EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT ("Agreement"), dated as of March 17, 2003, is
entered into by and between Medco Health Solutions, Inc. ("Medco Health"), a
Delaware corporation with offices at 000 Xxxxxxx Xxxx Xxxxx, Xxxxxxxx Xxxxx, Xxx
Xxxxxx 00000 and Xxxxx X. Xxxx, Xx. ("the Executive"). Medco Health is currently
a wholly owned subsidiary of Merck & Co., Inc. ("Merck"). Merck has publicly
announced its intention to establish Medco Health as a separate, public company
in mid-2003, subject to market conditions.
1. Employment. Medco Health hereby agrees to employ the Executive during
the Employment Period subject to the terms of this Agreement, and, provided that
this Agreement has not terminated prior to March 31, 2008, thereafter as an
employee-at-will. Unless prevented by sickness or disability, the Executive
shall use his best and most diligent efforts to promote the interests of Medco
Health 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 Medco Health's Board of Directors, engage in any other
business activity that would interfere with the performance of his duties,
services and responsibilities hereunder or that is in violation of policies
established by Medco Health; provided, however, that this Agreement shall not be
interpreted as prohibiting the Executive from managing his personal affairs or
engaging in charitable or civic activities. For purposes of this Agreement,
"Employment Period" shall mean a period commencing on March 31, 2003 and ending
on the sooner of March 31, 2008 or the date on which this Agreement is
terminated under paragraph 10 below.
2. Title. Upon his commencement of employment at Medco Health, the
Executive's title shall be Chief Executive Officer and President, and he shall
be a member of Medco Health's Board of Directors ("the Board of Directors"). The
Executive shall report to the Board of Directors as it may be constituted from
time to time. Within three months following the commencement of his employment
with Medco Health, the Executive shall also be appointed Chairman of the Board
of Directors and shall continue to report to the Board of Directors. The
Executive shall have powers, responsibilities and authorities of Chief Executive
Officer, President, Director and, upon being so named, of Chairman of the Board
of Directors, as established by custom and practice, or as otherwise determined
by the Board of Directors.
3. Compensation. As compensation for the Executive's services under this
Agreement, Medco Health shall pay the Executive a base salary at the rate of
$800,000 per year, payable in equal installments in accordance with Medco
Health's practice. Beginning in the first quarter of 2004, the Executive's base
salary then in effect and other components of compensation shall be reviewed
and, if appropriate, revised by the Board of Directors no less frequently than
annually, provided that the Executive's annual base salary shall not be less
than $800,000 during the Employment Period. The Executive shall not participate
in such compensation review or revision.
4. Annual Incentive. The Executive shall be eligible to participate in
Medco Health's annual incentive bonus plan in accordance with its terms and
conditions. During the
1
Employment Period, the target amount of such bonus shall be 100 percent of the
Executive's base salary at the end of the prior calendar year. The actual amount
of the annual bonus shall be determined by the Board of Directors considering
Medco Health's and the Executive's performance. For award year 2003, the
Executive shall be eligible for a bonus payable in or around March 2004. The
Executive shall not participate in deliberations or determinations of the Board
of Directors concerning his bonus.
5. Long-Term Incentives. The Executive shall be eligible to receive annual
long-term incentives. The first such long-term incentives shall be provided to
the Executive in the first quarter of 2004. In the first quarter of 2004, the
target aggregate economic value of all long-term incentives provided to the
Executive shall be $4,800,000 (600% of the Executive's starting base salary of
$800,000). By way of example, if only a nonqualified stock option is to be
granted, the number of shares subject to such option is determined by dividing
the $4,800,000 by the Black-Scholes value of a nonqualified stock option for one
share of Medco Health stock. Such Black-Scholes value shall be determined using
the standard valuation methodology, based on the maximum term of the option
award. The resulting number of shares shall then become the target number of
shares to be used in determining future stock option grants or other long-term
incentives. By way of example, if the Board of Directors implements an alternate
long-term incentive plan to replace 25% of the stock option value, the
alternative long-term incentive must have an economic value at grant that is
approximately equivalent in value to the forgone stock options. In determining
the economic equivalent value of forgone stock options, such value shall be
determined based on reported value for financial disclosure purposes and, to the
extent such awards are granted to other senior executives, in accordance with
the valuation procedures used to determine awards for such individuals. The date
such long-term incentives are granted shall generally be the same as the date
long-term incentives are granted to other senior executives of Medco Health. The
form, amount and grant date of any long-term incentives shall be determined by
the Board of Directors. The Executive shall not participate in such
determination.
