<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
INFORMATION STATEMENT
PURSUANT TO SECTION 14(f) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------
SYSTEMED INC.
(Name of Subject Company)
SYSTEMED INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class of Securities)
871853107
(CUSIP Number of Class of Securities)
---------------
SAM WESTOVER, PRESIDENT AND CHIEF EXECUTIVE OFFICER
SYSTEMED INC.
970 WEST 190TH STREET
TORRANCE, CALIFORNIA 90502
(310) 538-5300
(Name, address and telephone number of person
authorized to receive notices and communications on
behalf of the person(s) filing statement)
------------------
With a copy to:
ROBERT B. KNAUSS, ESQ.
MUNGER, TOLLES & OLSON
355 SOUTH GRAND AVENUE, 35TH FLOOR
LOS ANGELES, CALIFORNIA 90071-1560
(213) 683-9137
================================================================================
<PAGE>
ANNEX I
SYSTEMED INC.
970 WEST 190TH STREET, SUITE 400
TORRANCE, CALIFORNIA 90502
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about June 11, 1996 as a
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Systemed Inc. (the "Company") to the holders of record of
shares of Common Stock, $.001 par value (the "Common Stock") and 8%
Convertible Preferred Stock, $.001 par value (the "Preferred Stock"). You are
receiving this Information Statement in connection with the possible election
of persons designated by Parent Sub (as defined below) to at least a majority
of the seats on the Board of Directors of the Company (the "Board").
On April 28, 1996, the Company, Merck & Co., Inc., a New Jersey corporation
("Merck"), Merck-Medco Managed Care, Inc., a Delaware company ("Medco," and
together with Merck, "Parent"), and S Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Parent ("Parent Sub"), entered
into an Agreement and Plan of Merger. On June 10, 1996, the parties entered
into an Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement") in accordance with the terms and subject to the conditions of
which (i) Parent Sub will commence a tender offer (the "Offer") for all
outstanding shares of Common Stock at a price of $3.00 per share, net to the
seller in cash, without interest, and (ii) following consummation of the Offer
and subject to certain conditions, Parent Sub will be merged with and into the
Company (the "Merger"). As a result of the Offer and the Merger, the Company
will become a wholly owned subsidiary of Parent.
The Merger Agreement requires the Company to use its reasonable best
efforts, at Parent Sub's request, to take certain action necessary to cause
Parent Sub's designees to be elected to the Board under the circumstances
described in the Merger Agreement. See "BOARD OF DIRECTORS AND EXECUTIVE
OFFICERS--Right to Designate Directors; The Parent Sub Designees" below.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined shall have the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, Parent Sub commenced the Offer on June 11,
1996. The Offer is scheduled to expire at 12:00 midnight, New York City time,
on July 9, 1996, unless the Offer is extended.
The information contained in this Information Statement concerning Parent,
Parent Sub and the Parent Designees (hereinafter defined) has been furnished
to the Company by Parent, and the Company assumes no responsibility for the
accuracy or completeness of such information.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Common Stock and Preferred Stock are the only classes of voting
securities of the Company outstanding. Each share of Common Stock and
Preferred Stock has one vote. As of May 31, 1996, there were 22,324,773 shares
of Common Stock and 161,325 shares of Preferred Stock outstanding. The Board
currently consists of eight members. At each annual meeting of stockholders,
directors are elected to serve until the next annual meeting of stockholders
or until their successors are duly elected and qualified. Each of the
Company's directors was elected to office at the Annual Meeting of the
Company's Stockholders held on May 24, 1996. Under the Company's current
Bylaws, the number of directors is fixed from time to time by resolution of
the Board. Under the Company's Bylaws, the number of directors is not to be
less than 3 nor more than 9.
1-1
<PAGE>
RIGHT TO DESIGNATE DIRECTORS; THE PARENT SUB DESIGNEES
The Merger Agreement provides that, promptly upon the purchase by Parent Sub
of shares of Common Stock pursuant to the Offer, Parent Sub shall be entitled
to designate such number of directors, rounded up to the next whole number, as
will give Parent Sub, subject to compliance with Section 14(f) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, representation on the Board equal to the product of
(x) the total number of directors on the Board and (y) the percentage that
such number of shares of Common Stock purchased by Parent Sub bears to the
number of shares of Common Stock outstanding, and the Company shall, upon
request by Parent Sub, promptly exercise its reasonable best efforts to (i)
increase the size of the Board and/or (ii) secure the resignations of such
number of directors as is necessary to enable those persons designated by
Parent Sub (the "Parent Designees") to be elected to the Board, and shall
exercise its reasonable best efforts to cause the Parent Designees promptly to
be so elected.
It is expected that the Parent Designees may assume office at any time
following the purchase by Parent Sub of shares of Common Stock pursuant to the
Offer, which purchase cannot be earlier than July , 1996, and that, upon
assuming office, the Parent Designees will thereafter constitute at least a
majority of the Board. However, the Merger Agreement provides that, until the
Effective Time (as defined in the Merger Agreement) of the Merger, the Board
shall have at least one director who is a director on the date of the Merger
Agreement.
PARENT DESIGNEES
As of the date of this information statement, Parent Sub has not determined
who will be Parent Designees. However, Parent Designees will be selected from
among the following persons who are all directors and/or executive officers of
Medco.
