended, the terms and conditions of
any extension or amendment), Offeror will accept for payment and pay for all
Shares validly tendered prior to the Expiration Date and not theretofore
properly withdrawn in accordance with Section 4, "Withdrawal Rights." The term
"Expiration Date" means 12:00 midnight, New York City time, on Wednesday, June
14, 2000, unless Offeror shall have extended the period of time for which the
Offer is open in accordance with the terms of the Merger Agreement, in which
event the term "Expiration Date" shall mean the latest time and date at which
the Offer, as so extended by Offeror (other than any extension with respect to
a Subsequent Offering Period, described below), shall expire.
Extension of Offer. Pursuant to the Merger Agreement, if at the then-
scheduled Expiration Date any of the conditions to the Offer described in
Section 15, "Certain Conditions to Offeror's Obligations" (collectively, the
"Offer Conditions"), has not been satisfied, and such Offer Condition may in
the reasonable judgment of Offeror be satisfied within a reasonable time, then
Offeror shall extend the Offer until such time as such Offer Condition is
satisfied, with each such extension not to exceed the lesser of (i) ten
business days or (ii) such fewer number of days that Offeror reasonably
believes are necessary to cause the Offer Condition to be satisfied.
Notwithstanding the foregoing, Offeror shall have no obligation to extend the
Offer if the Net Working Capital Condition (described in Section 15, "Certain
Conditions to Offeror's Obligations") is not satisfied at the scheduled
expiration of the Offer. Also, Offeror may, without the consent of the
Company, extend the Offer for any period required by any rule, regulation,
interpretation or position of the Commission or the staff thereof applicable
to the Offer. The Merger Agreement requires that any extension of the Offer
shall result in the Offer expiring on the twelfth business day after the end
of a "Company Fiscal Period," meaning any of the following dates in calendar
year 2000: April 29, May 27, July 1, July 29, August 26, September 30, October
28, November 25 or December 30. Offeror's rights and obligations to extend the
Offer as described in this paragraph are subject to Parent and the Company's
rights to terminate the Merger Agreement if the Offer shall not have been
consummated by December 31, 2000; see Section 13, "The Transaction Documents--
The Merger Agreement--Termination." Subject to the foregoing restrictions,
Offeror reserves the right (but will not be obligated), in its sole
discretion, to extend the period during which the Offer is open by giving oral
or written notice of such extension to the Depositary and by making a public
announcement of such extension. There can be no assurance that Offeror will
exercise its right to extend the Offer.
Subsequent Offering Period. Rule 14d-11 under the Exchange Act permits
Offeror, subject to certain conditions, to provide a subsequent offering
period following the expiration of the Offer on the Expiration Date (a
"Subsequent Offering Period"). A Subsequent Offering Period is an additional
period of time from three business days to 20 business days in length,
beginning after Offeror purchases Shares tendered in the Offer, during which
stockholders may tender, but not withdraw, their Shares and receive the Offer
Price. Under the terms of the Merger Agreement, Offeror may provide for a
Subsequent Offering Period with the prior consent of the Company (such consent
not to be unreasonably withheld). During a Subsequent Offering Period, Offeror
will promptly purchase and pay for all Shares tendered at the same price paid
in the Offer.
Modification of Offer; Waiver of Offer Conditions. In the Merger Agreement,
Parent and Offeror have expressly reserved the right to modify the terms of
the Offer, except that neither Parent nor Offeror may, without the prior
written consent of the Company, (i) decrease the price per Share payable in
the Offer, (ii) change the form of consideration payable in the Offer, (iii)
decrease the number of Shares sought pursuant to the Offer (except
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as described in the following sentence), (iv) change or modify the conditions
to the Offer in a manner adverse to the Company or holders of Shares, (v)
impose additional conditions to the Offer, or (vi) amend any term of the Offer
in any manner adverse to the Company or holders of Shares. Also, the Merger
Agreement provides that Offeror may waive any of the Offer Conditions in its
sole discretion; provided, however, that, without the consent of the Company,
Offeror may not waive the Minimum Condition unless Offeror (i) is permitted by
applicable law to do so and (ii) exercises the Option immediately following
the consummation of the Offer and acquires title to all of the Shares subject
to the Option and thereafter promptly consummates the Merger.
Delay or Termination of Offer. The Merger Agreement provides that, subject
to the terms of the Offer and the Merger Agreement and the satisfaction or
earlier waiver of all the Offer Conditions as of any then-scheduled Expiration
Date, Offeror 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. Other than as required by the Merger
Agreement, and subject to the applicable rules and regulations of the
Commission, Offeror expressly reserves the right, in its sole discretion, to
delay acceptance for payment of any Shares (or delay payment for any shares,
regardless of whether such Shares were theretofore accepted for payment
pending the receipt of required governmental consents), or, subject to the
limitations set forth in the Merger Agreement, to terminate the Offer and not
to accept for payment or pay for any Shares not theretofore accepted for
payment or paid for, upon the failure of any of the Offer Conditions, by
giving oral or written notice of such delay or termination to the Depositary.
Offeror's right to delay payment for any Shares or not to pay for any Shares
theretofore accepted for payment is subject to the provisions of the Merger
Agreement and the applicable rules and regulations of the Commission,
including Rule 14e-1(c) under the Exchange Act. See Section 2, "Acceptance for
Payment and Payment for Shares."
Satisfaction of Offer Conditions. The Offer is conditioned upon
satisfaction of the Minimum Condition. The Offer is also subject to other
terms and conditions. See Section 15, "Certain Conditions to Offeror's
Obligations." As described in the Introduction to this Offer to Purchase,
Offeror believes the Minimum Number of Shares is approximately 9,511,655. If
the Minimum Condition or any of the other Offer Conditions has not been
satisfied by 12:00 midnight, New York City time, on June 14, 2000 (or any
other time then set as the Expiration Date), Offeror may elect (i) subject to
the qualifications described above with respect to the extension of the Offer,
to extend the Offer and, subject to applicable withdrawal rights, retain all
tendered Shares until the expiration of the Offer, as extended, subject to the
terms of the Offer, (ii) subject to complying with applicable rules and
regulations of the Commission and to the terms of the Merger Agreement
(including, if necessary, obtaining the prior written consent of the Company),
to waive all unsatisfied Offer Conditions and accept for payment all Shares so
tendered and not extend the Offer, (iii) subject to the terms of the Merger
Agreement, amend the Offer, or (iv) subject to the terms of the Merger
Agreement, to terminate the Offer and not accept for payment any Shares and
return all tendered Shares to tendering stockholders.
Public Announcements. Any extension of the period during which the Offer is
open, or delay in acceptance for payment or payment, or termination or
amendment of the Offer, or waiver of an Offer Condition, will be followed, as
promptly as practicable, by public announcement thereof, such announcement in
the case of an extension to be issued not later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date
in accordance with the public announcement requirements of Rule 14d-4(c) under
the Exchange Act. Without limiting the obligation of Offeror under such rule
or the manner in which Offeror may choose to make any public announcement,
Offeror currently intends to make announcements by issuing a press release to
the Dow Jones News Service and making any appropriate filing with the
Commission.
Material Changes. If Offeror makes a material change in the terms of the
Offer or the information concerning the Offer or if it waives a material
condition of the Offer, Offeror will disseminate additional tender offer
materials and extend the Offer if and to the extent required by Rules 14d-
4(c), 14d-6(d) and 14e-1 under the Exchange Act or otherwise. The minimum
period during which an offer must remain open following material changes in
the terms of the offer or information concerning the offer, other than a
change in price, in the percentage of securities sought or in a dealer's
soliciting fee, will depend upon the facts and circumstances, including the
relative materiality of the terms or information changes. With respect to a
change in price, in the
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percentage of securities sought or in a dealer's soliciting fee, a minimum ten
business day period is generally required to allow for adequate dissemination
to stockholders and investor response.
Disseminations to Stockholders. The Company has provided Offeror with the
Company's list of stockholders and security position listings for the purpose
of disseminating the Offer to holders of Shares. This Offer to Purchase, the
Letter of Transmittal and other relevant materials will be mailed to record
owners of the Shares and will be furnished to brokers, dealers, commercial
banks, trust companies and similar persons whose names, or the names of whose
nominees, appear on the list of stockholders or, if applicable, who are listed
as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares.
Business Day. For purposes of the Offer, a "business day" means any day
other than a Saturday, Sunday or a federal holiday, and consists of the time
period from 12:01 a.m. through 12:00 midnight, New York City time.
2. Acceptance for Payment and Payment for Shares.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such
extension or amendment), Offeror will purchase, by accepting for payment, and
will pay for, all Shares validly tendered prior to the Expiration Date (and
not properly withdrawn) promptly after the Expiration Date. Any determination
concerning the satisfaction or waiver of such terms and conditions will be
within the reasonable discretion of Offeror, and such determination will be
final and binding on all tendering stockholders. As discussed below, subject
to compliance with Rule 14e-1(c) under the Exchange Act, Offeror expressly
reserves the right to delay payment for Shares in order to comply in whole or
in part with any applicable law.
For purposes of the Offer, Offeror will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered and not properly
withdrawn as, if and when Offeror gives oral or written notice to the
Depositary of Offeror's acceptance of such Shares for payment. Upon the terms
and subject to the conditions of the Offer, payment for Shares purchased
pursuant to the Offer will be made by deposit of the purchase price with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving payment from Offeror and transmitting such payment to tendering
stockholders whose Shares have been accepted for payment. Upon the deposit of
funds with the Depositary for the purpose of making payments to tendering
stockholders, Offeror's obligation to make such payment will be satisfied, and
tendering stockholders must thereafter look solely to the Depositary for
payments of amounts owed to them by reason of the acceptance for payment of
Shares pursuant to the Offer. In all cases, payment for Shares accepted for
payment pursuant to the Offer will be made only after timely receipt by the
Depositary of (i) certificates evidencing such Shares or timely confirmation
(a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the
Depositary's account at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in Section 3, "Procedures for Tendering Shares," (ii) a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) with any required signature guarantees, or, in the case of
a book-entry transfer, an Agent's Message (as defined below), and (iii) any
other documents required by the Letter of Transmittal.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Depositary and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that Offeror
may enforce such agreement against the participant.
If, for any reason whatsoever (including the extension of the Offer),
acceptance for payment of, or payment for, any Shares tendered pursuant to the
Offer is delayed, or Offeror is unable to accept for payment, or pay for,
Shares tendered pursuant to the Offer, then, without prejudice to Offeror's
rights under the Offer, the Depositary may, nevertheless, on behalf of
Offeror, retain tendered Shares, and such Shares may not be withdrawn, except
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to the extent that the tendering stockholders are entitled to withdrawal
rights as described in Section 4, "Withdrawal Rights." However, the ability of
Offeror to delay the payment for Shares that Offeror has accepted for payment
is limited by (i) Rule 14e-1(c) under the Exchange Act, which requires that a
bidder pay the consideration offered or return the securities deposited by or
on behalf of stockholders promptly after the termination or withdrawal of such
bidder's offer (without affecting Offeror's right to pay for Shares tendered
during any Subsequent Offering Period in accordance with Rule 14d-11 under the
Exchange Act), and (ii) the terms of the Merger Agreement, which requires
that, subject to the terms thereof and of the Offer and the satisfaction or
earlier waiver of all the Offer Conditions as of any then-scheduled Expiration
Date, Offeror 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. Subject to compliance with Rule 14d-
11 under the Exchange Act, Offeror expressly reserves the right to delay
payment for Shares in order to comply in whole or in part with any applicable
law. See Section 15. Under no circumstances will interest be paid on the
purchase price of the Shares to be paid by Offeror, regardless of any
extension of the Offer or any delay in making such payment.
If any tendered Shares are not accepted for payment pursuant to the terms
and conditions of the Offer because of an invalid tender or for any other
reason, or if certificates are submitted evidencing more Shares than are
tendered, certificates for such unpurchased or untendered Shares will be
returned, without expense to the tendering stockholder (or, in the case of
Shares delivered by book-entry transfer to DTC pursuant to the provisions of
Section 3, "Procedures for Tendering Shares," such Shares will be credited to
an account maintained within DTC), as promptly as practicable after the
expiration, termination or withdrawal of the Offer.
If, prior to the Expiration Date, Offeror increases the consideration
offered to stockholders pursuant to the Offer, such increased consideration
will be paid to all stockholders whose Shares are purchased pursuant to the
Offer.
Offeror reserves the right to transfer or assign, in whole or from time to
time in part, to one or more direct or indirect wholly owned subsidiaries of
Parent, the right to purchase all or any portion of the Shares tendered
pursuant to the Offer, but any such transfer or assignment will not relieve
Offeror of its obligations under the Offer and will in no way prejudice the
rights of tendering stockholders to receive payment for Shares validly
tendered and accepted for payment pursuant to the Offer.
3. Procedures for Tendering Shares.
Valid Tenders. For Shares to be validly tendered pursuant to the Offer, a
properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof), with any required signature guarantees and any
other required documents, or an Agent's Message in the case of a book-entry
delivery, must be received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase prior to the Expiration Date. In
addition, either (i) certificates representing such Shares must be received by
the Depositary along with the Letter of Transmittal or such Shares must be
tendered pursuant to the procedure for book-entry transfers set forth below
(and a Book-Entry Confirmation received by the Depositary), in each case prior
to the Expiration Date, or (ii) the tendering stockholder must comply with the
guaranteed delivery procedure set forth below. No alternative, conditional or
contingent tenders will be accepted.
The method of delivery of certificates representing Shares, the Letter of
Transmittal and all other required documents, including delivery through DTC,
is at the election and sole risk of the tendering stockholder, and Shares will
be deemed delivered only when actually received by the Depositary. If delivery
is by mail, registered mail with return receipt requested, properly insured,
is recommended. In all cases, sufficient time should be allowed to ensure
timely delivery.
Book-Entry Transfer. The Depositary will make a request to establish an
account with respect to the Shares at DTC for purposes of the Offer within two
business days after the date of this Offer to Purchase. Any financial
institution that is a participant in DTC's system may make a book-entry
delivery of Shares by causing DTC to
12
<PAGE>
transfer such Shares into the Depositary's account at DTC in accordance with
DTC's procedures for transfer. However, although delivery of Shares may be
effected through book-entry at DTC, either (i) the Letter of Transmittal (or a
manually signed facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, or an
Agent's Message in the case of a book-entry delivery, must, in any case, be
transmitted to and received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date
or (ii) the tendering stockholder must comply with the guaranteed delivery
procedure described below. Delivery of documents to DTC does not constitute
delivery to the Depositary.
Signature Guarantee. No signature guarantee is required on the Letter of
Transmittal if the Shares tendered thereby are tendered (i) by the registered
holder of Shares (which term, for such purposes, includes DTC if its name
appears on a security position listing as the owner of the Shares) who has not
completed either the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii)
for the account of a member firm of a registered national securities exchange
(registered under Section 6 of the Exchange Act), by a member firm of the
National Association of Securities Dealers, Inc., by a commercial bank or
trust company having an office or correspondent in the United States or by any
other "Eligible Guarantor Institution," as defined in Rule 17Ad-15 under the
Exchange Act (collectively, "Eligible Institutions"). In all other cases, all
signatures on the Letter of Transmittal must be guaranteed by an Eligible
Institution. If the certificates evidencing Shares are registered in the name
of a person or persons other than the signer of the Letter of Transmittal, or
if payment is to be made, or certificates for unpurchased Shares are to be
issued or returned, to a person other than the registered owner or owners,
then the tendered certificates must be endorsed or accompanied by duly
executed stock powers, in either case signed exactly as the name or names of
the registered owner or owners appear on the certificates, with the signatures
on the certificates or stock powers guaranteed by an Eligible Institution as
provided in the Letter of Transmittal. See Instructions 1 and 5 to the Letter
of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available, or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, or the procedure for book-entry
transfers cannot be completed on a timely basis, such Shares may nevertheless
be tendered if such tender complies with all of the following guaranteed
delivery procedures:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Offeror herewith, is
received by the Depositary, as provided below, prior to the Expiration
Date; and
(iii) the certificates representing all tendered Shares, in proper form
for transfer (or a Book-Entry Confirmation with respect to all Tendered
Shares), together with a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof), with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message), and any other documents required by the Letter of Transmittal,
are received by the Depositary within three New York Stock Exchange
("NYSE") trading days after the date of such Notice of Guaranteed Delivery.
If certificates are forwarded separately to the Depositary, a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) must accompany each such delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must include
a signature guarantee by an Eligible Institution in the form set forth in the
Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for the Shares (or a Book-Entry
Confirmation), (ii) a properly completed and duly executed Letter of
Transmittal (or a manually signed
13
<PAGE>
facsimile thereof) with any required signature guarantees (or an Agent's
Message in connection with a book-entry delivery of Shares), and (iii) any
other documents required by the Letter of Transmittal. Accordingly, tendering
stockholders may be paid at different times depending upon when certificates
for Shares or Book-Entry Confirmations are actually received by the
Depositary. Under no circumstances will interest be paid on the purchase price
of the Shares to be paid by Offeror.
Backup United States Federal Income Tax Withholding. To prevent United
States federal income tax backup withholding with respect to payment of the
purchase price of Shares purchased pursuant to the Offer, each stockholder
must provide the Depositary with its correct taxpayer identification number
and certify that it is not subject to backup withholding by completing the
Substitute Form W-9 included in the Letter of Transmittal. See Instruction 10
of the Letter of Transmittal.
Determinations of Validity. All questions as to the form of documents and
the validity, eligibility (including time of receipt) and acceptance for
payment of any tender of Shares will be determined by Offeror, in its sole
discretion, and its determination will be final and binding on all parties.
Offeror reserves the absolute right to reject any or all tenders of any Shares
(i) that are determined by it not to be in proper form or (ii) the acceptance
for payment of or payment for which may, in the opinion of Offeror or its
counsel, be unlawful. Offeror also reserves the absolute right, in its sole
discretion, to waive any of the Offer Conditions (other than as prohibited by
the Merger Agreement, as described in Section 1, "Terms of the Offer;
Expiration Date") or any defect or irregularity in the tender of any Shares,
whether or not similar defects or irregularities are waived in the case of
other Shares. No tender of Shares will be deemed to have been validly made
until all defects and irregularities have been cured or waived to the
satisfaction of Offeror. None of Offeror, Parent, the Dealer Manager, the
Depositary, the Information Agent or any other person will be under any duty
to give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. Offeror's interpretation
of the terms and conditions of the Offer (including the Letter of Transmittal
and the Instructions thereto) will be final and binding on all parties.
Appointment. By executing the Letter of Transmittal as set forth above, a
tendering stockholder will irrevocably appoint designees of Offeror as the
attorneys-in-fact and proxies of such stockholder in the manner set forth in
the Letter of Transmittal, each with full power of substitution, to the full
extent of such stockholder's rights with respect to the Shares tendered by
such stockholder and accepted for payment by Offeror (and any and all other
Shares or other securities or rights issued or issuable in respect of such
Shares on or after May 4, 2000), including, without limitation, the right to
vote such Shares in such manner as such designees or their substitutes shall,
in their sole discretion, deem proper. All such powers of attorney and proxies
shall be considered coupled with an interest in the tendered Shares. Such
appointment will be effective when, and only to the extent that, Offeror
accepts such Shares for payment. Upon such acceptance for payment, all prior
powers of attorney and proxies given by the stockholder with respect to such
Shares will be revoked, without further action, and no subsequent powers of
attorney and proxies may be given (and, if given, will be deemed ineffective).
The designees of Offeror will, with respect to the Shares for which such
appointment is effective, be empowered to exercise all voting and other rights
of such stockholder as they in their sole judgment deem proper. Offeror
reserves the right to require that, in order for Shares to be deemed validly
tendered, immediately upon the acceptance for payment of such Shares, Offeror
or its designees must be able to exercise full voting rights with respect to
such Shares, including voting at any meeting of stockholders then or
thereafter scheduled.
The tender of Shares pursuant to any one of the procedures described above
will constitute the tendering stockholder's acceptance of the terms and
conditions of the Offer as well as the tendering stockholder's representation
and warranty that (a) such stockholder has a net long position in the Shares
being tendered within the meaning of Rule 14e-4 under the Exchange Act and (b)
the tender of such Shares complies with Rule 14e-4. It is a violation of Rule
14e-4 for a person, directly or indirectly, to tender Shares for such person's
own account unless, at the time of tender, the person so tendering (i) has a
net long position equal to or greater than the amount of (x) Shares tendered
or (y) other securities immediately convertible into or exchangeable or
exercisable for the Shares tendered and such person will acquire such Shares
for tender by conversion, exchange or exercise and (ii) will cause such Shares
to be delivered in accordance with the terms of the Offer. Rule 14e-4 provides
a
14
<PAGE>
similar restriction applicable to the tender or guarantee of a tender on
behalf of another person. Offeror's acceptance for payment of Shares tendered
pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and Offeror upon the terms and subject to the conditions
of the Offer.
4. Withdrawal Rights.
Except as otherwise provided in this Section 4, tenders of Shares made
pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer
may be withdrawn pursuant to the procedure set forth below at any time prior
to the Expiration Date and, unless theretofore accepted for payment pursuant
to the Offer, may also be withdrawn, pursuant to Section 14(d)(5) of the
Exchange Act, at any time after July 9, 2000.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase.
Any notice of withdrawal must specify the name, address and taxpayer
identification number of the person who tendered the Shares to be withdrawn,
the number of Shares to be withdrawn and the name in which the certificates
representing such Shares are registered, if different from that of the person
who tendered the Shares. If certificates for Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then, prior to the
physical release of such certificates, the serial numbers shown on such
certificates must be submitted to the Depositary and, unless such Shares have
been tendered by an Eligible Institution, the signatures on the notice of
withdrawal must be guaranteed by an Eligible Institution. If Shares have been
tendered pursuant to the procedure for book-entry transfers set forth in
Section 3, "Procedures for Tendering Shares," any notice of withdrawal must
also specify the name and number of the account at DTC to be credited with the
withdrawn Shares. Withdrawals of tenders of Shares may not be rescinded, and
any Shares properly withdrawn will thereafter be deemed not validly tendered
for any purposes of the Offer. However, withdrawn Shares may be retendered by
again following one of the procedures described in Section 3, "Procedures for
Tendering Shares," at any time prior to the Expiration Date or during the
Subsequent Offering Period, if any.
Pursuant to Rule 14d-7 under the Exchange Act, no withdrawal rights will
apply to Shares tendered into a Subsequent Offering Period and no withdrawal
rights apply during the Subsequent Offering Period with respect to Shares
tendered in the Offer and accepted for payment.
If Offeror extends the Offer, or if purchase of or payment for Shares is
delayed for any reason, or if Offeror is unable to purchase or pay for Shares
for any reason, then, without prejudice to Offeror's rights under the Offer,
tendered Shares may be retained by the Depositary on behalf of Offeror and may
not be withdrawn except to the extent that tendering stockholders are entitled
to withdrawal rights as set forth in this Section 4, subject to Rule 14e-1(c)
under the Exchange Act, which provides that no person who makes a tender offer
shall fail to pay the consideration offered or return the securities deposited
by or on behalf of security holders promptly after the termination or
withdrawal of the Offer, and subject to Offeror's obligations under the Merger
Agreement. See Section 2, "Acceptance for Payment and Payment for Shares."
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Offeror, in its sole discretion,
and its determination will be final and binding on all parties. None of
Offeror, Parent, the Dealer Manager, the Depositary, the Information Agent or
any other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
5. Certain United States Federal Income Tax Consequences.
The following is a summary of certain United States federal income tax
consequences of the Offer and the Merger to holders whose Shares are purchased
pursuant to the Offer or whose Shares are converted into the right to receive
cash in the Merger. The summary is based on the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable current and proposed
United States Treasury Regulations issued thereunder, judicial authority and
administrative rulings and practice, all of which are subject to change,
possibly with retroactive effect, at any time and, therefore, the following
statements and conclusions could be altered or
15
<PAGE>
modified. The discussion does not address holders of Shares in whose hands
Shares are not capital assets, nor does it address holders who hold Shares as
part of a hedging, "straddle," conversion or other integrated transaction, or
who received Shares upon conversion of securities or exercise of warrants or
other rights to acquire Shares or pursuant to the exercise of employee stock
options or otherwise as compensation, or to holders of Shares who are in
special tax situations (such as insurance companies, tax-exempt organizations,
financial institutions, United States expatriates or non-U.S. persons).
Furthermore, the discussion does not address the tax treatment of holders who
exercise appraisal rights in the Merger, nor does it address any aspect of
state, local or foreign taxation or estate and gift taxation.