6. Equity-Based Awards upon the Earlier of IPO or Spin-Off. Upon the
effective date of the earlier of the (i) initial public offering of Medco Health
("IPO") or (ii) the complete distribution to its stockholders by Merck of the
shares of Medco Health ("Spin-Off"), the Executive shall be granted:
(a) a nonqualified stock option for the number of shares of Medco Health
determined by dividing $5,000,000 by the Black-Scholes value of a
nonqualified stock option for one share of Medco Health stock on the
grant date at the exercise price set on the grant date. For such
purposes, Black-Scholes value shall be determined using the full term
of the option award and the average stock price volatility of selected
industry peers; and
(b) a grant of restricted stock units for the number of shares of Medco
Health determined by dividing $2,500,000 by the stock price of Medco
Health shares on the day of the grant.
If the grants are made upon the effective date of the IPO, the per share
option exercise price and the stock price used to determine the restricted stock
units shall be the IPO price of
2
Medco Health common stock. If the grants are made upon the Spin-Off, the per
share option exercise price and the stock price used to determine the restricted
stock units shall be determined on such date by a method to be determined by the
Board of Directors. The Executive shall not participate in such determination.
The stock option and restricted stock units granted pursuant to this
paragraph shall vest on the third anniversary of the grant date. The stock
option and restricted stock units shall have terms as described in Attachment
"A" annexed hereto.
7. Participation in Other Benefit Plans. As an employee of Medco Health,
the Executive shall be eligible to participate in Medco Health's employee
benefit plans for its salaried employees on a basis comparable to Medco Health's
other most senior executives, including but not limited to its medical, dental,
disability, life insurance, pension and savings plans, subject to any
contribution requirements applicable to participants of such plans and programs.
The Executive shall be entitled to take five weeks of paid vacation during each
calendar year.
8. Other Benefits.
(a) Medco Health shall pay for the cost of personal financial
planning to the Executive by a financial counselor of the
Executive's choice, provided that the cost to be borne by Medco
Health shall not exceed $15,000 in 2003 and $10,000 in subsequent
years of the Employment Period.
(b) During the Employment Period, Medco Health shall pay the
Executive a monthly automobile allowance of $1,885.
(c) Upon submission of itemized invoices indicating time and charges,
Medco Health shall reimburse the Executive for reasonable
attorneys' fees up to $25,000 incurred in the drafting,
negotiation and execution of this Agreement.
(d) During the Employment Period, the Executive is authorized to
incur reasonable business expenses in carrying out his duties and
responsibilities under this Agreement. Medco Health shall
reimburse him for all such reasonable business expenses subject
to and in accordance with the terms and conditions of Medco
Health's policies applicable to its other senior executives.
(e) Medco Health shall indemnify and hold harmless the Executive in
the same amount and to the same extent as its other senior
officers and directors for any action or inaction of the
Executive while serving as an officer or director of Medco Health
or any of its affiliates or, at Medco Health's request, as an
officer or director of any other entity or as a fiduciary of any
benefit plan. Medco Health shall cover the Executive under
directors and officers liability insurance both during and, while
potential liability exists, after termination of
3
employment in the same amount and to the same extent as Medco
Health covers its other senior officers and directors.
9. Full Settlement. Medco Health's obligation to make the payments or grant
the benefits provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which Medco Health may have
against the Executive or others, except as otherwise provided in this Agreement.
In no event shall the Executive be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable or benefits granted
to the Executive under any of the provisions of this Agreement and such amounts
or benefits shall not be reduced because the Executive obtains other employment,
except as otherwise provided in this Agreement, except that any continued
healthcare benefits provided for in subparagraphs 10(b) and 10(c) shall be
secondary to any coverage provided to the Executive and his spouse and eligible
dependents by any such other employment.
10. Termination.
(a) By Medco Health for Cause. Upon written notice to the Executive
specifying the basis for such action, Medco Health may discharge
the Executive and terminate this Agreement for Cause. As used in
this paragraph, "Cause" shall exist only if, after reasonable
investigation, a majority of the Board of Directors (excluding
the Executive), after providing the Executive (and his counsel,
if he so chooses) a reasonable opportunity to be heard, finds
that one or more of the following conditions exists: (i) an act
or acts of personal dishonesty or misrepresentation made by the
Executive and intended to result in substantial personal
enrichment of the Executive at the expense of Medco Health; (ii)
demonstrably willful and deliberate violations by the Executive
of the Executive's obligations under this Agreement; (iii) the
Executive's gross neglect (other than any such failure resulting
from incapacity due to physical or mental illness) or gross
misconduct in carrying out his duties resulting, in either case,
in material economic harm to Medco Health; (iv) the conviction
of, or plea of nolo contendere by, the Executive of a felony.