Unless otherwise indicated, each person identified below has been employed
by Medco for the last five years, and each such person's business address is
P.O. Box 100, Whitehouse Station, N.J. All persons listed below are citizens
of the United States unless otherwise indicated. Persons indicated by an
asterisk are directors of Medco.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR
NAME EMPLOYMENT HELD DURING THE LAST FIVE YEARS
---- ----------------------------------------------
<C> <S>
Per G. H. Lofberg*.......... January 1996--President and Chief Executive
Officer; January, 1994--President, Merck-Medco
Managed Care Division, April, 1991--Senior
Executive Vice President, Strategic Planning and
Marketing, Medco Containment Services, Inc.;
prior to April, 1991, Mr. Lofberg was an
executive officer of Medco for more than five
years. Mr. Lofberg is a Swedish citizen.
Michael G. Atieh*........... April, 1994--Senior Vice President--Sales;
January, 1994--Vice President, Public Affairs of
Merck; April, 1990--Treasurer of Merck.
Judy C. Lewent*............. September, 1994--Senior Vice President and Chief
Financial Officer of Merck--responsible for
financial and public affairs functions, The
Merck Company Foundation, internal auditing and
the Company's joint venture relationships;
December, 1993--Senior Vice President and Chief
Financial Officer of Merck--responsible for
financial and public affairs functions and The
Merck Company Foundation; June, 1993--Senior
Vice President, Chief Financial Officer and
Controller of Merck; January, 1993--Senior Vice
President and Chief Financial Officer of Merck;
April, 1990--Vice President, Finance and Chief
Financial Officer of Merck.
Mary M. McDonald*........... January, 1993--Senior Vice President and General
Counsel of Merck; April, 1991--Vice President
and General Counsel of Merck; May, 1990--
Assistant General Counsel and Counsel, Merck
Sharp & Dohme International Division.
Peter E. Nugent*............ September, 1993--Vice President, Controller of
Merck; July, 1989--Vice President, Corporate
Taxes of Merck.
</TABLE>
1-2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR
NAME EMPLOYMENT HELD DURING THE LAST FIVE YEARS
---- ----------------------------------------------
<C> <S>
Bert I. Weinstein*.......... April, 1995--Senior Vice President and Co-
General Counsel; April, 1991--General Counsel of
Merck.
Carl I. Kanter.............. May, 1992--Senior Vice President and Co-General
Counsel; for more than five years prior thereto,
Mr. Kanter was a senior partner of the law firm
of Strook & Strook & Lavan (7 Hanover Square,
New York, NY).
Simon X. Benito............. January, 1994--Executive Vice President; for
more than 5 years prior thereto, Mr. Benito was
a senior executive of Merck.
Richard Schatzberg.......... Executive Vice President; Mr. Schatzberg has
served in various executive positions with Medco
for more than the past 5 years.
Joseph V. Valesio........... Executive Vice President; Mr. Valesio has served
in various executive positions with Medco for
more than the past 5 years.
Thomas Apker................ Senior Vice President; Mr. Apker has served in
various executive positions with Merck-Medco for
more than the past 5 years.
Wayne G. Gattinella......... January, 1992--Senior Vice President; prior to
that Mr. Gattinella was Vice President--Consumer
Marketing for MCI.
Joann A. Reed............... Senior Vice President; Ms. Reed has served in
various executive positions with Medco for more
than the past 5 years.
Isaac Shulman............... Senior Vice President; Mr. Shulman has served in
various executive positions with Medco for more
than the past 5 years.
Margaret McGlynn............ August, 1995--Senior Vice President; October,
1994--Senior Vice President U.S. Human Health
Managed Care at Merck; January, 1996--Senior
Vice President Business Planning at Medco;
January, 1993--Vice President Business
Management at Merck; May, 1991--Executive
Director Customer Marketing at Merck.
Caroline Dorsa.............. Treasurer; January, 1994--Treasurer of Merck;
July, 1993--Executive Director, Customer
Marketing, U.S. Human Health (USHH); June,
1992--Executive Director, Pricing and Strategic
Planning, USHH; April, 1990--Executive Director,
Financial Evaluation and Analysis.
</TABLE>
1-3
<PAGE>
DIRECTORS OF THE COMPANY
The following sets forth certain information as to each director of the
Company. Each individual listed below is a citizen of the United States.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Ronald P. Arrington 53 Director
James F. Doherty 66 Director
John E. Flood, Jr. 66 Director and Vice Chairman of the Board
J. Roberts Fosberg 59 Director and Chairman of the Board
Craig L. McKnight 45 Director
Frederick M. Myers 73 Director
Jon C. Thorson, M.D. 64 Director
Sam Westover 41 President, Chief Executive Officer and Director
</TABLE>
RONALD P. ARRINGTON, ESQ., is Chairman of the Compensation Committee and a
member of the Executive Committee of the Board. He has been a Director of the
Company since 1981. Mr. Arrington has been engaged in the practice of law
since 1968 and is a member of the law firm of Rutan & Tucker, Costa Mesa,
California. Mr. Arrington is currently also a member of the Board of Directors
of Proxima Corporation.
JAMES F. DOHERTY, ESQ., has been a Director of the Company since July 1994.
Mr. Doherty is a member of the Compensation Committee of the Board. He is the
former chief administrative officer of Group Health Association of America,
Inc. ("GHAA"), the largest national trade association for organized prepaid
healthcare systems in the United States. He served as Executive Director of
GHAA from July 1979 to March 1986, at which time he was named President of
GHAA, a position in which he served until his retirement in September 1993.
