-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GncOt3ABSnTys8q5mbcmTLSi1YhavndbH4DAr14KGoxdpQdzyxgu67QJyHCsO5j6 6TP4cg2p3oR/3kP3RUzrIQ== 0000898430-00-001480.txt : 20000511 0000898430-00-001480.hdr.sgml : 20000511 ACCESSION NUMBER: 0000898430-00-001480 CONFORMED SUBMISSION TYPE: SC TO-T PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 20000510 GROUP MEMBERS: MERCK & CO INC GROUP MEMBERS: PV ACQUISITION CORP. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PROVANTAGE HEALTH SERVICES INC CENTRAL INDEX KEY: 0001072471 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 541508848 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: SC TO-T SEC ACT: SEC FILE NUMBER: 005-58191 FILM NUMBER: 625045 BUSINESS ADDRESS: STREET 1: 13555 BISHOPS COURT STREET 2: SUITE 201 CITY: BROOKFIELD STATE: WI ZIP: 53005 BUSINESS PHONE: 4147844600 MAIL ADDRESS: STREET 1: 13555 BISHOPS COURT STREET 2: SUITE 201 CITY: BROOKFIELD STATE: WI ZIP: 53005 FORMER COMPANY: FORMER CONFORMED NAME: PROVANTAGE INC DATE OF NAME CHANGE: 19981021 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MERCK & CO INC CENTRAL INDEX KEY: 0000064978 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221109110 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T BUSINESS ADDRESS: STREET 1: ONE MERCK DR STREET 2: P O BOX 100 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 BUSINESS PHONE: 9084234044 MAIL ADDRESS: STREET 1: ONE MERCK DR STREET 2: PO BOX 100 WS3AB-05 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 SC TO-T 1 SCHEDULE TO 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"), 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. (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. 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. (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. 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 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. (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. EX-99.(A)(1)(A) 2 OFFER TO PURCHASE DATED MAY 10, 2000 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 TABLE OF CONTENTS
Section Page ------- ---- 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
2 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 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 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." 5 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. 6 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." 7 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. 8 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 9 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 10 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 11 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 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 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 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 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. 16 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.
High Low ------ ------ 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
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 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 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)
Fiscal Years (52 Weeks) Ended ----------------------------------- January 29, January 30, January 31, 2000 1999 1998 ----------- ----------- ----------- 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 At ----------------------------------- January 29, January 30, January 31, 2000 1999 1998 ----------- ----------- ----------- 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
19 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)
Fiscal Years (52 Weeks) Ending ----------------------------------------------- January 25, January 26, January 27, January 29, 2003 2002 2001* 2000** ----------- ----------- ----------- ----------- 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
- -------- * 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 20 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 21 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. 22 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. 23 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, 24 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 25 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." 26 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 27 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 28 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 29 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. 30 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 31 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 32 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. 33 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"; 34 (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." 35 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. 36 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. 37 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 38 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. 39 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, 40 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"; 41 (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. 42 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 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 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 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 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
Present Principal Occupation or Employment with Parent; Material Positions Held During the Name and Age Past Five Years ------------ ---------------------------------------------- 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.
47
Present Principal Occupation or Employment with Parent; Material Positions Held During the Past Name and Age Five Years ------------ ------------------------------------------------ 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.
48
Present Principal Occupation or Employment with Parent; Material Positions Held During the Past Name and Age Five Years ------------ ------------------------------------------------ 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.
49
Present Principal Occupation or Employment with Parent; Material Positions Held During the Past Name and Age Five Years ------------ ------------------------------------------------ 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.
50
Present Principal Occupation or Employment with Parent; Material Positions Held During the Past Name and Age Five Years ------------ ------------------------------------------------ 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.
MERCK-MEDCO
Present Principal Occupation or Employment with Merck-Medco; Material Positions Held During the Past Five Years ----------------------------------------------- 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.
OFFEROR
Present Principal Occupation or Employment with Offeror; Material Positions Held During the Name and Age Past Five Years ------------ ---------------------------------------------- Jon Filderman (42).......... Sole Director, Vice President and Assistant Secretary of Offeror since May 2000. Assistant Counsel to Parent since 1995.
51
Present Principal Occupation or Employment with Offeror; Material Positions Held During the Past Name and Age Five Years ------------ ------------------------------------------------ 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.
52 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. 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
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 EX-99.(A)(1)(B) 3 LETTER OF TRANSMITTAL 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.