Upon Medco Health's termination of this Agreement for Cause: the
Executive shall forfeit any remaining equity awards granted under
paragraphs 5 and 6 hereof (whether or not = vested) have not yet
been paid, been exercised or become unrestricted (as applicable)
as of the date of such termination; Medco Health shall have no
obligation to provide severance or separation pay to the
Executive; and Medco Health shall be relieved, as of the
effective date of the termination, from any further salary or
compensation payments to the Executive other than the payment of
accrued or vested benefits. For purposes of the foregoing
sentence, the annual bonus described in paragraph 4, and equity
and incentive awards described in paragraphs 5 and 6, shall not
be deemed accrued or vested benefits.
4
(b) By Medco Health without Cause or by Reason of Disability or by
the Executive for Good Reason. Medco Health on written notice to
the Executive may discharge the Executive and terminate this
Agreement without Cause at any time during the Employment Period.
Medco Health on written notice to the Executive may discharge the
Executive and terminate this Agreement at any time during the
Employment Period by reason of Disability which, for purposes of
this Agreement, means the failure of the Executive to carry out
substantially and effectively Executive's duties and
responsibilities hereunder for a period in excess of eight
consecutive weeks or twelve weeks in any six-month consecutive
period. The Executive may terminate this Agreement during the
Employment Period upon written notice to Medco Health, for Good
Reason which, for purposes of this paragraph, will arise only (i)
if Medco Health fails to appoint the Executive as Chairman of the
Board of Directors within three months after his employment by
Medco Health has commenced, provided that such notice must be
received by Medco Health's Board of Directors no later than 120
days after such employment has commenced, (ii) if Medco Health
has not become a separate public company by December 31, 2004,
provided that such written notice must be received by Medco
Health's Board of Directors no later than January 31, 2005, (iii)
if Medco Health takes any action that results in a substantial
and material diminution in the Executive's position, authority,
duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad
faith and which is remedied by Medco Health promptly after
receipt of written notice thereof given by the Executive, or if
the Executive is required to report to anyone other than the full
Board of Directors, provided that written notice must be received
by the Board of Directors within 30 days of such diminution or
change in reporting, whichever is applicable, or (iv) if Medco
Health fails to comply with and satisfy paragraph 15 of this
Agreement, provided that such written notice must be received by
the Board of Directors within 60 days of such initial failure or
noncompliance. Upon termination of this Agreement during the
Employment Period either by Medco Health without Cause or by
reason of Disability or by the Executive for Good Reason (as
described above), Medco Health shall be relieved of any further
salary or compensation payments to the Executive other than the
payment of accrued or vested benefits. Notwithstanding the
preceding sentence, the Executive shall also be entitled to
receive, in return for a general release and waiver of claims, a
severance payment (subject to appropriate payroll and tax
withholding and deductions) equal in amount to twice the sum (one
times the sum in the case of termination by reason of Disability)
of the Executive's current (i.e., at the time of termination)
annual base pay plus the last annual bonus he received from Medco
Health prior to such termination, and payment for 12 months by
Medco Health of the premium cost of COBRA continuation coverage
for him and his spouse and dependents who are eligible for COBRA
continuation coverage. The foregoing severance payment shall be
in lieu of any other severance payment or arrangement under any
Medco Health plan, policy or practice, and shall be paid in 24
equal monthly installments (12
5
equal monthly installments in the case of termination by reason
of Disability) beginning on the last day of the month following
the month in which the Executive's employment with Medco Health
terminated; provided, however, that upon the Executive's
post-employment substantial or material breach of any of his
obligations set forth in paragraph 11 below, or upon Medco
Health's learning after the termination of the Executive's
employment that the Executive either breached any such obligation
during the Employment Period, or engaged in conduct during the
Employment Period that would have warranted the termination of
this Agreement for Cause under paragraph 10(a) hereof, Medco
Health shall be relieved of the obligation to make any, or any
further, severance or COBRA payment or payments under this
subparagraph 10(b).