The United States federal income tax consequences set forth below are
included for general informational purposes only and are based upon current
law. The following summary does not purport to consider all aspects of United
States federal income taxation that might be relevant to stockholders of the
Company. Because individual circumstances may differ, each holder of Shares
should consult such holder's own tax advisor to determine the applicability of
the rules discussed below to such stockholder and the particular tax effects
of the Offer and the Merger, including the application and effect of state,
local and other tax laws.
The receipt of cash for Shares pursuant to the Offer or the Merger will be
a taxable transaction for United States federal income tax purposes (and also
may be a taxable transaction under applicable state, local, foreign and other
income tax laws). In general, for United States federal income tax purposes, a
holder of Shares will recognize gain or loss equal to the difference between
the holder's adjusted tax basis in the Shares sold pursuant to the Offer or
converted to cash in the Merger and the amount of cash received therefor. Gain
or loss must be determined separately for each block of Shares (i.e., Shares
acquired at the same cost in a single transaction) sold pursuant to the Offer
or converted to cash in the Merger. Such gain or loss will be capital gain or
loss and will be long-term gain or loss if, on the date of sale (or, if
applicable, the date of the Merger), the Shares were held for more than one
year.
Payments in connection with the Offer or the Merger may be subject to
"backup withholding" at a 31% rate. Backup withholding generally applies if a
holder (a) fails to furnish its social security number or other taxpayer
identification number ("TIN"), (b) furnishes an incorrect TIN, (c) fails
properly to include a reportable interest or dividend payment on its United
States federal income tax return or (d) under certain circumstances, fails to
provide a certified statement, signed under penalties of perjury, that the TIN
provided is its correct number and that it is not subject to backup
withholding. Backup withholding is not an additional tax but merely an advance
payment, which may be refunded to the extent it results in an overpayment of
tax. Certain persons generally are entitled to exemption from backup
withholding, including corporations and financial institutions. Certain
penalties apply for failure to furnish correct information and for failure to
include reportable payments in income. Each stockholder should consult such
stockholder's own tax advisor as to its qualification for exemption from
backup withholding and the procedure for obtaining such exemption.
All stockholders surrendering Shares pursuant to the Offer should complete
and sign the main signature form and the Substitute Form W-9 included as part
of the Letter of Transmittal to provide the information and certification
necessary to avoid backup withholding (unless an applicable exemption exists
and is proved in a manner satisfactory to Offeror and the Depositary).
Stockholders who are foreign individuals should complete and sign the main
signature form and a statement, signed under penalties of perjury, attesting
to that individual's exempt status (forms for such statements can be obtained
from the Depositary), in order to avoid backup withholding.
6. Price Range of Shares; Dividends on the Shares.
According to the Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 2000 (the "Company 10-K"), the Shares trade on the NYSE
under the symbol "PHS." In July 1999 (the second quarter of the Company's
fiscal year 1999), the Company completed its initial public offering of
5,600,000 Shares at a price of $18.00 per Share.
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<PAGE>
According to the Company 10-K, the Company has not paid regular cash
dividends in the last two fiscal years and intends to retain earnings for the
growth and expansion of its business and not to declare or pay any cash
dividends. Pursuant to the Merger Agreement, the Company has agreed that,
without the prior written consent of Parent, it will not 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.
The following table sets forth the high and low sales prices per Share on
the NYSE for the periods indicated, as reported in published financial
sources.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal Year Ended January 29, 2000:
Second Quarter (ended July 31, 1999)........................ $22.00 $17.50
Third Quarter (ended October 30, 1999)...................... 18.38 8.56
Fourth Quarter (ended January 29, 2000)..................... 12.19 7.25
Fiscal Year Ending January 27, 2001:
First Quarter (ended April 29, 2000)........................ 9.00 6.38
Second Quarter (through May 9, 2000)........................ 12.06 7.38
</TABLE>
The closing sale price per Share on the NYSE on May 4, 2000, the last full
day of trading prior to the public announcement of Offeror's intention to make
the Offer, was $7.63. The closing sale price per Share on the NYSE on May 9,
2000, was $12.00 Stockholders are urged to obtain current market quotations
for the Shares and to review all information received by them from the
Company, including the materials referred to in Section 8, "Certain
Information Concerning the Company."
7. Effect of Offer on Market for Shares; New York Stock Exchange Listing; SEC
Registration; Margin Regulations.
Market for the Shares. The purchase of the Shares by Offeror pursuant to
the Offer will reduce the number of Shares that might otherwise trade publicly
and may reduce the number of holders of Shares, which could adversely affect
the liquidity and market value of the remaining Shares, if any, held by
stockholders other than Offeror. Parent and Offeror cannot predict whether the
reduction in the number of Shares that might otherwise trade publicly would
have an adverse or beneficial effect on the market price for, or marketability
of, the Shares or whether it would cause future market prices to be greater or
lesser than the Offer Price.
NYSE Listing; SEC Registration. The Shares are currently listed and traded
on the NYSE, which constitutes the principal trading market for the Shares.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the NYSE for continued listing
and may, therefore, be delisted from such exchange. According to the NYSE's
published guidelines, the NYSE will consider delisting shares if, among other
things, the number of publicly held shares (excluding shares held by officers,
directors, their immediate families and other concentrated holdings of 10% or
more) is less than 600,000 (subject to proportionate reduction if the unit of
trading is less than 100 shares) or there are fewer than 400 stockholders (or,
if the average trading volume for the most recent 12 months is less than
100,000 shares, fewer than 1,200 stockholders). The Company 10-K states that,
as of March 31, 2000, the Company had 978 record owners of Shares, and the
Company has represented in the Merger Agreement that, as of the date thereof,
18,150,000 Shares were outstanding. If, as a result of the purchase of Shares
pursuant to the Offer, the Shares no longer meet the requirements of the NYSE
for continued listing and the listing of Shares is discontinued, the market
for the Shares could be adversely affected.
If the NYSE were to delist the Shares, it is possible that the Shares would
trade on another securities exchange or in the over-the-counter market and
that price quotations for the Shares would be reported by such exchange or
through the National Association of Securities Dealers Automated Quotation
National Market
17
<PAGE>
System or other sources. The extent of a public market for the Shares and
availability of such quotations would, however, depend upon such factors as
the number of holders and/or the aggregate market value of the publicly held
Shares at such time, the interest in maintaining a market in the Shares on the
part of securities firms, the possible termination of registration of the
Shares under the Exchange Act (discussed below) and other factors.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the
Commission if the Shares are held of record by less than 300 persons. If such
registration were terminated, the Company would no longer be legally required
to disclose publicly in proxy materials distributed to stockholders the
information which it now must provide under the Exchange Act or to make public
disclosure of financial and other information in annual, quarterly and other
reports required to be filed with the Commission under the Exchange Act; the
officers, directors and 10% stockholders of the Company would no longer be
subject to the "short-swing" insider trading reporting and profit recovery
provisions of Section 16(b) of the Exchange Act or the proxy statement
requirements of Section 14(a) of the Exchange Act in connection with
stockholders' meetings; and the Shares would no longer be eligible for NYSE
reporting or for continued inclusion on the Federal Reserve Board's "margin
list." Furthermore, if such registration were terminated, persons holding
"restricted securities" of the Company could be deprived of their ability to
dispose of such securities under Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act").
In the Merger Agreement, the Company has agreed to use its commercially
reasonable efforts to cause the Shares to be de-registered from the NYSE and
de-registered under the Exchange Act as soon as practicable following the
effectiveness of the Merger (the "Effective Time"). However, Offeror intends
to cause the Company to seek delisting of the Shares from the NYSE and to
cause the Company to apply for termination of registration of the Shares under
the Exchange Act as soon after the completion of the Offer as the requirements
for such delisting and termination are met. If registration of the Shares is
not terminated prior to the Merger, then the Shares will cease to be reported
on the NYSE and the registration of the Shares under the Exchange Act will be
terminated following the consummation of the Merger.
Margin Regulations. The Shares are currently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of
allowing brokers to extend credit by using the Shares as collateral. Depending
upon factors similar to those described above regarding listing and market
quotations, it is possible that following the Offer the Shares would no longer
constitute "margin securities" for the purposes of the margin regulations of
the Federal Reserve Board and therefore could no longer be used as collateral
for loans made by brokers.
8. Certain Information Concerning the Company.
Except as specifically set forth herein, the information concerning the
Company contained in this Offer to Purchase, including financial information,
has been taken from or is based upon publicly available documents and records
on file with the Commission and other public sources. Neither Parent nor
Offeror has any knowledge that would indicate that any statements contained
herein based on such documents and records are untrue. However, neither Parent
nor Offeror assumes any responsibility for the accuracy or completeness of the
information concerning the Company, whether furnished by the Company or
contained in such documents and records, or for any failure by the Company to
disclose events which may have occurred or which may affect the significance
or accuracy of any such information but which are unknown to Parent and
Offeror.
The Company is a Delaware corporation with its principal executive offices
located at N19 W24130 Riverwood Drive, Waukesha, Wisconsin 53188, telephone
number 262-312-3000. According to the Company 10-K, the Company is a leading
health benefit management company providing pharmacy benefit management and
health information technology products.
18
<PAGE>
Set forth below is certain selected historical consolidated financial
information with respect to the Company and its subsidiaries excerpted or
derived from the audited consolidated financial statements presented in the
Company 10-K and in the final prospectus filed by the Company with the
Commission on July 14, 1999 in connection with the Company's initial public
offering. More comprehensive financial information is included in those
documents and in other documents filed by the Company with the Commission
(which may be inspected or obtained in the manner set forth below), and the
following summary is qualified in its entirety by reference to those materials
and all of the financial information and notes contained therein or
incorporated therein by reference.
ProVantage Health Services, Inc.
Selected Consolidated Financial Information
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Years (52 Weeks) Ended
-----------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Consolidated Statement of Net Earnings
Data:
Revenues............................... $902,390 $643,260 $486,121
Cost of revenues....................... 842,045 595,414 448,865
Selling, general and administrative
expenses.............................. 32,937 24,910 19,990
Depreciation and amortization
expenses.............................. 9,024 6,776 4,857
Earnings from operations............... 18,384 16,160 12,409
Interest income--net................... 1,213 543 293
Provision for income taxes............. 8,335 7,221 5,581
Net earnings........................... 11,262 9,482 7,121
Basic net earnings per share of common
stock................................. $ 0.72 $ 0.76 $ 0.57
Diluted net earnings per share of
common stock outstanding.............. 0.72 0.76 0.57
Weighted average number of shares of
common stock outstanding.............. 15,644 12,550 12,550
Adjusted weighted average number of
shares of common stock outstanding.... 15,645 12,550 12,550
<CAPTION>
At
-----------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Total current assets................... $160,334 $113,627 $ 73,108
Total assets........................... 257,249 198,251 155,010
Total current liabilities.............. 102,718 79,733 60,243
Long-term obligations.................. 2,006 -- 913
Deferred income taxes.................. 7,483 3,521 1,448
Minority interest...................... -- 2,949 2,315
Total stockholders' equity............. 145,042 112,048 90,091
</TABLE>
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<PAGE>
Certain Company Projections. During the course of discussions between
Parent and the Company that led to the execution of the Merger Agreement (see
Section 11, "Background of Offer"), the Company provided Parent with certain
information relating to the Company which may not be publicly available. On
February 14, 2000, before the Company had finished calculating its results for
the fiscal year ended January 29, 2000 (referred to by the Company as fiscal
year 1999), the Company provided Parent with its forecast for that fiscal
year, as well as its plans for fiscal years 2000 through 2002. That
information is summarized below (the following information has been excerpted
from the materials presented to Parent and does not reflect consummation of
the Offer or the Merger):
ProVantage Health Services, Inc.
Financial Projections for Fiscal Years 1999 through 2002
as of February 14, 2000
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Years (52 Weeks) Ending
-----------------------------------------------
January 25, January 26, January 27, January 29,
2003 2002 2001* 2000**
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................... $2,055.3 $1,581.2 $1,216.0 $902.3
Cost of revenues............ 1,943.7 1,491.9 1,142.9 842.8
Selling, general and
administrative expenses.... 59.3 46.7 39.2 32.7
Depreciation and
amortization expenses...... 17.7 14.2 12.1 8.6
Earnings from operations.... 34.6 28.4 21.8 18.2
Net earnings................ 20.4 16.7 13.4 11.2
Basic net earnings per share
of common stock............ $ 1.12 $ 0.92 $ 0.74 $ 0.62
Number of shares of common
stock outstanding after
initial public offering.... 18.2 18.2 18.2 18.2
</TABLE>
- --------
* In late April 2000, the Company informed Parent that the Company's earnings
for the first two months of fiscal year 2000 were lower than set forth in
the plan provided to Parent in connection with its due diligence. On May
10, 2000, the Company issued a press release announcing its results for the
first quarter of fiscal year 2000. That press release is disclosed as an
Exhibit to the Company's Schedule 14D-9.
** Actual results for the fiscal year ended January 29, 2000 are presented in
the first table in this Section 8.
To the knowledge of Parent and Offeror, the Company does not as a matter of
course make public any projections as to future performance or earnings, and
the projections set forth above are included in this Offer to Purchase only
because the information was made available to Parent by the Company. The
Company has informed Parent that the projections were not prepared with a view
to public disclosure or compliance with the published guidelines of the
Commission or the guidelines established by the American Institute of
Certified Public Accountants regarding projections or forecasts. The Company
has also informed Parent that its internal financial forecasts (upon which the
projections provided to Parent were based in part) are, in general, prepared
solely for internal use and capital budgeting and other management decision-
making purposes and are subjective in many respects and thus susceptible to
various interpretations and periodic revision based on actual experience and
business developments.
The foregoing projections constitute forward-looking statements and are
based on estimates and assumptions (not all of which were provided to Parent)
made by the management of the Company with respect to industry performance,
general business, economic, market and financial conditions and other matters,
all of which are subject to significant contingencies and are difficult to
predict, and many of which are beyond the control of the Company, Offeror or
Parent or their respective advisors. Risks and uncertainties faced by the
Company are discussed in greater detail in the Company's periodic filings with
the Commission. Also, many of the assumptions upon which the projections were
based, none of which were approved by Parent or Offeror, are
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dependent upon economic forecasting (both general and specific to the
Company's businesses), which is inherently uncertain and subjective.
Accordingly, there can be no assurance that the assumptions made in preparing
the projections will prove accurate, and actual results may be materially
greater or less than those contained in the projections.
The inclusion of the foregoing projections should not be regarded as an
indication that the Company, Offeror, Parent or any other person who received
such information considers it a reliable prediction of future events, and
neither Offeror nor Parent has relied (nor should any other person rely) on
them as such. None of Offeror or Parent or any of their advisors assumes any
responsibility for the reasonableness, completeness, accuracy or validity of
any of the projections. None of Parent or Offeror and any of their
representatives has made, or makes, any representation to any person regarding
the information contained in the projections, and none of them intends to
update or otherwise revise the projections to reflect circumstances existing
after the date when made or to reflect the occurrence of future events even in
the event that any or all of the assumptions underlying the projections are
shown to be in error.
Available Information. The Company is subject to the information and
reporting requirements of the Exchange Act and, in accordance therewith, is
obligated to file reports and other information with the Commission relating
to its business, financial condition, and other matters. Information as of
particular dates concerning the Company's directors and officers, their
remuneration, stock options granted to them, the principal holders of the
Company's securities, any material interests of such persons in transactions
with the Company, and other matters is required to be disclosed in proxy
statements distributed to the Company's stockholders and filed with the
Commission. Such reports, proxy statements, and other information should be
available for inspection at the Commission's Public Reference Room, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and copies should be
obtainable upon payment of the Commission's customary charges by writing to
the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. Such material should also be available for inspection and copying at
the regional offices of the Commission located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a World Wide Web site
on the Internet at http://www.sec.gov that contains reports, proxy statements
and other information regarding registrants that file electronically with the
Commission.
9. Certain Information Concerning Offeror, Parent and Merck-Medco.
Information Concerning Offeror. Offeror, a Delaware corporation, was
recently incorporated for the purpose of making the Offer and consummating the
Merger. All of the outstanding capital stock of Offeror is owned by Merck-
Medco, which is a wholly owned subsidiary of Parent. Until immediately prior
to the time it purchases Shares pursuant to the Offer, it is not anticipated
that Offeror will have any significant assets or liabilities or engage in
activities other than those incidental to its formation and capitalization and
the transactions contemplated by the Offer and the Merger. Since Offeror is
newly formed and has minimal assets and capitalization, no meaningful
financial information is available for it. Offeror is not subject to the
informational filing requirements of the Exchange Act.
The principal executive offices of Offeror are located at One Merck Drive,
Whitehouse Station, New Jersey 08889-0100, telephone number 908-423-1000. The
name, business address, past and present principal occupations and citizenship
of each of the directors and executive officers of Offeror are set forth in
Annex I to this Offer to Purchase.
Information Concerning Parent and Merck-Medco. Parent, a New Jersey
corporation, is a global research-driven pharmaceutical company that
discovers, develops, manufactures and markets a broad range of human and
animal health products, directly and through its joint ventures, and provides
pharmaceutical benefit services through Merck-Medco Managed Care, L.L.C., a
Delaware limited liability company ("Merck-Medco"), of which Offeror is a
direct wholly owned subsidiary. Parent's operations are principally managed on
a products and
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services basis and are composed of two principal segments: Merck
Pharmaceutical and Merck-Medco. Merck Pharmaceutical products consist of
therapeutic agents, sold by prescription, for the treatment of human
disorders. Merck-Medco revenues are derived from the filling and management of
prescriptions and health management programs. At the end of 1999, Parent had
approximately 62,300 employees worldwide. For the year ended December 31,
1999, Parent had sales of approximately $32.7 billion, net income of
approximately $5.9 billion, basic earnings per common share of $2.51, and
earnings per common share assuming dilution of $2.45. At December 31, 1999,
Parent's working capital was approximately $2.5 billion, Parent's total assets
were approximately $35.6 billion, and Parent's stockholders' equity was
approximately $13.2 billion.
The principal executive offices of Parent are located at One Merck Drive,
Whitehouse Station, New Jersey 08889-0100, telephone number 908-423-1000. The
principal business office of Merck-Medco is located at 100 Parsons Pond Drive,
Franklin Lakes, New Jersey 07417. The name, business address, past and present
principal occupations and citizenship of each of the directors and executive
officers of Parent and Merck-Medco are set forth in Annex I to this Offer to
Purchase.
Except as set forth in this Offer to Purchase:
(i) none of Parent nor Offeror nor, to the best knowledge of Parent and
Offeror, any of the persons listed in Schedule I to this Offer to Purchase,
or any associate or majority owned subsidiary of any of the foregoing,
including Merck-Medco, beneficially owns or has a right to acquire any
Shares or any other equity securities of the Company;
(ii) none of Parent nor Offeror nor, to the best knowledge of Parent and
Offeror, any of the persons listed in Schedule I to this Offer to Purchase,
or any associate or majority owned subsidiary of any of the foregoing,
including Merck-Medco, has effected any transaction in the Shares or any
other equity securities of the Company during the past 60 days;
(iii) since January 1, 1998, there have been no transactions which would
be required to be disclosed under the rules and regulations of the
Commission between any of Parent, Offeror or any of their respective
subsidiaries, including Merck-Medco, or, to the best knowledge of Parent
and Offeror, any of the persons listed in Schedule I to this Offer to
Purchase, on the one hand, and the Company or any of its executive
officers, directors or affiliates, on the other hand; and
(iv) since January 1, 1998, there have been no negotiations,
transactions or material contacts between any of Parent, Offeror or any of
their respective subsidiaries, including Merck-Medco, or, to the best
knowledge of Parent and Offeror, any of the persons listed in Schedule I to
this Offer to Purchase, on the one hand, and the Company or its affiliates,
on the other hand, concerning any merger, consolidation, acquisition,
tender offer or other acquisition of securities of the Company, any
election of directors of the Company, or any sale or other transfer of a
material amount of assets of the Company.
Neither Parent nor Offeror had any relationship with the Company prior to
the commencement of the discussions which led to the execution of the Merger
Agreement. See Section 11, "Background of Offer." Each of Parent and Offeror
disclaims that it is an "affiliate" of the Company within the meaning of Rule
13e-3 under the Exchange Act.
Parent is subject to the information and reporting requirements of the
Exchange Act and, in accordance therewith, is obligated to file reports and
other information with the Commission relating to its business, financial
condition, and other matters. Information as of particular dates concerning
Parent's directors and officers, their remuneration, stock options granted to
them, the principal holders of Parent's securities, any material interests of
such persons in transactions with Parent, and other matters is required to be
disclosed in proxy statements distributed to Parent's stockholders and filed
with the Commission. Such reports, proxy statements, and other information
should be available for inspection and copies should be attainable at the
offices of the Commission in the same manner as set forth with respect to the
Company in Section 8, "Certain Information Concerning the Company--Available
Information." In addition, stockholders of the Company may also obtain copies
of Parent's 1999 Annual Report by contacting the Office of the Secretary of
Parent at Parent's principal executive offices set forth above.
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10. Source and Amount of Funds.
If all Shares are tendered to and purchased by Offeror in the Offer, the
aggregate purchase price for such Shares and Parent's estimated related fees
and expenses in the Offer will be approximately $231 million. In the Merger
Agreement, Parent has agreed to provide or cause to be provided to Offeror the
funds necessary to pay for all Shares that Offeror becomes obligated to
purchase in the Offer. Parent, in turn, would obtain such funds from Parent's
working capital. Accordingly, there are no material conditions to such
financing. Parent and Offeror have not made any alternative financing
arrangements or alternative financing plans. The Offer is not conditioned on
Offeror or Parent obtaining any financing.
11. Background of Offer.
In mid-November 1999, Merrill, Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") contacted Parent on an informal basis regarding whether
Parent might have an interest in effecting a strategic transaction with the
Company and Parent provided Merrill Lynch with an oral indication of interest.
On December 1, 1999, Parent indicated in writing its desire to pursue a
possible business combination and Parent and the Company entered into a
confidentiality agreement on December 8, 1999 (the "Confidentiality
Agreement").
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. 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.
On April 6, 2000, Merrill Lynch provided Parent with a proposed form of
Merger Agreement and a deadline for the submission of an offer to acquire the
Company. On April 18, 2000, 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 but was contingent
upon certain matters.
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 and 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 25, 2000, the Board of Directors of Parent approved the Merger
Agreement. On May 3, 2000, the Board of Directors of Merger Subsidiary
approved the Merger Agreement.
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 May 1, 2000, the Company through Merrill Lynch and Parent discussed a
possible increase in the purchase price to $12.50 per share and a resolution
of the remaining open issues. On May 2, 2000, Parent increased its purchase
price to $12.25 per share and agreed in principle to a resolution of the
remaining open issues.
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Thereafter, representatives of the Company, the Majority Stockholder and
Parent and 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.
Early in the morning on May 4, 2000, the Company and Parent completed
negotiations and executed the Merger Agreement, the Company and the Majority
Stockholder completed negotiations and executed the Side Letter and the
Majority Stockholder and Parent completed negotiations and 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, Offeror began
commencement of the Offer.
12. Purpose of the Offer; The Merger; Plans for the Company.
Purpose. The purpose of the Offer and the Merger is for Offeror to acquire
control of, and the entire equity interest in, the Company. The purpose of the
Merger is for Offeror to acquire all Shares not purchased pursuant to the
Offer. Upon consummation of the Merger, the Company will become an indirect
wholly owned subsidiary of Parent. The Offer is being made pursuant to the
Merger Agreement.
There can be no assurance that the Merger will take place, although each
party has agreed in the Merger Agreement to use its best efforts to cause the
Merger to occur, because the Merger is subject to certain conditions, some of
which are beyond the control of either Parent or the Company. Since the
Parent's ultimate objective is to acquire ownership of all the Shares, if the
Merger does not take place, the Parent would consider the acquisition, whether
directly or through an affiliate, of Shares through private or open market
purchases, or subsequent tender offers or a different type of merger or other
combination of the Company with the Offeror or an affiliate or subsidiary
thereof, or by any other permissible means deemed advisable by it. Any of
those possible transactions might be on terms the same as, or more or less
favorable than, those of the Offer or the Merger.
Approval. Under the Delaware General Corporation Law, as amended (the
"DGCL"), the approval of the Board of Directors of the Company and the
affirmative vote of the holders of a majority of the outstanding Shares may be
required to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger. The Board of Directors of the
Company has unanimously (by all those directors present) approved the Merger
Agreement and the transactions contemplated thereby, and, unless the Merger is
consummated pursuant to the short-form merger provisions under the DGCL
described below, the only remaining required corporate action of the Company
is the approval and adoption of the Merger Agreement and the transactions
contemplated thereby by the affirmative vote of the holders of a majority of
the Shares. Accordingly, if the Minimum Condition is satisfied, Offeror will
have sufficient voting power to cause the approval and adoption of the Merger
Agreement and the transactions contemplated thereby without the affirmative
vote of any other stockholders. Regarding any approvals necessary under the
laws of other states, see Section 16, "Certain Regulatory and Legal Matters--
State Takeover Laws."
