<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) 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)
COMMON STOCK 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>
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Systemed Inc., a Delaware corporation
(the "Company"), and the address of its principal executive offices is 970
West 190th Street, Suite 400, Torrance, California 90502. The title of the
class of equity securities to which this Schedule 14D-9 relates is the Common
Stock, par value $.001 per share of the Company (the "Common Stock" or the
"Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer made by S Acquisition Corp.
("Purchaser"), a Delaware corporation and wholly owned subsidiary of Merck-
Medco Managed Care, Inc. ("Medco"), a Delaware corporation and subsidiary of
Merck & Co., Inc. ("Merck"), a New Jersey corporation, disclosed in a Tender
Offer Statement on Schedule 14D-1 dated June 11, 1996, to purchase all
outstanding shares of Common Stock at a price of $3.00 net per share in cash
upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated June 11, 1996 (the "Offer to Purchase"), and in the related
Letters of Transmittal (which together constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of April 28, 1996, and as amended and restated as of June 10, 1996 (the
"Merger Agreement"), among Purchaser, Medco, Merck and the Company. A copy of
the press release issued by the Company on April 29, 1996 announcing the
Merger (as defined in Item 3(b)(ii) below) is filed as Exhibit 1 hereto and is
incorporated herein by reference. A copy of the Merger Agreement is filed as
Exhibit 2 hereto and incorporated herein by reference. A copy of the press
release issued by the Company on June 11, 1996 announcing the Offer is filed
as Exhibit 6 and is incorporated herein by reference.
According to the Offer to Purchase, the address of the principal executive
offices of Merck, Medco and Purchaser is 100 Summit Avenue, Montvale, New
Jersey 07645.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this statement, is set forth in Item 1 above.
(b)(i) Certain contracts, agreements, arrangements and understandings
between the Company and certain of its directors and executive officers are
described under the heading "Election of Directors--Board Compensation" and
"Executive Compensation" on pages 4 through 8 of the Company's Proxy
Statement, dated April 19, 1996, for its May 24, 1996 Annual Meeting of
Stockholders (the "1996 Proxy Statement"). Copies of these pages are attached
as Exhibit 3 hereto and are incorporated herein by reference. The following
supplements the information set forth in the 1996 Proxy Statement.
Stock Options. The board of directors of the Company (the "Board" or the
"Board of Directors") and executive officers of the Company have previously
been granted stock options ("Stock Options") to purchase an aggregate of
2,707,775 shares of Common Stock. The Merger Agreement provides that Stock
Options may either be cancelled in exchange for a cash payment equal to the
excess of $3.00 over the exercise price per share of Common Stock under the
Stock Option, or converted into options to acquire shares of Common Stock, no
par value, of Merck ("Merck Common Stock"). See "Terms of the Merger
Agreement--Stock Options." None of the Stock Options granted to the Company's
directors and executive officers has an exercise price that is less than $3.00
per share and, accordingly, no cash payments are expected to be made with
respect to such Stock Options.
Each of the directors of the Company (other than Sam Westover, the Company's
Chief Executive Officer, who is not eligible to receive such options) has
agreed to forego certain stock options he was otherwise entitled to receive in
1996 under the Company's 1993 Nonemployee Director Stock Option Plan.
Severance and Other Arrangements. Certain executive officers of the Company
have severance and other arrangements with the Company which may be triggered
by consummation of the Offer or Merger.
1
<PAGE>
Under the terms of a 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 the Merger, Mr. Westover will be entitled to 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
Merger, and (ii) annual base salary and target bonus on the date of
Involuntary Termination. Involuntary Termination is defined to include
termination of employment by: (a) discharge by the Company for any reason
other than for cause; or (b) resignation within six months of (1) a reduction
in the annual base salary or target bonus immediately prior to the Effective
Time (as defined below), (2) any significant reduction in the nature or scope
of duties or responsibilities from those applicable immediately prior to the
Effective Time, or (3) a change in the location of the principal place of
employment by more than 20 miles. As a result of the Merger, the Company would
be a wholly-owned subsidiary of Medco 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 Medco to retain Mr. Westover's services for at least 6 months
after the Effective Time, the Company and Mr. Westover, at Medco'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.
The Company executed certain employment letters with Kenneth Kay, Senior
Vice President, Finance and Administration and Chief Financial Officer, Paul
Hayase, Vice President, General Counsel and Human Resources, and Secretary,
and Robert Nishimura, Senior Vice President, Chief Information Officer of
Systemed Pharmacy, Inc., upon their employment with the Company in July 1994,
August 1995, and September 1995, respectively. These letters state that upon
an acquisition of the Company at a price of less than $8.00 per share, each
such officer 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 the initial grant of options to such officers. Mr.
Kay has also entered into a Change of Control Severance Agreement on
substantially the same terms as Mr. Westover's agreement, although Mr. Kay's
agreement has not been amended like Mr. Westover's.
The Company has paid to each director (other than Mr. Westover) 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 of
Directors has held at least fifteen additional meetings to analyze the
strategic alternatives available to the Company, including the Offer and the
Merger.
Other than as described in this item, no other executive officers of the
Company are entitled to receive severance payments if their positions are
eliminated or their responsibilities significantly reduced, other than
pursuant to the Company's general severance policy applicable to all
employees.
Indemnification. The Merger Agreement provides that, from and after the
Effective Time, the Company (as the surviving corporation in the Merger) will
indemnify, defend and hold harmless each person who is at the date of the
Merger Agreement, or had been at any time prior to such date, an officer or
director of the Company (each, an "Indemnified Party") against all losses,
expenses, claims, damages, liabilities or amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation based in
whole or in part on the fact that such Indemnified Party is or was a director
or officer of the Company, and arising out of actions or omissions occurring
at or prior to the Effective Time (including the Offer and the Merger), to the
fullest extent a corporation is permitted to indemnify its own directors and
officers under the Delaware General Corporation Law ("DGCL"). The Company's
indemnification obligations are guaranteed under the Merger Agreement by Medco
and Merck. The Merger Agreement also requires Medco to cause the Company's
current directors' and officers' liability insurance policies (or comparable
policies) to remain in effect for three years after the Effective Time.
2
<PAGE>
(ii) Terms of the Merger Agreement. The following is a summary of certain
provisions of the Merger Agreement which summary is qualified in its entirety
by reference to the Merger Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer.
The Offer is conditioned upon, among other things, a number of Shares being
validly tendered and not properly withdrawn prior to the expiration of the
Offer which, upon consummation of the Offer, represent at least a majority of
the outstanding Shares on a fully diluted basis (the "Minimum Condition"). The
Minimum Condition may be waived by the Purchaser. See "Conditions to Offer"
below.
The Merger Agreement provides that, without the written consent of the
Company, Purchaser will not decrease the price per Share payable in the Offer,
change the form of consideration payable in the Offer, decrease the number of
Shares being sought in the Offer, change or impose additional conditions to
the Offer, or amend the Offer in any manner adverse to holders of Shares.