(c) By Medco Health Following a Change in Control. If within one year
of a "Change in Control" as defined in Attachment "B" annexed
hereto, the Executive's employment with Medco Health is
terminated by the Company without Cause, Medco Health shall be
relieved of any further salary or compensation payments
hereunder, except that the Executive shall be entitled to
receive, in return for a general release and waiver of claims, a
lump sum severance payment (subject to appropriate payroll and
tax withholding and deductions) equal in amount to three times
the sum of the Executive's current annual base pay plus the last
annual bonus he received from Medco Health prior to such
termination, and payment for 12 months by Medco Health of the
premium cost of COBRA continuation coverage for him and his
spouse and dependents who are eligible for COBRA continuation
coverage. The foregoing severance payment shall be in lieu of any
other severance payment or arrangement under any Medco Health
plan, policy or practice. Stock-based incentives shall be
governed by their terms. If it shall be determined that any
payment to the Executive would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code, then the
Executive shall receive a "Tax Gross-Up Payment." A Tax Gross-Up
Payment means an amount payable to the Executive such that, after
payment of excise taxes on such amount, there remains a balance
sufficient to pay the excise taxes being reimbursed.
(d) Resignation from the Board of Directors. If the Executive's
employment with Medco Health ends for any reason, and the Board
of Directors requests that the Executive resign from the Board of
Directors, the Executive agrees to resign from the Board of
Directors immediately upon receipt of such request.
(e) Continuing Obligations. The termination of this Agreement shall
not affect any of the Executive's post-employment obligations
that may arise under paragraph 11 below.
6
11. Noncompete, Nonsolicitation, Developments, Nondisparagement and
Confidentiality. In consideration for the compensation and benefits provided
pursuant to this Agreement, the Executive agrees:
(a) While the Executive is an employee of Medco Health and for a
period of two years after his employment by Medco Health
terminates, the Executive will not (as an individual, principal,
agent, employee, consultant or otherwise) for any reason without
Medco Health's prior written consent, directly or indirectly in
any territory in which Medco Health and/or any of its affiliates
does business and/or markets its products and services, engage in
activities competitive with, nor render services to any firm or
business engaged or about to become engaged in competition with,
the business of Medco Health, which includes, but is not limited
to, the following businesses: (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
all those products and services that are presently or hereafter
marketed by Medco Health, or that are in the development stage at
the time of termination of the Executive's employment at Medco
Health and are actually marketed by Medco Health and/or its 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
business whether such business is conducted through mail service,
retail pharmacy networks or other means, including but not
limited to the internet and other types of electronic
transmission; (vi) the organization and administration of retail
pharmacy networks; and (vii) any other business in which Medco
Health and/or its any of its affiliates is then engaged
(hereinafter collectively, the "Business of Medco Health"). In
addition, the Executive agrees not to have an equity interest in
any such firm or business other than a 1% or less shareholder of
a public corporation. Notwithstanding the foregoing, after the
Executive's employment by Medco Health terminates, nothing herein
shall be construed to prevent or restrict the ability of the
Executive to perform services (as an individual, principal,
agent, employee, officer, director, consultant or otherwise) for
any business or entity primarily engaged in the operation,
management, financing or marketing of health insurance or health
maintenance organizations, provided that such business or entity
is not engaged in the third party prescription drug claims
processing business or the pharmacy benefit management business.
(b) During the Executive's employment with Medco Health and for a
period of two years following the termination of his employment
with Medco Health, he will not, directly or indirectly, (i)
solicit or contact any customer or targeted potential customer of
Medco Health and/or any of its affiliates for the purpose of
offering products or services that, directly or indirectly,
compete or interfere with the Business of Medco Health and/or its
any of its affiliates, (ii) induce or attempt to induce, any
employees, agents or other consultants of Medco Health and/or its
any of its affiliates to do anything from which the
7
Executive is restricted by reason of this Agreement, (iii) offer
or aid others to offer employment to any employees, agents, or
other consultants of Medco Health and/or its any of its
affiliates, or (iv) provide services to any customer or otherwise
interfere with or disrupt any contractual or potential
contractual relationship between any customer and Medco Health
and/or any of its affiliates.
(c) The Executive agrees that, during his employment and following
the termination of his employment with Medco Health, he will not
disparage Medco Health, any of its affiliates, products,
officers, employees, former employees, representatives or agents
in any way whatsoever.
(d) All data, concepts, ideas, designs, findings, discoveries,
inventions, improvements, advances, methods, formulas, plans,
programs (computer or otherwise), practices, techniques,
developments and relationships with customers and prospective
customers relating in any way to the present and/or contemplated
products, services, or business of Medco Health (collectively
"Developments") that the Executive may conceive, make, invent or
suggest during or as a result of his employment by Medco Health,
whether acting alone or in conjunction with others, shall be the
sole and absolute property of Medco Health free of any rights of
any kind on the part of the Executive. The Executive shall
promptly make full disclosure of all Developments to Medco
Health. He agrees to do all acts and things (including, among
others, the execution and delivery of patent and copyright
applications and instruments of assignment) deemed by Medco
Health to be necessary or desirable at any time in order to
effect the full assignment to Medco Health of his rights, if any,
to such Developments.