Mr. Doherty also served as founding president of the National Health Lawyers
Association.
JOHN E. FLOOD, JR., has been as a Director of the Company since 1984. From
April 1986 through August 1993, he served as Chairman of the Board. He was
named Vice Chairman of the Board in August 1993. He is a member of the Audit,
Compensation and Executive Committees of the Board. Mr. Flood is currently a
management consultant.
J. ROBERTS FOSBERG has served as the Company's Chairman of the Board since
August 1993. From July 1986 through August 1993, he served as the Company's
President and Chief Executive Officer. Mr. Fosberg was elected to the Board in
September 1986. Mr. Fosberg also serves on the Compensation and Executive
Committees of the Board.
CRAIG L. McKNIGHT has been a Director of the Company since July 1995 and is
a member of the Compensation Committee of the Board. Since March 1995, Mr.
McKnight has served as Executive Vice President of Magellan Health Services
("Magellan"), which was previously known as Charter Medical Corporation, and
since October 1995 Mr. McKnight has also served as Chief Financial Officer of
Magellan. From June 1994 to March 1995, Mr. McKnight was the Partner-in-Charge
of the Philadelphia Health Care Practice of Coopers & Lybrand L.L.P. Prior to
June 1994, Mr. McKnight was responsible for the Health Care Practice of
Coopers & Lybrand on the West Coast. Mr. McKnight has 22 years of experience
in public accounting.
FREDERICK M. MYERS, ESQ., has been a Director of the Company since 1983. Mr.
Myers is also Chairman of the Audit Committee and a member of the Compensation
Committee of the Board. He is a member of the law firm of Cain, Hibbard,
Myers, & Cook, Pittsfield, Massachusetts. Mr. Myers has been engaged in the
practice of law since 1948 and has been a Director of Patten Corporation since
1990.
JON C. THORSON, M.D., has been a Director of the Company since September
1986, and is a member of the Compensation Committee of the Board. He is
President of Alpha Group, a consulting and development firm.
1-4
<PAGE>
SAM WESTOVER has served as President and Chief Executive Officer of the
Company since August 1993 and as a Director of the Company since July 1992.
Mr. Westover is Chairman of the Executive Committee of the Board. From January
1993 until August 1993, Mr. Westover served as Senior Vice President, Chief
Financial Officer and Treasurer of Wellpoint Health Networks, the largest
publicly traded managed healthcare company in the U.S. Prior to joining
Wellpoint, Mr. Westover served as Chief Financial Officer and Senior Vice
President, Corporate Financial Services of Blue Cross of California, a
position to which he was named in May 1990.
MEETINGS OF BOARD AND COMMITTEES
The Board of Directors held ten meetings during the fiscal year ended
December 31, 1995. No director attended fewer than 75 percent of the aggregate
of the meetings of the Board and the Committees upon which he served, except
for Mr. Arrington, who attended 73 percent of such meetings, and Mr. McKnight,
who attended 67 percent of such meetings held during the period for which he
was a director.
The Board of Directors has standing Executive, Audit and Compensation
Committees, but does not have a Nominating Committee. In practice, the entire
Board performs the function of a Nominating Committee. The Executive Committee
of the Board held no meetings during the fiscal year ended December 31, 1995.
The Executive Committee has many of the powers of the full Board and meets as
necessary between Board meetings to transact certain matters which require
Board action. The Executive Committee is composed of Mr. Westover, who serves
as Chairman, Mr. Arrington, Mr. Flood and Mr. Fosberg.
The Audit Committee of the Board held one meeting during the fiscal year
ended December 31, 1995. The Committee's responsibility is to review and act
or report to the Board with respect to various audit and accounting matters,
including the selection of independent auditors, the determination of the
scope of audit procedures, the nature of the services to be performed by and
the fees to be paid to the Company's independent auditors, the establishment
of the accounting practices of the Company, and the monitoring of all phases
of the Company's operations. The Audit Committee is composed of Mr. Myers, who
acts as Chairman, and Mr. Flood.
The Compensation Committee of the Board held one meeting during the fiscal
year ended December 31, 1995. The Committee is responsible for making
recommendations to the Board concerning such executive compensation
arrangements and plans as it deems appropriate. The Compensation Committee is
presently composed of Messrs. Doherty, Flood, Fosberg, McKnight, Myers,
Thorson and Mr. Arrington, who serves as Chairman.
BOARD COMPENSATION
Members of the Board who are not officers of the Company receive annual fees
in the amount of $6,000 in their capacity as Directors. Directors do not
receive a per diem fee for their attendance at meetings of the Board or its
Committees. In May 1995, each of the Directors who was not then an officer of
the Company also received a compensatory option, which vested at date of grant
and expires in five years, for the purchase of 10,000 shares of Common Stock
under the 1993 Non-Employee Director Plan at the exercise price of $6.8125,
for his service on the Board for the twelve-month period ended April 30, 1996.
The annual fee and options were prorated for Mr. McKnight who was elected
after the 1995 Annual Meeting of Stockholders. The option for 8,333 shares of
Common Stock granted to Mr. McKnight has an exercise price of $7.125.
Directors also received cash reimbursement for travel expenses incurred in
attending meetings of the Board.