Notwithstanding the foregoing, Purchaser may, without the consent of the
Company, extend the Offer (i) if at the then scheduled expiration date of the
Offer any of the conditions to Purchaser's obligation to accept for payment
and pay for shares of Common Stock shall not be satisfied or waived, until
such time as such conditions are satisfied or waived; (ii) for an aggregate
period of not more than ten business days beyond the initial expiration date
of the Offer if all conditions have been satisfied but less than 90% of the
outstanding shares of Common Stock have been validly tendered and not
withdrawn (not including shares covered by notices of guaranteed delivery);
and (iii) for any period required by any rule, regulation, interpretation or
position of the SEC or the staff applicable to the Offer.
Board Representation. The Merger Agreement provides that, promptly upon the
purchase of Shares pursuant to the Offer, the Purchaser shall be entitled to
designate such number of directors, rounded up to the next whole number, on
the Board of Directors of the Company as will give the Purchaser
representation on the Board of Directors equal to the product of (a) the total
number of directors on the Board of Directors and (b) the percentage that the
number of Shares purchased by the Purchaser bears to the number of Shares
outstanding, and the Company shall upon request by the Purchaser, promptly
increase the size of the Board of Directors and/or exercise its reasonable
best efforts to secure the resignations of such number of directors as is
necessary to enable the Purchaser's designees to be elected to the Board of
Directors and shall cause the Purchaser's designees to be so elected. In the
event that the Purchaser's designees are elected to the Board of Directors of
the Company, until the Effective Time, the Board of Directors of the Company
shall have at least one director who is a director on the date of the Merger
Agreement (the "Company Director"). Notwithstanding anything in the Merger
Agreement to the contrary, in the event that the Purchaser's designees are
elected to the Board of Directors of the Company, after the acceptance for
payment of Shares pursuant to the Offer and prior to the Effective Time, the
affirmative vote of the Company Director shall be required to (a) amend or
terminate the Merger Agreement by the Company, (b) exercise or waive any of
the Company's rights, benefits or remedies under the Merger Agreement, (c)
extend the time for performance of Medco's and the Purchaser's respective
obligations under the Merger Agreement, (d) take any other action by the Board
of Directors of the Company under or in connection with the Merger Agreement,
(e) amend, repeal or otherwise modify the provisions with respect to
indemnification set forth in the Certificate of Incorporation and By-Laws of
the Company on the date of the Merger Agreement, in any manner that would
adversely affect the rights thereunder of individuals who at any time prior to
the Effective Time were directors or officers of the Company in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by the Merger Agreement),
unless such modification is required by law or (f) cancel the Company's
current directors' and officers' liability insurance policies (or comparable
policies).
The Merger. The Merger Agreement provides that, following the purchase of
Shares pursuant to the Offer, the approval of the Merger Agreement by the
stockholders of the Company, if required by the DGCL, and the satisfaction or
waiver of other conditions to the Merger, Purchaser will be merged with and
into the Company (the "Merger"). Following the Merger, the separate corporate
existence of Purchaser (which was formed solely for the purpose of effecting
the Merger) would cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation") and as a wholly-owned subsidiary of
Medco.
3
<PAGE>
At the Effective Time, each outstanding share of the Company's Common Stock
shall be cancelled and extinguished and each share (other than treasury
shares, shares held by Medco or Merck or any of their direct or indirect
wholly-owned subsidiaries and shares as to which appraisal rights have
properly been exercised) shall by virtue of the Merger be converted into the
right to receive $3.00 in cash, without interest. After the consummation of
the Merger, the then present holders of Common Stock would cease to have any
rights with respect to their shares other than the right to receive $3.00 in
cash per share, or any appraisal rights which they may have under the DGCL.
Each share of capital stock of Purchaser issued and outstanding immediately
prior to the Effective Time will be converted into 23,000 shares of the Common
Stock, par value $.001, of the Company after the Merger. Each share of
Preferred Stock issued and outstanding immediately prior to the Effective Time
will continue to be exercisable for the same number of shares of Common Stock
of the Company after the Merger. Holders of the Company's 10% Senior Secured
Convertible Notes due 2002 will continue to be able to convert such Notes into
shares of Common Stock after the Effective Time, and will be entitled to
receive cash equal to $3.00 per share of such Common Stock.
If required by the DGCL, Shares which are held by holders who have properly
exercised appraisal rights with respect thereto in accordance with section 262
of the DGCL will not be exchangeable for the right to receive the $3.00 per
share, and holders of such Shares will be entitled to receive payment of the
appraised value of such Shares unless such holders fail to perfect or withdraw
or lose their right to appraisal and payment of the DGCL.
In the event that the Purchaser shall acquire at least 90 percent of the
outstanding Shares and redeems or defeases the Convertible Preferred Stock,
the parties agree to take all necessary and appropriate actions to cause the
Merger to become effective without a meeting of stockholders of the Company,
in accordance with Section 253 of the DGCL.
Effective Time. The Merger will be consummated at the time (the "Effective
Time") that a certificate of merger is filed by the Company and Purchaser with
the Secretary of State of the State of Delaware. The Effective Time will be as
promptly as practicable after the satisfaction or, if permissible, waiver, of
the conditions set forth in the Merger Agreement.
Representations and Warranties. In the Merger Agreement, the Company,
Purchaser, Medco and Merck have made certain representations and warranties to
each other with respect to, among other things, their respective organizations
and good standings, proper authorization and authority to enter into and
perform their respective obligations under the Merger Agreement, required
governmental filings and consents, and pending and threatened litigation. The
Company has made additional representations to Purchaser, Medco, and Merck
with respect to, among other things, its capitalization, governmental permits
and authorizations, certain of its public filings (including financial
statements), the absence of undisclosed liabilities, or of certain changes and
events since January 1, 1996, employee benefit plans and labor matters, tax
returns, and certain contracts and commitments.
Certain Covenants. The Company has agreed that, prior to the Effective Time
and unless Medco agrees otherwise, it will (and will cause its subsidiaries
to), among other things: (i) operate its business to the extent commercially
reasonable only in the usual and ordinary course consistent with past
practices; (ii) use commercially reasonable efforts to preserve substantially
intact its business organization, maintain rights, franchises, properties,
assets and inventories, retain the services of officers and key employees and
maintain relationships with customers and suppliers; (iii) with certain
limited exceptions, not (a) increase the compensation of any director or
executive officer, increase the severance or termination pay of any director,
officer or employee, or adopt or amend any employee benefit plan or
arrangement, (b) pay any dividend or distribution on, or acquire by redemption
or otherwise, any shares of its capital stock, (c) propose or adopt amendments
to its Certificate of Incorporation or Bylaws that would have an adverse
impact on the Offer or the Merger, (d) issue or propose to issue any shares of
capital stock, (e) make any capital expenditure or commitment in excess of
4
<PAGE>
$250,000, (f) sell or otherwise dispose of assets other than in the ordinary
course of business, (g) change its accounting methods or make or rescind any
elections, compromise any claims, or change its reporting methods with respect
to taxes, (h) incur any indebtedness, or (i) enter into or amend a material
contract with a supplier that is not terminable by the Company without penalty
upon 90 days' notice, or a contract which restricts the Company from doing
business.