(e) The Executive recognizes that, in connection with his employment
by Medco Health, he may learn of, and/or it may be desirable or
necessary for Medco Health to disclose to him confidential
information ("Confidential Information"). He understands that
Confidential Information is valuable and propriety to Medco
Health (or to third parties that have entrusted the Confidential
Information to Medco Health). The Executive agrees that, except
as required by his employment with Medco Health, he will not at
any time, directly or indirectly, use, publish, communicate,
describe, disseminate, or otherwise disclose Confidential
Information to any person or entity without the express prior
written consent of Medco Health. The term Confidential
Information shall include, but shall not be limited to: (i)
customer lists, lists of potential customers and details of
agreements with customers; (ii) acquisition, expansion,
marketing, financial and other business information and plans of
Medco Health; (iii) research and development; (iv) data
concerning usage of prescription drugs and any other data
compiled by Medco Health; (v) computer programs; (vi) sources of
supply; (vii) identity of specialized consultants and contractors
and Confidential Information developed by them for Medco Health;
(viii) purchasing, operating and other
8
cost data; (ix) special customer needs, cost and pricing data;
(x) employee information (including, but not limited to,
personnel, payroll, compensation and benefit data and plans); and
(xi) 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 Medco Health as Confidential Information, as well
as such information that is the subject of meetings and
discussions and not recorded. Confidential Information shall not
include such information that is generally available to the
public (other than as a result of a disclosure by the Executive)
or that is disclosed to the Executive by a third party under no
obligation to keep such information confidential.
(f) Upon the termination of the Executive's employment with Medco
Health or upon Medco Health's request, whichever is sooner, the
Executive shall immediately deliver to Medco Health all plans,
designs, listings, manuals, records, notebooks, and similar
repositories of or containing Confidential Information or other
documents and data relating to Medco Health's products, services,
or business then in the Executive's possession or control or
available from other persons receiving such documents from the
Executive, whether prepared by the Executive or others. The
Executive shall not retain any copies or abstracts of any such
documents. Upon the termination of the Executive's employment
with Medco Health, the Executive shall immediately deliver to
Medco Health all Medco Health property in his possession or
control including, but not limited to, computer(s) and office
equipment.
(g) Any substantial or material breach by the Executive of any of the
post-employment obligations set forth in this paragraph 11, shall
terminate any further post-employment obligations that Medco
Health may have relative to providing post-employment
compensation or benefits to the Executive and shall result in the
immediate expiration of any outstanding options, vested or
unvested.
12. Applicable Law. Any question as to the scope, interpretation and effect
of this Agreement will be resolved under the substantive and procedural laws of
the State of New Jersey and the United States.
13. Enforceability. All provisions and portions of this Agreement are
severable. If any provision or portion of this Agreement or the application of
any provision or portion of the Agreement shall be determined to be invalid or
unenforceable to any extent or for any reason, all other provisions and portions
of this Agreement shall remain in full force and effect and shall continue to be
enforceable to the fullest and greatest extent permitted by law.
14. No Representations. The Executive agrees that no promises, other than
the promises in this Agreement, have been made to him by or on behalf of Medco
Health. He agrees that in executing this Agreement he is not relying upon any
statement or representation, other
9
than those set forth herein, made by or on behalf of Medco Health concerning his
employment by Medco Health.
15. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of Medco Health shall not be assignable by the
Executive. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Medco Health and its successors and assigns.
(c) Medco Health shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of Medco
Health to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that Medco Health would be
required to perform it if no such succession had taken place.
16. Contingencies. This Agreement is contingent upon the successful (i.e.,
satisfactory to Medco Health) completion of both a pre-employment drug screen
and a background check of the Executive prior to March 31, 2003.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
MEDCO HEALTH SOLUTIONS, INC.
By: /s/ Xxxxxxx X. Xxxxx
---------------------------------------
Xxxxxxx X. Xxxxx
EXECUTIVE
/s/ Xxxxx X. Xxxx, Xx.
---------------------------------------------
Xxxxx X. Xxxx, Xx.
10
ATTACHMENT A
MEDCO HEALTH SOLUTIONS, INC. 2002 STOCK INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION (NQSO)
SUMMARY OF CEO GRANT TERMS
This is a summary of the terms applicable to the non-qualified stock option
granted under the Medco Health Solutions, Inc. 2002 Stock Incentive Plan (the
"Plan") pursuant to the Employment Agreement between Xxxxx X. Xxxx, Xx. and
Medco Health Solutions, Inc. (the "Employment Agreement"). Different terms may
apply to any other stock option granted under the Plan.