Stockholder Meetings. In the Merger Agreement, the Company has agreed,
after consummation of the Offer, to the extent required by applicable law, to
promptly take all action necessary in accordance with the DGCL and the
Company's certificate of incorporation and bylaws to convene a meeting of its
stockholders to consider and vote on the Merger and the Merger Agreement. The
Company has further agreed that, if a stockholders' meeting is convened, then,
subject to the Company's rights described in Section 13, "The Transaction
Documents--The Merger Agreement--Nonsolicitation Obligations and Exceptions,"
the Board of Directors of the Company shall recommend that the Company's
stockholders vote to approve the Merger and the Merger Agreement, shall use
commercially reasonable efforts to solicit from such stockholders 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. At any such meeting, all of the Shares then
owned by Parent, Offeror or any other subsidiary of Parent will be voted to
approve the Merger and the Merger Agreement, and Parent and Offeror have
agreed that neither they nor their subsidiaries will sell, transfer, assign,
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encumber or otherwise dispose of the Shares acquired pursuant to the Offer or
otherwise prior to such meeting (except for transactions involving solely
Parent, Offeror and/or their wholly owned subsidiaries). Notwithstanding the
foregoing, if Offeror acquires Shares representing at least 90% of the votes
represented by all outstanding Common Stock, then the parties will, at the
request of Offeror, 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
Company's stockholders.
Board Representation. For a description of Offeror's rights under the Merger
Agreement to designate directors of the Company, see Section 13, "The
Transaction Documents--The Merger Agreement--Board of Directors." Parent
currently intends to designate a majority of the directors of the Company
following consummation of the Offer. It is currently anticipated that Parent
will designate such persons listed on Annex I as Parent shall determine to
serve as the directors of the Company following consummation of the Offer.
Offeror expects that such representation would permit Offeror to exert
substantial influence over the Company's conduct of its business and
operations.
Short-form Merger. Under the DGCL, if Offeror acquires, pursuant to the
Offer, at least 90% of the outstanding Shares, Offeror will be able to approve
the Merger without a vote of the Company's stockholders. In such event, Parent
and Offeror anticipate that they will take, and the parties to the Merger
Agreement have agreed, at the request of Offeror, to take, all necessary and
appropriate action to cause the Merger to become effective as soon as
reasonably practicable after such acquisition, without a meeting of the
Company's stockholders. If, however, Offeror does not acquire at least 90% of
the outstanding Shares pursuant to the Offer or otherwise and a vote of the
Company's stockholders is required under the DGCL, a significantly longer
period of time would be required to effect the Merger.
Appraisal Rights. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated, stockholders will have certain
rights under the DGCL to dissent and demand appraisal of, and to receive
payment in cash of the fair value of, their Shares. Such rights to dissent, if
the statutory procedures are met, could lead to a judicial determination of the
fair value of the Shares, as of the day prior to the date on which the
stockholders' vote was taken approving the Merger or similar business
combination (excluding any element of value arising from the accomplishment or
expectation of the Merger), required to be paid in cash to such dissenting
holders for their Shares. In addition, such dissenting stockholders would be
entitled to receive payment of a fair rate of interest from the date of
consummation of the Merger on the amount determined to be the fair value of
their Shares. In determining the fair value of the Shares, the court is
required to take into account all relevant factors. Accordingly, such
determination could be based upon considerations other than, or in addition to,
the Offer Price and the market value of the Shares, including, among other
things, asset values and earning capacity. In Weinberger v. UOP, Inc., the
Delaware Supreme Court stated, among other things, that "proof of value by any
techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
an appraisal proceeding. Therefore, the value so determined in any appraisal
proceeding could be the same as, or more or less than, the Offer Price or the
Merger consideration.
In addition, several decisions by Delaware courts have held that, in certain
circumstances, a controlling stockholder of a company involved in a merger has
a fiduciary duty to other stockholders which requires that the merger be fair
to such other stockholders. In determining whether a merger is fair to minority
stockholders, Delaware courts have considered, among other things, the type and
amount of consideration to be received by the stockholders and whether there
was fair dealing among the parties. The Delaware Supreme Court stated in
Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that the remedy
ordinarily available to minority stockholders in a cash-out merger is the right
to appraisal described above. However, a damages remedy or injunctive relief
may be available if a merger is found to be the product of procedural
unfairness, including fraud, misrepresentation or other misconduct.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights. If any
holder of Shares who demands appraisal under Section 262 of the DGCL fails
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to perfect, or effectively withdraws or loses his right to appraisal, as
provided in the DGCL, the Shares of such holder will be deemed to have been
converted as of the Effective Time into the right to receive from the Surviving
Corporation the Offer Price in accordance with the Merger Agreement.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act
which is applicable to certain "going private" transactions and which may under
certain circumstances be applicable to the Merger or another business
combination following the purchase of Shares pursuant to the Offer or otherwise
in which Offeror seeks to acquire the remaining Shares not held by it. Offeror
believes, however, that Rule 13e-3 will not be applicable to the Merger if the
Merger is consummated within one year after the Expiration Date at the same per
Share price as paid in the Offer. If applicable, Rule 13e-3 requires, among
other things, that certain financial information concerning the Company and
certain information relating to the fairness of the proposed transaction and
the consideration offered to minority stockholders in such transaction be filed
with the Commission and disclosed to stockholders prior to consummation of the
transaction.
Plans for the Company. Following the Offer and the Merger, Parent intends to
integrate the Company into the business of Merck-Medco, through which Parent
provides pharmaceutical benefit services, and to conduct the Company's business
on a basis generally consistent with the Company's existing plans and programs.
However, Parent will continue to evaluate the business and operations of the
Company and will take such actions as it deems appropriate under the
circumstances then existing.
Extraordinary Corporate Transactions. Except as indicated in this Offer to
Purchase, neither Parent nor Offeror has any present plans or proposals which
relate to or would result in (i) an extraordinary corporate transaction, such
as a merger, reorganization or liquidation, involving the Company or any of its
subsidiaries, (ii) any purchase, sale or transfer of a material amount of
assets of the Company or any of its subsidiaries, (iii) any material change in
the present dividend policy, or indebtedness or capitalization, of the Company,
(iv) any change in the Company's present Board of Directors or management, (v)
any other material changes in the Company's corporate structure or business,
(vi) any class of equity securities of the Company being delisted from a
national securities exchange or ceasing to be authorized to be quoted in an
automated quotations system operated by a national securities association, or
(vii) any class of equity securities of the Company becoming eligible for
termination of registration under Section 12(g)(4) of the Securities Act.
13. The Transaction Documents.
The Merger Agreement
Commencement. The Merger Agreement provides for the commencement of the
Offer within a reasonable period of time after the execution of the Merger
Agreement. Parent is required to use its best efforts to cause Offeror to
commence the Offer no later than the fifth business day after the execution of
the Merger Agreement.
Merger. The Merger Agreement provides that, upon the terms and subject to
the conditions of the Merger Agreement, and in accordance with the relevant
provisions of the DGCL, Offeror shall be merged with and into the Company as
soon as practicable (and no later than the second business day, unless
otherwise agreed in writing by the parties) following the satisfaction or
waiver of the conditions described under "Conditions to Obligations of All
Parties to Merger Agreement," including the consummation of the Offer and, to
the extent required by the DGCL, the approval of the stockholders of the
Company of the Merger and the Merger Agreement. Following the Merger, the
separate corporate existence of Offeror shall cease, and the Company shall
continue as the Surviving Corporation and shall continue its existence under
the laws of the State of Delaware, and the Surviving Corporation shall have (i)
until amended, the same certificate of incorporation (amended to change the
name to the Company's name), bylaws and directors as the Offeror had
immediately prior to the Effective Time, and (ii) until replaced, the same
officers as the Company had immediately prior to the Effective Time.
Vote Required to Approve Merger. See Section 12, "Purpose of the Offer; The
Merger; Plans for the Company--Stockholder Meetings."
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Conversion of Securities. At the Effective Time, by virtue of the Merger and
without any action on the part of Parent, Offeror, the Company or the holders
of any Shares, each issued and outstanding Share (other than Shares held by the
Company as treasury stock or owned by Parent, Offeror or any subsidiary of
Parent, which shall be cancelled and retired, with no payment made with respect
thereto, and other than Shares with respect to which appraisal rights are
properly exercised) will be converted into the right to receive from the
Surviving Corporation the Offer Price in cash, each issued and outstanding
share of common stock of Offeror will be converted into one share of common
stock of the Surviving Corporation, and the Surviving Corporation will become
an indirect wholly owned subsidiary of Parent. In the event that, 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.
Treatment of Stock Options. Upon the payment for the Shares by Offeror
pursuant to the Offer and, if applicable, the exercise of the Option, each
outstanding option to acquire Common Stock (each, a "Company Option") will be
or become exercisable. Under the Merger Agreement, effective as of the
Effective Time, all stock option or similar plans of the Company (each, a
"Stock Plan") will terminate, and Parent will assume each Company Option under
any Stock Plan. Each Company Option will 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. The exercise price for the New Parent Options (rounded to the
nearest whole cent) will be 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; provided, however, that 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 will 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. In the Merger Agreement, Parent
has agreed that, not later than 21 calendar days after the Effective Time, it
will file a registration statement under 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.
Conditions to Obligations of All Parties to Merger Agreement. 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:
(i) if required by applicable law, the Merger Agreement shall have been
approved by the affirmative vote of the stockholders of the Company by the
requisite vote in accordance with applicable law;
(ii) any applicable waiting period under the Hart-Scott-Rodino Act
relating to the Merger shall have expired;
(iii) Offeror shall have purchased Shares tendered pursuant to the
Offer, except that such condition shall not be a condition to Parent's and
Offeror's obligations to effect the Merger if Offeror 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 the Merger
Agreement; and
(iv) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger.
Conditions to Obligations of Offeror. See Section 15, "Certain Conditions to
Offeror's Obligations."
Schedule 14D-9; Schedule TO and Offer Documents; State Filings. In the
Merger Agreement, the Company has agreed that it will file with the Commission
on the date of the commencement of the Offer the
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Schedule 14D-9 containing the recommendations of its Board of Directors 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 as described below under "Nonsolicitation Obligations and Exceptions."
The Company has granted to Parent certain rights to review and comment on the
proposed forms of the Schedule 14D-9 and the exhibits thereto, as well as any
amendments and supplements to the Schedule 14D-9, prior to their filing with
the Commission 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 Commission 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 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 Commission
and disseminated to the stockholders of the Company, as and to the extent
required by applicable federal securities laws.
Also in the Merger Agreement, Parent and Offeror have made certain
agreements with the Company regarding the filing of a Tender Offer Statement on
Schedule TO including this Offer to Purchase and certain offer documents and
the making of any filings required by applicable state law relating to the
Offer. Also, Parent and Offeror have granted to the Company certain rights to
review and comment on the proposed forms of the Schedule TO and such offer
documents and state filings, as well as any amendments and supplements thereto.
Parent and Offeror will provide the Company and its counsel in writing any
comments that Offeror, Parent or their counsel may receive from the Commission
or its staff or any applicable state authority with respect to such offer
documents or state filings promptly after the receipt of the Merger Agreement.
Parent and Offeror 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 the
Schedule TO or such offer documents or state filings as so corrected to be
filed with the Commission and any applicable state authority and disseminated
to the stockholders of the Company, as and to the extent required by applicable
law.
Board of Directors. The Merger Agreement provides that, promptly upon the
acceptance for payment of and payment for any Shares by Offeror pursuant to the
Offer (and, to the extent the Minimum Condition is validly waived, the exercise
of the Option), Offeror 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 Offeror, 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 Offeror'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 14f-1 thereunder, and the Company shall make such
mailing with the mailing of the Schedule 14D-9 (provided that Parent and
Offeror shall have provided to the Company on a timely basis all information
required to be included in the Information Statement with respect to Offeror's
designees). In connection with the foregoing, the Company has agreed, subject
to applicable law, promptly either to increase the size of the Board of
Directors of the Company and/or to obtain the resignation of such number of its
current directors as is necessary to enable Offeror'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 the Board of Directors of the Company
shall always have at least two (2) members who are neither officers, directors,
stockholders or designees of Offeror or any of its affiliates ("Offeror
Insiders") and each committee of the Board of Directors of the Company shall
have at least one (1) member who is not an Offeror Insider. If the number of
directors who are not Offeror Insiders is reduced below two for any reason
prior to the Effective Time, then the remaining director who is not an Offeror
Insider shall be entitled to designate a person to fill such vacancy who is not
an Offeror Insider and who shall be a director not deemed to be an Offeror
Insider for all purposes of the Merger Agreement. Following the election of
Offeror's designees to the
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Company's Board of Directors pursuant to the provisions described above and
prior to the Effective Time (i) any amendment or termination of the Merger
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
Offeror under the Merger Agreement or (iii) any waiver of the Company's rights
under the Merger Agreement shall, in any such case, require the concurrence of
a majority of the directors of the Company then in office who are not Offeror
Insiders.
Parent currently intends to designate a majority of the directors of the
Company following consummation of the Offer. It is currently anticipated that
Parent will designate such persons listed on Annex I as Parent shall determine
to serve as the directors of the Company following consummation of the Offer.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Offeror, including,
but not limited to, representations and warranties relating to the Company's
organization and qualification to do business, the Company's authority to enter
into the Merger Agreement and carry out the transactions contemplated thereby,
the validity, binding effect and enforceability of the Merger Agreement with
respect to the Company, required consents and approvals, the noncontravention
and nonviolation by the Merger Agreement of the organizational documents and
other agreements of the Company and of laws applicable to it, the Company's
capitalization, the Company's subsidiaries, documents and Commission filings
(including financial statements) relating to the Offer, the absence of certain
material adverse changes or events since January 29, 2000, litigation,
intellectual property rights, employee benefit plans, environmental matters,
the payment of taxes and filing of tax returns, the inapplicablity of any
antitakeover statute or regulation other than Chapter 552 of the Wisconsin
Statutes and Section 203 of the DGCL and the approval of the Offer and the
Merger by the Board of Directors of the Company in accordance with Section 203
of the DGCL, the fairness opinion of Merrill Lynch, the inapplicability of the
Rights Agreement to the Offer and the Merger, the absence of arrangements for
finders' fees (other than with Merrill Lynch) the Company's compliance with
laws and permits, the full force and effect of the Company's contracts, the
absence of related party transactions, and Company Net Working Capital.
Parent and Offeror have also made customary representations and warranties
to the Company, including, but not limited to, representations and warranties
relating to Parent and Offeror's organization and qualification to do business,
their authority to enter into the Merger Agreement and the Stockholder
Agreement and consummate the transactions contemplated thereby, the validity,
binding effect and enforceability of the Merger Agreement and the Stockholder
Agreement with respect to Parent and Offeror, required consents and approvals,
the noncontravention and nonviolation by the Merger Agreement and the
Stockholder Agreement of the organizational documents and other agreements of
Parent and its subsidiaries and of laws applicable to them, documents and
Commission filings related to the Offer, the availability of necessary
financing to consummate the Offer, the absence of arrangements for finders'
fees (other than with J.P. Morgan), and the Parent and its subsidiaries not
being "interested stockholders" within the meaning of Section 203 of the DGCL.
Pursuant to the terms of the Merger Agreement, none of the representations
and warranties made in the Merger Agreement will survive after the Effective
Time.
Conduct of Company's Business Pending Merger. In the Merger Agreement, the
Company has entered into certain covenants concerning the conduct of business,
prior to the Effective Time, by it and each of its "Subsidiaries," meaning 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. The Company has agreed, except as otherwise contemplated by the
Merger Agreement or as approved in writing by Parent, during the period from
the date of the Merger Agreement to the Effective Time (unless (i) Parent, as
controlling stockholder, 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 has agreed that it and its Subsidiaries will each conduct
its operations according to its ordinary and usual course of business and, to
the extent consistent therewith, will use its commercially reasonable efforts
to preserve its business organization substantially intact and substantially
maintain its existing relations and
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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 the Merger Agreement, the Company has
agreed that neither it nor any Subsidiary, without the prior written consent of
Parent, will:
(i) issue, sell or pledge, or authorize or propose the issuance, sale or
pledge of (a) 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 certain disclosed
commitments, or (B) the issuance of shares of capital stock to the Company
by a wholly owned Subsidiary, or (b) any other securities in respect of, in
lieu of or in substitution for Shares outstanding on the date of the Merger
Agreement or split, combine or reclassify any of the Company's capital
stock, or (c) 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, or (d) any other property or
assets;
(ii) 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;
(iii) 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;
(iv) make (a) 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 (b) 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 90 days of the date of the Merger
Agreement, the parties will negotiate in good faith to establish a
reasonable capital expenditure budget;
(v) except in the ordinary course of business, (a) incur any
indebtedness for borrowed money or guarantee any such indebtedness of
another person or entity or (b) make any loans, advances of capital
contributions to, or investments in, any other person or entity, other than
to the Company or any direct or indirect wholly owned Subsidiary;
(vi) propose or adopt any amendments to the certificate of incorporation
or bylaws of the Company;
(vii) except as otherwise provided in the Merger Agreement, 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;
(viii) 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;
(ix) 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;
(x) make any material tax election or settle or compromise any material
income tax liability; or
(xi) agree in writing or otherwise to take any of the foregoing actions.
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Nonsolicitation Obligations and Exceptions. The Company has agreed in the
Merger Agreement to immediately cease and terminate any existing activities,
discussions or negotiations with any parties 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 or any business
combination, merger or similar transaction with or involving the Company or any
Subsidiary or division of the Company (an "Acquisition Transaction"). Also, the
Company has agreed (except as set forth below) that it will not, directly or
indirectly, knowingly encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any nonpublic information to, any
person other than Parent and Offeror and their affiliates, associates and
designees Offeror or its affiliates or representatives (a "third party") with
respect to any inquiries or the making of any offer or proposal concerning an
Acquisition Transaction (an "Acquisition Proposal") or otherwise knowingly
facilitate any effort or attempt to make or implement an Acquisition Proposal.
Notwithstanding the foregoing, but subject to the following sentence, if,
after the date of the Merger Agreement, and prior to the payment for Shares by
Offeror pursuant to the Offer or, to the extent the Minimum Condition is
waived, the date on which the Option is exercised (the earliest of such dates
is referred to as the "Closing Date"), any person makes a bona fide written
fully financed (which for the purposes of the Merger 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 (a "Bona Fide Acquisition Proposal") to the Board of
Directors of the Company which was not knowingly encouraged, solicited or
initiated by the Company or any of its affiliates or Subsidiaries:
(a) the Company may furnish information and access, but only in response
to a request for information or access, to the person making the Bona Fide
Acquisition Proposal;
(b) the Company may participate in discussions and negotiate with such
person concerning the Bona Fide Acquisition Proposal; and
(c) 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 the payment of the Termination Fee and Expense
Reimbursement (defined below under "Expenses; Termination Fee") and subject
to its rights to match a Binding Superior Agreement (defined below under
"Termination"), to enter into a Binding Superior Agreement.
The foregoing rights with respect to a Bona Fide Acquisition Proposal will
apply only if:
(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 such recommendation, as the case may be, is
more likely than not to constitute a breach of the fiduciary duties of the
Board of Directors, and (B) taking into account the advice of financial
advisors to the Company to such effect, that such Bona Fide 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 the Merger Agreement (any such more favorable
Bona Fide Acquisition Proposal as to which both of the determinations
referred to in subclauses (A) and (B) above have been made being referred
to as a "Superior Proposal"); and
(ii) the Board of Directors of the Company receives from the person
making the Bona Fide Acquisition Proposal an executed confidentiality
agreement the terms of which are (A) no less favorable to the Company and
(B) no less restrictive to the person making such Bona Fide Acquisition
Proposal than those contained in the Confidentiality Agreement.
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
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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.
The Company has agreed, subject to the foregoing provisions, 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 to use its best
efforts to enforce any such agreements at the request of and on behalf of
Parent. The Company also will, at the request of Parent, promptly request each
person which has executed, within 12 months prior to the date of the Merger
Agreement, a confidentiality agreement in connection with its consideration of
acquiring the Company to return or destroy all confidential information
furnished to such person by or on behalf of the Company.
Under certain circumstances, the Company will be obligated to pay a
Termination Fee and Expense Reimbursement (defined below under "Expenses;
Termination Fee") if the Merger Agreement is terminated on or after the date
that it becomes publicly known that any person (i) has made a Bona Fide
Acquisition Proposal or (ii) has announced an intention to make a fully
financed all-cash Acquisition Proposal. See "Termination Fee; Expenses."
Indemnification; Continuance of Existing Indemnification Provisions. In the
Merger Agreement, the parties have agreed to cooperate and use their
commercially reasonable efforts to defend against any actual or threatened
claim, action, suit, proceeding or investigation, including those in which any
person who is or was a director, officer or employee of the Company or any of
its Subsidiaries at any time prior to the Effective Time (the "Indemnified
Parties") is, or is threatened to be, made a party because of (i) such person's
position with the Company or any of its Subsidiaries or any of their respective
predecessors or (ii) the Merger Agreement or any of the transactions
contemplated thereby, whether in any case asserted or arising before or after
the Effective Time. Also, Parent has agreed, after the Effective Time, to
indemnify and hold harmless, to the fullest extent permitted by law, each such
Indemnified Party with respect to any such threatened or actual claim, action,
suit, proceeding or investigation, subject to certain rights of Parent to
assume the defense thereof unless a conflict of interest exists, to pay for
only one counsel in such defense, and to consent to settlements (which consent
shall not be unreasonably withheld). The obligations of Parent described in
this paragraph will continue with respect to any claim asserted by the sixth
anniversary of the Effective Time.
The parties to the Merger Agreement have agreed that, for a period of six
years after the Effective Time, 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 of the Merger Agreement.
The parties have also agreed that, at the Effective Time, all rights to
indemnification and exculpation from liabilities for acts or omissions
occurring at or prior to the Effective Time existing on the date of the Merger
Agreement 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 and
will continue in full force and effect (to the extent consistent with
applicable law) in accordance with their terms. Also, for a period of six years
after the Effective Time, (i) the Surviving Corporation shall provide
directors' and officers' liability insurance in respect of acts or omissions
occurring prior to the Effective Time comparable to the Company's current
policy but only to the extent obtainable at a cost of no more than 200% greater
than the cost of such current policy, and (ii) Parent shall cause the Surviving
Corporation to honor its commitments and obligations described in this
paragraph.
Commercially Reasonable Efforts to Consummate Offer and Merger. The parties
to the Merger Agreement have made certain covenants to use their commercially
reasonable efforts to consummate the transactions contemplated by the Merger
Agreement as soon as practicable, including with respect to making required
filings, obtaining necessary consents, approvals, license, permits,
authorizations, registrations, qualifications or other permissions, giving
necessary notices, and avoiding any decree, order or judgment that would
restrain, prevent, or delay the consummation of the Offer or the Merger. Parent
has also agreed to take any and all commercially
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reasonable steps (including, in certain instances, litigation or the
divestiture of assets or businesses of the Company) 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. Such commercially reasonable steps
include (1) the obligation of Parent to litigate with any governmental entity
for a period through and including December 31, 2000 and (2) the "Divestiture
Obligation," meaning 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, that Parent will not be required (i) to divest, sell or hold separate
any of its assets or properties other than assets or properties of the Company,
(ii) to 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) to enter into a consent decree
or assume any other obligations with respect to the ongoing operations of
Parent, its subsidiaries or the Company (but Parent has agreed to enter into a
consent order if the sole purpose thereof is to cause the Company to become
subject to a specified existing consent order of the Federal Trade Commission
(the "FTC") to the same extent that Merck-Medco is subject to such order) or
(iv) to litigate with any governmental entity for a period beyond December 31,
2000.
Existing Employment Agreements and Benefits. The Merger Agreement provides
that Parent will cause the Surviving Corporation to honor specified employment,
severance, consulting or other compensation agreements, plans or contracts in
effect on the date of the Merger Agreement between the Company or any of its
Subsidiaries and any officer, director or employee thereof. Also, the parties
to the Merger Agreement have agreed to certain provisions (i) to provide for
the coverage of the employees of the Company and its subsidiaries as of the
Effective Time under benefits plans and programs of Parent and its affiliates
on and following the Effective Time, (ii) to cause the Company, effective as of
the Closing Date, to cease to participate in the employee benefit plans,
programs, policies and arrangements sponsored and maintained by the Majority
Stockholder, and (iii) except as provided in the Merger Agreement, for the
Company to use commercially reasonable efforts to cause the Majority
Stockholder to retain, bear and be responsible for all liabilities and
obligations under such plans, programs, policies and arrangements, including
under the Majority Stockholder's Deferred Compensation Plan.