The Company has also agreed that, pending consummation of the Merger, it
will not initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Competing Transaction, or enter into discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of the officers, directors or
employees of the Company or any of its subsidiaries or any investment banker,
financial advisor, attorney, accountant or other representative retained by
the Company or any of the Company's subsidiaries to take any such action and
the Company shall promptly notify Medco of all relevant terms of any such
inquiries and proposals received by the Company or any of its subsidiaries or
by any such officer, director, investment banker, financial advisor or
attorney, relating to any of such matters and if such inquiry or proposal is
in writing, the Company shall deliver or cause to be delivered to Medco a copy
of such inquiry or proposal; provided, however, that nothing contained in the
Merger Agreement shall prohibit the Board of Directors of the Company from (i)
furnishing information to, or entering into discussions or negotiations with,
any persons or entity in connection with an unsolicited bona fide proposal by
such person or entity to acquire the Company pursuant to a merger,
consolidation, share exchange, business combination or other similar
transaction or to acquire all or substantially all of the assets of the
Company or any of its Significant Subsidiaries, if, and only to the extent
that (A) the Board of Directors of the Company, after consultation with
independent legal counsel (which may include its regularly engaged independent
legal counsel), determines in good faith that such action is required for the
Board of Directors of the Company to comply with its fiduciary duties to
stockholders imposed by DGCL and (B) the Company (x) promptly provides notice
to Medco to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity and (y) receives a
customary confidentiality agreement from such person or entity; or (ii)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to a
Competing Transaction. For purposes of the Merger Agreement, "Competing
Transaction" shall mean any of the following involving the Company or any of
its subsidiaries: (i) any merger, consolidation, share exchange, business
combination, or other similar transaction (other than the transactions
contemplated by the Merger Agreement); (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 15% or more of the assets
of the Company and its subsidiaries, taken as a whole, in a single transaction
or series of transactions, other than in the ordinary course of business;
(iii) any tender offer or exchange offer (other than the Offer) for 15% or
more of the outstanding shares of capital stock of the Company or the filing
of a registration statement under the Securities Act of 1933, as amended, in
connection therewith; (iv) any person (other than Merck or its subsidiaries)
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder) shall
have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 15% or more of the then outstanding shares of capital
stock of the Company (other than through the vesting of stock options granted
prior to the date of the Merger Agreement or acquisitions in arbitrage
transactions); or (v) any public announcement of a proposal, plan or intention
to do any of the foregoing.
Stock Options. The Board of Directors and certain employees of the Company
have previously been granted Stock Options to purchase an aggregate of
3,454,275 shares of Common Stock. The Merger Agreement provides that holders
of Stock Options vested before or as a consequence of the Merger may elect to
receive, for each share of Common Stock subject to such Stock Option, an
amount equal to the excess of $3.00 over the exercise price per share of
Common Stock under the Stock Option, payable in cash immediately following the
Effective Time or, with respect to any person subject to Section 16(a) of the
Exchange Act as soon as practicable after the first date payment can be made
without liability to such person under Section 16(b) of the Exchange Act. If a
Stock Option is not cancelled pursuant to the foregoing, it will be deemed to
constitute an option to acquire the number of shares of Merck Common Stock
equal to the product of (i) the number of shares of Common Stock
5
<PAGE>
issuable upon exercise of the Stock Option, and (ii) $3.00 divided by the
average of the closing sales prices of Merck Common Stock on the New York
Stock Exchange for the ten (10) consecutive days immediately prior to and
including the day preceding the Effective Time, at a price per share equal to
(a) the aggregate exercise price for shares of Common Stock under the Stock
Option, divided by (b) the number of shares of Merck Common Stock issuable per
share of Common Stock upon exercise of the Stock Option, as set forth above.
Conditions to the Offer. Notwithstanding any other term of the Offer or the
Merger Agreement, Purchaser shall not be required to accept for payment or pay
for, subject to any applicable rules and regulations of the SEC, including
Rule 14c-1(c) of the Exchange Act, any shares of Common Stock not theretofore
accepted for payment or paid for and may terminate the Offer unless (i) there
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer that number of shares of Common Stock which would represent at least
a majority of the outstanding shares of Common Stock on a fully diluted basis
(the "Minimum Condition") and (ii) any waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act") applicable
to the purchase of shares of Common Stock pursuant to the Offer shall have
expired or been terminated. Furthermore, notwithstanding any other term of the
Offer or the Merger Agreement, Purchaser shall not be required to accept for
payment or, subject as aforesaid, to pay for any shares of Common Stock not
theretofore accepted for payment or paid for, and may terminate the Offer if
immediately prior to the acceptance of such shares of Common Stock for payment
or the payment therefor, any of the following conditions exist or shall occur
and remain in effect:
(a) any action, suit, or proceeding by any Governmental Entity (as
defined in the Merger Agreement) shall be threatened or pending
(i) challenging the consummation of any of the transactions contemplated by
the Merger Agreement, (ii) seeking rescission of the transactions
contemplated by the Merger Agreement following consummation or seeking to
cause Merck or Medco to hold the Surviving Corporation or its assets
separate, (iii) seeking relief which would adversely affect the right of
Merck or Medco to own the Common Stock and to control the Surviving
Corporation and its subsidiaries, or (iv) seeking relief which would
adversely affect the right of any Surviving Corporation and its
subsidiaries to own its assets and to operate its business (and no such
order, decree, injunction, judgment, ruling or charge with respect to the
matters set forth in this clause (a) shall be in effect); or
(b) there shall have been enacted, entered, enforced or deemed applicable
to the Offer or the Merger, by any state, federal or foreign government or
governmental authority or by any court, domestic or foreign, any statute,
rule, regulation, judgment, decree, order or injunction, that prohibits or
makes illegal the making or consummation of the Offer or the Merger; or
(c) The Company and Purchaser shall have reached an agreement or
understanding that the Offer or the Merger Agreement be terminated or the
Merger Agreement shall have been terminated in accordance with its terms;
or
(d) except where the inaccuracies of any representations and warranties
of the Company would not, in the aggregate of all such inaccuracies, have a
Company Material Adverse Effect (as defined in the Merger Agreement), any
of the representations and warranties of the Company set forth in the
Merger Agreement, shall not have been true and correct in all respects when
made or shall thereafter have ceased to be true and correct as if made as
of such later time (other than representations and warranties made as of a
specific date which shall remain true and correct as of such date except
where the failure to be so true and correct would not have a Company
Material Adverse Effect); or
(e) the Company shall not have performed or complied with any agreement
or covenants required by the Merger Agreement to be performed or complied
with by it on or prior to the scheduled expiration date of the Offer,
except where the failure to so comply would not have a Company Material
Adverse Effect. The Company shall have not sold its operations in Costa
Rica, Panama and Peru; or
(f) any consent, approval or authorization legally required to be
obtained to consummate the Offer shall not have been obtained from or made
with all required Governmental Entities; or
6
<PAGE>
(g) the Company's Board of Directors shall have withdrawn, modified or
amended its recommendation of the Offer in any manner adverse to Merck,
Medco and Purchaser, or shall have recommended acceptance of any Competing
Transaction or shall have resolved to do any of the foregoing; or
(h) a tender offer or exchange offer (other than the Offer) for 50% or
more of the outstanding shares of capital stock of the Company is commenced
and the Board of Directors of the Company recommends that shareholders
tender their shares into such tender or exchange offer;
which, in the reasonable judgment of Medco and Purchaser, in any case, and
regardless of the circumstances (including any action or inaction by Medco or
Purchaser or any of their affiliates other than any action or inaction
constituting a material breach by Medco or Purchaser of their obligations
under the Merger Agreement) giving rise to any such condition, makes it
inadvisable to proceed with the Offer or with such acceptance for payment,
purchase or, or payment for the shares of Common Stock.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition and may be waived by Purchaser, in whole or in part, at any time and
from time to time, in the sole discretion of Purchaser. The failure by
Purchaser at any time to exercise any of the foregoing rights will not be
deemed a waiver of any right, the waiver of such right with respect to any
particular facts or circumstances shall not be deemed a waiver with respect to
any other facts or circumstances, and each right will be deemed an ongoing
right which may be asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions, all
tendered shares of Common Stock not theretofore accepted for payment shall
forthwith be returned to the tendering stockholders.