Under the 1993 Non-Employee Directer Plan, members of the Board who are not
employees of the Company were also entitled to receive options for the
purchase of 10,000 shares of the Common Stock at the closing price for such
shares on the first business day following the Company's 1996 Annual Meeting
held on May 24, 1996. Each of these Directors has agreed to forego these
options, and the Company will pay such Directors an additional $5,000 in cash
in consideration of such Director's devoting and having devoted a substantial
amount of additional time as a Director in connection with the Offer and the
Merger. During the past year, the Board has held at least fifteen additional
meetings to analyze the strategic alternatives available to the Company,
including the Offer and the Merger.
1-5
<PAGE>
By agreement with the Company's Board of Directors effective February 3,
1995, Mr. J. Roberts Fosberg, Chairman of the Board of the Company, is
entitled to receive a cash payment upon the occurrence of any "terminating
transaction" entered into by the Company on or before November 26, 1996 in an
amount equal to the amount by which the value of the Company's Common Stock
for purposes of the "terminating transaction" exceeds the exercise prices of
Mr. Fosberg's options for an aggregate of 15,000 shares (i) which were
outstanding on February 3, 1995, and (ii) which remain unvested as of the date
of the "terminating transaction." The options have an exercise price of
$5.563.
The term "terminating transaction" means any of the following events: (i)
the dissolution or liquidation of the Company; (ii) a reorganization, merger
or consolidation of the Company with one or more other corporations (except
with respect to a transaction, the sole purpose of which is to change the
domicile or name of the Company), as a result of which the Company goes out of
existence or becomes a subsidiary of another corporation (which shall be
deemed to have occurred if another corporation shall own, directly or
indirectly, more than fifty percent (50%) of the aggregate voting power of all
outstanding equity securities of the Company); or (iii) a sale of all or
substantially all of the Company's assets.
Also by agreement with the Board, effective January 1, 1995, Mr. Fosberg's
compensation was reduced from $175,000 per year to $6,630 per annum and he
retained his health care benefits coverage under the Company's plans.
EXECUTIVE OFFICERS OF THE REGISTRANT:
The executive officers of the Company who are not also Directors are as
follows. All officers serve at the discretion of the Board.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<C> <S>
Perry Cohen Senior Vice President, Sales
Kenneth J. Kay Senior Vice President, Finance and Administration,
and Chief Financial Officer
Robert T. Nishimura Senior Vice President, Chief Information Officer, of
Systemed Pharmacy Inc.
James J. Brehany Vice President, Mail Service Operations, of Systemed
Pharmacy Inc.
Paul H. Hayase Vice President, General Counsel and Human Resources,
and Secretary
Dennis K. Tsuyuki Vice President, Controller
</TABLE>
Perry Cohen, 41, has served as President and Chief Operating Officer of
INSURx, Inc. (now known as Systemed Pharmacy Inc.) from January to December
1994, as Senior Vice President of the Company's wholesale market unit since
January 1995 and as Senior Vice President, Sales of Systemed Pharmacy Inc.
from January 1996. Mr. Cohen served as Chief Operating Officer of Aetna
Pharmacy Management from November 1990, until joining the Company, where he
was responsible for Pharmacy Benefit Programs for the 13 million lives covered
by Aetna Health Plans. From August 1984, to October 1990, Mr. Cohen served as
Vice President, Pharmacy Services of MaxiCare Health Plans, Inc., a multi-
regional health maintenance organization. Mr. Cohen is a past President of the
Academy of Managed Care Pharmacy and a graduate of the University of the
Pacific School of Pharmacy with a Doctor of Pharmacy degree.
Kenneth J. Kay, 41, has served as Senior Vice President, Finance and
Administration, and Chief Financial Officer of the Company since July 1994.
Previously Mr. Kay served, from 1990 until 1994, as Group Vice President and
Senior Vice President--Finance and Administration at Ameron, Inc., a $450
million NYSE multi-national manufacturing company. From 1988 to 1990 he served
as President, CEO and a member of the Board of Directors of Bishop
Incorporated, a $15 million manufacturer and distributor of engineering design
products and computer workstation systems. Mr. Kay is a Certified Public
Accountant and holds an MBA in finance and marketing.
1-6
<PAGE>
Robert T. Nishimura, 55, has served as Senior Vice President, Chief
Information Officer, of Systemed Pharmacy Inc. since September 1995.
Previously, Mr. Nishimura was a Senior Network Design Consultant for Isuzu
Motors of America from 1994 to September 1995 and Senior Technical Management
Consultant with Taco Bell Corporation from 1993 to September 1995. From 1991
to 1993, Mr. Nishimura was Director of Management Information Systems at Knapp
Communications Corporation. Mr. Nishimura was Vice President of Management
Information Systems at First Interstate Bank from 1984 to 1991.
James J. Brehany, 41, has served as Vice President, Mail Service Operations,
of Systemed Pharmacy Inc. since September 1995 and previously served as acting
General Counsel of the Company from September 1994 to August 1995, and as
Director, Pharmaceutical Purchasing from March 1994 to September 1994.
Previously, Mr. Brehany was a Pharmacy Consultant for the California Physician
Management Group from 1979 to 1994. Mr. Brehany was also a Pharmacy Manager
for FHP, an HMO, from 1990 to 1994, and holds Doctor of Pharmacy and Juris
Doctor degrees.