Intercompany Balance; Specified Affiliate Agreements. In the Merger
Agreement, the Company has agreed, as of the acceptance for payment of, and
payment for, any Shares by Offeror pursuant to the Offer, (i) to settle the net
amount of all intercompany payables or receivables 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 (the
"Intercompany Balance"), and (ii) to 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, except for transactions contemplated by the Merger Agreement and
the following agreements as contemplated by the Side Letter (defined in this
Section 13 under "The Side Letter"): (a) Indemnification and Hold Harmless
Agreement dated July 19, 1999; (b) Tax Sharing Agreement dated July 19, 1999;
(c) Prescription Benefit Management Agreement dated March 4, 1996; (d) Lease
Agreement dated August 1, 1999; (e) Information Technology Services Agreement
dated July 19, 1999; and (f) End User License Agreement dated as of January 29,
2000 (collectively, the "Specified Affiliate Agreements"). Also, the Company
has agreed, prior to the consummation of the Offer, not to terminate, amend,
modify, or grant any waivers of the Specified Affiliate Agreements or the
Employment Agreements (defined in this Section 13 under "The Employment
Agreements--Term; Duties, Compensation") and not to permit the Intercompany
Balance to be increased or decreased other than as specified. See "The Side
Letter" and "The Employment Agreements" under this Section 13.
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Company Net Working Capital. Under the Merger Agreement, 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 expiration of the Offer), deliver to Parent a certificate providing the
Company's good faith calculation of Company Net Working Capital (defined in the
following paragraph) on a line-item by line-item basis at the end of such
immediately prior Company Fiscal Period. Within five business days of receipt
by Parent of such certificate with regard to the Company Fiscal Period
immediately prior to expiration of the Offer, Parent will cause Arthur Andersen
L.L.P. ("Arthur Andersen") to deliver to the Company and the Majority
Stockholder its calculation of Company Net Working Capital on a line-item by
line-item basis for such Company Fiscal Period. If Arthur Andersen's
calculation 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, choose one of the following:
(i) to make a payment to Parent in the amount of the Working Capital Shortfall
by immediately available funds; or (ii) to agree to the audit and
indemnification procedures set forth in the Side Letter. If the Majority
Stockholder timely makes such a payment or timely so agrees in writing, or if
Arthur Andersen's calculation of Company Net Working Capital discloses no
Working Capital Shortfall, the Company will be deemed to have satisfied the Net
Working Capital Condition. See "The Side Letter" under this Section 13 and also
Section 15, "Certain Conditions to Offeror's Obligations."
For purposes of the Merger Agreement, "Company Net Working Capital" means
current assets less current liabilities, calculated on any particular date as
if such date were the Company's normal year-end, and excluding the proceeds
from the exercise of any Company Options, with (i) current assets including
without limitation cash and cash equivalents, receivables (less allowance for
losses), pharmaceutical inventories, deferred tax benefits and other current
assets, and (ii) current liabilities including 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).
Additional Covenants. In addition to the covenants noted above, the parties
to the Merger Agreement have entered into certain other covenants and
agreements, including with respect to (i) Parent's access to the Company's and
each Subsidiary's offices and other facilities, books and records, and
financial and operating data (except for competitively sensitive information or
as limited by applicable law, and except that information so obtained by Parent
will be subject to the provisions of the Confidentiality Agreement), (ii) the
issuances of press releases and other public statements with respect to the
transactions contemplated by the Merger Agreement, (iii) Parent's agreement to
cause Offeror to comply with its obligations under the Merger Agreement and the
Offer and to cause Offeror to consummate the Merger, and (iv) the parties'
agreement to use their commercially reasonable efforts to limit the application
of Section 280G(b)(1) of the Code to the transactions contemplated by the
Merger Agreement.
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time (notwithstanding approval of the Merger Agreement by the
stockholders of the Company):
(i) by mutual written consent of the Company and Parent;
(ii) by either the Company or Parent upon notification to the other
party, if the Offer has not been consummated by December 31, 2000 (the
"December 31 Termination Right"); provided, however, that such termination
right will not be available to any party whose failure to fulfill any
obligation under the Merger 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;
(iii) 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 non-appealable; provided, however, that the party seeking to so
terminate the Merger Agreement shall have used commercially reasonable
efforts to remove such order, decree, ruling or injunction and shall not be
in violation of its obligations described above under "Commercially
Reasonable Efforts to Consummate Offer and Merger";
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(iv) by the Company, if (a) the Company is not in material breach of any
of its covenants or agreements in the Merger Agreement, (b) the Board of
Directors of the Company authorizes the Company, prior to the Closing Date,
and subject to complying with the terms of the Merger Agreement, to enter
into a binding written agreement concerning a Superior Proposal (a "Binding
Superior Agreement") 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 (c) Parent does not make, within four
business days of receipt of the Company's written notification of its
intention to enter into a Binding Superior 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 "Superior
Agreement Termination Right"); the Company has agreed (A) that it will not
enter into a Binding Superior Agreement until at least the first calendar
day following the fourth business day after it has provided the written
notice to Parent required thereby, (B) to notify Parent promptly if its
intention to enter into a Binding Superior Agreement referred to in such
notice shall change at any time after giving such notification and (C) that
it will not terminate the Merger Agreement or enter into a Binding Superior
Agreement if Parent has, within the period referred to in clause (A) 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
(v) 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 (the "Change in
Board Recommendation Termination Right").
Any termination of the Merger Agreement by Parent or the Company pursuant to
the foregoing provisions will require action by its respective Board of
Directors. If the Merger Agreement is terminated, it will become void and of no
effect with no liability of any party except as described below under
"Termination Fee; Expenses"; provided, however, that except as otherwise
provided therein, no such termination shall relieve any party of any liability
or damages resulting from any willful breach of the Merger Agreement.
Termination Fee; Expenses. The Company has agreed to pay Parent a
termination fee of $8.0 million in cash (the "Termination Fee") and all of the
documented out-of-pocket third party charges and expenses reasonably incurred
by Parent or Offeror in connection with the Merger Agreement and the
Stockholder Agreement and the transactions contemplated thereby, up to a
maximum of $1,500,000, in the aggregate (the "Expense Reimbursement"), in the
event that (i) a Bona Fide Acquisition Proposal shall have been made or any
person shall have announced an intention to make a Bona Fide Acquisition
Proposal, and on or following the date of the Merger Agreement but prior to the
Closing Date, such Bona Fide Acquisition Proposal, announcement or intention is
or becomes publicly known and (ii) on or following the date on which such Bona
Fide Acquisition Proposal, announcement or intention is or becomes publicly
known:
(i) the Merger Agreement is terminated by either Parent or the Company
pursuant to the December 31 Termination Right and if terminated by Parent
or Offeror, such termination shall be prior to the Closing Date, and within
six months after such termination, the Company either enters into a
definitive agreement with respect to, or consummates, an Acquisition
Transaction;
(ii) the Merger Agreement is terminated by the Company pursuant to the
Superior Agreement Termination Right;
(iii) the Merger Agreement is terminated by Parent pursuant to the
Change in Board Recommendation Termination Right; or
(iv) the Merger Agreement is terminated as a result of the failure of
the Company to satisfy any one of the conditions described in clauses (iii)
or (vii) under Section 15, "Certain Conditions to Offeror's Obligations."
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If the Company fails to promptly pay the foregoing amount and a binding non-
appealable judgment is rendered against the Company for such fee, the Company
shall pay to Parent or Offeror its reasonable costs and expenses 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.
The Merger Agreement provides that the forgoing payment shall be the sole
and exclusive remedy of Parent upon termination of the Merger Agreement
pursuant to the December 31 Termination Right, the Superior Agreement
Termination Right or the Change in Board Recommendation Termination Right,
other than with respect to any liability for the willful and knowing breach of
any representations, warranties, covenants or agreements set forth in the
Merger Agreement.
Other than as set forth above, the Merger Agreement provides that all fees,
costs and expenses incurred in connection with the transactions contemplated by
the Merger Agreement shall be paid by the party incurring such fees and
expenses, whether or not the Offer or the Merger is consummated.
Amendments, Extensions and Waivers. At any time prior to the Effective Time,
a party to the Merger Agreement may, by written instrument signed on behalf of
such party, (a) extend the time for the performance of any of the obligations
or other acts of the other parties thereto, (b) waive any inaccuracies in the
representations and warranties contained therein or in any document delivered
pursuant thereto by any other party or (c) subject to the following sentence,
waive compliance by any other party with any of the agreements or conditions
contained therein. Also, to the extent permitted by applicable law, the Merger
Agreement may be amended by a written instrument signed on behalf of each of
the parties; provided, however, that after the Company's stockholders have
approved the Merger Agreement, no amendment may be made which by law requires
further approval of the Company's stockholders without the approval of such
stockholders. Any amendment, extension or waiver as described in this paragraph
will require, in the case of Parent or the Company, action by its Board of
Directors or, with respect to any amendment of the Merger Agreement, a duly
authorized committee of its Board of Directors.
Assignment under Merger Agreement or Stockholder Agreement. The Company may
not assign any of its rights and obligations under the Merger Agreement. Parent
or Offeror may assign any of its rights and obligations under the Merger
Agreement or the Stockholder Agreement to any direct or indirect wholly owned
subsidiary of Parent (but no such assignment will relieve the assignor of its
obligations under the Merger Agreement) and any of Parent, Offeror or any
direct or indirect wholly owned subsidiary of Parent may purchase Shares in the
Offer.
The Stockholder Agreement
Agreement to Tender Shares. On May 4, 2000, Parent and Offeror entered into
the Stockholder Agreement (the "Stockholder Agreement") with the Majority
Stockholder. The Stockholder Agreement applies with respect to the 11,710,000
Shares owned of record or beneficially by the Majority Stockholder on the date
of the Stockholder Agreement, and any additional Shares and warrants, options
or other securities or rights exercisable for, exchangeable for or convertible
into Shares which they may acquire (collectively, the "Option Shares"). The
Majority Stockholder has agreed to validly tender the Option Shares pursuant to
the Offer and not to withdraw the Option Shares prior to the expiration of the
Offer.
Grant and Exercise of Option. The Majority Stockholder has granted to
Offeror an option (the "Option") to purchase all, and not less than all, of the
Option Shares, for cash and without interest, at the Offer Price. The Offeror
may assign the Option to one or more of its affiliates. The Option may be
exercised, at any time after the expiration or termination of all waiting
periods under the Hart-Scott-Rodino Act applicable to such exercise, by written
notice to the Majority Stockholder specifying a date and time for the closing,
which shall be not earlier than two business days nor later than 30 business
days from the date of such notice, and after the Offer has expired or been
terminated.
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Notwithstanding the provisions described in the previous paragraph, if the
Company receives an Acquisition Proposal which the Company in good faith, after
compliance with the provisions described under "The Merger Agreement--
Nonsolicitation Obligations and Exceptions," believes is a Superior Proposal
and gives the required written notice to Parent of such Superior Proposal,
Parent and Offeror 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 (i) one business day after the Company can properly terminate the
Merger Agreement pursuant to the Superior Agreement Termination Right, (ii)
written notice to Parent and Offeror from the Company that such Superior
Proposal is not being pursued, which notice shall be provided by the Company to
Parent and Offeror in writing promptly upon any such determination, and (iii)
the date on which the Company 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, the "Review Period").
If Offeror exercises the Option and the Merger Agreement remains in full
force and effect (i) the Option Shares will be treated as if purchased by
Offeror in the Offer and (ii) Parent and Offeror will ensure that the
transactions contemplated by the Merger Agreement are consummated. If Offeror
exercises the Option and the Merger Agreement is not in full force and effect
(i) Parent and Offeror 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 Offeror will ensure
that the transactions contemplated by the Merger Agreement (or any replacement
merger agreement) are fully consummated.
Expiration of Option. The Option shall expire on the earliest of (a) the
purchase of the Option Shares by the Offeror pursuant to the Offer, (b) the
Effective Time, (c) the termination of the Merger Agreement pursuant to any of
the provisions described under "The Merger Agreement--Termination," and (d)
thirty (30) days after termination or expiration of the Offer.
Voting. The Majority Stockholder has agreed that, until the expiration of
the Option, it will (a) vote all Option Shares in favor of the Merger; (b) not
vote any Option Shares 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 Option Shares 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 competing Acquisition Proposal, (ii) any change in the
management or board of directors of the Company, except as otherwise agreed to
in writing by the Offeror, (iii) any material change in the capitalization or
dividend policy of the Company, or (iv) any other material change in the
Company's corporate structure or business. Also, the Majority Stockholder has
irrevocably (except as described in the following sentence) appointed the
designees of Offeror as their proxies, to vote the Option Shares, at any
meeting of stockholders with a record date after May 4, 2000 (which does not
permit such proxies to vote the Shares at the Company's currently scheduled
annual meeting with respect to the agenda items disclosed in the Company's
April 19, 2000 Proxy Statement) or with respect to any action of the
stockholders by written consent, in such manner as such proxies shall in their
sole discretion deem proper, and such proxy will terminate upon the termination
of the Stockholder Agreement. The foregoing proxy revokes any prior proxy
granted by the Majority Stockholder with respect to the Option Shares, except
for any proxy granted with respect to the Company's currently scheduled annual
meeting. The obligations described in this paragraph will not apply during any
Review Period, during which the Majority Stockholder may revoke the foregoing
proxy as long as it reinstates such proxy promptly upon expiration of such
Review Period (unless the Company accepts a Superior Proposal, in which case
the proxy will terminate).
Restrictions on Transfer. The Majority Stockholder has generally agreed,
prior to the expiration of the Option Shares, not to dispose of or enter into
any arrangement for the disposition of any Option Shares, not to deposit any
Option Shares into a voting trust or grant any proxies or enter into any voting
agreement with respect to any Option Shares, and not to take or omit to take
any action that would prevent the Majority Stockholder from delivering the
Option Shares to Offeror or otherwise performing its obligations under the
Stockholder Agreement.
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No Solicitation. Other than to the extent permitted as described under "The
Merger Agreement--Nonsolicitation Obligations and Exceptions," the Majority
Stockholder has agreed, prior to the expiration of the Option Shares, not to
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, or enter into any
discussions or negotiations in furtherance of such inquiries or to obtain an
Acquisition Proposal, or agree to or endorse any Acquisition Proposal.
Additional Covenants. In addition to the agreements described above, the
parties to the Stockholder Agreement have entered into agreements with respect
to (i) the execution of the Side Letter, Parent's right to be a third party
beneficiary thereof and to consent to any termination or amendment thereof or
waiver thereunder, and the taking of all actions necessary by the Majority
Stockholder to cause the compliance with certain covenants thereunder, (ii) the
indemnification by the Majority Stockholder of Parent and its affiliates
(including the Company) with respect to certain liabilities arising by reason
of the previous affiliation of Company and any of its Subsidiaries with the
Majority Stockholder, (iii) the indemnification by the Majority Stockholder of
Parent, Offeror, the Company, each of their affiliates and each officer,
director and employee thereof with respect to breaches by the Company of
certain provisions of the Merger Agreement, and (iv) each party using its
commercially reasonable efforts to obtain all necessary consents, approvals or
waivers under the Hart-Scott-Rodino Act and, if required, the filing by the
Majority Stockholder of a premerger notification and report form under the
Hart-Scott-Rodino Act with respect to the Merger.
Representations and Warranties. Under the Stockholder Agreement, the
Majority Stockholder has made customary representations and warranties to
Parent and Offeror, including with respect to (i) its record or beneficial
ownership of, and right to vote, the Option Shares, (ii) its power and
authority to execute and deliver the Stockholder Agreement without obtaining
third-party consents, the noncontravention and nonviolation by the Stockholder
Agreement of the other arrangements of the Company and of judgments, decrees,
orders and laws applicable to it, and the valid, binding and enforceable effect
of the Stockholder Agreement, (iii) the Option Shares being validly issued,
fully paid and nonassessable (except as otherwise provided by Wisconsin law),
(iv) the Option Shares being free of all other liens, encumbrances, voting or
disposition arrangements, and (v) upon the exercise of the Option, the transfer
of good and marketable title to the Option Shares to Offeror, free of all liens
and encumbrances (except as created by Offeror).
Each of Parent and Offeror has also made customary representations and
warranties under the Stockholder Agreement, including with respect to (i) its
incorporation, (ii) its power and authority to enter into and perform its
obligations under the Stockholder Agreement, (iii) its authorization, execution
and delivery of the Stockholder Agreement, and (iv) the valid, binding and
enforceable effect of the Stockholder Agreement.
The Side Letter
As a condition to entering into the Merger Agreement, Parent required that
the Company enter into a Side Letter, dated May 4, 2000, with the Majority
Stockholder (the "Side Letter"). Parent is named as a third party beneficiary
of the Side Letter, and the parties have agreed that they will not terminate,
amend or modify the Side Letter, or waive any of the provisions thereof, or of
the underlying agreements without the prior written consent of Parent, which
consent may be withheld for any reason or no reason.
The Side Letter provides for the treatment of all ongoing contracts,
commitments and arrangements between the parties (the "Affiliate Agreements")
from and after the date on which the Majority Stockholder ceases to
beneficially own a majority of the Shares (the "Change of Control Date"). The
Side Letter specifies certain amendments, restatements, or terminations and
replacements of the Administrative Services Agreement dated July 19, 1999 and
of the Specified Affiliate Agreements (including an Amended and Restated Tax
Matters Agreement and an Amendment to Lease Agreement, each dated May 4, 2000)
and, with respect to all other Affiliate Agreements, the termination thereof as
of the Change of Control Date. The Side Letter also sets forth the parties'
agreement to settle in full the Intercompany Balance as of the Change of
Control Date, with the parties acknowledging that they will incur prospective
payment obligations pursuant to those Affiliate
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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 Arthur
Andersen's calculation of Company Net Working Capital for the Company Fiscal
Period immediately prior to expiration of the Offer discloses a Working Capital
Shortfall, and the Company chooses to have such calculation audited, the Side
Letter sets forth (i) the procedures for such audit and (ii) the Majority
Stockholder's agreement under such circumstances 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."
Also under the Side Letter, the Majority Stockholder has agreed to abide by
certain of the employment arrangements discussed above under "The Merger
Agreement--Existing Employment Agreements and Benefits." In addition, the
Majority Stockholder has confirmed the Company's right to use products and
services provided to the Majority 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.
The Employment Agreements
Term; Duties; Compensation. In connection with the Merger Agreement, on May
4, 2000, Merck-Medco, which is a wholly owned subsidiary of Parent and of which
Offeror is a direct wholly owned subsidiary, entered into Employment Agreements
(the "Employment Agreements") with each of Jeffrey A. Jones, Glen C. Laschober,
Peter F. Hoffman, Joseph A. Coffini and Matthew Zirpoli, each of whom is
currently an executive officer of the Company (the "Executives"). Pursuant to
the terms of the Employment Agreements, Merck-Medco has agreed to employ each
of the Executives for a period commencing on the date of the consummation of
the Offer and ending on the second anniversary thereof or, if later, the second
anniversary of the Effective Time (the "Employment Period"). During the
Employment Period, each of the Executives will perform those duties and
services as may be designated from time to time by the President of Merck-Medco
or his designee. In exchange for his services, each Executive will receive a
specified annual base salary, subject to annual merit increases at the
discretion of Merck-Medco, and will be eligible (a) to receive performance-
based bonuses on the same terms and conditions generally afforded to other
similarly situated employees under Merck-Medco's Annual Incentive Plan, (b) to
receive grants of options to purchase shares of Parent's common stock under its
Incentive Stock Plan, at an exercise price equal to the fair market value of
such common stock on the date of grant, in such number as shall be determined
by Merck-Medco in its sole and absolute discretion, (c) to participate in the
employee benefit plans and programs of Merck-Medco on the same terms and
conditions generally afforded to other similarly situated employees, (d) to
take such vacation periods as are in accordance with Merck-Medco's vacation
policies or practices for similarly situated employees, and (e) to be
reimbursed for all expenses properly and reasonably incurred by him on behalf
of Merck-Medco and its affiliates in his performance of duties.
Retention Payments. Each of the Employment Agreements provides that, no
later than the close of business on May 15, 2000, the Executive will notify
Merck-Medco that he has elected one of the three retention arrangements set
forth in the Employment Agreement (the "Retention Alternatives"), with any
Executive who has failed to provide such notification deemed to have elected
the first Retention Alternative. The Retention Alternatives include an
arrangement consisting solely of lump-sum payments and two arrangements
consisting of (i) lump-sum payments (which, as with the foregoing lump-sum
payments, will be payable as soon as practicable after the second anniversary
of the consummation of the Offer (or, if later, after the second anniversary of
the Effective Time), as long as the Executive has remained an employee of
Merck-Medco through the entire Employment Period and is an employee of Merck-
Medco on such second anniversary), and (ii) non-
qualified options to purchase shares of Parent's common stock under its
Incentive Stock Plan, Non-qualified options granted pursuant to the Retention
Alternatives will have an exercise price equal to the fair market value of such
common stock on the date of grant and will be granted on the consummation of
the Offer, provided the Executive is an employee of Merck-Medco on such date.
In addition, such options will vest on the earlier of death of the Executive
and the second anniversary of the grant date, provided the Executive is an
employee of Merck-Medco on such date, and will expire 10 years from the date of
grant. Such options will be subject to lapse, to reduction, or to a shortening
of the period during which they are exercisable upon termination of the
Executive employment by Merck-Medco.
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Termination. Each of the Employment Agreements may or will be terminated as
follows:
(i) by Merck-Medco, on written notice, for cause, meaning (a) acts of
personal dishonesty or misrepresentation by the Executive intended to
result in substantial personal enrichment at the expense of Merck-Medco,
(b) the Executive's repeated violations of his obligations under his
Employment Agreement which are demonstrably willful and deliberate and
which are not remedied within 30 days after receipt of notice from Merck-
Medco, or (c) the Executive's conviction of a felony. If Merck-Medco
terminates an Employment Agreement for cause, the Executive shall be
entitled to receive only his earned and unpaid compensation to the
effective date of such termination.
(ii) either (a) by Merck-Medco, on written notice and at any time,
without cause, or (b) by the Executive, for good reason (meaning a transfer
to a place of employment more than 50 miles from his current place of
employment or a reduction in his job title), after the passage of 60 days
following written notice from the Executive to Merck-Medco of such good
reason and a failure by Merck-Medco to cure such event, upon which, in
either case described in the preceding clause (a) or (b), the Executive
shall be entitled to receive his earned and unpaid compensation to the
effective date of such termination, a specified lump sum, and specified
coverage under Merck-Medco's benefits plans until the earlier of the
expiration of 12 months or the Executive obtaining other employment with
comparable coverage.
(iii) by Merck-Medco, upon 30 days' written notice, because of the
disability of the Executive, or automatically upon the death of the
Executive, upon which the Executive (or, if deceased, the personal
representative of his estate or his heirs) shall be entitled to receive (a)
his earned and unpaid compensation to the effective date of such
termination, as well as a specified lump sum payment, and (b) if the
Employment Agreement is terminated for death and the Executive has chosen
either of two specified Retention Alternatives, an amount equal to the
excess of the lump-sum payment under the chosen Retention Alternative over
the lump sum payment described in the preceding clause (a).
(iv) by the Executive, at any time upon 30 days' written notice, for any
reason other than for good reason, upon which the Executive shall be
entitled to receive only his earned and unpaid compensation to the
effective date of such termination (and, with respect to Mr. Jones, if the
termination is after the first six months of the Employment Period, an
additional specified lump sum).
Also, if the employment of Mr. Jones is terminated in the manner set forth
in the preceding clause (ii) or in the parenthetical to the preceding clause
(iv), Mr. Jones shall be retained by Merck-Medco as a consultant for an
additional four-month period, to provide services as reasonably requested, for
not less than 40 hours per month, in exchange for specified compensation.
The payments described in the preceding clauses (ii) and (iii) and, with
respect to Mr. Jones only, the preceding clause (iv) will be conditioned upon
the Executive executing a general release of claims, will constitute liquidated
damages, and will not be owed by Merck-Medco if the Executive materially
breaches the covenants described in the following two paragraphs.
Developments; Confidentiality; Noncompetition; Nonsolicitation. Each of the
Employment Agreements provides that all developments (as defined in the
Employment Agreements, including discoveries, inventions and improvements
relating to the present and planned future activities, products and services of
Merck-Medco or any of its affiliates) 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 the Employment Agreement or
thereafter, shall be the sole and absolute property of Merck-Medco and shall be
disclosed by the Executive to Merck-Medco. Each Executive has also agreed not
to use or disclose any confidential information of Merck-Medco or any of its
affiliates without the prior written consent of Merck-Medco. Upon the
termination of the Executive's employment with Merck-Medco, or upon the request
of Merck-Medco, each Executive shall deliver to Merck-Medco all documents and
other media containing any such developments or confidential information.