The Company and Merck each filed a Notification and Report Form regarding
the Merger with the Federal Trade Commission ("FTC") on May 3, 1996, pursuant
to the HSR Act, and the pre-merger waiting period under the HSR Act terminated
on May 24, 1996.
Conditions to the Merger. The obligations of each of the Company, Purchaser
and Medco to effect the Merger are conditioned upon, among other things: (i)
Purchaser shall have purchased, pursuant to the Offer, a number of shares
which satisfies the Minimum Condition, (ii) approval and adoption of the
Merger Agreement and the Merger by the requisite vote of the stockholders of
the Company; (iii) no Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect
and which has the effect of making the transactions contemplated by the Merger
Agreement illegal or otherwise prohibiting consummation of the transactions
contemplated by the Merger Agreement; and (iv) the expiration or termination
of the applicable waiting period under the HSR Act.
The Company's obligation to effect the Merger is also subject to the
representations and warranties of Purchaser, Medco and Merck being materially
correct as of the Effective Time, and with performance by Purchaser, Medco and
Merck of all material agreements and covenants required by the Merger
Agreement. Medco's obligations to effect the Merger are also subject to the
Company's representations and warranties in the Agreement (including the
Company's representations regarding the absence of litigation and the absence
of certain changes and events since January 1, 1996) being materially correct
as of the Effective Time, and the Company's performance of all material
agreements and covenants required by the Merger Agreement.
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time by: (i) mutual consent of the Company and Medco; (ii) by Medco,
upon a breach of certain representations or covenants of the Company in the
Merger Agreement, or by the Company, upon a breach of certain representations
or covenants of Medco in the Merger Agreement, unless in either case the
breach is curable by commercially reasonable efforts and the breaching party
continues to exercise such efforts; (iii) by either Medco or the Company, if
(a) there is any final and nonappealable order of any court or governmental
body preventing consummation of the Merger, (b) if the Offer shall have
expired or been terminated in accordance with its terms
7
<PAGE>
as the result of the failure of any of the conditions to the Offer without the
Purchaser having purchased any shares of Common Stock pursuant to the Offer,
(c) the Merger Agreement fails to receive the requisite vote for approval and
adoption by the stockholders of the Company or (d) the Merger has not been
consummated on or before September 30, 1996; (iv) by Merck or Medco, if (a)
the Company's Board of Directors withdraws its support for the Offer or Merger
or supports a Competing Transaction, (b) a tender offer or exchange offer
(other than the Offer) for 50% or more of the outstanding shares of capital
stock of the Company is commenced, and the Board recommends that shareholders
tender their shares into such offer, or (c) any person (other than Merck or
its subsidiaries) or group acquires beneficial ownership of more than 30% of
the Company's outstanding capital stock; or (v) by the Company, if (a) its
Board of Directors determines in good faith, after consultation with
independent legal counsel, that it is required by Delaware Law to enter into a
definitive agreement for a Competing Transaction which the Board determines is
financially superior to the Merger and is reasonably likely to be consummated,
(b) the Offer shall not have been timely commenced in accordance with the
Merger Agreement or (c) the Offer shall have expired or terminated without any
shares of Common Stock being purchased thereunder, or if no such shares of
Common Stock have been purchased thereunder by September 30, 1996, unless
failure to so purchase shares of Common Stock is caused by or results from a
breach by the Company of the Merger Agreement.
The Merger Agreement provides that the Company will pay Medco $2,000,000 and
reimburse Medco for up to $250,000 of out-of-pocket expenses related to the
Offer and Merger if the Merger Agreement is terminated by the Company (i)
based on the determination by the Board of Directors of the Company that the
Company is required under Delaware law to enter into a definitive agreement
for a Competing Transaction, or (ii) for any reason other than a breach of the
Merger Agreement by Medco or Purchaser, and either (a) the Board of Directors
withdraws its support for the Offer or the Merger or supports a Competing
Transaction, or (b) certain conditions to the Merger fail to occur and either
a Competing Transaction is consummated, or any person (other than Merck or its
subsidiaries) acquires beneficial ownership of more than 50% of the Company's
outstanding Common Stock, within one year after the date of the Merger
Agreement. If Medco terminates the Merger Agreement based on the existence of
a governmental action or court order, Medco will pay the Company $500,000 and
reimburse the Company for up to $500,000 of out-of-pocket expenses related to
the Offer and the Merger.
Rights Agreement. The Company has outstanding preferred stock purchase
rights of the Company issued pursuant to a Rights Agreement. The Merger
Agreement requires the Company to take all necessary action to cause the
dilution provision of the Rights Agreement to be inapplicable to the Offer and
Merger, without payment to holders of rights issued pursuant to such Rights
Agreement.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a)-(b) Recommendation. The Company's Board of Directors, acting
unanimously, has approved the Merger Agreement, approved the Offer and
determined that the Offer and Merger are fair to and in the best interests of
the Company's stockholders.
The Board recommends that stockholders accept the Offer and tender their
Shares into the Offer.
A copy of a letter to stockholders communicating the board's recommendation
is filed as Exhibit 4 to this Schedule 14D-9 and is incorporated herein by
reference.
Background of the Transaction. During 1994, the pharmacy benefits management
("PBM") industry continued its recent trend of PBM companies being acquired by
pharmaceutical manufacturers, and the Company was approached by several
potential partners inquiring as to potential business combinations. In
response to this industry dynamic and these inquiries, the Company retained
Morgan Stanley on August 18, 1994 as its financial advisor to help the Company
explore strategic alternatives. Although exploratory discussions were held
with several potential partners in 1994, no business combination proposals
were presented to the Company at that time.