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
By Facsimile Transmission: (651) 450-4163 To Confirm Receipt of Notice of Guaranteed Delivery: (651) 450-4110 --------------- DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------------------------- 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** - --------------------------------------------------------------------------------------------------- ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ 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. - ---------------------------------------------------------------------------------------------------
IF CERTIFICATES HAVE BEEN LOST OR DESTROYED, SEE INSTRUCTION 11. 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 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 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 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 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 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 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 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 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 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 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 EX-99.(A)(1)(C) 4 NOTICE OF GUARANTEED DELIVERY 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. 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
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. 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. 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: ___________________________
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 EX-99.(A)(1)(D) 5 LETTER FROM JP MORGAN & CO. AS DEALER MGR. 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. 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 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 EX-99.(A)(1)(E) 6 LETTER TO CLIENTS 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. 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 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 EX-99.(A)(1)(F) 7 GUIDELINES FOR CERTIFICATION OF TAXPAYER 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. - ---------------------------------------------
Give the For this type of account: SOCIAL SECURITY number of-- - --------------------------------------------- 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 - ---------------------------------------------
- --------------------------------------------- Give the EMPLOYER For this type of account: IDENTIFICATION number of-- - --------------------------------------------- 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 - ----------------------------------------------
(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. 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 EX-99.(A)(1)(G) 8 JOINT PRESS RELEASE ISSUED BY PARENT & THE CO. 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- "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- 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. ### EX-99.(A)(1)(H) 9 PRESS RELEASE ISSUED BY PARENT ON 5/11/2000 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 - 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. ------------------ ### EX-99.(D)(1) 10 AGREEMENT & PLAN OF MERGER 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 ============================================== TABLE OF CONTENTS
Page ---- 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
-i- 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
- ii - 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- "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- 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- 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 -4- 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. -5- 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 -6- 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. -7- (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- 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. -9- ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY Except as set forth in the disclosure schedule of Parent and Merger Subsidiary hereto (the "Parent Disclosure Schedule"), Parent and Merger Subsidiary represent and warrant to the Company as follows: Section 3.01. Corporate Existence and Power. Each of Parent and ----------------------------- Merger Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power to carry on its business as it is now being conducted. Each of Parent and Merger Subsidiary is duly qualified to do business as a foreign corporation, and is in good standing in each jurisdiction where the character of its properties owned or leased or the nature of its activities makes such qualification necessary, except for those jurisdictions where the failure to be so qualified would not or reasonably be expected to materially delay or materially impair the ability of Parent or Merger Subsidiary to perform their obligations under this Agreement or to consummate the transactions contemplated by this Agreement (a "Parent Material Adverse Effect"). Merger Subsidiary is a wholly-owned subsidiary of Parent. Section 3.02. Corporate Authority. Each of Parent and Merger ------------------- Subsidiary has the requisite corporate power and authority to execute and deliver this Agreement and the Stockholder Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Parent and Merger Subsidiary of this Agreement and the Stockholder Agreement, and the consummation by Parent and Merger Subsidiary of the transactions contemplated hereby and thereby, have been duly authorized by their respective Board of Directors and the sole stockholder of Merger Subsidiary, and no other corporate action on the part of Parent or Merger Subsidiary is necessary to authorize the execution and delivery of this Agreement and the Stockholder Agreement and the consummation by each of Parent and Merger Subsidiary of the transactions contemplated hereby (including the Offer) and thereby. Each of this Agreement and the Stockholder Agreement has been duly executed and delivered by each of Parent and Merger Subsidiary and constitutes a valid and binding agreement of each of Parent and Merger Subsidiary, enforceable against each of Parent and Merger Subsidiary in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally. -10- Section 3.03. Governmental Authorization. No consent, approval, order or -------------------------- authorization of, or registration, declaration or filing with, any federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign (a "Governmental Entity") is required by Parent or Merger Subsidiary in connection with the execution and delivery of this Agreement and the Stockholder Agreement by Parent or Merger Subsidiary or the consummation by Parent and Merger Subsidiary of the transactions contemplated by this Agreement and the Stockholder Agreement, except for (a) the filing of a premerger notification and report form by Parent under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (b) requirements under the Exchange Act; (c) the filing of the Certificate of Merger pursuant to the DGCL and appropriate documents with the relevant authorities of other states in which Parent or any of its subsidiaries is qualified to do business; and (d) such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not, individually or in the aggregate, have or reasonably be expected to have a Parent Material Adverse Effect. Section 3.04. Non-contravention. The execution, delivery and ----------------- performance by Parent and Merger Subsidiary of this Agreement and the Stockholder Agreement and the consummation by Parent and Merger Subsidiary of the transactions contemplated hereby and thereby do not and will not (with or without notice, lapse of time or both) (a) contravene or conflict with the certificate of incorporation or bylaws or other equivalent organizational document, in each case as amended, of Parent or any of its subsidiaries; (b) assuming