Paul H. Hayase, 41, has served as Vice President, General Counsel and Human
Resources, and Secretary since August 1995. From November 1993 to August 1995,
Mr. Hayase was Senior Counsel at Ralphs Grocery Company. Mr. Hayase served as
Senior Vice President, General Counsel to Knapp Communications Corporation
from January 1985 to November 1993. Mr. Hayase has practiced law since 1980.
Dennis K. Tsuyuki, 43, has served as Vice President, Controller, since
August 1994. Previously, Mr. Tsuyuki was Senior Vice President, Finance at
Kennedy-Wilson Inc., a real estate broker and investment banking company from
June 1994 to August 1994. From 1990 to April 1994, Mr. Tsuyuki was with
Ameron, Inc. and served as Director of Information Systems.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directors Arrington, Doherty, Flood, Fosberg, Myers and Thorson comprised
the Compensation Committee of the Board of Directors as of December 31, 1995.
Mr. McKnight joined the Compensation Committee as of February 2, 1996. No
member of such Committee is or has been an officer or employee of the Company,
except for Mr. Fosberg.
The law firm of Rutan & Tucker, one of the members of which is Mr.
Arrington, received compensation for legal services to the Company during
fiscal 1995. The Company intends to retain the services of such firm in fiscal
1996.
Mr. Westover served as Senior Vice President, Chief Financial Officer and
Treasurer of Wellpoint Health Networks until he became President and Chief
Executive Officer of the Company in August 1993. Wellpoint previously entered
into a significant contract with the Company's Systemed Pharmacy Inc.
subsidiary to manage and administer a prescription drug plan.
1-7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information for the last three fiscal years
as to (i) the Company's Chief Executive Officer, and (ii) each individual
serving as an executive officer of the Company at December 31, 1995 who
received more than $100,000 in salary and bonuses for services rendered to the
Company during the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
OTHER SECURITIES ALL
NAME AND PRINCIPAL ANNUAL UNDERLYING OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(#) COMPENSATION
------------------ ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sam Westover............ 1995 $220,751 $103,230 -- 100,000 --
President and Chief 1994 $212,500 $218,000 -- 100,000 --
Executive Officer 1993 $109,067(A) -- -- 295,000(B) $6,000(C)
Perry I. Cohen.......... 1995 $189,971 $ 39,814 -- 50,000 --
Senior Vice President 1994 $168,784(D) $211,000(E) -- 250,000 --
Mark P. Hanrahan........ 1995 $131,885 $ 52,515 -- 25,000 --
Senior Vice President 1994 $123,750(D) $ 99,000(F) -- 150,000 --
Kenneth J. Kay.......... 1995 $152,888 $ 53,488 -- 50,000 $ 354(G)
Senior Vice President, 1994 $ 72,788(D) $ 51,000 -- 150,000 --
Finance and
Administration and
Chief Financial Officer
Michael J. Barone....... 1995 $115,485 $ 14,325 -- 25,000 $ 66(G)
Vice President, 1994 $105,699 $ 30,366 -- 50,000 --
Chief Pharmacy Officer 1993 $ 91,624 -- -- -- --
</TABLE>
- --------
(A) Represents compensation from the commencement of Mr. Westover's employment
as President and Chief Executive Officer of the Company on August 12,
1993.
(B) Includes options for the purchase of 10,000 shares of Common Stock
received by Mr. Westover for his service as an outside member of the Board
of Directors during fiscal 1993.
(C) Represents compensation received by Mr. Westover for his service as an
outside member of the Board of Directors during fiscal 1993.
(D) Represents salary from the commencement of Messrs. Cohen's, Hanrahan's and
Kay's employment in January 1994, February 1994 and July 1994,
respectively.
(E) Includes the payment of an $80,000 one-time bonus to Mr. Cohen upon his
employment with the Company.
(F) Includes the payment of a $10,000 one-time bonus to Mr. Hanrahan upon his
employment with the Company.
(G) Represents employer matching contribution under the Section 401 (k) plan.
1-8
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning Common Stock
options granted to the named executive officers during the fiscal year ended
December 31, 1995.
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL
RATES OF STOCK
NUMBER OF PRICE APPRECIATION
SECURITIES PERCENT OF TOTAL FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(C)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION -------------------
NAME GRANTED(A) FISCAL YEAR 1995 ($/SH)(B) DATE 5% 10%
---- ---------- ---------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sam Westover............ 100,000(D) 10.6% $6.75 5/26/05 $424,504 $1,075,776
Perry I. Cohen.......... 50,000 5.3% $6.8125 2/06/05 $214,217 $ 542,868
Mark P. Hanrahan........ 25,000 2.7% $6.8125 2/06/05 $107,109 $ 271,434
Kenneth J. Kay.......... 50,000 5.3% $6.8125 2/06/05 $214,217 $ 542,868
Michael J. Barone....... 25,000 2.7% $6.8125 2/06/05 $107,109 $ 271,434
</TABLE>
- --------
(A) Unless otherwise indicated, all options are exercisable for a term of ten
years, subject to earlier termination upon the occurrence of certain
events related to termination of employment, and subject to adjustment
upon certain corporate events. Options are exercisable 25 percent upon the
one year anniversary of date of grant and 25 percent on each anniversary
thereafter.
(B) The options were granted at fair market value on the date of grant. The
exercise price may be paid by delivery of cash or already owned shares,
subject to certain conditions.
(C) The amounts shown under these columns are the result of calculations at
the 5 percent and 10 percent rates required by the Securities and Exchange
Commission and are not intended to forecast future appreciation of the
Company's stock price.