8
<PAGE>
In mid-1995, representatives of Medco contacted Mr. Westover, the President
and Chief Executive Officer of the Company, concerning a potential acquisition
of the Company by Medco. The parties engaged in preliminary discussions and
executed a confidentiality agreement in July of 1995. The Company provided
certain information to Medco, and had discussions with Medco concerning the
Company's business and operations, throughout the Fall of 1995 and through
April of 1996. During this time, Morgan Stanley continued to explore strategic
alternatives that might be available to the Company, and contacted numerous
potential partners about a potential business combination with the Company.
None of these contacts, however, expressed any interest in any business
combination with the Company.
The Company learned that several of its key customers would not be renewing
their contracts with the Company for 1996, which was projected to reduce
revenues for 1996 by $24 million to $32 million. The Company initially
believed that it would be able to replace at least a portion of this business
with new customers, or with increased business from existing customers.
In January and February of 1996, the Company continued to provide
information to and have discussions with Medco. The Company's Board of
Directors met seven times during that period to consider, among other things,
the strategic alternatives available to the Company, including a possible
merger transaction with Medco. In late February of 1996, Medco indicated
interest in acquiring the Company for a price in the $3.00 per share price
range. At a Board of Directors' meeting on February 26, 1996, following a
review of the discussions with Medco and after consultation with Morgan
Stanley, the Board of Directors decided not to continue further discussions
with Medco at that time. At that time, the closing sales price of the Common
Stock on NASDAQ was $5 1/8 per share.
The Board of Directors met twice in March of 1996 to consider strategic
alternatives available to the Company. The Company's operating results
continued to deteriorate in March and April of 1996. In particular, the
Company learned that two large customers would be reducing the volume of the
pharmaceutical claims processing transactions during the remainder of 1996,
and the Company continued to have difficulty in obtaining new large accounts.
In April, the closing sales price of the Common Stock dropped to a low of $2
3/8 per share.
In early April of 1996, representatives of Medco again contacted the Company
to inquire whether the Company was interested in an acquisition proposal in
the $3.00 per share range. The Board was advised of this proposal at its April
3, 1996 meeting, and again decided not to pursue the matter.
At an April 12 Executive Committee meeting and an April 16 Board meeting,
the Board of Directors continued to consider and analyze in detail all of the
strategic alternatives available to the Company, including the Company's
prospects for continuing as an independent entity. Based on these discussions,
and particularly in light of increasing competitive pricing pressures in the
PBM industry, the Company's recent loss of significant business and its
relative lack of success in obtaining new large accounts, the Board of
Directors determined that it would be prudent to further consider Medco's
proposal. During this time, the Company continued to provide information to
Medco, and representatives of the Company and Medco continued to have informal
contacts.
The Company received a draft Merger Agreement from Medco on April 18, 1996,
and representatives of the Company and Medco and their respective legal and
financial advisors proceeded to negotiate the terms of the definitive Merger
Agreement. During the negotiation, the Company proposed a price of $3 3/8 per
share, but such proposal was rejected by Medco. The Company's Board of
Directors met on April 22, April 24 and April 27, 1996 to discuss the
potential sale of the Company to Medco, with representatives of Morgan Stanley
and the Company's outside legal counsel present at each meeting. At those
meetings, the strategic alternatives available to the Company, the potential
risks and benefits thereof, and the terms of the proposed transaction with
Medco, were all discussed in detail. At each meeting, members of the Company's
senior management discussed the Company's financial prospects in light of the
recent losses of certain of the Company's major customers, the Company's
unsuccessful efforts to generate new accounts to replace these customers, and
the evolving nature of the PBM business, including increased competitive
pricing pressure, increases in branded drug costs and reduced market
performance discounts. At the April 22 and 27 meetings, a representative of
Morgan Stanley discussed in
9
<PAGE>
detail that firm's assessment of the Company's financial prospects, and that a
complete market search for potential business partners (consisting of over 30
companies approached) had turned up no interest for a potential business
combination with the Company. At the April 27 meeting, a representative of
Morgan Stanley presented that firm's opinion that the proposed merger was fair
from a financial point of view to the Company's stockholders.
The Board of Directors held another meeting on April 28, 1996 to further
discuss the terms and merits of the proposed Medco acquisition, with the
Company's outside legal counsel present. After extensive discussion and
consideration, the Board approved the Initial Merger Agreement dated as of
April 28, 1996 (the "Initial Merger Agreement") and authorized the execution
of the Initial Merger Agreement. On June 7, 1996, the Board of Directors met
again to review and approve the proposed amendments to the Merger Agreement,
which amendments primarily involved providing for the Offer by the Purchaser.
The reasons for the Board's decision to approve the Offer and Merger are
discussed in detail below.
Reasons for the Board's Recommendation. Prior to reaching its conclusions,
the Board received presentations from and reviewed the Offer and Merger with,
management of the Company as well as the financial advisor and outside legal
counsel to the company. On reaching its conclusions, the Board considered a
number of factors, including, but not limited to, the following:
(i) The Company's Business, Financial Condition and Prospects. In
evaluating the terms of the Offer and Merger, the Board considered, among
other things, information with respect to the financial condition, results
of operations and business of the Company, on both a historical and a
prospective basis, and current industry, economic and market conditions.
The members of the Board were generally familiar with and knowledgeable
about the Company's affairs, including the present and possible future
economic and competitive environment in which the Company operates its PBM
business, and further reviewed these matters in the course of their
deliberations.
The Board considered the fact that, while the Company had posted record
revenues and earnings in 1995, it had also experienced a decrease in
revenues and net income for the quarter ended December 31, 1995 as compared
to the same period of 1994, and a decrease in revenues and a $2.6 million
net loss for the quarter ended March 31, 1996. The Board was aware that
several of the Company's key customers had not renewed their contracts with
the Company for 1996, which was projected to reduce revenues for 1996 by
$24 to $32 million, and that while management had initially been optimistic
about the prospect of additional revenues from new accounts, during the
first four months of 1996 several other important customers had notified
the Company of their intent to reduce their business with the Company. The
Company had recently been informed by two of its three largest claims
processing clients that they would be terminating their contracts in 1996.
These clients represented approximately $7.6 million of claims processing
and mail service revenues in 1995. The Board of Directors was also aware
that the Company had been unable to win competitive bids for certain large
customers that would have replaced this lost business.
The Board also considered the fact that the Company had already taken a
restructuring charge to earnings of approximately $1.6 million in the first
quarter of 1996, as a result of organizational changes intended to minimize
any reduction in future profits from lower revenues.