In addition, during the term of the Executive's employment and for a period
of 12 months after the termination of the Executive's employment for any
reason, pursuant to the Employment Agreement or thereafter,
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absent Merck-Medco's prior written approval, the Executive shall not (i) within
the United States and its territories and possessions, directly or indirectly
engage in activities competitive with, nor render services to any firm or
business engaged or about to become engaged in, specified businesses of Merck-
Medco or any other business in which Merck-Medco or any of its affiliates is
then engaged as to which the Executive has involvement in the course of his
employment under his Employment Agreement and/or acquired or received
confidential information (the "Businesses"), or have any equity interest in any
such firm or business other than as a 1% or less shareholder of a public
corporation; (ii) solicit or contact any customer or prospective customer of
Merck-Medco or any of its affiliates as to matters that relate to the
Businesses or which is in any way inconsistent or interferes therewith; (iii)
offer employment to any employees of Merck-Medco or any of its affiliates; or
(iv) induce, or attempt to induce, any employees or agents or consultants of
Merck-Medco or any of its affiliates to do anything from which the Executive is
restricted by reason of the provisions described in this paragraph and the
immediately preceding paragraph.
The covenants of each Executive described in the immediately preceding two
paragraphs will survive termination of the Employment Agreement, have been
assigned a minimum value in each Employment Agreement, and will remain in
effect during and after any employment of the Executive after the end of the
Employment Period and the termination of the Employment Agreement. Each
Employment Agreement supersedes the change of control agreements previously
existing between each Executive and the Company.
The foregoing is a summary of certain provisions of the Merger Agreement,
the Stockholder Agreement, the Side Letter and the Employment Agreements,
copies of which have been filed as exhibits to the Schedule TO and which are
available in the same manner set forth with respect to the Company in Section
8, "Certain Information Concerning the Company--Available Information." Such
summary is qualified in its entirety by reference to the text of such
agreements.
14. Dividends and Distributions.
For a discussion of the restrictions imposed by the Merger Agreement on the
ability of the Company and its Subsidiaries to pay dividends or make
distributions, see Section 13, "The Transaction Documents--Conduct of Company's
Business Pending Merger."
15. Certain Conditions to Offeror's Obligations.
Offeror 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) the Minimum Condition is
not satisfied immediately prior to the expiration of the Offer, (b) any
applicable waiting period under the Hart-Scott-Rodino 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 the
following 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 Offeror, or the consummation of the Merger, or (B) which imposes
limitations on the ability of Parent or Offeror 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, Offeror'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 the Divestiture Obligation, as limited by the proviso
described under Section 13, "The Transaction Documents--The Merger
Agreement--Commercially Reasonable Efforts to Consummate Offer and Merger";
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(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 the Merger 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 Merger 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 Offeror
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;
(iv) (A) the representations and warranties of the Company set forth in
the Merger Agreement shall have failed to be true and correct as of the
date of the Merger 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),
considered without regard to any qualification by, or references to,
"material," "in all material respects" or "Company Material Adverse Effect"
(defined below), 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
(defined below) or Transaction Changes (defined below) 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 Merger
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, Offeror, or the Majority Stockholder (as
long as the Majority Stockholder 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 Specified 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 as described under Section 13,
"The Transaction Documents--The Merger Agreement-- Company Net Working
Capital," 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 Offeror at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right, the
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.
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<PAGE>
For the purposes of the Merger Agreement: (a) "Company Material Adverse
Effect" means a material adverse effect on the 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 material delay or material impairment of the ability of the Company to
perform its obligations under the Merger Agreement or to consummate the
transactions contemplated thereby, in any case ignoring any payments made by
the Majority Stockholder or its affiliates as described in Section 13, "The
Transaction Documents--The Merger Agreement--Company Net Working Capital"; (b)
"General Changes" means general economic changes or changes that affect the
industry of the Company or any Subsidiary generally, and (c) Transaction
Changes means changes in the Company's business after the date of the Merger
Agreement attributable primarily to actions taken by Parent or Offeror,
including without limitation any disruptions to the business of the Company and
its Subsidiaries primarily as a result of the execution of the Merger Agreement
or the announcement of the transactions contemplated thereby.
16. Certain Regulatory and Legal Matters.
Except as described in this Section 16, based on a review of publicly
available filings made by the Company with the Commission and other publicly
available information concerning the Company, as well as certain
representations made to Parent and Offeror in the Merger Agreement by the
Company, neither Parent nor Offeror is aware of any material pending legal
proceedings relating to the Offer, nor of any regulatory requirements which
must be complied with or regulatory approvals which must be obtained in
connection with the Offer, in each case which would be material to a
stockholder's decision whether to sell, tender or hold Shares. Should
compliance with any such regulatory requirement or the obtaining of any such
regulatory approval be required, Parent and Offeror currently contemplate that
they would seek to comply with such requirement or obtain such permit, except
as described below under "State Takeover Laws," but Offeror does not presently
intend to delay the acceptance for payment of, or payment for, Shares tendered
pursuant to the Offer pending the outcome of any such matter, subject, however,
to Offeror's right to decline to purchase Shares if any of the Offer Conditions
shall not have been satisfied. There can be no assurance that, if necessary,
any such requirement would be complied with or approval be obtained, or would
be complied with or obtained without substantial conditions, or that adverse
consequences might not result to the Company's business or that certain parts
of the Company's business might not have to be disposed of if any such
requirement was not complied with or approval obtained, and in certain such
events Offeror could decline to accept for payment, or pay for, any Shares
tendered. See Section 15, "Certain Conditions to Offeror's Obligations."
Shareholder 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 attorney's and
experts' fees.
Antitrust. Under the Hart-Scott-Rodino Act and the rules promulgated
thereunder by the FTC, the acquisition of Shares by Offeror pursuant to the
Offer may not be consummated unless certain information has been furnished to
the Division of the Department of Justice (the "Antitrust Division") and the
FTC and certain waiting period requirements have been satisfied. The rules
under the Hart-Scott-Rodino-Act require the filing of a Notification and Report
Form (the "Form") with the Antitrust Division and the FTC. The waiting period
under the Hart-Scott-Rodino Act with respect to the Offer will expire at
11:59 p.m., Washington, D.C. time, on the 15th day after the Form is filed,
unless early termination of the waiting period is granted. In addition, the
Antitrust Division or the FTC may extend such waiting period by requesting
additional information or
43
<PAGE>
documentary material. If such a request is made with respect to the Offer, the
waiting period related to the Offer will expire at 11:59 p.m., Washington, D.C.
time, on the 10th day after substantial compliance with such request. With
respect to each acquisition, the Antitrust Division or the FTC may issue only
one request for additional information. In practice, complying with a request
for additional information or material can take a significant amount of time.
Expiration or termination of applicable waiting periods under the Hart-Scott-
Rodino Act is a condition to Offeror's obligation to accept for payment and pay
for Shares tendered pursuant to the Offer.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as Offeror's proposed acquisition of
Shares of the Company. At any time before or after Offeror's purchase of Shares
pursuant to the Offer, the Antitrust Division or the FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or the consummation of the Merger or seeking the divestiture of Shares
acquired by Offeror or the divestiture of substantial assets of Parent or its
subsidiaries, or of the Company or its subsidiaries. Private parties may also
bring legal action under the antitrust laws under certain circumstances. 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, of the results thereof.
Both Offeror and the Company intend to file Forms with the Antitrust
Division and the FTC as soon as practicable.
Federal Reserve Board Regulations. Federal Reserve Board Regulations T, U
and X promulgated by the Federal Reserve Board place restrictions on the amount
of credit that may be extended for the purpose of purchasing margin stock
(including the Shares) if such credit is secured directly or indirectly by
margin stock. Because no borrowings secured by margin stock will be borrowed in
order to finance the Offer, Parent and Offeror believe that such regulations
are not applicable to the Offer.
State Takeover Laws. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, stockholders, executive offices or places of business in such states.
In Edgar v. MITE Corp., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws that made
the takeover of certain corporations more difficult, imposed a substantial
burden on interstate commerce and therefore was unconstitutional. However, in
1987, in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that a
state may, as a matter of corporate law and, in particular, with respect to
those laws concerning corporate governance, constitutionally disqualify a
potential acquirer from voting on the affairs of a target corporation without
prior approval of the remaining stockholders, provided that such laws were
applicable only under certain conditions. In that case, the law of the State of
Indiana before the Supreme Court was by its terms applicable only to
corporations that had a substantial number of stockholders in the state and
were incorporated there.
The Company is incorporated under the laws of the State of Delaware. In
general, Section 203 of the DGCL prevents an "interested stockholder" (defined
generally as a person who owns or has the right to acquire 15% or more of the
corporation's outstanding voting stock, or an affiliate or associate thereof)
from engaging in a "business combination" (defined to include a variety of
transactions, including mergers) with a Delaware corporation for three years
following the date such person became an interested stockholder unless, prior
to the date such person became an interested stockholder, the board of
directors of the corporation approved either the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination. Prior to the execution of the Merger Agreement, the Board
of Directors of the Company unanimously (by all those directors present)
approved the Offer, the Merger and the Merger Agreement, determined that the
terms of the Offer and the Merger are fair to, and in the best interests of,
the Company's stockholders, and recommended acceptance of the Offer and
approval of the Merger and the Merger Agreement by the stockholders of the
Company. Accordingly, Section 203 of the DGCL is not applicable to the Offer
and the Merger.
44
<PAGE>
Because the Company's principal executive offices and certain of its assets
are located in the State of Wisconsin, the Company may be subject to Chapter
552 of the Wisconsin Statutes (the "Wisconsin Corporate Takeover Law"). The
Wisconsin Corporate Takeover Law makes it unlawful for any person to make a
takeover offer involving a target company in Wisconsin, or to acquire any
equity securities of a target company pursuant to the offer, unless a
registration statement has been filed with the Wisconsin Commissioner of
Securities 10 days prior to the commencement of the takeover offer or such
takeover offer is exempted by rule or order of the Commissioner. The Wisconsin
Corporate Takeover Law also imposes certain reporting and filing requirements
on persons making a takeover offer, imposes certain substantive requirements
on the terms of any takeover offer and makes unlawful certain fraudulent and
deceptive practices, all of which provisions may be applicable to the Offer.
The Company has attempted to comply with those requirements it believes may be
applicable to the Offer and the Merger. Any Shares tendered pursuant to the
Offer will be purchased only in the event that a subsequent registration
becomes effective under the Wisconsin Corporate Takeover Law or such
registration is found not to be required.
The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which have enacted
takeover laws. In the Merger Agreement, the Company has represented that none
of those takeover laws, other than Section 203 of the DGCL and the Wisconsin
Corporate Takeover Law, are applicable to the Company, the Shares, the Offer,
the Merger, the Merger Agreement, the Stockholder Agreement or the
transactions contemplated thereby. However, other than for the assurances
provided to Offeror through that representation, Offeror does not know whether
the takeover laws of any state, other than Section 203 of the DGCL and the
Wisconsin Corporate Takeover Law, will, by their terms, apply to the Offer or
the Merger or the other transactions contemplated by the Merger Agreement or
the Stockholder Agreement, and neither Parent not Offeror has attempted to
comply with any such laws other than Section 203 of the DGCL and the Wisconsin
Corporate Takeover Law. If any other such laws are so applicable, Parent and
the Company have agreed, in the Merger Agreement, that they and their
respective Board of Directors will 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 the Merger Agreement, the
Stockholder Agreement, the Offer and the Merger and otherwise act to eliminate
or minimize the effects of such statute or regulation on such transactions.
Subject to that requirement under the Merger Agreement, should any person seek
to apply any state takeover law, Offeror reserves the right to take such
action as then appears desirable, which may include challenging the validity
or applicability of any such statute in appropriate court proceedings, and
nothing in this Offer to Purchase or any action taken in connection with the
Offer or the Merger is intended as a waiver of such right. If it is asserted
that the takeover laws of any state are applicable to the Offer or the Merger,
and an appropriate court does not determine that it is inapplicable or invalid
as applied to the Offer or the Merger, Offeror might be required to file
certain information with, or receive approvals from, the relevant state
authorities. In addition, Offeror might be unable (pursuant to such laws or an
injunction ordered thereunder) to accept for payment, or pay for, any Shares
tendered pursuant to the Offer, or be delayed in continuing or consummating
the Offer and the Merger. In such case, Offeror may not be obligated to accept
for payment, or pay for, any Shares tendered pursuant to the Offer. See
Section 15, "Certain Conditions to Offeror's Obligations."
17. Fees and Expenses.
Except as described in this Section 17, neither Offeror nor Parent (i) will
pay any fees or commissions to any broker or dealer or other person for
soliciting tenders of Shares pursuant to the Offer or (ii) has directly or
indirectly employed, retained or agreed to compensate any person to make
solicitations or recommendations in connection with the Offer. Brokers,
dealers, commercial banks and trust companies will, upon request, be
reimbursed by Offeror for customary mailing and handling expenses incurred by
them in forwarding material to their customers.
J.P. Morgan is acting as Dealer Manager in connection with the Offer and
has provided certain financial advisory services to Parent in connection with
the proposed acquisition of the Company. Parent has agreed to
45
<PAGE>
pay J.P. Morgan reasonable and customary compensation for its services and
reimbursement for its out-of-pocket expenses in the Offer. In addition, Parent
has agreed to reimburse J.P. Morgan upon request for all expenses (including
the fees and disbursements of J.P. Morgan's legal counsel, provided that
Parent shall not be required to reimburse the fees and disbursements of such
legal counsel in excess of $25,000 without Parent's consent), and to indemnify
J.P. Morgan and certain related persons against certain liabilities and
expenses, including, without limitation, certain liabilities under the federal
securities laws.
Parent has retained Morrow & Co., Inc. as Information Agent and Norwest
Bank Minnesota, N.A. as Depositary in connection with the Offer. The
Information Agent and the Depositary will receive reasonable and customary
compensation for their services and reimbursement for their out-of-pocket
expenses in the Offer. The Depositary will also be indemnified by Offeror
against certain liabilities and expenses in connection with the Offer,
including certain liabilities under the federal securities laws.
18. Miscellaneous.
Neither Parent nor Offeror is aware of any jurisdiction in which the making
of the Offer or the tender of Shares in connection therewith would be
prohibited by administrative or judicial action pursuant to any valid state
statute. If Parent or Offeror becomes aware of any valid state statute
prohibiting the making of the Offer or the acceptance of Shares pursuant
thereto in such state, Offeror will make a good faith effort to comply with
such statute. If, after such good faith effort, Offeror cannot comply with any
such statute, the Offer will not be made to (nor will tenders be accepted from
or on behalf of) the holders of Shares in such state. In any jurisdiction
where the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of
Offeror by one or more registered brokers or dealers which are licensed under
the laws of such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of Parent or Offeror other than as contained in this
Offer to Purchase or in the Letter of Transmittal, and, if any such
information or representation is given or made, it should not be relied upon
as having been authorized by Offeror or Parent. Neither the delivery of this
Offer to Purchase nor any purchase pursuant to the Offer shall, under any
circumstances, create any implication that there has been no change in the
affairs of Parent or the Company since the date as of which information is
furnished or the date of this Offer to Purchase.
Parent and Offeror have filed with the Commission a Tender Offer Statement
on Schedule TO, pursuant to Section 14(d)(1) of the Exchange Act and Rule 14d-
3(a)(1) thereunder, furnishing certain additional information with respect to
the Offer. In addition, the Company has filed with the Commission the Schedule
14D-9 pursuant to Rule 14d-9 under the Exchange Act, setting forth its
recommendation with respect to the Offer and the reasons for such
recommendation and furnishing certain additional related information. Such
schedules and any amendments thereto, including exhibits, should be available
for inspection and copies should be obtainable at the same places and in the
same manner as set forth with respect to the Company in Section 8, "Certain
Information Concerning the Company" (except that they may not be available at
the regional offices of the Commission).
PV ACQUISITION CORP.
May 10, 2000
46
<PAGE>
ANNEX I
DIRECTORS AND EXECUTIVE OFFICERS
OF PARENT, MERCK-MEDCO AND OFFEROR
The names and ages of the directors, managers and executive officers of
Parent, Merck-Medco and Offeror, and their present principal occupations or
employment and five-year employment history, are set forth below. Unless
otherwise indicated, each individual is a citizen of the United States and has
been employed by Parent, Merck-Medco or Offeror, as the case may be, for the
last five years. The directors and executive officers of Parent and Offeror
have a business address of One Merck Drive, Whitehouse Station, New Jersey
08889-0100, with a business telephone number of 908-423-1000. The managers and
executive officers of Merck-Medco have a business address of 100 Parsons Pond
Drive, Franklin Lakes, New Jersey 07417.
PARENT
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
with
Parent; Material Positions Held During the
Name and Age Past Five Years
------------ ----------------------------------------------
<C> <S>
H. Brewster Atwater, Jr. (68).. Director since 1988; Retired since 1995;
Chairman of the Board and Chief Executive
Officer, General Mills, Inc. (consumer foods
and restaurants) for more than five years;
Director, American Express Funds and Mayo
Foundation; Member, The Business Council.
Lawrence A. Bossidy (65)....... Director since 1992; Chairman, Honeywell
International Inc. (aerospace, home and
industrial controls, specialty chemicals and
transportation products) since December 1999;
prior to that Chairman of the Board and Chief
Executive Officer, AlliedSignal, Inc.
(aerospace, automotive products and engineered
materials technology) for more than five
years; Director, Champion International
Corporation and J.P. Morgan & Co.
Incorporated; Member, The Business Council and
The Business Roundtable.
William G. Bowen, Ph.D. (66)... Director since 1986; President, The Andrew W.
Mellon Foundation (philanthropic foundation)
for more than five years; Director, American
Express Company; Member, Board of Overseers,
Teachers Insurance and Annuity Association of
America--College Retirement Equities Fund;
Trustee, Denison University.
Johnnetta B. Cole, Ph.D. (63).. Director since 1994; Presidential
Distinguished Professor, Emory University
since September 1998; prior to that from 1987
to June 1997--President, Spelman College;
Director, Coca-Cola Enterprises; Trustee,
Rockefeller Foundation and Gallaudet
University; Member, Council on Foreign
Relations and National Council of Negro Women;
Fellow, American Anthropological Association.
Lloyd C. Elam, M.D. (71)....... Director since 1973; Professor of Psychiatry,
Meharry Medical College for more than five
years; Trustee, The Alfred P. Sloan
Foundation.
Niall FitzGerald (54).......... Director since 2000; Chairman, Unilever PLC
(foods and home and personal care) since
September 1996; prior to that from 1994 to
1996-- Vice-Chairman, Unilever PLC; Vice-
Chairman, Unilever NV since September 1996;
Director, Telefonaktiebolaget LM Ericsson and
Leverhulme Trust; Governor, National Institute
of Economic and Social Research; Trustee, The
Conference Board; Member, The Business
Council, Council of British Executive Services
Overseas, EU-China Business Council, Hong
Kong-European Business Cooperation Committee,
Trilateral Commission and World Economic
Forum. Mr. FitzGerald is an Irish citizen.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment with
Parent; Material Positions Held During the Past
Name and Age Five Years
------------ ------------------------------------------------
<C> <S>
Carleton S. Fiorina (45).... Director since 1999; President and Chief
Executive Officer, Hewlett-Packard Company
(computing and imaging products and services)
since July 1999; prior to that from October 1997
to July 1999--Group President, Global Services
Provider Business, Lucent Technologies Inc.
(communications systems and technology); prior
to that from October 1996 to October 1997--
President, Lucent Technologies Consumer
Products; prior to that from January 1996 to
October 1996--Executive Vice President,
Corporate Operations, Lucent Technologies Inc.;
prior to that from January 1995 to January
1996--President, North America Region of the
Network Systems Group, AT&T; Director, Hewlett-
Packard Company and Kellogg Company.
Raymond V. Gilmartin (59)... Director since 1994; Chairman of the Board since
November 1994; President and Chief Executive
Officer since June 1994; Director, General
Mills, Inc. and Public Service Enterprise Group;
Immediate Past Chairman, Pharmaceutical Research
and Manufacturers of America; Member, The
Business Council and The Business Roundtable.
William B. Harrison, Jr.
(56)....................... Director since 1999; Chairman since January 2000
and Chief Executive Officer since June 1999, The
Chase Manhattan Corporation and The Chase
Manhattan Bank (financial services); President
from June 1999 to December 1999 and Vice
Chairman from 1991 to December 1999, The Chase
Manhattan Corporation and The Chase Manhattan
Bank; Director, Dillard's Inc.
William N. Kelley, M.D.
(60)....................... Director since 1992; Professor of Medicine,
Biochemistry and Biophysics, University of
Pennsylvania School of Medicine since February
2000; Chief Executive Officer, University of
Pennsylvania Health System, Dean of the School
of Medicine and Executive Vice President,
University of Pennsylvania from 1989 to February
2000. Director, Beckman Coulter, Inc. and
Philadelphia Orchestra Association; Trustee,
Emory University; Fellow, American Academy of
Arts and Sciences; Member, American
Philosophical Society, Institute of Medicine of
the National Academy of Sciences, Board of
Managers of Wistar Institute; Master, American
College of Physicians.
Edward M. Scolnick, M.D.
(59)....................... Director since 1997; Executive Vice President,
Science and Technology and President, Merck
Research Laboratories for more than five years;
Member, National Academy of Sciences and its
Institute of Medicine.
Anne M. Tatlock (60)........ Director since 2000; President since 1994 and
Chief Executive Officer since September 1999,
Fiduciary Trust Company International (global
asset management services); Director, Fiduciary
Trust Company International, American General
Corporation and Fortune Brands, Inc.; Chairman,
Cultural Institutions Retirement Systems;
President, American Ballet Theatre Foundation;
Trustee, The Andrew W. Mellon Foundation, Teagle
Foundation and Vassar College.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment with
Parent; Material Positions Held During the Past
Name and Age Five Years
------------ ------------------------------------------------
<C> <S>
Samuel O. Thier, M.D. (62).. Director since 1994; President since April 1997
and Chief Executive Officer since July 1996,
Partners HealthCare System, Inc.; prior to that
from May 1994 to April 1997--President,
Massachusetts General Hospital; Director,
Partners HealthCare System, Inc. and Charles
River Laboratories, Inc.; Member, Institute of
Medicine of the National Academy of Sciences;
Fellow, American Academy of Arts and Sciences;
Trustee, Brandeis University, Boston Museum of
Science, Cornell University, The Commonwealth
Fund and WGBH Public Television; Master,
American College of Physicians.
Dennis Weatherstone (69).... Director since 1988; Retired (1995); Chairman of
the Board, J.P. Morgan & Co. Incorporated and
Morgan Guaranty Trust Company of New York
(banking and other financial services) for more
than five years; Director, General Motors
Corporation, L'Air Liquide and Institute for
International Economics; Independent Member of
the Board of Banking Supervision of the
Financial Services Authority, London; President,
Royal College of Surgeons Foundation; Trustee,
The Alfred P. Sloan Foundation; Member, The
Business Council. Mr. Weatherstone is a citizen
of both the United States and Great Britain.
David W. Anstice (51)....... President, Human Health-The Americas since
January 1997--responsible for Parent's
prescription drug business in the United States,
Canada and Latin America and medical and
scientific affairs; prior to that since
September 1994--President, Human Health-
U.S./Canada--responsible for Parent's
prescription drug business in the United States
and Canada, worldwide coordination of marketing
policies and medical and scientific affairs.
Mr. Anstice is an Australian citizen.
Paul R. Bell (54)........... President, Human Health-Asia Pacific since April
1997--responsible for Parent's prescription drug
business in the Far East, Australia, New Zealand
and Japan; prior to that since March 1994--Vice
President, Merck Sharp and Dohme Australia and
New Zealand. Mr. Bell is a New Zealand citizen.
Richard T. Clark (54)....... President, Merck-Medco since January 2000. Prior
to that since June 1997--Executive Vice
President/Chief Operating Officer, Merck-Medco.
Prior to that since April 1997--Senior Vice
President, Quality Commercial Affairs, Merck
Manufacturing Division. Prior to that since May
1996--Senior Vice President, North American
Operations, Merck Manufacturing Division. Prior
to that since October, 1994--Vice President,
North American Operations, Merck Manufacturing
Division.
Celia A. Colbert (43)....... Vice President, Secretary and Assistant General
Counsel since January 1997; prior to that since
November 1993--Secretary and Assistant General
Counsel.