compliance with the matters referred to in Section 3.03, contravene or conflict with or constitute a violation of any provision of any federal, state, foreign or local law, regulation, judgment, injunction, order or decree binding upon or applicable to Parent or any of its subsidiaries; (c) constitute a default under or give rise to a right of termination, cancellation or acceleration of any obligation of Parent or any of its subsidiaries or require consent of any third party or to a loss of a material benefit to which Parent or any of its subsidiaries is entitled under any provision of any agreement, contract or other instrument binding upon Parent or any of its subsidiaries or any license, franchise, permit or other similar authorization held by Parent or any of its subsidiaries; or (d) result in the creation or imposition of any Lien on any asset of Parent or any of its subsidiaries, other than, in the case of clauses (b), (c) and (d), any such conflict violation, default, right, loss or Lien that, individually or in the aggregate, would not reasonably be expected to have a Parent Material Adverse Effect. Section 3.05. Offer Documents; Proxy Statement; Schedule 14D-9. ------------------------------------------------ None of the Offer Documents, the Schedule TO or the State Filings nor any information supplied by Parent or Merger Subsidiary for inclusion in the Schedule 14D-9 will, at the time the Offer Documents, the Schedule TO, the State Filings, the Schedule 14D-9 or any amendments or supplements thereto, are filed with the SEC or any applicable state authority or are first published, sent or given to stockholders of the Company, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading. The information supplied by Parent and Merger Subsidiary for inclusion in the letter to stockholders, notice of meeting, proxy statement and form of proxy, or the information statement, as the case may be, to be distributed to stockholders in connection with the Merger, or any schedule required to be filed with the SEC in connection therewith (collectively, the "Proxy Statement"), will not, on the date the Proxy Statement (or any amendment or supplement thereto) -11- 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 -12- 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 -13- 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 -14- 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 -15- 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 -16- 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). -17- (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 -18- 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. -19- 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. -20- (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; -21- (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. -22- 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 -23- 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 -24- 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) -25- 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 -26- 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 -27- 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 -28- 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 -29- 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 -30- 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 -31- 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 -32- 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 -33- 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 -34- 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. -35- 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). -36- 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: -37- (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. -38- 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- 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- 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 -2- 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- EX-99.(D)(2) 11 STOCKHOLDER AGREEMENT 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 (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- 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- 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- 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- 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- 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- 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- 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- 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- SCHEDULE 1 ----------
Number Number of of Total Shares Stock Options Voting Securities - ------ ------------- ----------------- 11,710,000 0 11,710,000
-11- EX-99.(D)(3) 12 SIDE LETTER 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 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- 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- 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- 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- 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- 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- 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- 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. -ix- 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- EX-99.(D)(4) 13 AMENDED & RESTATED TAX MATTERS AGREEMENT 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 (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- 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- 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- 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- 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- 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- 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- 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- (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- (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- 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 EX-99.(D)(5) 14 LEASE AGREEMENT 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- 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- 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- 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- 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- EX-99.(D)(6) 15 FIRST AMENDMENT TO RIGHTS AGREEMENT 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 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- 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- EX-99.(D)(7) 16 EMPLOYMENT AGREEMENT - MATHEW ZIRPOLI 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 Exhibit B to Employment Agreement Option Terms ------------ - ---------------------------------------------------------------------------------------------------------- Option Type: Non-qualified stock option - ------------------------------------------------------------------------------------------------------------------- Term: 10 years from date of grant (the "Expiration Date") - ------------------------------------------------------------------------------------------------------------------- Vesting Date: Earlier of date of death and 2nd anniversary of grant date, provided the Executive is an employee of Merck-Medco on the applicable date - ------------------------------------------------------------------------------------------------------------------- Exercise Price: Fair market value on date of grant - ------------------------------------------------------------------------------------------------------------------- Effect of termination of Employment: see chart below - ------------------------------------------------------------------------------------------------------------------- Effect of Termination of Employment: -----------------------------------