In evaluating the Company's prospects for increasing future revenues, the
Board was aware of the changing nature of the PBM industry, which was
characterized by high volumes and extremely narrow margins and where the
largest competitors were able to maintain a competitive cost structure by
securing significantly greater supplier discounts and rebates. The Board
also considered the trend of aggressive pricing of products and services by
larger competitors who had succeeded in winning some of the Company's
biggest customers by offering aggressive discounts which the Company was
unable to match. The Board also considered other structural industry trends
which would have made it difficult for the Company to increase future
revenues, including the fact that pharmaceutical manufacturers were
generally increasing drug costs and trying to improve their own margins by
generally making it more difficult for
10
<PAGE>
PBMs to obtain rebates. The Board was also aware that customers were
increasingly focusing on price as the primary factor in choosing a PBM and
demanding that PBMs share the rebates they received from manufacturers, so
that the Company's reputation for superior levels of customer service was
less important to customers than in the past.
Based on its review and consideration of these and other factors,
particularly the difficulty the Company would have in competing for new
customers in an industry where the largest PBMs appeared to have a
significant advantage over smaller competitors, the Board of Directors
determined that a sale of the Company for $3.00 per share in cash was in
the best interests of the Company's stockholders.
(ii) Alternative Transactions. The Board determined, based on advice from
the Company's senior executive officers and Morgan Stanley, that it was
unlikely that a sale of the Company, or another transaction involving the
Company and another entity, could be structured in a manner that would
offer comparable value to the stockholders. Morgan Stanley reported to the
Company that, despite numerous inquiries, it had been unable to identify
any other serious potential acquirors.
(iii) Management's Recommendation. The Board reviewed presentations from,
and discussed the terms and conditions of the Merger Agreement and the
Offer and Merger with, senior executive officers of the Company,
representatives of its outside legal counsel and representatives of its
financial advisor. The Board considered the view of management that the
Offer and Merger were in the best interests of the Company and its
stockholders.
(iv) Opinion of Morgan Stanley. The Board considered the opinion of
Morgan Stanley that the consideration to be received by the stockholders
pursuant to the Merger Agreement is fair to such holders from a financial
point of view, as well as the presentation made by Morgan Stanley to the
Board, to support the Board's determination that the Offer and Merger is
fair to the stockholders. The full text of Morgan Stanley's written opinion
dated as of June 7, 1996, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached as Exhibit
5 hereto (the "Morgan Stanley Opinion") and is incorporated herein by
reference. Holders of Common Stock are urged to, and should, read the
Morgan Stanley Opinion carefully and in its entirety. The Morgan Stanley
Opinion is directed to the Company Board of Directors and the fairness of
the consideration to be received by the holders of Common Stock pursuant to
the Merger Agreement, and it does not address any other aspect of the Offer
or Merger nor does it constitute a recommendation to any holder of Common
Stock as to whether or not such holder should participate in the Offer. The
summary of the Morgan Stanley Opinion set forth herein is qualified in its
entirety by reference to the full text of such opinion.
(v) Stockholder Approval. The Board considered the fact that the Offer is
conditioned on a majority of the outstanding shares of Common Stock on a
fully diluted basis tending their shares to the Purchaser. The Board
considered the fact that a decision by the Board to reject the Merger
Agreement might deprive the stockholders of the opportunity to determine
where their best interests lay, while a decision to approve the Offer and
Merger would furnish stockholders with such an opportunity.
(vi) Recent Market Prices Compared to the Consideration to be Received in
the Merger. The Board reviewed the historical market prices and recent
trading activity of the Common Stock. The Board noted that while the Common
Stock closed at $5 1/4 as recently as February 28, 1996, the closing sales
price had dropped to as low as $2 3/8 on April 3, 1996, and the $3.00 per
share price to be paid in the Merger was between the high and low sales
prices of the Common Stock on April 26, 1996, the last trading day before
the public announcement of the proposed Merger. In evaluating the adequacy
of the $3.00 per share price, the Board considered the fact that the
Company had not yet announced its results for the first quarter of 1996, or
filed its quarterly report on Form 10-Q for that quarter. The Board, after
consultation with Morgan Stanley, believed that the market price of the
Common Stock was likely to decrease to a price below $3.00 per share upon
the release of the unfavorable first quarter results.
(vii) Termination Provision; No Financing Condition. The Board considered
as favorable to its determination the fact that the Merger Agreement
permits the Board to approve a Competing Transaction
11
<PAGE>
that it believes is in the best interests of the stockholders. See "The
Terms of the Merger--Certain Covenants" and "Termination." The Board also
regarded as favorable the fact that the Merger Agreement does not contain a
financing condition, and that Merck is a large enterprise, and that
accordingly the Merger has a low risk of noncompletion due to any financial
inability of Medco.
(viii) Conditions to the Merger. The Board was aware that Medco's
obligation to consummate the Merger was contingent upon termination or
expiration of the applicable waiting period under the HSR Act, and viewed
as a negative factor the fact that Medco was not obligated under the Merger
Agreement to take certain actions with respect to securing approval under
the HSR Act, and that Medco was also not obligated to consummate the Offer
and the Merger if certain representations and warranties of the Company
(including representations regarding litigation and the absence of certain
material adverse events since January 1, 1996) were not true at the
Effective Time. However, the Board was aware that these conditions had been
the subject of intensive negotiations between the parties and had been
insisted upon by Medco.
(ix) Taxable Transaction. The Board viewed as a negative factor to its
determination the fact that, like all cash tender offers, the Offer and
Merger would be a taxable transaction. However, the Board determined that
this factor may be offset by the fact that a cash transaction could result
in a tax loss for certain stockholders. In addition, the Board was aware
that Merck had refused to negotiate a stock transaction and did not believe
that it would be able to effect a tax-free transaction offering comparable
value to the stockholders.
The foregoing description of the factors considered by the Board is not all-
inclusive but covers the principal matters discussed in detail by the Board.
In view of the wide variety of factors considered, the Board did not consider
it practical to, nor did it attempt to, quantify or attach any particular
weight to any of the factors it reviewed in reaching its conclusion to
recommend the Offer to the stockholders as being in their best interests.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has engaged Morgan Stanley as its financial advisor with respect
to the Offer and the Merger and other matters in connection therewith.
Pursuant thereto, Morgan Stanley was engaged, among other purposes, to
negotiate the terms of the Merger, including the terms of the Offer, and to
render its opinion that the consideration to be received by the Company's
stockholders is fair from a financial standpoint.
The Board of Directors retained Morgan Stanley based upon its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and advisory firm. Morgan Stanley, as part of its investment banking business,
is continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes. Morgan Stanley is a full service securities firm engaged in
securities trading and brokerage activities, as well as providing investment
banking and financial advisory services. In the ordinary course of Morgan
Stanley's trading and brokerage activities, Morgan Stanley or its affiliates
may at any time hold long or short positions, may trade or otherwise effect
transactions, for its own account or for the account of customers, in debt or
equity securities of the Company or Merck. In the past, Morgan Stanley and its
affiliates have provided financial advisory and financing services for the
Company and Merck and Medco and have received fees for the rendering of these
services.