Linda M. Distlerath (46).... Vice President, Public Affairs since January
1999--responsible for public affairs and The
Merck Company Foundation (a not-for-profit
charitable organization affiliated with Parent);
prior to that since October 1997--Executive
Director, Public Policy and Merck Research
Laboratories Public Affairs; prior to that since
April 1995--Executive Director, Merck Research
Laboratories Public Affairs; prior to that since
October 1990--Senior Director, Science &
Technology Policy--responsible for public policy
strategies in support of Parent's research and
development programs.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment with
Parent; Material Positions Held During the Past
Name and Age Five Years
------------ ------------------------------------------------
<C> <S>
Caroline Dorsa (40)......... Vice President and Treasurer since September
1999--responsible for Parent's treasury and tax
functions and for providing financial support
for the Asia Pacific Division; prior to that
since February 1999--Vice President and
Treasurer--responsible for Parent's treasury and
tax functions; prior to that since January
1997--Vice President and Treasurer; prior to
that since January 1994--Treasurer.
Kenneth C. Frazier (45)..... Senior Vice President and General Counsel since
December 1999--responsible for legal and public
affairs functions and The Merck Company
Foundation (a not-for-profit charitable
organization affiliated with Parent); prior to
that since January 1999--Vice President and
Deputy General Counsel; prior to that since
January 1997--Vice President, Public Affairs and
Assistant General Counsel--responsible for
public affairs, corporate legal activities and
The Merck Company Foundation; prior to that
since April 1994--Vice President, Public
Affairs.
Douglas A. Greene (55)...... Executive Vice President, Clinical Sciences and
Product Development since May 2000; prior to
that Chief of the Division of Endocrinology &
Metabolism at the University of Michigan Medical
School in Ann Arbor and Director of both the
University's Center for Clinical Investigation
and Therapeutics and the Michigan Diabetes
Research Training Center.
Richard C. Henriques, Jr.
(44)....................... Vice President, Controller since February 1999--
responsible for the Corporate Controller's Group
and providing financial support for U.S. Human
Health, Canada and Latin America (The Americas);
prior to that since January 1998--Vice President
& Controller, The Americas; prior to that since
January 1997--Controller, The Americas; prior to
that since January 1994--Controller, North
America Pharmaceutical Care.
Bernard J. Kelley (58)...... President, Merck Manufacturing Division since
December 1993.
Judy C. Lewent (51)......... Senior Vice President and Chief Financial
Officer since January 1997--responsible for
financial and corporate development functions,
internal auditing and Parent's joint venture
relationships; prior to that since September
1994--Senior Vice President and Chief Financial
Officer; since January 1993--responsible for
financial and public affairs functions, The
Merck Company Foundation (a not-for-profit
charitable organization affiliated with Parent);
since December 1993--responsible for internal
auditing and Parent's joint venture
relationships.
Per G. H. Lofberg (52)...... Chairman, Merck-Medco since January 2000; prior
to that since December 1995--President, Merck-
Medco; prior to that since January 1994--
President, Merck-Medco Managed Care Division.
Mr. Lofberg is a Swedish citizen.
Adel Mahmoud (58)........... President, Merck Vaccines since May 1999; prior
to that since November 1998--Executive Vice
President, Merck Vaccines; prior to that since
1987--John H. Hord Professor and Chairman,
Department of Medicine and Physician-in-Chief,
Case Western Reserve University and University
Hospitals of Cleveland.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment with
Parent; Material Positions Held During the Past
Name and Age Five Years
------------ ------------------------------------------------
<C> <S>
Roger M. Perlmutter (47).... Executive Vice President, Worldwide Basic
Research and Preclinical Development, Merck
Research Laboratories since July 1999; prior to
that since February 1999--Executive Vice
President, Merck Research Laboratories; prior to
that since February 1997--Senior Vice President,
Merck Research Laboratories; prior to that since
May 1989--Professor and Chairman, Department of
Immunology, University of Washington.
Per Wold-Olsen (52)......... President, Human Health-Europe, Middle East &
Africa since January 1997--responsible for
Parent's prescription drug business in Europe,
the Middle East and Africa and worldwide
coordination of marketing policies; prior to
that since September, 1994--President, Human
Health-Europe--responsible for Parent's European
prescription drug business. Mr. Wold-Olsen is a
Norwegian citizen.
Wendy L. Yarno (45)......... Senior Vice President, Human Resources since
December 1999; prior to that since June 1999--
Vice President, Human Resources; prior to that
since January 1999--Vice President, Worldwide
Human Health Marketing; prior to that since
November 1997--Vice President, Women's Health
Care, Johnson & Johnson, Ortho-McNeil
Pharmaceutical; prior to that since January
1995--Vice President, Hypertension and Heart
Failure Therapeutic Business Group, U.S. Human
Health.
</TABLE>
MERCK-MEDCO
<TABLE>
<CAPTION>
Present Principal Occupation or Employment with
Merck-Medco;
Material Positions Held During the Past Five
Years
-----------------------------------------------
<C> <S>
Richard T. Clark (54)....... Manager and President, Merck-Medco. See
description above.
Caroline Dorsa (40)......... Manager, Merck-Medco. See description above.
Per G. H. Lofberg (52)...... Manager and Chairman, Merck-Medco. See
description above.
JoAnn A. Reed (44).......... Manager, Merck-Medco. Senior Vice President,
Finance, Merck-Medco for more than five years.
Bert I. Weinstein (51)...... Manager, Merck-Medco. Vice President and
Assistant General Counsel of Parent since
January 2000; prior to that since 1995--Senior
Vice President and General Counsel of Medco.
Richard Schatzberg (46)..... Executive Vice President, Business and Customer
Development, Merck-Medco since January 1999;
prior to that since 1995--Executive Vice
President, Account Management.
Isaac Shulman (45).......... Executive Vice President, Pharmaceutical
Manufacturer Contracting, Merck-Medco since
January 1999; prior to that since 1995 Senior
Vice President, Pharmaceutical Manufacturer
Contracting, Merck-Medco.
</TABLE>
OFFEROR
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
with
Offeror; Material Positions Held During the
Name and Age Past Five Years
------------ ----------------------------------------------
<C> <S>
Jon Filderman (42).......... Sole Director, Vice President and Assistant
Secretary of Offeror since May 2000. Assistant
Counsel to Parent since 1995.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment with
Offeror; Material Positions Held During the Past
Name and Age Five Years
------------ ------------------------------------------------
<C> <S>
Celia A. Colbert (43)....... Secretary of Offeror since May 2000. See
description above.
Richard N. Kender (45)...... Vice President and Assistant Secretary of
Offeror since May 2000. Vice President,
Financial Evaluation and Analysis and Business
Development of Parent since February 1999; prior
to that since 1996--Vice President, Corporate
Development; prior to that since 1994--Executive
Director, Corporate Development.
Judy C. Lewent (51)......... President of Offeror since May 2000. See
description above.
Barbara Yanni (46).......... Vice President and Treasurer of Offeror since
May 2000. Executive Director, Corporate
Development of Parent since February 1997; prior
to that since 1994--Senior Director, Financial
Evaluation and Analysis.
</TABLE>
52
<PAGE>
MANUALLY SIGNED FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL, PROPERLY
COMPLETED, WILL BE ACCEPTED. THE LETTER OF TRANSMITTAL, CERTIFICATES FOR
SHARES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT OR DELIVERED BY EACH
STOCKHOLDER OF THE COMPANY OR ITS BROKER, DEALER, COMMERCIAL BANK, TRUST
COMPANY OR OTHER NOMINEE TO THE DEPOSITARY AT ONE OF THE ADDRESSES SET FORTH
BELOW:
The Depositary for the Offer is:
Norwest Bank Minnesota, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Hand in New York: By Hand/Overnight Courier:
Norwest Bank Minnesota, N.A. The Depository Trust Company Norwest Bank Minnesota, N.A.
Shareowner Services Transfer Agent Drop Shareowner Services
Reorganization Department 55 Water Street--1st Floor 161 North Concord Exchange
P.O. Box 64858 New York, NY 10041-0099 South St. Paul, MN 55075
St. Paul, MN 55164-0858
</TABLE>
By Facsimile Transmission:
(651) 450-4163
To Confirm Receipt of Notice of Guaranteed Delivery:
(651) 450-4110
Any questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone
numbers listed below. Additional copies of this Offer to Purchase, the Letter
of Transmittal and other tender offer materials may be obtained from the
Information Agent as set forth below and will be furnished promptly at
Offeror's expense. A stockholder may also contact its broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Offer.
The Information Agent for the Offer is:
MORROW & CO., INC.
445 Park Avenue
5th Floor
New York, New York 10022
Call Collect (212) 754-8000
Banks and Brokerage Firms, Please Call: (800) 662-5200
Stockholders, Please Call: (800) 566-9061
The Dealer Manager for the Offer is:
J.P. Morgan & Co.
60 Wall Street
New York, New York 10260
(888) 235-3499
<PAGE>
EXHIBIT 99.(a)(1)(B)
LETTER OF TRANSMITTAL
To Tender Shares of Common Stock
(Including the Associated Rights)
of
ProVantage Health Services, Inc.
Pursuant to the Offer to Purchase
Dated May 10, 2000
by
PV Acquisition Corp.
an indirect wholly owned subsidiary of
Merck & Co., Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, JUNE 14, 2000, UNLESS EXTENDED.
The Depositary for the Offer is:
NORWEST BANK MINNESOTA, N.A.
<TABLE>
<CAPTION>
By Mail: By Hand in New York: By Hand/Overnight Courier:
<S> <C> <C>
Norwest Bank Minnesota, N.A. The Depository Trust Company Norwest Bank Minnesota, N.A.
Shareowner Services Transfer Agent Drop Shareowner Services
Reorganization Department 55 Water Street--1st Floor 161 North Concord Exchange
P.O. Box 64858 New York, NY 10041-0099 South St. Paul, MN 55075
St. Paul, MN 55164-0858
</TABLE>
By Facsimile Transmission:
(651) 450-4163
To Confirm Receipt of Notice of Guaranteed Delivery:
(651) 450-4110
---------------
DESCRIPTION OF SHARES TENDERED
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) Certificate(s) for Shares
(Please fill in, if blank, exactly as name(s) Tendered (Attach
appear(s) on the Certificate(s)) additional list if necessary)
- ---------------------------------------------------------------------------------------------------
Number of Shares
Certificate Represented by Number of Shares
Number(s)* Certificate(s)* Tendered**
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
Total Shares
- ---------------------------------------------------------------------------------------------------
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares represented by any certificates
delivered to the Depositary are being tendered. See Instruction 4.
- ---------------------------------------------------------------------------------------------------
</TABLE>
IF CERTIFICATES HAVE BEEN LOST OR DESTROYED, SEE INSTRUCTION 11.
<PAGE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU
MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR
PROVIDED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by holders of Shares (as
defined below) of ProVantage Health Services, Inc. (the "Stockholders") if
certificates evidencing Shares ("Certificates") are to be forwarded herewith
or, unless an Agent's Message (as defined in Section 2 of the Offer to
Purchase) is utilized, if delivery of Shares is to be made by book-entry
transfer to an account maintained by Norwest Bank Minnesota, N.A. (the
"Depositary") at The Depository Trust Company ("DTC") pursuant to the
procedures set forth in Section 3 of the Offer to Purchase. Delivery of
documents to DTC does not constitute delivery to the Depositary.
Stockholders whose Certificates are not immediately available or who cannot
deliver their Certificates for, or a Book-Entry Confirmation (as defined in
Section 2 of the Offer to Purchase) with respect to, their Shares and all
other required documents to the Depositary prior to the Expiration Date (as
defined in Section 1 of the Offer to Purchase) must tender their Shares
according to the guaranteed delivery procedures set forth in Section 3 of the
Offer to Purchase. See Instruction 2 hereof.
[_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH DTC, AND COMPLETE THE
FOLLOWING. (ONLY PARTICIPANTS IN DTC MAY DELIVER SHARES BY BOOK-ENTRY
TRANSFER.)
Name of Tendering Institution: ____________________________________________
Account No.: ____________________________________________________________ at
[_] The Depository Trust Company
Transaction Code No.: ______________________________________________________
[_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Stockholder(s): ______________________________________
Date of Execution of Notice of Guaranteed Delivery: _______________________
Window Ticket Number (if any): ____________________________________________
Name of Institution which Guaranteed Delivery: ____________________________
If delivery is by book-entry transfer:
Name of Tendering Institution: _____________________________________________
Account No.: ____________________________________________________________ at
[_] The Depository Trust Company
Transaction Code Number: __________________________________________________
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS CAREFULLY.
2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to PV Acquisition Corp., a Delaware
corporation ("Offeror") and indirect wholly owned subsidiary of Merck & Co.,
Inc., a New Jersey corporation ("Parent"), the above-described shares of
Common Stock, $0.01 par value per share, of ProVantage Health Services, Inc.,
a Delaware corporation (the "Company"), including the associated preferred
share purchase rights issued pursuant to the Rights Agreement, dated as of
March 12, 1999, and amended as of May 4, 2000, by and between the Company and
Norwest Bank Minnesota, N. A., as Rights Agent (the "Rights," and the shares
of Common Stock inclusive of their respective Rights, the "Shares"), net to
the seller in cash, without interest thereon, upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated May 10, 2000 (the
"Offer to Purchase"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which together constitute the "Offer"). The Offer is
being made in connection with the Agreement and Plan of Merger, dated as of
May 4, 2000, among Parent, Offeror and the Company (the "Merger Agreement").
The undersigned understands that Offeror reserves the right to transfer or
assign, in whole or from time to time in part, to any direct or indirect
wholly owned subsidiary of Parent, the right to purchase all or any portion of
the Shares tendered pursuant to the Offer, but any such transfer or assignment
will not relieve Offeror of its obligations under the Offer or prejudice the
rights of tendering Stockholders to receive payment for Shares validly
tendered and accepted for payment pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of, or payment for,
Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms or conditions of any such extension or amendment), the undersigned
hereby sells, assigns and transfers to, or upon the order of, Offeror all
right, title and interest in and to all of the Shares that are being tendered
hereby and any and all other Shares or other securities issued or issuable in
respect of such Shares on or after May 4, 2000 (a "Distribution"), and
constitutes and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares (and any
Distributions), with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
Certificates evidencing such Shares (and any Distributions), or transfer
ownership of such Shares (and any Distributions) on the account books
maintained by DTC together, in any such case, with all accompanying evidences
of transfer and authenticity to, or upon the order of, Offeror, upon receipt
by the Depositary, as the undersigned's agent, of the purchase price with
respect to such Shares, (ii) present such Shares (and any Distributions) for
transfer on the books of the Company and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares (and any
Distributions), all in accordance with the terms and subject to the conditions
of the Offer.
The undersigned hereby irrevocably appoints each designee of Offeror as the
attorney-in-fact and proxy of the undersigned, each with full power of
substitution, to the full extent of the undersigned's rights with respect to
all Shares tendered hereby and accepted for payment and paid for by Offeror
(and any Distributions), including, without limitation, the right to vote such
Shares (and any Distributions) in such manner as each such attorney and proxy
or his substitute shall, in his sole discretion, deem proper. All such powers
of attorney and proxies, being deemed to be irrevocable, shall be considered
coupled with an interest in the Shares tendered herewith. Such appointment
will be effective when, and only to the extent that, Offeror accepts such
Shares for payment. Upon such acceptance for payment, all prior powers of
attorney and proxies given by the undersigned with respect to such Shares (and
any Distributions) will be revoked, without further action, and no subsequent
powers of attorney and proxies may be given (and, if given, will be deemed
ineffective). The designees of Offeror will, with respect to the Shares (and
any Distributions) for which such appointment is effective, be empowered to
exercise all voting and other rights of the undersigned as they in their sole
discretion may deem proper. Offeror reserves the absolute right to require
that, in order for Shares to be deemed validly tendered, immediately upon the
acceptance for payment of such Shares, Offeror or its designees are able to
exercise full voting rights with respect to such Shares (and any
Distributions).
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
3
<PAGE>
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby (and any Distributions) and that, when the same are accepted
for payment and paid for by Offeror, Offeror will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances including irrevocable proxies, and that the Shares tendered
hereby (and any Distributions) will not be subject to any adverse claim. The
undersigned, upon request, will execute and deliver any additional documents
deemed by the Depositary or Offeror to be necessary or desirable to complete
the sale, assignment and transfer of Shares tendered hereby (and any
Distributions). In addition, the undersigned shall promptly remit and transfer
to the Depositary, for the account of Offeror, all Distributions issued to the
undersigned on or after May 4, 2000, in respect of the Shares tendered hereby,
accompanied by appropriate documentation of transfer; and pending such
remittance and transfer or appropriate assurance thereof, Offeror shall be
entitled to all rights and privileges as owner of any such Distributions and
may withhold the entire purchase price or deduct from the purchase price the
amount of value thereof, as determined by Offeror in its sole discretion.
The undersigned understands that Offeror's acceptance for payment of any
Shares tendered hereby will constitute a binding agreement between the
undersigned and Offeror with respect to such Shares upon the terms and subject
to the conditions of the Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, Offeror may not be required to accept for payment any
of the Shares tendered hereby or may accept for payment fewer than all of the
Shares tendered hereby.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any Certificates
evidencing Shares not tendered or not accepted for payment in the name(s) of
the registered holder(s) appearing under "Description of Shares Tendered."
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price and/or return any Certificates
evidencing Shares not tendered or not accepted for payment (and accompanying
documents, as appropriate) to the address(es) of the registered holder(s)
appearing under "Description of Shares Tendered." In the event that both the
"Special Payment Instructions" and the "Special Delivery Instructions" are
completed, please issue the check and/or return any such Certificates
evidencing Shares not tendered or not accepted for payment in the name(s) of,
and deliver such check and/or return such Certificates to, the person(s) so
indicated. Unless otherwise indicated herein under "Special Payment
Instructions," in the case of a book-entry delivery of Shares, please credit
the account maintained at DTC with respect to any Shares not accepted for
payment. The undersigned recognizes that Offeror has no obligation pursuant to
the "Special Payment Instructions" to transfer any Shares from the name of the
registered holder thereof if Offeror does not accept for payment any of the
Shares tendered hereby.
4
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 4, 5, 6 and 7)
(See Instructions 1, 4, 5, 6 and 7)
To be completed ONLY if To be completed ONLY if
Certificates not tendered or not Certificates not tendered or not
accepted for payment and/or the accepted for payment and/or the
check for the purchase price of check for the purchase price of
Shares accepted for payment are to Shares accepted for payment are to
be issued in the name of someone be sent to someone other than the
other than the undersigned, or if undersigned or to the undersigned
Shares delivered by book-entry at an address other than that shown
transfer that are not accepted for above.
payment are to be returned by
credit to an account maintained at
DTC, other than to the account
indicated above.
Mail: [_] Check [_] Certificate(s)
to:
Name _______________________________
(Please Print)
Address ____________________________
Issue: [_] Check [_] Certificate(s)
to:
------------------------------------
Name _______________________________ ------------------------------------
(Please Print)
(Zip Code)
Address ____________________________
------------------------------------
------------------------------------
(Taxpayer Identification or Social
------------------------------------ Security No.)
(Also Complete Substitute Form W-9)
(Zip Code)
------------------------------------
(Taxpayer Identification or Social
Security No.)
(Also Complete Substitute Form W-9)
[_]Credit Shares by book-entry
transfer and not purchased to
the account set forth below
Name of Account Party: ____________
Acct No.: __________________________
5
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. No signature guarantee is required on this
Letter of Transmittal if the Shares tendered thereby are tendered (i) by the
registered holder of Shares (which term, for such purposes, includes DTC if
its name appears on a security position listing as the owner of the Shares)
who has not completed either the box entitled "Special Payment Instructions"
or the box entitled "Special Delivery Instructions" herein or (ii) for the
account of a member firm of a registered national securities exchange
(registered under Section 6 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), by a member firm of the National Association of
Securities Dealers, Inc., by a commercial bank or trust company having an
office or correspondent in the United States or by any other "Eligible
Guarantor Institution," as defined in Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). In all other cases, all signatures on
this Letter of Transmittal must be guaranteed by an Eligible Institution. If
the Certificates evidencing Shares are registered in the name of a person or
persons other than the signer of this Letter of Transmittal, or if payment is
to be made, or Certificates for unpurchased Shares are to be issued or
returned, to a person other than the registered owner or owners, then the
tendered Certificates must be endorsed or accompanied by duly executed
instruments of transfer (such as stock powers), in either case signed exactly
as the name or names of the registered owner or owners appear on the
Certificates, with the signatures on the Certificates or stock powers
guaranteed by an Eligible Institution as provided herein. See Instruction 5.
2. Requirements of Tender. This Letter of Transmittal is to be completed by
Stockholders if Certificates evidencing Shares are to be forwarded herewith
or, unless an Agent's Message (as defined in Section 2 of the Offer to
Purchase) is utilized, if delivery of Shares is to be made pursuant to the
procedures for book-entry transfer set forth in Section 3 of the Offer to
Purchase. For a Stockholder to validly tender Shares pursuant to the Offer,
either (a) a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof), with any required signature guarantees and
any other required documents, or an Agent's Message in the case of a book-
entry delivery, must be received by the Depositary at one of its addresses set
forth herein prior to the Expiration Date and either (i) Certificates for
tendered Shares must be received by the Depositary at one of such addresses
prior to the Expiration Date or (ii) Shares must be delivered pursuant to the
procedures for book-entry transfer set forth in Section 3 of the Offer to
Purchase and a Book-Entry Confirmation must be received by the Depositary
prior to the Expiration Date or (b) the tendering Stockholder must comply with
the guaranteed delivery procedures set forth below and in Section 3 of the
Offer to Purchase.
Stockholders whose Certificates are not immediately available or who cannot
deliver their Certificates and all other required documents to the Depositary
or complete the procedures for book-entry transfer prior to the Expiration
Date may tender their Shares by properly completing and duly executing a
Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures
set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure:
(i) such tender must be made by or through an Eligible Institution, (ii) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by Offeror, must be received by the
Depositary prior to the Expiration Date, and (iii) the Certificates
representing all tendered Shares, in proper form for transfer, or a Book-Entry
Confirmation with respect to all tendered Shares, together with a Letter of
Transmittal (or a manually signed facsimile thereof), properly completed and
duly executed, with any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Depositary
within three New York Stock Exchange trading days after the date of such
Notice of Guaranteed Delivery. If Certificates are forwarded separately to the
Depositary, a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof) must accompany each such delivery.
The method of delivery of Certificates, this Letter of Transmittal and any
other required documents, including delivery through any Book-Entry Transfer
Facility, is at the option and sole risk of the tendering Stockholder and the
delivery will be deemed made only when actually received by the Depositary. If
delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. In all cases, sufficient time should be allowed to
ensure timely delivery.
6
<PAGE>
No alternative, conditional or contingent tenders will be accepted. All
tendering Stockholders, by execution of this Letter of Transmittal (or a
manually signed facsimile thereof), waive any right to receive any notice of
the acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein is inadequate, the
information required under "Description of Shares Tendered" should be listed
on a separate signed schedule attached hereto.
4. Partial Tenders (not applicable to stockholders who tender by book-entry
transfer). If less than all of the Shares represented by any Certificates
delivered to the Depositary herewith is to be tendered hereby, fill in the
number of Shares which are to be tendered in the box entitled "Number of
Shares Tendered." In such case, a new Certificate for the remainder of the
Shares that were evidenced by the old Certificates will be sent, without
expense, to the person(s) signing this Letter of Transmittal, unless otherwise
provided in the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" on this Letter of Transmittal, as
soon as practicable after the Expiration Date. All Shares represented by
Certificate(s) delivered to the Depositary will be deemed to have been
tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal, Instruments of Transfer and
Endorsements. If this Letter of Transmittal is signed by the registered
holder(s) of the Shares tendered hereby, the signature(s) must correspond
exactly with the name(s) as written on the face of the Certificates without
alteration, enlargement or any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
Certificates. To obtain additional Letters of Transmittal, you may either make
a photocopy of this Letter of Transmittal or call Morrow & Co., Inc., the
Information Agent, at (800) 566-9061.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of Certificates or
separate instruments of transfer are required unless payment is to be made, or
Certificates not tendered or not purchased are to be issued or returned, to a
person other than the registered holder(s).
If this Letter of Transmittal or any Certificates or instruments of
transfer are signed by a trustee, executor, administrator, guardian, attorney-
in-fact, officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Offeror of such person's authority to so act
must be submitted.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares evidenced by the Certificates listed and
transmitted hereby, or if payment is to be made, or Certificates not tendered
or not purchased are to be issued or returned, to a person other than the
registered holder(s), the Certificates must be endorsed or accompanied by
appropriate instruments of transfer, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on the Certificates.
Signature(s) on such Certificates and such endorsements or instruments of
transfer must be guaranteed by an Eligible Institution.