(D) Options are exercisable 25 percent upon grant and 25 percent on each
anniversary of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information regarding stock options
exercised by the named executive officers during the fiscal year ended
December 31, 1995, as well as the number of exercisable and unexercisable
stock options and their values at December 31, 1995.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995 AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(B)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($)(A) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Sam Westover............ -- -- 381,250/125,000 $2,500/$0
Perry I. Cohen.......... -- -- 125,000/175,000 $62,500/$62,500
Mark P. Hanrahan........ -- -- 75,000/100,000 $0/$0
Kenneth J. Kay.......... -- -- 75,000/125,000 $0/$0
Michael J. Barone....... -- -- 17,000/63,000 $6,375/$3,000
</TABLE>
- --------
(A) Represents market value of underlying securities at exercise date, minus
the exercise price of the option.
(B) Represents the NASDAQ closing price of underlying securities at fiscal
year-end, minus the exercise price of the options. An option is in-the-
money if the fair market value for the underlying securities exceeds the
exercise price of the option.
1-9
<PAGE>
EXECUTIVE COMPENSATION ARRANGEMENTS
By agreement between the Company and Sam Westover upon his appointment as
President and Chief Executive Officer of the Company, Mr. Westover received
salary at the monthly rate of $23,750 through December 31, 1993, at which time
his salary was adjusted to $212,500 annually. Beginning in 1994 he was also
entitled to receive a performance bonus in an amount equal to 75 percent of
his base salary upon the achievement of sales and profitability goals as
determined by the Board of Directors. Upon the commencement of his employment,
Mr. Westover also received an option for the purchase of 285,000 shares of
Common Stock of the Company, exercisable for a period of ten years, 33 percent
of which vested upon the date of grant, with 33 percent vesting upon each
successive anniversary of the date of grant. Under the terms of the Change of
Control Severance Agreement (the "Severance Agreement") dated September 29,
1995 between the Company and Mr. Westover, in the event of an Involuntary
Termination of Mr. Westover's employment within three years of a "terminating
transaction", Mr. Westover will receive a payment equal to two times his
Annual Base Compensation. Annual Base Compensation is the greater of (i)
annual base salary and target bonus on the date of the "terminating
transaction" and (ii) annual base salary and target bonus on the date of
Involuntary Termination. Involuntary Termination is a termination of
employment by: (a) discharge by the Company for any reason other than for
cause or (b) resignation within six months of one of the following events: (i)
a reduction in the annual base salary or target bonus immediately prior to the
date of the "terminating transaction"; (ii) any significant reduction in the
nature or scope of duties and responsibilities from those applicable
immediately prior to the date of the "terminating transaction"; or (iii)
change in the location of the principal place of employment by more than 20
miles. The Change of Control Severance Agreement expires July 31, 1998.
As a result of the Merger, the Company would be a wholly-owned subsidiary of
Parent and rather than an independent publicly-held company. Accordingly,
there was some uncertainty as to whether the Merger would automatically result
in a significant reduction in the nature or scope of Mr. Westover's duties,
which would give him the right to terminate his employment and receive
payments under the Severance Agreement. Since it was important to Parent to
retain Mr. Westover's services for at least 6 months after the Effective Time
of the Merger, the Company and Mr. Westover, at Parent's request, entered into
an amendment to the Severance Agreement dated as of April 27, 1996, pursuant
to which Mr. Westover would no longer be entitled to receive severance
payments if he terminated his employment because of a significant reduction in
the nature or scope of his duties after the Merger, but would be entitled to
such payments if he terminated his employment for any reason within 6 months
after the date which is 6 months after the Effective Time of the Merger.
Under the terms of the Employment Agreement (the "Agreement") dated January
19, 1994 between the Company and Perry L. Cohen, Senior Vice President, Mr.
Cohen will be employed by the Company for a period of 3 years unless earlier
terminated upon material breach by Mr. Cohen. Under the terms of the
Agreement, Mr. Cohen will be paid an annual salary of $185,000 subject to
performance review increases. Mr. Cohen also received a one-time bonus of
$80,000 upon his employment by the Company and was granted an option for the
purchase of 250,000 shares of Common Stock. The bonus is subject to
reimbursement to the Company by Mr. Cohen in an amount equal to 12 1/2 percent
($10,000) in the event he terminates the Agreement on or between January 19,
1996 and January 19, 1997.
In February 1996, the Company and Mark P. Hanrahan entered into an agreement
which terminated Mr. Hanrahan's employment agreement that was entered into in
January 1994. Under the agreement, the Company will continue to pay Mr.
Hanrahan his annual salary of $135,000 through November 15, 1996. The Company
is also required to make a final payment to Mr. Hanrahan of $33,750 on
November 15, 1996.
The Company executed an employment letter with Kenneth J. Kay, Senior Vice
President, Finance and Administration, and Chief Financial Officer, upon Mr.
Kay's employment by the Company in July 1994. The letter states that upon an
acquisition of the Company during Mr. Kay's employment at a price of less than
$8.00 per share, Mr. Kay will receive a payment equal to the difference
between the acquisition price per share and $8.00 multiplied by the number of
unexercised and unexpired options from his initial stock option grant. Under
the terms of the Change of Control Severance Agreement dated September 29,
1995 between the Company and
1-10
<PAGE>
Mr. Kay, in the event of an Involuntary Termination of Mr. Kay's employment
within three years of a "terminating transaction," Mr. Kay will receive a
payment equal to two times his Annual Base Compensation, which is defined
above in the description of Mr. Westover's Change of Control Severance
Agreement. The Change of Control Severance Agreement expires July 31, 1998.