Pursuant to a letter agreement dated as of August 18, 1994, between the
Company and Morgan Stanley, the Company retained Morgan Stanley to render
advisory services in connection with strategic alternatives available to the
Company. The Company agreed to pay Morgan Stanley a Transaction fee of
$2,000,000 payable at the time the transaction is closed. The Company has also
agreed to reimburse Morgan Stanley for its out-of-pocket expenses, including
the fees of its legal counsel, and to indemnify Morgan Stanley for liabilities
and expenses arising out of the engagement and the transaction in connection
therewith, including liabilities under the federal securities laws, incurred
in connection with its services.
12
<PAGE>
Neither the Company nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to stockholders of the Company on its behalf concerning the
Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in the Shares
have been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company.
(b) The Company has been advised that its executive officers, directors and
affiliates currently intend to tender any Shares that are held of record or
beneficially owned by such persons pursuant to the Offer, subject to personal
tax and other considerations, including the short-swing profit recovery
provisions of Section 16(b) of the Exchange Act. There are no written
agreements by any officer or director to tender their Shares to the Purchaser.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
On April 28, 1996, Purchaser, Medco, Merck and the Company entered into the
Initial Merger Agreement, and on June 10, 1996, entered into an amended and
restated Merger Agreement. See Item 3(b)(ii) above for a description of the
Merger Agreement.
Except as described above, the Company is not engaged in any negotiation in
response to the Offer which relates to or would result in (1) an extraordinary
transaction such as a merger or reorganization, involving the Company or any
subsidiary of the Company; (2) a purchase, sale or transfer of a material
amount of assets by the Company or any subsidiary of the Company; (3) a tender
offer for or other acquisition of securities by or of the Company; or (4) any
material change in the present capitalization or dividend policy of the
Company.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) Section 203. As a Delaware corporation, the Company is subject to
section 203 ("Section 203") of the Delaware General Corporation Law. Section
203 would prevent an "Interested Stockholder" (defined as a person
beneficially owning 15% or more of a corporation's voting stock) from engaging
in a "Business Combination" (as defined in Section 203) with a Delaware
corporation for three years following the date such person became an
Interested Stockholder unless: (i) before such person became an Interested
Stockholder, the board of directors of the corporation approved the
transaction in which the Interested Stockholder became an Interested
Stockholder or approved the Business Combination, (ii) upon consummation of
the transaction which resulted in the Interested Stockholder becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers and
employee stock ownership plans that do not provide for confidential voting by
plan participants), or (iii) following the transaction in which such person
became an Interested Stockholder, the Business Combination is (x) approved by
the board of directors of the corporation and (y) authorized at a meeting of
stockholders by the affirmative vote of the holders of 66 2/3% of the
outstanding voting stock of the corporation not owned by the Interested
Stockholder. The Board of Directors of the Company has unanimously approved
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the restrictions of acquisition by Purchaser of Shares pursuant to
the Offer. Section 203 will not apply, to Merck, Medco or Purchaser as a
result of the consummation of the transaction contemplated by the Merger
Agreement.
(b) Litigation. In April and May 1996, two stockholders of the Company filed
class action lawsuits in Los Angeles County Superior Court in the State of
California against the Company and certain of its directors. The first action
is Slomovics v. Systemed Inc., et al., Case No. NC019070, the second action is
Lemmer v. Systemed Inc., et al., Case No. BC149290 (which has not yet been
served). A third stockholder filed a class action in May 1996 in the Court of
Chancery of the State of Delaware in and for New Castle County against the
Company,
13
<PAGE>
certain of its directors and Merck. Fitzgerald v. Systemed, Inc., et al., Case
No. 14987 (which has not yet been served). The suits allege that the
defendants breached their fiduciary and other common law duties to the
stockholders by virtue of entering into the Merger Agreement, thereby
allegedly failing to obtain the maximum realizable value of the Common Stock.
The suits seek to enjoin and rescind the Merger, and seek damages in an
unspecified amount. The Company believes that the suits are without merit. On
June 7, a settlement agreement was entered into in the three actions. In the
agreement, which is subject to court approval, it is recognized that
proceeding with the Offer, rather than by merger, will give the Company's
shareholders an opportunity to receive the proposed consideration earlier than
was previously contemplated. The agreement also gives plaintiffs' counsel in
the actions the opportunity to comment on, and propose changes to, the
relevant disclosure documents relating to the Offer; provides for the release
of all claims arising from any facts that have been alleged or could be
alleged relating to the proposed acquisition; and provides that the defendants
agree to pay, and will not oppose, an award of attorneys' fees and expenses to
plaintiffs' counsel of an aggregate amount not to exceed $175,000, if approved
by the court.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1 Press Release dated April 29, 1996 announcing the Merger
2 Amended and Restated Agreement and Plan of Merger by and among Merck &
Co., Inc., Merck-Medco Managed Care, Inc., S Acquisition Corp and the
Company, dated as of June 10, 1996
3 Pages 4-8 of the Company's 1996 Proxy Statement, dated April 16, 1996,
for its May 24, 1996 Annual Meeting of Stockholders
4 Letter, dated June 11, 1996, from the Company's President and Chief
Executive Officer to the stockholders of the Company*
5 Opinion of Morgan Stanley & Co., Incorporated*
6 Press Release dated June 11, 1996 announcing the Offer
</TABLE>
- --------
* Included in the Schedule 14D-9 mailed to the Company's stockholders.
14
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Systemed Inc.
/s/ Sam Westover
By __________________________________
Name: Sam Westover
Title: President and Chief
Executive Officer
Dated: June 11, 1996
15
<PAGE>
EXHIBIT 3
EXCERPTS FROM SYSTEMED'S 1996 PROXY STATEMENT DATED APRIL 16, 1996
BOARD COMPENSATION
Members of the Board of Directors 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 of Directors.
Members of the Board of Directors who are not employees of the Company and who
are elected at the 1996 Annual Meeting of Stockholders will receive options
for the purchase of 10,000 shares of the Company's Common Stock at the closing
price for such shares on the first business day following such meeting.
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 Company's Board of Directors 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.
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 System Pharmacy Inc. subsidiary
to manage and administer a prescription drug plan.
1
<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
------------------------------------ ------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL 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 Administra-
tion 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 $10,000 one-time bonus to Mr. Hanrahan upon his
employment with the Company.
(G) Represents employer matching contribution under the Section 401 (k) plan.
2
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning Common Stock
options granted to the named executive officers during the fiscal year ended
December 31, 1995.
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES PERCENT OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(C)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(A) FISCAL YEAR 1995 ($/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 VALUE OF
SECURITIES UNDERLYING UNEXERCISED IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS AT
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.
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
3
<PAGE>
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 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 or 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.
Under the terms of the Employment Agreement (the "Agreement") dated January
19, 1994 between the Company and Perry I. 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.
By agreement between the Company and Kenneth J. Kay, Senior Vice President,
Finance and Administration, and Chief Financial Officer, entered into upon Mr.