I. GENERAL INFORMATION
----------------------------------------------------------------------
Grant Type: NQSO
Number of Shares: [TBD]
Option Price: [TBD]
Grant Date: [TBD]
Vesting Date: 3rd Anniversary of Grant Date
Expiration Date: Day before 10th Anniversary of Grant Date
----------------------------------------------------------------------
This stock option becomes exercisable on the Vesting Date indicated in the
accompanying box. This stock option expires on its Expiration Date, which is the
day before the tenth anniversary of the Grant Date except that, if your
employment with Medco Health Solutions, Inc. ("the Company") ends for any
reason, your right to exercise this stock option will be determined according to
the terms in Section II.
II. TERMINATION OF EMPLOYMENT
A. General Rule. If your employment is terminated for any reason other than
those specified in paragraphs B-F, this stock option, if unvested, will expire
on the date your employment ends; this stock option, if vested, will expire on
the day before the same date of the third month after your employment ends, but
in no event later than the original Expiration Date.
B. Termination for Other Than Cause. If (i) you have been employed by the
Company for at least one year and (ii) prior to the Vesting Date, the Employment
Agreement is terminated by the Company for reason other than (a) Cause (as
defined in the Employment Agreement) or (b) a reason specified in paragraphs C-F
below, then a portion of this stock option will vest on the later of (1) the
first anniversary of the date your employment with the Company ends, or (2) if
the grant is made upon IPO, the date of the distribution by Merck & Co., Inc. of
the remaining shares of the Company (the "Spin-off"), but in no event later than
the original Vesting Date. The vested portion will be 1/3 for termination on any
date after the one year anniversary of the first day of the Employment Period
through the day before the first anniversary of the grant date; 2/3 for
termination on the first anniversary of the grant date through the day before
the second anniversary of the grant date; and fully vested for termination on or
after the second anniversary of the grant date. The unvested portion of this
stock option will expire on the date the Employment Agreement is terminated by
the Company. Any portion of this stock option that is vested as a result of this
paragraph, will expire, in its entirety, the day before the second anniversary
of the date the Employment Agreement is terminated by the Company. If, after the
11
Vesting Date, the Employment Agreement is terminated by the Company for reason
other than (a) Cause (as defined in the Employment Agreement) or (b) a reason
specified in paragraphs C-F below, then this stock option will expire the day
before the second anniversary of the date the Employment Agreement is
terminated, but in no event later than the original Expiration Date.
C. Retirement. If you retire from service with the Company, this stock option
will continue to become exercisable on the applicable Vesting Date and will
expire on the original Expiration Date.
D. Death. If you die, this stock option, if unvested, will vest on the later of
(i) the date of your death or (ii) if the grant is made upon IPO, the date of
the Spin-off but in no event later than the original Vesting Date. Whether
already vested on the date of your death or vested as a result of your death,
this stock option will expire the day before the third anniversary of your
death, or such earlier date as may be required under applicable non-U.S. law,
but in no event later than the day before the first anniversary of the original
Expiration Date.
X. Xxxxx Misconduct. If your employment is terminated as a result of your gross
misconduct (as determined by the Company), this stock option (to the extent
unexercised and whether vested or unvested) will expire immediately upon such
termination. For purposes of this option, gross misconduct means Cause as
defined in the Employment Agreement.
F. Change in Control. If your employment with the Company is terminated within
one year of a Change in Control (as that term is defined in the Plan), for any
reason other than resignation or one of the reasons specified in paragraphs C-E
above, this stock option, if unvested, will vest on the date of your
termination. Whether already vested on the date of your termination or vested as
a result of your termination, this stock option will expire the day before the
second anniversary of the date your employment with the Company ends, but in no
event later than the original Expiration Date.
III. POST EMPLOYMENT OBLIGATIONS.
If you substantially or materially breach any of the post-employment obligations
set forth in paragraph 11 of the Employment Agreement, this option shall expire
immediately, whether vested or unvested.
IV. TRANSFERABILITY
This stock option is not transferable and may not be assigned or otherwise
transferred except, under specific terms as determined by the Board of Directors
or its Compensation Committee of the Board, while you hold a position as an
executive officer subject to Section 16 of the Securities Exchange Act of 1934,
or within, twelve (12) months of retirement from, such Section 16 position.
This stock option is subject to the provisions of the Company's 2002 Stock
Incentive Plan and the Rules and Regulations thereunder established by the
Company's Board of
12
Directors or its Compensation Committee (except where the
terms set forth herein conflict with the Rules and Regulations, in which case
these terms shall control).