Under the terms of an Employment Agreement dated June 30, 1992 between the
Company's subsidiary, Systemed Pharmacy Inc., and Michael J. Barone, Mr.
Barone's annual salary, which was $115,485 at December 31, 1995, is subject to
annual review. Mr. Barone's employment may be terminated by Systemed Pharmacy
Inc. following 90 days prior written notice.
Pursuant to the Company's termination policy, all employees of the Company,
including officers, are eligible to receive termination benefits in the event
of any involuntary termination of their employment by the Company other than
for cause.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS*
The Compensation Committee of the Board of Directors hereby presents to the
stockholders of the Company this report concerning the compensation of the
Company's executive officers, including the executive officers named in the
Summary Compensation Table contained elsewhere herein. The Compensation
Committee is responsible for setting and administering the compensation
policies of the Company with respect to its executive officers and, on an
annual basis, determining the compensation of each executive officer.
The Company's executive compensation program is designed to align executive
compensation with the Company's performance. The goals of the executive
compensation program are: (i) to attract and retain key executives critical to
the success of the Company; (ii) to provide levels of compensation which are
competitive with those offered by the Company's competitors and by other
companies of similar size; and (iii) to motivate executives to enhance long-
term stockholder value by building appropriate ownership in the Company. The
Company retained the services of an independent executive compensation
consulting firm for the last fiscal year to assist the Committee in connection
with its duties in executive compensation matters.
The annual compensation for the executive officers, including Sam Westover,
the Company's President and Chief Executive Officer, includes base salary,
coupled with cash bonuses and stock options. Base salaries are the fixed
component of the executive officers' compensation package. Salaries are set
and adjusted based primarily upon competitive standards and length of service,
and once adjusted, fall within the median of the range of increases
implemented by other companies, of similar size, geographic location and
industry, which were surveyed for comparability.
The award of cash bonuses was made pursuant to the Company's Bonus Plan
based upon the performance of the Company and its two principal subsidiaries
during 1995 against established Bonus Plan targets for revenues and earnings.
Based upon strategic objectives, the Company made a change to weight more
heavily the revenue component in 1995 (60 percent) versus the earnings
component (40 percent) as compared to the performance targets utilized in the
prior year.
A substantial portion of the compensation of executive officers is based
upon the award of stock options which rely on increases in the value of the
Company's Common Stock. The award of options is intended to encourage such
employees to establish a meaningful, long-term ownership interest in the
Company consistent with the interests of the Company's stockholders. Under the
Company's stock option plans, options are granted
- --------
* The preceding report of the Compensation Committee shall not be deemed to be
incorporated by reference into any filing by the Company under either the
Securities Act of 1933 or the Securities Exchange Act of 1934 (the "Exchange
Act"), including without limitation, all Registration Statements on Form S-3
and Form S-8 filed by the Company which incorporate future Exchange Act
filings by reference.
1-11
<PAGE>
from time to time to certain officers and key employees of the Company at the
fair market value of the shares of Common Stock at the time of grant. Because
the compensation element of options is dependent on increases over time in the
market value of such shares, stock options represent compensation that is tied
to the Company's long-term performance. The award of stock options to
executive officers is determined based upon individual performance, position
within the Company, inducement to join and remain with the Company, the amount
of options already held, and contribution towards enhancement of stockholder
value.
The Committee has reviewed the 1995 base salaries of each of the executive
officers and is of the opinion that such salaries were reasonable in view of
those paid by the Company's competitors and by other companies of similar
size. The Committee has also reviewed the cash bonuses paid to executive
officers pursuant to the Company's Bonus Plan and has determined that such
amounts and the previously established revenue and earnings targets upon which
such amounts were awarded were reasonable. The Committee also reviewed the
stock options awarded to the executive officers for their services in 1995 and
is of the opinion that the option awards were reasonable in view of the
officers' individual performance and positions with the Company.
The Committee has also reviewed Mr. Westover's base salary for 1995 and is
of the opinion that such salary was reasonable in view of those paid to CEO's
of the Company's competitors and by other companies of similar size. Mr.
Westover received options for the purchase of 100,000 shares of the Company's
Common Stock during 1995 which the Committee believes to be appropriate in
light of compensation paid by the Company's competitors and by other companies
of a similar size. Mr. Westover received a cash bonus of $103,230 for 1995,
pursuant to the terms of the Company's Bonus Plan and the achievement of the
established performance factors discussed above. Mr. Westover was paid an
annual salary of $221,500 during 1995. The Company has not adopted any policy
with respect to limiting executive compensation to the one million dollar
deductible maximum permitted under Internal Revenue Code Section 162(m).
COMPENSATION COMMITTEE:
Ronald P. Arrington, Chairman
James F. Doherty
John E. Flood, Jr.
J. Roberts Fosberg
Craig L. McKnight
Frederick M. Myers
Jon C. Thorson, M.D.
1-12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1996 by the Company's
Directors, by the Parent Designees, by the named executive officers, by all
Directors and executive officers as a group and by the only persons or
entities known to the Company to own beneficially more than 5 percent of the
outstanding shares of the Company's voting securities. Unless otherwise
indicated, the persons named in the table possess sole voting and investment
power with respect to the shares listed (except to the extent such authority
is shared with spouses under applicable law).