Kay's employment by the Company in July 1994, in the event that the Company is
acquired during Mr. Kay's employment, the Company will, upon the effective
date of such acquisition, make an additional cash payment to Mr. Kay in an
amount equal to the difference between the aggregate value (which is the
difference between the acquisition price and his exercise price) of his
initial stock option grant and $356,250. Under the terms of the Change of
Control Severance Agreement dated September 29, 1995 between the Company and
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 System 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.
4
<PAGE>
SYSTEMED LOGO
970 WEST 190TH STREET, SUITE 400
TORRANCE, CALIFORNIA 90502
June 11, 1996
Dear Stockholder:
On April 28, 1996 Systemed Inc. (the "Company") entered into a merger
agreement with Merck & Co., Inc. ("Merck"), a New Jersey corporation, Merck-
Medco Managed Care, Inc. ("Medco"), a Delaware corporation and a subsidiary of
Merck, and S Acquisition Corp. ("Purchaser"), a Delaware corporation and
wholly owned subsidiary of Medco, which provides for the acquisition by Medco
of all of the outstanding shares of common stock of the Company (the "Shares")
at a cash price of $3.00 per Share through a merger (the "Merger") of
Purchaser with and into the Company. Pursuant to an amendment of the merger
agreement, entered into on June 10, 1996 (as so amended, the "Merger
Agreement"), Purchaser has today commenced a tender offer (the "Offer") for
all of the Company's outstanding Shares at $3.00 per Share. Under the Merger
Agreement, the Offer will be followed by the Merger, in which any remaining
Shares will be converted into the right to receive $3.00 per Share in cash
(except any Shares as to which the holder has properly exercised dissenter's
rights of appraisal). The parties agreed to change the form of the acquisition
to a tender offer followed by a Merger in order to consummate the closing of
the acquisition at the earliest practicable date.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE OFFER IS FAIR TO, AND IN THE BEST
INTERESTS OF, THE COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE
COMPANY'S STOCKHOLDERS TENDER THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the enclosed Schedule 14D-9,
including the opinion of Morgan Stanley & Co., Incorporated, financial advisor
to the Company, that the cash consideration to be received in the Offer and
the Merger is fair to the Company's stockholders from a financial standpoint.
Additional information with respect to these transactions is contained in
the enclosed Schedule 14D-9. Also enclosed is the Offer to Purchase and
related materials, including a Letter of Transmittal to be used for tendering
Shares. These documents set forth in detail the terms and conditions of the
Offer and provide instructions on how to tender Shares. You are urged to read
the enclosed material carefully in making your decision with respect to
tendering your Shares.
On behalf of the Board of Directors, I thank you for the support you have
given to your Company over the years.
Sincerely yours,
/s/ Sam Westover
Sam Westover
President and Chief Executive
Officer
<PAGE>
[LETTERHEAD OF MORGAN STANLEY APPEARS HERE]
June 7, 1996
Board of Directors
Systemed Inc.
970 West 190th, Suite 400
Torrance, CA 90502
Gentlemen:
We understand that Systemed Inc. (the "Company"), Merck-Medco Managed Care, Inc.
("Medco"), Merck & Co., Inc. ("Merck" and together with Medco, the "Buyer") and
S Acquisition Corp., a wholly owned subsidiary of Buyer ("Acquisition Sub")
propose to enter into an Amended and Restated Agreement and Plan of Merger,
substantially in the form of the draft dated June 3, 1996 (the "Merger
Agreement"), which provides, among other things, for (i) the commencement by
Acquisition Sub of a tender offer (the "Tender Offer") for all outstanding
shares of common stock, par value $0.001 per share (the "Common Stock") of the
Company for $3.00 per share net to the seller in cash, and (ii) the subsequent
merger (the "Merger") of Acquisition Sub with and into the Company. Pursuant to
the Merger, the Company will become a wholly owned subsidiary of Buyer and each
outstanding share of Common Stock, other than shares held in treasury or held by
Buyer or any affiliate of Buyer or as to which dissenters' rights have been
perfected, will be converted into the right to receive $3.00 per share in cash.
The terms and conditions of the Tender Offer and the Merger are more fully set
forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be received by
the holders of shares of Common Stock pursuant to the Merger Agreement is fair
from a financial point of view to such holders (other than the Buyer and its
affiliates).
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of the Company;
(ii) analyzed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
<PAGE>
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common
Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) participated in discussions with senior management of the Company and
their legal advisors regarding certain regulatory and other legal
issues in connection with the Merger;
(ix) discussed with senior management and the Board of the Company the
strategic objectives of the Company with respect to the Tender Offer
and the Merger;
(x) participated in discussions and negotiations among representatives of
the Company, Buyer and their financial and legal advisors;
(xi) reviewed the Merger Agreement and certain related documents; and
(xii) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company. We
have not made any independent appraisal or valuation of the assets or
liabilities of the Company, nor have we been furnished with any such appraisals.
We have been advised that the Company's Board of Directors has determined that
the preferable course of the Company and its shareholders is to seek to engage
in a business combination or sale transaction in the near term in light of the
view of such Board regarding the near and longer term risks inherent in the
Company seeking to operate on a stand-alone basis. Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have also been advised that the Company has initiated contact with and
received certain inquiries from a number of third parties with respect to the
possibility of a transaction involving the Company, and we have initiated
contacts and participated in discussions with certain third parties with respect
to a possible acquisition of the Company.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated
<PAGE>
and its affiliates have provided financial advisory and financing services for
the Company and Buyer and have received fees for the rendering of these
services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the Tender Offer or Merger. In addition, we express no opinion
or recommendation as to whether or not the holders of Common Stock should
participate in the Tender Offer.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Common Stock pursuant
to the Merger Agreement is fair from a financial point of view to such holders
(other than Buyer and its affiliates).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: s/s Kathleen E. White
------------------------------
Kathleen E. White
Managing Director
<PAGE>
EXHIBIT 99.6
Systemed and Merck-Medco Amend Merger Agreement
Merck-Medco Commences Tender Offer
Torrance, California and Montvale, New Jersey, June 11, 1996 -- Systemed Inc.
(NASDAQ: SYSM) and Merck-Medco Managed Care, Inc., a subsidiary of Merck & Co.,
Inc. (NYSE: MRK), announced today that they have amended their merger agreement
and that a subsidiary of Merck-Medco has commenced a tender offer of $3 per
share in cash for all outstanding shares of Systemed Inc. Common Stock.
Stockholder material will be distributed shortly, and stockholders will be given
twenty business days from the date of this release to tender their shares for
the $3 in cash indicated in the announcement of the merger. The Board of
Directors of Systemed believes that the Merck-Medco offer is fair to, and in the
best interests of, the Company's stockholders and recommends that the Company
stockholders tender their shares pursuant to the Merck-Medco offer. D.F. King &
Co., Inc. will be acting as information agent for this offer, and can be reached
at (800) 549-6864 to answer any specific questions concerning the tender offer
and/or ensuing cash distributions.
# # # # #