6. Transfer Taxes. Except as set forth in this Instruction 6, Offeror will
pay or cause to be paid any transfer taxes required to be paid by it with
respect to the transfer and sale of purchased Shares to it or its order
pursuant to the Offer. If, however, payment of the purchase price is to be
made to, or (in the circumstances permitted hereby) if Certificates for Shares
not tendered or not purchased are to be registered in the name of, any person
other than the registered holder(s), or if tendered Certificates are
registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any transfer taxes (whether imposed on
the registered holder(s) or such person) payable on account of the transfer to
such person will not be the responsibility of Offeror and may be deducted from
the purchase price unless satisfactory evidence of the payment of such taxes
or exemption therefrom is submitted herewith.
7
<PAGE>
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Certificates listed in this Letter of
Transmittal.
7. Special Payment and Delivery Instructions. If a check and/or
Certificates for unpurchased Shares are to be issued in the name of a person
other than the signer of this Letter of Transmittal or if a check is to be
sent and/or such Certificates are to be returned to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be
completed. If any tendered Shares are not purchased for any reason and such
Shares are delivered by book-entry transfer to DTC, such Shares will be
credited to an account maintained at DTC.
8. Requests for Assistance or Additional Copies. Questions and requests for
assistance may be directed to the Information Agent at its address or
telephone number set forth below and requests for additional copies of the
Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Information Agent or brokers, dealers,
commercial banks and trust companies and such materials will be furnished at
Offeror's expense.
9. Waiver of Conditions. The conditions of the Offer may be waived by
Offeror, in whole or in part, at any time or from time to time, at Offeror's
sole discretion, subject to the terms of the Offer and the Merger Agreement.
10. Backup Withholding Tax. Each tendering Stockholder is required to
provide the Depositary with a correct Taxpayer Identification Number ("TIN")
on Substitute Form W-9, which is provided under "Important Tax Information"
below, or to establish another basis for exemption from backup withholding.
Failure to provide the information on the Substitute Form W-9 or establish
another exemption may subject the tendering Stockholder to 31% federal income
tax backup withholding on the payment of the purchase price for the Shares.
The tendering Stockholder should indicate in the box in Part III of the
Substitute Form W-9 if the tendering Stockholder has not been issued a TIN and
has applied for or intends to apply for a TIN in the near future, in which
case the tendering Stockholder should complete the Certificate of Awaiting
Taxpayer Identification Number provided below. If the Stockholder has
indicated in the box in Part III that a TIN has been applied for and the
Depositary is not provided a TIN within 60 days, the Depositary will withhold
31% of all payments of the purchase price, if any, made thereafter pursuant to
the Offer until a TIN is provided to the Depositary.
11. Lost or Destroyed Certificates. If any Certificates representing Shares
has been lost or destroyed, the holder(s) should promptly notify the
Depositary. The holder(s) will then be instructed as to the procedure to be
followed in order to replace the Certificates. This Letter of Transmittal and
related documents cannot be processed until the procedures for replacing lost
or destroyed Certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (TOGETHER WITH CERTIFICATES OR A
BOOK-ENTRY CONFIRMATION FOR SHARES AND ANY OTHER REQUIRED DOCUMENTS) MUST BE
RECEIVED BY THE DEPOSITARY, OR A NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE DEPOSITARY, PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Each tendering Stockholder whose tendered Shares are accepted for payment
is required to provide the Depositary (as payor) with such Stockholder's
correct TIN on Substitute Form W-9, a copy of which is provided below, or
establish another exemption from backup withholding. If such Stockholder is an
individual, the TIN is his social security number. If the tendering
Stockholder has not been issued a TIN and has applied for a number or intends
to apply for a number in the near future, such Stockholder should so indicate
on the Substitute Form W-9 and should complete the Certificate of Awaiting
Taxpayer Identification Number provided below. See Instruction 10. If the
Depositary is not provided with the correct TIN, the Stockholder may be
subject to a $50 penalty imposed by the Internal Revenue Service and payments
that are made to such Stockholders with respect to Shares purchased pursuant
to the Offer may be subject to backup withholding.
8
<PAGE>
Certain Stockholders (including among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that Stockholder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Forms for such
statements can be obtained from the Depositary. Other exempt holders should
complete Substitute Form W-9 in the manner indicated. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the Stockholder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
Purpose of Substitute Form W-9
To prevent federal income tax backup withholding with respect to payment of
the purchase price for Shares purchased pursuant to the Offer, a Stockholder
must provide the Depositary with such Stockholder's correct TIN by completing
the Substitute Form W-9 below, certifying that the TIN provided on Substitute
Form W-9 is correct (or that such Stockholder is awaiting a TIN) and that (1)
such Stockholder is exempt from backup withholding, (2) such Stockholder has
not been notified by the Internal Revenue Service that he is subject to backup
withholding as a result of failure to report all interest or dividends or (3)
the Internal Revenue Service has notified the Stockholder that he is no longer
subject to backup withholding.
What Number to Give the Depositary
The Stockholder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the record holder of the
Shares tendered hereby. If the Shares are in more than one name or are not in
the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report.
9
<PAGE>
SIGN HERE
(Also Complete Substitute Form W-9 Below)
____________________________________________________________________________
____________________________________________________________________________
Signature(s) of Stockholder
Name(s)_____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(Please Print)
Capacity (Full Title) ______________________________________________________
Address_____________________________________________________________________
______________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________________________
Taxpayer Identification or Social Security Number __________________________
(See Substitute Form W-9)
Dated: ____________________
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on
the stock certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, agent, officer of a corporation
or other person acting in a fiduciary or representative capacity, please
set forth full title and see Instruction 5.)
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLEASE PLACE MEDALLION GUARANTEE BELOW.
Authorized Signature(s) ____________________________________________________
Name _______________________________________________________________________
____________________________________________________________________________
(Please Print)
Name of Firm _______________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________________________
Dated: ____________________
10
<PAGE>
PAYER'S NAME: NORWEST BANK MINNESOTA, N.A.
Part I--PLEASE PROVIDE YOUR Part III- TIN: ________
SUBSTITUTE TIN IN THE BOX AT RIGHT AND Social Security Number
Form W-9 CERTIFY BY SIGNING AND
DATING BELOW.
or Employer
Department of Identification Number
the Treasury Part II--For Payees exempt from backup withholding,
Internal see the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9
and complete as instructed therein
--------------------------------------------------------
Revenue
Service
--------------------------------------------------------
Payor's Request Certification--UNDER THE PENALTIES OF PERJURY, I
for Taxpayer CERTIFY THAT:
Identification
Number ("TIN") (1) The number shown on this form is my correct TIN
and Certification (or I am waiting for a number to be issued to
me): and
(2) I am not subject to backup withholding because
(a) I am exempt from backup withholding, (b) I
have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report
all interest or dividends or (c) the IRS has
notified me that I am no longer subject to backup
withholding.
--------------------------------------------------------
SIGNATURE: ______________________ DATE: _______, 1997
Certification Instructions -- You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding, you
received another notification from the IRS that you were no longer subject to
backup withholding, do not cross out item (2). (Also see the instructions in
the enclosed Guidelines.)
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to
me, and either (1) I have mailed or delivered an application to receive a
TIN to the appropriate IRS Center or Social Security Administration Officer
or (2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a TIN by the time of payment, 31% of
all payments pursuant to the Offer made to me thereafter will be withheld
until I provide a number.
SIGNATURE: _________________________________________________ DATE:
11
<PAGE>
The Information Agent for the Offer is:
MORROW & CO., INC.
445 Park Avenue
5th Floor
New York, New York 10022
Call Collect (212) 754-8000
Banks and Brokerage Firms, Please Call: (800) 662-5200
Stockholders, Please Call: (800) 566-9061
The Dealer Manager for the Offer is:
J.P. Morgan & Co.
60 Wall Street
New York, New York 10260
Call (888) 235-3499
12
<PAGE>
EXHIBIT 99.(a)(1)(C)
NOTICE OF GUARANTEED DELIVERY
for Tender of Shares of Common Stock
(Including the Associated Rights)
of
ProVantage Health Services, Inc.
at
$12.25 Net Per Share
by
PV Acquisition Corp.
an indirect wholly owned subsidiary of
Merck & Co., Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, JUNE 14, 2000, UNLESS EXTENDED.
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Offer (as defined below) if certificates
representing shares of Common Stock, $0.01 par value per share, of ProVantage
Health Services, Inc., a Delaware corporation (the "Company"), including the
associated preferred share purchase rights issued pursuant to the Rights
Agreement, dated as of March 12, 1999, and amended as of May 4, 2000, by and
between the Company and Norwest Bank Minnesota, N.A., as Rights Agent (the
"Rights," and the shares of Common Stock inclusive of their respective Rights,
the "Shares"), are not immediately available or the procedures for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach Norwest Bank Minnesota, N.A. (the "Depositary")
prior to the Expiration Date (as defined in Section 1 of the Offer to
Purchase, defined herein). This Notice of Guaranteed Delivery may be delivered
by hand or transmitted by facsimile transmission or United States mail,
overnight mail or courier to the Depositary. See Section 3 of the Offer to
Purchase.
The Depositary for the Offer is:
NORWEST BANK MINNESOTA, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Hand in New York: By Hand/Overnight Courier:
Norwest Bank Minnesota, N.A. The Depository Trust Company Norwest Bank Minnesota, N.A.
Shareowner Services Transfer Agent Drop Shareowner Services
Reorganization Department 55 Water Street--1st Floor 161 North Concord Exchange
P.O. Box 64858 New York, NY 10041-0099 South St. Paul, MN 55075
St. Paul, MN 55164-0858
</TABLE>
By Facsimile Transmission:
(651) 450-4163
To Confirm Receipt of Notice of Guaranteed Delivery:
(651) 450-4110
---------------
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above, or transmission of instructions via a facsimile transmission
to a number other than as set forth above, will not constitute a valid
delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver (i) the Letter of Transmittal or
an Agent's Message (as defined in Section 2 of the Offer to Purchase) and
(ii) certificates for Shares or a Book-Entry Confirmation (as defined in
Section 3 of the Offer to Purchase) to the Depositary within the time period
shown herein. Failure to do so could result in a financial loss to such
Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to PV Acquisition Corp., a Delaware
corporation and indirect wholly owned subsidiary of Merck & Co., Inc., a New
Jersey corporation, upon the terms and subject to the conditions set forth in
the Offer to Purchase, dated May 10, 2000 (the "Offer to Purchase"), and in
the related Letter of Transmittal (which together constitute the "Offer"),
receipt of which is hereby acknowledged, the number of Shares indicated below
pursuant to the guaranteed delivery procedure set forth in Section 3 of the
Offer to Purchase.
<TABLE>
<S> <C>
Number of Shares: _______________ Name(s) of Record Holder(s): _______________
Certificate Numbers (if
available): ____________________ ____________________________________________
_________________________________ ____________________________________________
(Please Type or Print)
_________________________________
If Share(s) will be tendered by
book entry transfer: Address(es): _______________________________
Names of Tendering Institutions: ____________________________________________
_________________________________ ____________________________________________
(Zip Code)
_________________________________ Area Code and Tel. No(s).: _________________
_________________________________ Signature(s): ______________________________
Account No.: _________________ at ____________________________________________
[_] The Depository Trust Company
Transaction Code: _______________
Date: ___________________________
</TABLE>
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, an Eligible Institution (as defined in Section 3 of the
Offer to Purchase), hereby guarantees to deliver to the Depositary the
certificates representing Shares tendered hereby, in proper form for transfer,
or a Book-Entry Confirmation with respect to such Shares, in either case
together with a properly completed and duly executed Letter of Transmittal (or
a manually signed facsimile thereof), with any required signature guarantees,
or an Agent's Message in the case of a book-entry delivery of shares, and any
other documents required by the Letter of Transmittal, all within three New
York Stock Exchange trading days after the date hereof.
Name of Firm: ________________________
--------------------------------------
(Authorized Signature)
Address: _____________________________
Name: ________________________________
(Please Type or Print)
- --------------------------------------
(Zip Code)
Title: _______________________________
Area Code and Tel. No.: ______________
Date: _______________________________
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR SHARES SHOULD BE SENT ONLY TOGETHER WITH YOUR
LETTER OF TRANSMITTAL.
2
<PAGE>
EXHIBIT 99.(a)(1)(D)
OFFER TO PURCHASE FOR CASH
All Outstanding Shares of Common Stock
(Including the Associated Rights)
of
ProVantage Health Services, Inc.
at
$12.25 Net Per Share
by
PV Acquisition Corp.
an indirect wholly owned subsidiary of
Merck & Co., Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, JUNE 14, 2000, UNLESS EXTENDED.
May 10, 2000
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by PV Acquisition Corp., a Delaware corporation
("Offeror") and indirect wholly owned subsidiary of Merck & Co., Inc.
("Parent"), to act as Dealer Manager in connection with Offeror's offer to
purchase all outstanding shares of Common Stock, $0.01 par value per share, of
ProVantage Health Services, Inc., a Delaware corporation (the "Company"),
including the associated preferred share purchase rights issued pursuant to
the Rights Agreement, dated as of March 12, 1999, and amended as of May 4,
2000, by and between the Company and Norwest Bank Minnesota, N.A., as Rights
Agent (the "Rights," and the shares of Common Stock inclusive of their
respective Rights, the "Shares"), at a purchase price of $12.25 per Share, net
to the seller in cash, without interest thereon, upon the terms and subject to
the conditions set forth in the 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") enclosed herewith. The Offer is being made in connection with the
Agreement and Plan of Merger, dated as of May 4, 2000, among Parent, Offeror
and the Company (the "Merger Agreement"). Holders of Shares whose certificates
for such Shares are not immediately available or who cannot deliver their
certificates and all other required documents to Norwest Bank Minnesota, N.A.
(the "Depositary") or complete the procedures for book-entry transfer prior to
the Expiration Date (as defined in Section 1 of the Offer to Purchase) must
tender their Shares according to the guaranteed delivery procedures set forth
in Section 3 of the Offer to Purchase.
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Shares registered in your name or in the name of
your nominee.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, or who hold
Shares registered in their own names, we are enclosing the following
documents:
1. The Offer to Purchase, dated May 10, 2000.
2. The Letter of Transmittal to be used by holders of Shares in
accepting the Offer and tendering Shares. Facsimile copies of the Letter of
Transmittal (with manual signatures) may be used to tender Shares.
3. A letter to stockholders of the Company from Jeffrey A. Jones,
President and Chief Executive Officer of the Company, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company and mailed to the
stockholders of the Company.
<PAGE>
4. The Notice of Guaranteed Delivery for Shares to be used to accept the
Offer if neither of the two procedures for tendering Shares set forth in
the Offer to Purchase can be completed on a timely basis.
5. A printed form of letter which may be sent to your clients for whose
accounts you hold Shares registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
7. A return envelope addressed to the Depositary.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 14, 2000,
UNLESS THE OFFER IS EXTENDED.
Please note the following:
1. The tender price is $12.25 per Share, net to the seller in cash,
without interest.
2. The Offer is conditioned upon, among other things, (i) there being
validly tendered and not withdrawn immediately prior to the expiration of
the Offer that minimum 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 and (ii) the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the regulations thereunder having expired or been terminated
prior to the expiration of the Offer. The Offer is also subject to the
satisfaction of certain other conditions. See Section 15 of the Offer to
Purchase.
3. The Offer is being made for all of the outstanding Shares.
4. Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the transfer of Shares pursuant to the
Offer. However, federal income tax backup withholding may be required,
unless an exemption is available or unless the required taxpayer
identification information is provided. See Important Tax Information of
the Letter of Transmittal.
5. The Board of Directors of the Company has unanimously (by all those
directors present) approved the Offer, the Merger (as defined in the Offer
to Purchase) and the Merger Agreement, determined that the terms of the
Offer and the Merger are fair to, and in the best interests of, the
stockholders of the Company, and has recommended that the stockholders of
the Company accept the Offer and approve the Merger Agreement.
6. In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the
Depositary of (i) certificates for such Shares or timely confirmation of a
book-entry transfer of such Shares into the Depositary's account at The
Depository Trust Company, pursuant to the procedures set forth in Section 3
of the Offer to Purchase, (ii) a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof) with all
required signature guarantees or, in the case of a book-entry transfer, an
Agent's Message (as defined in Section 2 of the Offer to Purchase) and
(iii) any other documents required by the Letter of Transmittal.
In order to take advantage of the Offer, (i) a duly executed and properly
completed Letter of Transmittal (or a manually signed facsimile thereof) with
any required signature guarantees, or, in the case of a book-entry transfer,
an Agent's Message or other required documents should be sent to the
Depositary and (ii) certificates representing the tendered Shares or a timely
Book-Entry Confirmation (as defined in Section 2 of the Offer to Purchase)
should be delivered to the Depositary in accordance with the instructions set
forth in the Offer to Purchase.
2
<PAGE>
If holders of Shares wish to tender, but it is impracticable for them to
forward their certificates or other required documents or complete the
procedures for book-entry transfer prior to the Expiration Date, a tender must
be effected by following the guaranteed delivery procedures specified in
Section 3 of the Offer.
Neither Offeror nor Parent will pay any fees or commissions to any broker,
dealer or any other person (other than the Information Agent, as defined
below, and the Depositary as described in Section 17 of the Offer to Purchase)
in connection with the solicitation of tenders of Shares pursuant to the
Offer. Offeror will, however, upon request, reimburse you for customary
mailing and handling expenses incurred by you in forwarding any of the
enclosed materials to your clients.
Offeror will pay or cause to be paid any stock transfer taxes incident to
the transfer to it of validly tendered Shares, except as otherwise provided in
Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
Morrow & Co., Inc., the Information Agent for the Offer, at 445 Park Avenue,
5th Floor, New York, New York 10022 (212) 754-8000.
Additional copies of the enclosed materials may be obtained from the
Information Agent or from brokers, dealers, commercial banks or trust
companies.
Very truly yours,
J.P. MORGAN SECURITIES INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON AS AN AGENT OF PARENT, OFFEROR, THE COMPANY, THE
DEPOSITARY, THE INFORMATION AGENT OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE>
EXHIBIT 99.(a)(1)(E)
OFFER TO PURCHASE FOR CASH
All Outstanding Shares of Common Stock
(Including the Associated Rights)
of
ProVantage Health Services, Inc.
at
$12.25 Net Per Share
by
PV Acquisition Corp.
an indirect wholly owned subsidiary of
Merck & Co., Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, JUNE 14, 2000, UNLESS EXTENDED.
May 10, 2000
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated May 10,
2000 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer"), relating to the offer by PV Acquisition
Corp., a Delaware corporation ("Offeror") and wholly owned indirect subsidiary
of Merck & Co., Inc., a New Jersey corporation ("Parent"), to purchase all of
the outstanding shares of Common Stock, $0.01 par value per share, of
ProVantage Health Services, Inc., a Delaware corporation (the "Company"),
including the associated preferred share purchase rights issued pursuant to
the Rights Agreement, dated as of March 12, 1999, and amended as of May 4,
2000, by and between the Company and Norwest Bank Minnesota, N.A., as Rights
Agent (the "Rights," and the shares of Common Stock inclusive of their
respective Rights, the "Shares"), at a price of $12.25 per Share, net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer. The Offer is being made in connection with
the Agreement and Plan of Merger, dated as of May 4, 2000, among Parent,
Offeror and the Company (the "Merger Agreement"). Offeror is a corporation,
newly formed by Parent in connection with the Offer and the transactions
contemplated thereby. This material is being forwarded to you as the
beneficial owner of Shares carried by us in your account but not registered in
your name.
We are (or our nominee is) the holder of record of Shares held by us for
your account. A tender of such Shares can be made only by us as the holder of
record and pursuant to your instructions. The Letter of Transmittal is
furnished to you for your information only and cannot be used to tender Shares
held by us for your account.
Accordingly, we request instructions as to whether you wish us to tender on
any or all of the Shares held by us for your account, pursuant to the terms
and conditions set forth in the Offer.
Please note the following:
1. The tender price is $12.25 per Share, net to the seller in cash,
without interest.
2. The Offer is conditioned upon, among other things, (i) there being
validly tendered and not withdrawn immediately prior to the expiration of
the Offer that minimum 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 and (ii) the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the regulations thereunder having expired or been terminated
prior to the expiration of the Offer. The Offer is also subject to the
satisfaction of certain other conditions. See Section 15 of the Offer to
Purchase.
<PAGE>
3. The Offer is being made for all of the outstanding Shares.
4. Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter
of Transmittal, transfer taxes on the purchase of Shares by Offeror
pursuant to the Offer. However, federal income tax backup withholding may
be required, unless an exemption is provided or unless the required
taxpayer identification information is provided. See of Important Tax
Information of the Letter of Transmittal.
5. The Board of Directors of the Company has unanimously (by all those
directors present) approved the Offer, the Merger (as defined in the Offer
to Purchase) and the Merger Agreement, has determined that the terms of the
Offer and the Merger are fair to, and in the best interests of, the
stockholders of the Company, and has recommended that the stockholders of
the Company accept the Offer and approve the Merger and the Merger
Agreement.
6. In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the
Depositary of (i) certificates for such Shares or timely confirmation of a
book-entry transfer of such Shares into the Depositary's account at The
Depository Trust Company, pursuant to the procedures set forth in Section 3
of the Offer to Purchase, (ii) a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof) with all
required signature guarantees or, in the case of a book-entry transfer, an
Agent's Message (as defined in Section 2 of the Offer to Purchase) and
(iii) any other documents required by the Letter of Transmittal.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing, detaching and
returning to us the instruction form set forth below. If you authorize the
tender of your Shares, all such Shares will be tendered unless otherwise
specified below. Please forward your instructions to us to allow us ample time
to tender your Shares on your behalf prior to the expiration of the Offer.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of Shares residing in any jurisdiction in which the making
of the offer or the acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction. However, Offeror may,
in its discretion, take such action as it may deem necessary to make the Offer
in any jurisdiction and extend the Offer to holders of Shares in such
jurisdiction.
In any jurisdiction where the securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer will be deemed
to be made on behalf of Offeror by J.P. Morgan Securities Inc., the Dealer
Manager for the Offer, or one or more registered brokers or dealers that are
licensed under the laws of such jurisdiction.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED RIGHTS)
OF
PROVANTAGE HEALTH SERVICES, INC.
BY
PV ACQUISITION CORP.
The undersigned acknowledge(s) receipt of your letter, the enclosed Offer
to Purchase dated May 10, 2000, and the related Letter of Transmittal (which
together constitute the "Offer") in connection with the offer by PV
Acquisition Corp., a Delaware corporation and indirect wholly owned subsidiary
of Merck & Co., Inc., a New Jersey corporation, to purchase all outstanding
shares of Common Stock, $0.01 par value per share, of ProVantage Health
Services, Inc., a Delaware corporation (the "Company"), including the
associated preferred share purchase rights issued pursuant to the Rights
Agreement, dated as of March 12, 1999, and amended as of May 4, 2000, by and
between the Company and Norwest Bank Minnesota, N.A., as Rights Agent (the
"Rights," and the shares of Common Stock inclusive of their respective Rights,
the "Shares"), at a purchase price of $12.25 per Share, net to the seller in
cash, without interest, upon the terms and subject to the conditions set forth
in the Offer.
This will instruct you to tender to Offeror the number of Shares indicated
below (or if no number is indicated below, all Shares) which are held by you
for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer.
Number of Shares to be
Tendered:*
SIGN HERE
Account Number: _____________________ _____________________________________
Date: ____________________________ , _____________________________________
Signature(s)
_____________________________________
_____________________________________
(Print Name(s))
_____________________________________
_____________________________________
(Print Addresss(es))
_____________________________________
(Area Code and Telephone
Number(s))
_____________________________________
(Taxpayer Identification or
Social Security Number(s))
- --------
* Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
3
<PAGE>
EXHIBIT 99.(a)(1)(F)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer.
Social Security numbers have nine digits separated by two hyphens: i.e. 000-
00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
- ---------------------------------------------
<CAPTION>
Give the
For this type of account: SOCIAL SECURITY
number of--
- ---------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, any one
of the
individuals(1)
3. Husband and wife (joint The actual owner
account) of the account
or, if joint
funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor(1)
6. Account in the name of The ward, minor,
guardian or committee or incompetent
for a designated ward, person(3)
minor, or incompetent
person
7.a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b. So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
8. Sole proprietorship The Owner(4)
account
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------
Give the EMPLOYER
For this type of account: IDENTIFICATION
number of--
- ---------------------------------------------
<S> <C>
9. A valid trust, estate, Legal entity (Do
or pension trust not furnish the
identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of
the business
13. Association, club, or The organization
other tax- exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or prison)
that receives
agricultural program
payments
- ----------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual re-
tirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT
TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup with-
holding. For details, see the regulations under sections 6041, 6041A(a), 6045,
and 6050A.