MEDCO HEALTH SOLUTIONS, INC. 2002 STOCK INCENTIVE PLAN
RESTRICTED STOCK UNIT (RSU)
SUMMARY OF CEO GRANT TERMS
This is a summary of the terms applicable to the restricted stock unit ("RSU")
granted under the Medco Health Solutions, Inc. 2002 Stock Incentive Plan (the
"Plan") pursuant to the Employment Agreement between Xxxxx X. Xxxx, Xx. and
Medco Health Solutions, Inc. (the "Employment Agreement"). Different terms may
apply to any other RSU granted under the Plan.
I. GENERAL INFORMATION
------------------------------------------------------
Grant Type: RSU
Number of Shares: [TBD]
Xxxxx Xxxxx: [TBD]
Grant Date: [TBD]
Vesting Date: 3rd Anniversary of Grant Date
------------------------------------------------------
This grant becomes payable on the Vesting Date indicated in the accompanying
box. Payment will be in shares of common stock of Medco Health Solutions, Inc.
("the Company"). If your employment with the Company ends for any reason, your
right to this grant will be determined according to the terms in Section II.
II. TERMINATION OF EMPLOYMENT
A. General Rule. If your employment is terminated for any reason other than
those specified in paragraphs B-E, this grant, if unvested, will be forfeited on
the date your employment ends.
B. Termination for Other Than Cause. If (i) you have been employed by the
Company for at least one year and (ii) prior to the Vesting Date, the Employment
Agreement is terminated by the Company for reason other than (a) Cause (as
defined in the Employment Agreement) or (b) a reason specified in paragraphs C-F
below, then a portion of this grant will vest on the later of (1) the first
anniversary of the date your employment with the Company ends, or (2) if the
grant is made upon IPO, the date of the distribution by Merck & Co., Inc. of the
remaining shares of the Company (the "Spin-off"), but in no event later than the
original Vesting Date. The vested portion will be 1/3 for termination on any
date after the one year anniversary of the first day of the Employment Period
through the day before the first anniversary of the grant date; 2/3 for
termination on the first anniversary of the grant date through the day before
the second anniversary of the grant date; and fully vested for termination on or
after the second anniversary of the grant date. The unvested portion of this
grant will be forfeited on the date the Employment Agreement is terminated by
the Company.
C. Retirement. If you retire from service with the Company, this grant will
continue to vest on the applicable Vesting Date.
14
D. Death. If you die, this grant, if unvested, will vest on the later of (i) the
date of your death or (ii) if the grant is made upon IPO, the date of the
Spin-off, but in no event later than the original Vesting Date.
X. Xxxxx Misconduct. If your employment is terminated as a result of your gross
misconduct (as determined by the Company), this grant, if unvested, will be
forfeited immediately upon such termination. For purposes of this grant, gross
misconduct means Cause as defined in the Employment Agreement.
F. Change in Control. If your employment with the Company is terminated within
one year of a Change in Control (as that term is defined in the Plan), for any
reason other than resignation or one of the reasons specified in paragraphs C-E
above, this grant, if unvested, will vest on the date of your termination.
III. POST-EMPLOYMENT OBLIGATIONS.
If you substantially or materially breach any of the post-employment obligations
set forth in paragraph 11 of the Employment Agreement, any portion of this grant
that is unvested shall expire immediately.
This grant is subject to the provisions of the Company's 2002 Stock Incentive
Plan and the Rules and Regulations thereunder established by the Company's Board
of Directors or its Compensation Committee (except where the terms set forth
herein conflict with the Rules and Regulations, in which case these terms shall
control).