- ------------------------------------------------------------------------------------------------------------------- Due to death options are exercisable by the estate for 3 years from date of death (but not later than the Expiration Date) - ------------------------------------------------------------------------------------------------------------------- By the Company for "Cause" (as defined 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 - -------------------------------------------------------------------------------------------------------------------
16 - ------------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------------
17 EX-99.(D)(8) 17 EMPLOYMENT AGREEMENT - PETER HOFFMAN 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 Exhibit B to Employment Agreement Option Terms ------------
- --------------------------------------------------------------------------------------------------------- Option Type: Non-qualified stock option - --------------------------------------------------------------------------------------------------------- Term: 10 years from date of grant (the "Expiration Date") - --------------------------------------------------------------------------------------------------------- Vesting Date: Earlier of date of death and 2nd anniversary of grant date, provided the Executive is an employee of Merck-Medco on the applicable date - --------------------------------------------------------------------------------------------------------- Exercise Price: Fair market value on date of grant - --------------------------------------------------------------------------------------------------------- Effect of termination of Employment: see chart below - ---------------------------------------------------------------------------------------------------------
Effect of Termination of Employment: -----------------------------------
- --------------------------------------------------------------------------------------------------------- Due to death options are exercisable by the estate for 3 years from date of death (but not later than the Expiration Date) - --------------------------------------------------------------------------------------------------------- By the Company for "Cause" (as defined 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 - ---------------------------------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------
17 EX-99.(D)(9) 18 EMPLOYMENT AGREEMENT - JOSEPH A. COFFINI 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 Exhibit B to Employment Agreement Option Terms ------------ - --------------------------------------------------------------------------------------------------------- Option Type: Non-qualified stock option - --------------------------------------------------------------------------------------------------------- Term: 10 years from date of grant (the "Expiration Date") - --------------------------------------------------------------------------------------------------------- Vesting Date: Earlier of date of death and 2nd anniversary of grant date, provided the Executive is an employee of Merck-Medco on the applicable date - --------------------------------------------------------------------------------------------------------- Exercise Price: Fair market value on date of grant - --------------------------------------------------------------------------------------------------------- Effect of termination of Employment: see chart below - ---------------------------------------------------------------------------------------------------------
Effect of Termination of Employment: ----------------------------------- - --------------------------------------------------------------------------------------------------------- Due to death options are exercisable by the estate for 3 years from date of death (but not later than the Expiration Date) - --------------------------------------------------------------------------------------------------------- By the Company for "Cause" (as defined 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 - ---------------------------------------------------------------------------------------------------------
16 - --------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------
17 EX-99.(D)(10) 19 EMPLOYMENT AGREEMENT - JEFFREY A. JONES 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 Exhibit B to Employment Agreement Option Terms ------------ - -------------------------------------------------------------------------------------------------- Option Type: Non-qualified stock option - -------------------------------------------------------------------------------------------------- Term: 10 years from date of grant (the "Expiration Date") - -------------------------------------------------------------------------------------------------- Vesting Date: Earlier of date of death and 2nd anniversary of grant date, provided the Executive is an employee of Merck-Medco on the applicable date - -------------------------------------------------------------------------------------------------- Exercise Price: Fair market value on date of grant - -------------------------------------------------------------------------------------------------- Effect of termination of Employment: see chart below - --------------------------------------------------------------------------------------------------
Effect of Termination of Employment: ----------------------------------- - ------------------------------------------------------------------------------------------------------------------ Due to death options are exercisable by the estate for 3 years from date of death (but not later than the Expiration Date) - ------------------------------------------------------------------------------------------------------------------- By the Company for "Cause" (as defined 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 - -------------------------------------------------------------------------------------------------------------------
16 - ------------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------------
17 EX-99.(D)(11) 20 EMPLOYMENT AGREEMENT - GLEN LASCHOBER 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 Exhibit B to Employment Agreement Option Terms ------------ - --------------------------------------------------------------------------------------------------------- Option Type: Non-qualified stock option - --------------------------------------------------------------------------------------------------------- Term: 10 years from date of grant (the "Expiration Date") - --------------------------------------------------------------------------------------------------------- Vesting Date: Earlier of date of death and 2nd anniversary of grant date, provided the Executive is an employee of Merck-Medco on the applicable date - --------------------------------------------------------------------------------------------------------- Exercise Price: Fair market value on date of grant - --------------------------------------------------------------------------------------------------------- Effect of termination of Employment: see chart below - ---------------------------------------------------------------------------------------------------------
Effect of Termination of Employment: ----------------------------------- - --------------------------------------------------------------------------------------------------------- Due to death options are exercisable by the estate for 3 years from date of death (but not later than the Expiration Date) - --------------------------------------------------------------------------------------------------------- By the Company for "Cause" (as defined 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 - ---------------------------------------------------------------------------------------------------------
16 - --------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------
17 EX-99.(D)(12) 21 CONFIDENTIALITY AGMT. WITH THE COMPANY 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. ----------------------------------- 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 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 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----