Privacy Act Notice.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) Civil Penalty for False Information With Respect to Withholding-- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
<PAGE>
EXHIBIT 99.(a)(1)(G)
FOR IMMEDIATE RELEASE
Merck-Medco
Media Contact: Investor Contact:
John Bloomfield 201/269-6400 Laura Jordan 908/423-5185
ProVantage:
Media and Investors: Jeffrey Jones 262/312-3759
Merck-Medco Agrees to Acquire ProVantage
Wisconsin-based Pharmacy Benefit Manager
has strong focus on mid-sized plan sponsors
FRANKLIN LAKES, N.J., and WAUKESHA, Wis., May 4, 2000 -- Merck-Medco
Managed Care, L.L.C., the pharmaceutical benefit services subsidiary of Merck &
Co., Inc. (NYSE: MRK), and ProVantage Health Services, Inc. (NYSE: PHS), a
health-care benefits management and health information company, today announced
that they have entered into a definitive agreement under which Merck, on behalf
of Merck-Medco, will acquire ProVantage for $12.25 per share in cash or a total
acquisition price of approximately $222 million. ProVantage will become part of
Merck-Medco.
Merck expects to commence a tender offer for all outstanding shares of
ProVantage by May 10. ShopKo has agreed to support the transaction and tender
its shares into Merck's offer. Under the terms of the proposed transaction,
ProVantage's parent company, ShopKo Stores Inc. (NYSE: SKO), has granted Merck
an option to acquire approximately 65% of ProVantage's common shares.
In addition to providing advanced medical information services, ProVantage
manages prescription drug benefits for about 5 million covered lives.
ProVantage has a strong focus on providing pharmaceutical benefits management
services to many large and mid-sized plan sponsors and third-party
administrators. Third-party administrators market comprehensive health and
pharmacy services to smaller plan sponsors. The acquisition complements Merck-
Medco's commitment to this market segment as demonstrated through its investment
in Systemed, its subsidiary that serves a similar market segment.
-more-
<PAGE>
"We believe there is great potential in this market and we have been
focusing on its development since 1996 with the acquisition of Systemed Pharmacy
Inc., then a publicly held Midwestern-based PBM," said Merck-Medco President
Richard T. Clark. "The depth and experience of ProVantage's management team and
employees, combined with the company's favorable reputation for customer
service, innovative systems support and extensive knowledge of this market
segment all complement Merck-Medco's existing strengths as the prescription
drug-care industry leader."
"ProVantage was founded to bring mid-sized organizations technical know-how
and health care information tailored to their particular needs," said Jeffrey A.
Jones, ProVantage president and CEO. "That mission will be enhanced by Merck-
Medco's acquisition of ProVantage. We will continue to serve our present
clients and seek to build new relationships based on our tradition of trust and
superior service, and we will benefit from significant additional resources."
"Now with ProVantage we believe we can combine our strengths to bring
enhanced service to customers in this important market segment as well as this
geographic region," added Mr. Clark.
Upon closing of the agreement, ProVantage employees will become Merck-Medco
employees. For the foreseeable future, ProVantage will retain its name,
management team and operational structure.
The acquisition is subject to clearance under the Hart-Scott-Rodino
Antitrust Improvements Act as well as other customary conditions. The two
companies expect to complete the acquisition by this summer.
Merck-Medco is the nation's leading provider of high-quality, affordable
prescription-drug care, serving benefit plans of employers, unions, commercial
and government health plans that provide benefits to more than 52 million
Americans, including 14 million older Americans. Additional information about
Merck-Medco is available at www.merckmedco.com.
------------------
-more-
<PAGE>
ProVantage is a health-care benefits management and health information
company with Health Benefit Management and Health Information Technology
divisions. Additional information about ProVantage is available at
www.provantageinc.com.
- ----------------------
This press release contains "forward-looking statements" as that term is
defined in the Private Securities Litigation Reform Act of 1995. No forward-
looking statement can be guaranteed and actual results may differ materially
from those anticipated by the forward-looking statements. Additional information
concerning a number of factors that could cause actual results to differ
materially is described in Merck's current Annual Report on Form 10-K and
ProVantage's current Annual Report on Form 10-K, respectively.
THE TENDER OFFER FOR THE OUTSTANDING SHARES OF PROVANTAGE HEALTH SERVICES, INC.
COMMON STOCK DESCRIBED IN THIS ANNOUNCEMENT HAS NOT YET COMMENCED. AT THE TIME
A SUBSIDIARY OF MERCK & CO, INC. COMMENCES ITS OFFER, IT WILL FILE A TENDER
OFFER STATEMENT WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION AND PROVANTAGE
HEALTH SERVICES, INC. WILL FILE A SOLICITATION/RECOMMENDATION STATEMENT WITH
RESPECT TO THE OFFER. SECURITY HOLDERS SHOULD READ EACH OF THE TENDER OFFER
STATEMENT AND THE SOLICITATION/RECOMMENDATION STATEMENT WHEN IT IS AVAILABLE
BECAUSE EACH CONTAINS IMPORTANT INFORMATION. INVESTORS CAN GET THE TENDER OFFER
STATEMENT (INCLUDING AN OFFER TO PURCHASE, A RELATED LETTER OF TRANSMITTAL AND
OTHER OFFER DOCUMENTS), THE SOLICITATION/RECOMMENDATION STATEMENT AND OTHER
FILED DOCUMENTS FOR FREE AT THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT
WWW.SEC.GOV. AN OFFER TO PURCHASE, THE RELATED LETTER OF TRANSMITTAL AND
CERTAIN OTHER OFFER DOCUMENTS, AS WELL AS THE SOLICITATION/RECOMMENDATION
STATEMENT, WILL BE MADE AVAILABLE TO SHAREHOLDERS OF PROVANTAGE HEALTH SERVICES,
INC. AT NO EXPENSE TO THEM.
###
<PAGE>
EXHIBIT 99.(a)(1)(H)
Merck-Medco
Managed Care, L.L.C. News Release
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
Media Contact: John Bloomfield (201) 269-6400
Investor Contact: Laura Jordan (908) 423-5185
Merck-Medco Commences Tender Offer
For ProVantage Health Services, Inc. at $12.25 per share
FRANKLIN LAKES, N.J., May 11, 2000 - Merck-Medco Managed Care, L.L.C., the
pharmaceutical benefit services subsidiary of Merck & Co., Inc. (NYSE: MRK)
announced that a wholly owned subsidiary has today commenced its previously
announced tender offer for shares of common stock of ProVantage Health Services,
Inc. (NYSE: PHS). The tender offer, which is being made pursuant to an Agreement
and Plan of Merger dated as of May 4, 2000 and an Offer to Purchase dated May
10, 2000, is scheduled to expire at 12:00 midnight, Eastern Daylight Time, on
Wednesday, June 14, 2000, unless extended. Following the consummation of the
tender offer, Merck-Medco intends to complete a merger to acquire all of the
remaining shares of ProVantage common stock that are not tendered in the offer.
The Board of Directors of ProVantage has unanimously (by all those
directors present) approved the tender offer, the merger and the other
transactions contemplated by the Agreement and Plan of Merger, unanimously (by
all those directors present) determined that the terms of the tender offer and
merger are fair to and in the best interests of ProVantage's stockholders, and
unanimously (by all those directors present) recommends that stockholders accept
the offer and tender their shares pursuant to the
- more -
<PAGE>
offer. ShopKo Stores, Inc., which owns approximately 64.5 percent of
ProVantage's outstanding shares, has committed to support the transaction and
has entered into a voting and option agreement. The acquisition is subject to
clearance under the Hart-Scott-Rodino Antitrust Improvements Act and the
acquisition of a majority of ProVantage shares by Merck, as well as other
customary conditions described in the Offer to Purchase (including the Summary
Termsheet thereto). Norwest Bank Minnesota, N.A. will act as depositary for the
tender offer, Morrow & Co., Inc. will act as information agent and J.P. Morgan &
Co., Inc. will act as dealer manager.
Merck-Medco is the nation's leading provider of high-quality, affordable
prescription-drug care, serving benefit plans of employers, unions, commercial
and government health plans that provide benefits to more than 52 million
Americans, including 14 million older Americans. Additional information about
Merck-Medco is available at www.merckmedco.com.
------------------
###
<PAGE>
EXHIBIT 99.(d)(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........................................ 7
Section 2.07. Conversion of Shares.......................................... 7
Section 2.08. Dissenting Shares............................................. 7
Section 2.09. Payments for Shares........................................... 8
Section 2.10. Stock Option and Other Plans.................................. 9
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 3.03. Governmental Authorization.................................... 11
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.................................................. 15
Section 4.07. Company SEC Documents and Financial Statements................ 15
Section 4.08. Schedule 14D-9; Offer Documents; and Proxy Statement.......... 16
Section 4.09. Absence of Certain Changes.................................... 16
Section 4.10. Litigation.................................................... 17
Section 4.11. Proprietary Rights............................................ 17
Section 4.12. Benefit Plans; ERISA.......................................... 17
Section 4.13. Environmental Matters......................................... 19
Section 4.14. Taxes......................................................... 19
Section 4.15. Certain Approvals............................................. 20
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 4.16. Opinion of Financial Advisor.................................. 20
Section 4.17. Rights Plan................................................... 20
Section 4.18. Fees and Commissions.......................................... 20
Section 4.19. Compliance; Permits........................................... 20
Section 4.20. Contracts..................................................... 20
Section 4.21. Affiliate Transactions........................................ 21
Section 4.22. Working Capital............................................... 21
ARTICLE 5 COVENANTS............................................................. 22
Section 5.01. Conduct of Business of the Company............................ 22
Section 5.02. Acquisition Proposals......................................... 22
Section 5.03. Access to Information......................................... 23
Section 5.04. Commercially Reasonable Efforts............................... 25
Section 5.05. Indemnification Exculpation and Insurance..................... 25
Section 5.06. Employee Plans and Benefits and Employment Contracts.......... 27
Section 5.07. Meeting of the Company's Stockholders......................... 29
Section 5.08. De-registration............................................... 30
Section 5.09. Certain Actions............................................... 31
Section 5.10. Affiliate Transactions........................................ 31
Section 5.11. Public Announcements.......................................... 32
Section 5.12. Performance by Merger Subsidiary.............................. 32
ARTICLE 6 CONDITIONS TO THE MERGER.............................................. 33
Section 6.01. Conditions to Each Party's Obligation to Effect the Merger.... 33
ARTICLE 7 TERMINATION; AMENDMENT; WAIVER........................................ 33
Section 7.01. Termination................................................... 33
Section 7.02. Effect of Termination......................................... 33
Section 7.03. Amendment..................................................... 34
Section 7.04. Extension; Waiver............................................. 35
Section 7.05. Procedure for Termination, Extension or Waiver................ 36
ARTICLE 8 MISCELLANEOUS......................................................... 36
Section 8.01. Non-Survival of Representations and Warranties................ 36
Section 8.02. Entire Agreement; Assignment.................................. 36
Section 8.03. Validity...................................................... 38
Section 8.04. Notices....................................................... 38
Section 8.05. Governing Law................................................. 38
Section 8.06. Jurisdiction.................................................. 38
Section 8.07. Descriptive Headings.......................................... 38
Section 8.08. Parties in Interest........................................... 38
Section 8.09. Counterparts.................................................. 38
Section 8.10. Fees and Expenses............................................. 38
Section 8.11. Enforcement of Agreement...................................... 39
Section 8.12. Waiver of Jury Trial.......................................... 39
Section 8.13. Certain Definitions........................................... 39
</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
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<PAGE>
files or extracts 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.
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<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
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<PAGE>
officers of the Surviving Corporation until their respective successors are duly
elected and qualified.
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.
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<PAGE>
(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 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.
-8-
<PAGE>
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 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.
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<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.
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<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)
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<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
business as it is now being conducted. The Company is duly qualified to do
business as a foreign corporation 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 the failure to be so qualified would not have or reasonably be expected to
have a material adverse effect on the
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<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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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
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paid, 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 l0-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
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
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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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(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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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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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
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<PAGE>
Effective 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
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<PAGE>
of 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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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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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
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<PAGE>
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(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
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<PAGE>
the 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 the 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 99.(d)(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 term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto
-9-
<PAGE>
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: /s/ 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>
-11-
<PAGE>
EXHIBIT 99.(d)(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 terms of this Agreement shall constitute a
<PAGE>
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
within fourteen (14) days thereof. Nothing in this Agreement shall
prohibit PROVANTAGE from assigning its rights and
-ii-
<PAGE>
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 party's employees to
initiate such contact. General advertisements shall not be
-iv-
<PAGE>
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 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
-v-
<PAGE>
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 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
-vi-
<PAGE>
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 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
-vii-
<PAGE>
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.
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
-viii-
<PAGE>
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
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
-i-
<PAGE>
EXHIBIT 99.(d)(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,
-2-
<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 (i) total Taxes for such period, multiplied by (ii) a percentage determined
by dividing
-4-
<PAGE>
ProVantage's net income accrued on or before the Distribution Date (determined
using the allocation method elected by ShopKo under Section 3(d)) by the total
ProVantage net income for such period as shown on such return; provided,
however, that any amount by which ShopKo is required to reimburse ProVantage
hereunder shall be reduced by the amount of all estimated tax payments
previously made by ShopKo with respect to ProVantage's tax liability for such
period.
(g) Treatment of ProVantage Net Operating Losses. ProVantage shall
--------------------------------------------
make an election pursuant to Section 172(b)(3) of the Code to carry forward any
of its net operating losses incurred in tax periods beginning after the
Distribution Date which, if carried back, would be carried back to a tax period
ending on or before the Distribution Date. Notwithstanding the foregoing,
ProVantage shall be entitled to any and all tax refunds, whether received by
ShopKo or ProVantage, that result from a carryback of net operating losses or
credits of ProVantage arising, in a tax period beginning after the Distribution
Date to a tax period ending on or before the Distribution Date (a "ProVantage
Carryback"), if and to the extent that the ProVantage Carryback results from
ProVantage's inability to make an election under Section 172(b)(3) of the Code
or a comparable provision of any state tax law. If and to the extent that
ProVantage fails to make an election available to it under Section 172(b)(3) of
the Code or a comparable provision of any state tax law, ShopKo shall be
entitled to any and all tax refunds, whether received by ShopKo or ProVantage,
that result from a ProVantage Carryback.
(h) Tax Claim Notices by ProVantage. Promptly after receipt by
-------------------------------
ProVantage of a written notice of any demand, claim or circumstance which, after
the lapse of time, would or might give rise to a claim or commencement of any
action, proceeding or investigation with respect to which indemnity or payment
may be sought under Section 3(a) or Section 3(f) hereof (an "Asserted Tax
Liability"), ProVantage shall give written notice thereof to ShopKo (the "Tax
Claim Notice"). The Tax Claim Notice shall contain factual information (to the
extent known to ProVantage) describing in reasonable detail the Asserted Tax
Liability and shall include copies of any notice or other document received from
any taxing authority in respect of such Asserted Tax Liability. If ProVantage
fails to give ShopKo prompt notice of an Asserted Tax Liability as required by
this Section 3(h), and if such failure results in a detriment to ShopKo, then
any amount which ShopKo is otherwise required to pay ProVantage pursuant to
Section 3(a) or Section 3(f) hereof with respect to such Asserted Tax Liability
shall be reduced by the amount of such detriment.
(i) Tax Adjustment Notices by ShopKo. ShopKo shall give ProVantage
--------------------------------
prompt notice of each item of adjustment proposed by a taxing authority for any
tax period ending on or before the Distribution Date which relates to ProVantage
(a "Tax Adjustment Notice"). A Tax Adjustment Notice shall contain factual
information (to the extent known to ShopKo) describing in reasonable detail the
proposed adjustment and
-5-
<PAGE>
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, compromise, or contest at its
own expense and in its sole discretion such Asserted Tax
-6-
<PAGE>
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
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,
-7-
<PAGE>
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 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
-8-
<PAGE>
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.
-------
(a) Assignment. Neither party may assign any of its rights or
----------
delegate any of its duties or obligations under this Agreement without the other
party's consent. Any attempted assignment or delegation of any rights, duties,
or obligations in violation of this Section 5(a) shall be void and without
effect.
-9-
<PAGE>
(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, 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.
-10-
<PAGE>
(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.
-11-
<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 99.(d)(5)
AMENDMENT
This AMENDMENT is made as of the 4th day of May, 2000 and amends the Lease
Agreement entered into as of the 1st 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
-i-
<PAGE>
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 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
-ii-
<PAGE>
to exercise its option to purchase the Premises. If Lessee timely
notifies Lessor that it is exercising the option hereunder, the
parties shall 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,
-iii-
<PAGE>
Lessee shall remain fully and directly responsible for all
covenants and obligations hereunder during the entire Lease Term.
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.
-iv-
<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
-v-
<PAGE>
EXHIBIT 99.(d)(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
-3-
<PAGE>
EXHIBIT 99.(d)(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 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. Definitions. For the purpose of this Agreement, the
-----------
1
<PAGE>
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
2
<PAGE>
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.
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
3
<PAGE>
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 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
4
<PAGE>
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.
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.
5
<PAGE>
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 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
6
<PAGE>
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.
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.
7
<PAGE>
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.
----------------------------------------------------------
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
8
<PAGE>
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 to and abiding by the restrictions set forth in this Section
9 is equal
9
<PAGE>
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.
(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
10
<PAGE>
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
11
<PAGE>
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 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]
12
<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
13
<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.
14
<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:_______________________
15
<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
- -------------------------------------------------------------------------------------------------------------------
Effect of Termination of Employment:
-----------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
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 options are exercisable for 3 months from termination of
death, separation or retirement) during the employment date (but not later than the Expiration Date)
period beginning on the 5th Anniversary and ending
on the Expiration Date
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
EXHIBIT 99.(d)(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 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. Definitions. For the purpose of this Agreement, the
-----------
1
<PAGE>
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
2
<PAGE>
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.
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
3
<PAGE>
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 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
4
<PAGE>
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.
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.
5
<PAGE>
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 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
6
<PAGE>
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.
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.
7
<PAGE>
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.
----------------------------------------------------------
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
8
<PAGE>
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 to and abiding by the restrictions set forth in this Section
9 is equal
9
<PAGE>
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.
(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
10
<PAGE>
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
11
<PAGE>
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 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]
12
<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
13
<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.
14
<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:_______________________
15
<PAGE>
Exhibit B to Employment Agreement
Option Terms
------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<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>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<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
Employment Agreement). date
- ---------------------------------------------------------------------------------------------------------
By the Company without Cause (other than death) or by Options to purchase a number of shares equal
the Executive for "Good Reason" (as defined in the to the product (rounded to the nearest whole
Employment Agreement) during the 2-year period number) of (a) the total number of shares
beginning on the date of grant. subject to the option multiplied 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
- ---------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C>
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
- ---------------------------------------------------------------------------------------------------------
By the Company without cause (other than death or options are exercisable for the following
disability) during the period beginning on the 2nd period, whichever is longer: (a) 3 months from
anniversary of grant date and ending on the 5th the termination 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
by the Company for disability, in each case during termination of 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
Merck Stock Plan) during the period beginning on the termination of employment date (but not later
5th Anniversary and ending on the Expiration Date than the Expiration Date)
- ---------------------------------------------------------------------------------------------------------
By the Executive due to retirement at or after age 55 options are exercisable until the Expiration
with at least 7 years of employment with Merck-Medco Date
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
death, separation or retirement) during the period termination of employment date (but not later
beginning on the 5th Anniversary and ending on the than the Expiration Date)
Expiration Date
- ---------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
EXHIBIT 99.(d)(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 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. Definitions. For the purpose of this Agreement, the
-----------
1
<PAGE>
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
2
<PAGE>
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.
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
3
<PAGE>
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 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
4
<PAGE>
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.
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.
5
<PAGE>
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 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
6
<PAGE>
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.
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.
7
<PAGE>
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.
----------------------------------------------------------
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
8
<PAGE>
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 to and abiding by the restrictions set forth in this Section
9 is equal
9
<PAGE>
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.
(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
10
<PAGE>
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
--------------------------
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
11
<PAGE>
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 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]
12
<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
13
<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.
14
<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:_______________________
15
<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
Employment Agreement). date
- ---------------------------------------------------------------------------------------------------------
By the Company without Cause (other than death) or by Options to purchase a number of shares equal
the Executive for "Good Reason" (as defined in the to the product (rounded to the nearest whole
Employment Agreement) during the 2-year period number) of (a) the total number of shares
beginning on the date of grant. subject to the option multiplied 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
- ---------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------
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
Good Reason) during the 2-year period beginning on date
date of grant
- ---------------------------------------------------------------------------------------------------------
By the Company without cause (other than death or options are exercisable for the following
disability) during the period beginning on the 2nd period, whichever is longer: (a) 3 months
anniversary of grant date and ending on the 5th from the termination of employment date or (b)
anniversary of grant date 5th anniversary of grant date
- ---------------------------------------------------------------------------------------------------------
By the Executive for any reason (other than death) or options are exercisable for 3 months from
by the Company for disability, in each case during termination of 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
Merck Stock Plan) during the period beginning on the termination of employment date (but not later
5th Anniversary and ending on the Expiration Date than the Expiration Date)
- ---------------------------------------------------------------------------------------------------------
By the Executive due to retirement at or after age 55 options are exercisable until the Expiration
with at least 7 years of employment with Merck-Medco Date
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
death, separation or retirement) during the period termination of employment date (but not later
beginning on the 5th Anniversary and ending on the than the Expiration Date)
Expiration Date
- ---------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
EXHIBIT 99.(d)(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 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:
1. Definitions. For the purpose of this Agreement, the
-----------
1
<PAGE>
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
2
<PAGE>
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. 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
3
<PAGE>
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 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
4
<PAGE>
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.
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.
5
<PAGE>
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 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
6
<PAGE>
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);
(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
7
<PAGE>
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).
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
8
<PAGE>
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 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
--------------------------------------
9
<PAGE>
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 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:
10
<PAGE>
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 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
-----------------
11
<PAGE>
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 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
-----
12
<PAGE>
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 4, 2000 /s/ Richard T. Clark
---------------------------------
By: Richard T. Clark
Its: President
DATE: May 4, 2000 /s/ Jeffrey A. Jones
---------------------------------
Jeffrey A. Jones
13
<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 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.
14
<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,
______________________
Jeffrey A. Jones
Agreed to and accepted this ___
day of _________, 2000
Merck-Medco Managed Care, L.L.C.
By:________________________
Name:______________________
Title:_______________________
15
<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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
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
- -------------------------------------------------------------------------------------------------------------------
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>
17
<PAGE>
EXHIBIT 99.(d)(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 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. Definitions. For the purpose of this Agreement, the
-----------
1
<PAGE>
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
2
<PAGE>
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.
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
3
<PAGE>
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
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
4
<PAGE>
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.
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.
5
<PAGE>
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 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
6
<PAGE>
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.
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.
7
<PAGE>
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.
----------------------------------------------------------
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
8
<PAGE>
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 to and abiding by the restrictions set forth in this Section
9 is equal
9
<PAGE>
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.
(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
10
<PAGE>
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
11
<PAGE>
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 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]
12
<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/ Glen Laschober
--------------------------------
Glen Laschober
13
<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.
14
<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:_______________________
15
<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
Employment Agreement). date
- ---------------------------------------------------------------------------------------------------------
By the Company without Cause (other than death) or by Options to purchase a number of shares equal
the Executive for "Good Reason" (as defined in the to the product (rounded to the nearest whole
Employment Agreement) during the 2-year period number) of (a) the total number of shares
beginning on the date of grant. subject to the option multiplied 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
- ---------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------
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
Good Reason) during the 2-year period beginning on date
date of grant
- ---------------------------------------------------------------------------------------------------------
By the Company without cause (other than death or options are exercisable for the following
disability) during the period beginning on the 2nd period, whichever is longer: (a) 3 months from
anniversary of grant date and ending on the 5th the termination 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
by the Company for disability, in each case during termination of 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
Merck Stock Plan) during the period beginning on the termination of employment date (but not later
5th Anniversary and ending on the Expiration Date than the Expiration Date)
- ---------------------------------------------------------------------------------------------------------
By the Executive due to retirement at or after age 55 options are exercisable until the Expiration
with at least 7 years of employment with Merck-Medco Date
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
death, separation or retirement) during the period termination of employment date (but not later
beginning on the 5th Anniversary and ending on the than the Expiration Date)
Expiration Date
- ---------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
EXHIBIT 99.(d)(12)
CONFIDENTIALITY AGREEMENT
-------------------------
THIS CONFIDENTIALITY AGREEMENT (this "Agreement") is made as of this 8th
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 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 or demonstrations 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.
-----------------------------------
<PAGE>
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
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 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
2
<PAGE>
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 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 law, 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. LRGALLY 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.
3
<PAGE>
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 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.
4
<PAGE>
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.
5
<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
------------------------------------------
6