15
ATTACHMENT "B"
--------------
A "Change in Control" shall mean the occurrence during the term of the
Employment Period, but following the complete distribution to its stockholders
by Merck & Co., Inc. ("Merck") of the shares of Medco Health (the "Spin-Off"),
of any one of the following events:
(a) An acquisition (other than directly from Medco Health) of any shares
of Common Stock or other voting securities of Medco Health by any
"Person" (for purposes of this Section only, as the term "person" is
used for purposes of Section 13(d) or 14(d) of the Exchange Act),
immediately after which such Person has "Beneficial Ownership" (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of
twenty percent (20%) or more of either (i) the then outstanding shares
of Common Stock or (ii) the combined voting power of Medco Health's
then outstanding voting securities entitled to vote for the election
of directors (the "Voting Securities"); provided, however, in
determining whether a Change in Control has occurred, shares of Common
Stock or Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (i) an employee benefit plan
(or a trust forming a part thereof) maintained by (A) Medco Health or
(B) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned,
directly or indirectly, by Medco Health (for purposes of this
definition, a "Related Entity"), (ii) Medco Health or any Related
Entity, or (iii) any Person in connection with a "Non-Control
Transaction" (as hereinafter defined); or
(b) The individuals who, immediately following the Spin-Off, are members
of the Board of Directors of Medco Health (the "Incumbent Board"), (i)
cease for any reason to constitute at least a majority of the members
of the Board of Directors of Medco Health, or (ii) following a Merger
(as hereinafter defined), do not constitute at least a majority of the
board of directors of (x) the Surviving Corporation (as hereinafter
defined), if fifty percent (50%) or more of the combined voting power
of the then outstanding voting securities of the Surviving Corporation
is not Beneficially Owned, directly or indirectly by a Parent
Corporation, or (y) if there is one or more Parent Corporations, the
ultimate Parent Corporation (as hereinafter defined); provided,
however, that if the election, or nomination for election by the
Company's common stockholders, of any new director was approved by a
vote of at least a majority of the Incumbent Board, such new director
shall, for purposes of this Plan, be considered as a member of the
Incumbent Board; provided, further, however, that no individual shall
be considered a member of the Incumbent Board if such individual
initially assumed office as a result of an actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board of Directors of Medco Health (a "Proxy Contest"),
including by reason of any agreement intended to avoid or settle any
Proxy Contest; or
(c) The consummation of:
16
(i) A merger, consolidation or reorganization with or into
Medco Health or a direct or indirect subsidiary of Medco Health or in
which securities of Medco Health are issued (a "Merger"), unless the
Merger is a "Non-Control Transaction." A "Non-Control Transaction"
shall mean:
(A) the stockholders of Medco Health immediately before such
Merger own directly or indirectly immediately following the Merger at
least fifty percent (50%) of the outstanding common stock and the
combined voting power of the outstanding voting securities of (x) the
corporation resulting from such Merger (the "Surviving Corporation"),
if fifty percent (50%) or more of the combined voting power of the then
outstanding voting securities of the Surviving Corporation is not
Beneficially Owned, directly or indirectly by another corporation (a
"Parent Corporation"), or (y) if there is one or more Parent
Corporations, the ultimate Parent Corporation;
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for the
Merger, constitute at least a majority of the members of the board of
directors of, (x) the Surviving Corporation, if fifty percent (50%) or
more of the combined voting power of the then outstanding voting
securities of the Surviving Corporation is not Beneficially Owned,
directly or indirectly by a Parent Corporation, or (y) if there is one
or more Parent Corporations, the ultimate Parent Corporation; and
(C) no Person other than (1) Medco Health or another corporation that
is a party to the agreement of Merger, (2) any Related Entity, or (3)
any employee benefit plan (or any trust forming a part thereof) that,
immediately prior to the Merger, was maintained by Medco Health or any
Related Entity, or (4) any Person who, immediately prior to the Merger
had Beneficial Ownership of twenty percent (20%) or more of the then
outstanding shares of Common Stock or Voting Securities, has Beneficial
Ownership, directly or indirectly, of twenty percent (20%) or more of
the combined voting power of the outstanding voting securities or
common stock of (x) the Surviving Corporation, if fifty percent (50%)
or more of the combined voting power of the then outstanding voting
securities of the Surviving Corporation is not Beneficially Owned,
directly or indirectly by a Parent Corporation, or (y) if there is one
or more Parent Corporations, the ultimate Parent Corporation.
(ii) A complete liquidation or dissolution of Medco Health; or
(iii) The sale or other disposition of all or substantially all of the
assets of Medco Health and its subsidiaries taken as a whole to any
Person (other than a transfer to a Related Entity or under conditions
that would constitute a Non-Control Transaction with the disposition of
assets being regarded as a Merger for this purpose or the distribution
to Medco Health's stockholders of the stock of a Related Entity or any
other assets).
17
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding shares of
Common Stock or Voting Securities as a result of the acquisition of shares of
Common Stock or Voting Securities by Medco Health which, by reducing the number
of shares of Common Stock or Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Persons;
provided, that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of shares of Common Stock or Voting
Securities by Medco Health, and after such share acquisition by Medco Health,
the Subject Person becomes the Beneficial Owner of any additional shares of
Common Stock or Voting Securities which increases the percentage of the then
outstanding shares of Common Stock or Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall occur.
Notwithstanding the foregoing, there shall not be a Change in Control
if, in advance of such event, the Executive agrees in writing that such event
shall not constitute a Change in Control.
18