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK
OWNED BENEFICIALLY
AS OF MAY 31, 1996
----------------------
NUMBER OF PERCENT
SHARES OF CLASS
--------- --------
<S> <C> <C>
Wellington Management Company........................ 1,984,000(l) 8.89%
75 State Street
Boston, Massachusetts 02109
Foxmeyer Health Corporation.......................... 1,676,300(2) 7.5%
1220 Senlac Drive
Carrollton, Texas 78006
Ronald P. Arrington.................................. 109,096(3) *
James F. Doherty..................................... 18,192(4) *
John E. Flood, Jr. .................................. 204,162(5) *
J. Roberts Fosberg................................... 793,018(6) 3.5%
Craig L. McKnight.................................... 8,333(4) *
Frederick M. Myers................................... 171,623(7) *
Jon C. Thorson, M.D. ................................ 144,178(8) *
Sam Westover......................................... 456,250(4) 2.0%
Perry I. Cohen....................................... 212,500(4) *
Mark P. Hanrahan..................................... 143,750(4) *
Kenneth J. Kay....................................... 106,250(4) *
Michael J. Barone.................................... 79,863(9) *
All Directors and Executive Officers as a Group (16
Persons)............................................ 2,569,665(10) 10.7%
</TABLE>
- --------
* Represents less than 1 percent of the outstanding shares.
(1) Information set forth in the table is based on Wellington's Schedule 13G
dated December 31, 1995.
(2) Information set forth in the table is based on Foxmeyer Health
Corporation's Schedule 13D (formerly NII Health Care Corporation), as
amended, filed August 11, 1994.
(3) Includes 60,000 shares subject to presently exercisable options and
49,096 shares held in a family trust.
(4) Represents shares subject to presently exercisable options.
(5) Includes 110,000 shares subject to presently exercisable options and
58,585 shares held in a family trust.
(6) Consists of 430,000 shares subject to presently exercisable options and
343,018 shares held in a family trust.
(7) Mr. Myers holds 2,500 shares of Convertible Preferred Stock (representing
1.5 percent of that class). The table includes 3,375 shares issuable upon
conversion of the Convertible Preferred Stock and 60,000 shares subject
to presently exercisable options. Also includes 50,556 Common Stock
shares owned by Mr. Myer's wife, as to which Mr. Myers disclaims
beneficial ownership.
1-13
<PAGE>
(8) Includes 30,000 shares subject to presently exercisable options, and
20,613 shares of Common Stock issuable upon conversion of the Company's
10% Senior Secured Convertible Notes.
(9) Includes 45,750 shares subject to presently exercisable options and 1,752
shares held in an IRA trust.
(10) Includes 1,803,475 shares subject to presently exercisable options,
20,613 shares of Common Stock issuable upon conversion of the Notes
described above and 3,375 shares issuable upon conversion of Convertible
Preferred Stock.
Mr. Hanrahan and Mr. Barone are no longer executive officers of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors, executive officers and persons who own more than 10 percent of a
registered class of the Company's equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Company. Officers, Directors and greater than 10 percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, based solely on review of
the copies of such reports furnished to the Company and written
representations by Directors and executive officers of the Company that no
other reports were required, during the fiscal year ended December 31, 1995,
all Section 16(a) filing requirements applicable to the Company's officers,
Directors and greater than 10 percent beneficial owners were complied with,
except that the following persons were late in filing their Form 3, Initial
Statement of Beneficial Ownership of Securities: Michael J. Barone, James J.
Brehany, Paul H. Hayase, Craig L. McKnight and Dennis K. Tsuyuki.
1-14
<PAGE>
STOCK PERFORMANCE GRAPH*
Set forth below is a line graph comparing the cumulative total stockholder
return on the Company's Common Stock, based on its market price, with the
cumulative total return of companies on the Total Return Index for the NASDAQ
Stock Market and Value Line's Index for the Medical Supplies Industry for the
period beginning December 31, 1990 through December 31, 1995.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG NASDAQ STOCK MARKET AND VALUE LINE'S INDEX
FOR THE MEDICAL SUPPLIES INDUSTRY AND SYSTEMED
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
MEDICAL
Measurement Period SUPPLIES
(Fiscal Year Covered) NASDAQ INDUSTRY SYSTEMED
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-12/31/1990 $100.00 $100.00 $100.00
FYE 12/31/1991 $160.56 $163.34 $213.04
FYE 12/31/1992 $186.87 $144.55 $243.45
FYE 12/31/1993 $214.51 $128.80 $156.52
FYE 12/31/1994 $209.69 $151.54 $243.48
FYE 12/31/1995 $296.30 $223.53 $160.87
</TABLE>
Note: Assumes $100 invested on December 31, 1990 in the Company, the Total
Return Index for the NASDAQ Stock Market and the Value Line Index for the
Medical Supplies Industry. The dollar amounts shown at each year-end are as of
the last trading day prior to the end of the Company's fiscal year. Also
assumes reinvestment of dividends.
- --------
* The information set forth in the preceding graph shall not be deemed to be
incorporated by reference into any filing by the Company under either the
Securities Act of 1933 or the Securities Exchange Act of 1934 ("Exchange
Act") including without limitation, all Registration Statements on Form S-3
and Form S-8 filed by the Company which incorporate future Exchange Act
filings by reference.
1-15
