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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Check the appropriate box:
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<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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MEDCO RESEARCH, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Medco logo January 31, 2000
Dear Fellow Stockholder:
INTRODUCTION
As you know, a special meeting of Medco's stockholders is scheduled to be
held on February 10, 2000 to consider and approve the proposed merger of Medco
with King Pharmaceuticals. Your Board of Directors has approved the merger
agreement with King and unanimously urges you to vote "FOR" the adoption of the
merger agreement and the approval of the merger.
As we previously advised you in our letter to stockholders dated January
21, 2000, one institutional investor, the State of Wisconsin Investment Board
("SWIB"), is attempting to block the merger. SWIB has filed a purported class
action lawsuit alleging, among other things, that Medco failed to disclose
certain information in the proxy statement previously provided to you in
connection with the merger. To resolve any doubt raised by SWIB as to whether
all material information is being provided to Medco stockholders before they
vote, we are distributing this letter as a supplement to the proxy statement
previously provided to you.
SUPPLEMENTAL INFORMATION
Your Board's Reliance on Experts. It is customary and prudent for merger
negotiations and related financial analyses to be conducted and performed by
designated negotiators and experienced financial advisors that report to the
board of directors. Anything else would be unusual.
As disclosed in the proxy statement, Richard C. Williams, Medco's Chairman,
served as Medco's lead negotiator. This choice was made due to the Chairman's
wealth of experience in business combination transactions and his role as
Medco's interim co-CEO.
As also disclosed, Hambrecht & Quist served as Medco's financial advisor in
connection with the merger. Hambrecht & Quist was selected to act as Medco's
financial advisor based on its qualifications, expertise and reputation, as well
as its historical investment banking relationship and familiarity with Medco.
As is clear from the proxy statement, the other directors of Medco did not
personally participate in any direct merger discussions with representatives of
King. Consequently, your Board relied extensively on the information and
analyses provided by the Chairman and Hambrecht & Quist, together with
information and analyses provided by Medco's senior management and legal
counsel, in considering and acting upon the merger. Your Board believes that
this reliance was both justified and appropriate.
Hambrecht & Quist's Involvement. SWIB makes much of the fact that
Hambrecht & Quist has provided investment banking and other financial advisory
services to both Medco and King, has provided research coverage of Medco and
King and, in the ordinary course of its business, has acted as a market maker
and broker in the publicly traded securities of King and a broker in the
publicly traded securities of Medco. These facts are fully disclosed in the
proxy statement. In 1998, Credit Suisse First Boston was lead underwriter in
King's initial public offering. Hambrecht & Quist co-managed King's initial
public offering. It is typical that investment banking firms with industry
experience, such as Hambrecht and Quist, will have a substantial historical
relationship with a broad range of industry members.
Pursuant to the engagement letter entered into between Medco and Hambrecht
& Quist, Hambrecht & Quist waived its customary retainer fee, and Medco agreed
to pay Hambrecht & Quist an opinion fee of $400,000 upon its rendering of its
opinion as to the fairness of the transaction from a financial point of view.
Upon consummation of the merger, in the event the total value of the
consideration received by Medco stockholders equals or exceeds $33.00 per common
share outstanding, Hambrecht & Quist will become entitled to receive from Medco
a fee equal to 1.00% of all consideration received, less the $400,000 fee and
any other fees previously paid. In the event the total value of the
consideration received
P.O. Box 13886 - Research Triangle Park, NC 27709
7001 Weston Parkway, Suite 300 - Cary, NC 27513 - Phone: (919) 653-7001
Fax: (919) 653-7099
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by Medco stockholders is less than $33.00 per common share outstanding,
Hambrecht & Quist will become entitled upon consummation of the merger to
receive a fee from Medco equal to 0.75% of all consideration received, again
less any fees previously paid. Assuming for purposes of illustration a $34.00
per share total value of consideration, and based upon the number of Medco
common shares outstanding on the record date (10,682,970), the fee payable to
Hambrecht & Quist would be $3,632,210, less the $400,000 and any other fees
previously paid.
The fairness opinion that Hambrecht & Quist provided to your Board is dated
November 30, 1999 (the date on which your Board approved the merger agreement),
and speaks only as of that date. A fairness opinion always speaks as of a
certain date because, as clearly stated in the proxy statement and in the
fairness opinion itself, it is necessarily based upon market, economic,
financial and other conditions existing as of that date. The methodology
Hambrecht & Quist employed in preparing its fairness opinion is described in
full in the proxy statement. You should be aware that Hambrecht & Quist believes
that its analyses must be considered as a whole and that selecting portions of
its analyses, without considering all factors and analyses, could create an
incomplete view of the process and analyses underlying its opinion.
On October 29, 1999, King advised Medco that King would not proceed with
the merger unless there were a recovery in King's stock price. On November 1,
1999, King issued a press release with respect to King's strong financial
performance. Also on November 1, 1999, Hambrecht & Quist placed King's stock on
its regularly published "Focus List." King's stock price began to recover during
the week of November 1, 1999, and due diligence relating to the merger
discussions resumed. SWIB has claimed that Hambrecht & Quist placed King's stock
on the Focus List in order to effect an increase in King's stock price. In fact,
however, and in accordance with Hambrecht & Quist's internal compliance
requirements, the Hambrecht & Quist analyst responsible for placing King's stock
on the Focus List was unaware of the merger discussions between Medco and King
when he made his recommendation.
Actions of Certain Individuals. Contrary to SWIB's suggestions, Dr. Roger
D. Blevins, Medco's former Chief Executive Officer, participated in and was
supportive of the Board's effort to find a partner for a strategic alliance with
Medco. On July 1, 1999, he resigned from Medco for reasons unrelated to that
process.
The proxy statement, at page 31, discloses that the Medco Board took
certain action on October 22, 1999 with respect to the proposed merger. While
the Board did act to authorize Mr. Williams to proceed with merger negotiations
in response to the King offer of $30.00 in value of its stock for each share of
Medco common stock, the Board did not at that meeting approve any particular
amount or value of merger consideration.
As of November 19, 1999, the parties had not yet agreed upon the material
terms of the Merger Agreement, i.e., those relating to price, King's 19.9% stock
option, termination fees, collar and expense reimbursement provisions. Between
November 22 and 24, 1999, there were continual negotiations over these terms,
during which Mr. Williams and Hambrecht & Quist were able to achieve a two-sided
collar, and a higher up-side potential within the collar, for the benefit of
Medco's shareholders in exchange for, among other things, agreeing to the
option, termination fee and expense reimbursement provisions demanded by King.
On November 24, 1999, at a meeting in which all Board members participated by
telephone, your Board (with Mr. Williams abstaining) preliminarily approved the
merger, subject to the resolution of certain issues, by a vote of 3-to-1, with
Mark B. Hirsch voting against.
On November 30, 1999, the Board (with Mr. Williams abstaining) approved the
merger agreement by a vote of 2-to-0, a sufficient vote to constitute Board
action under Delaware law and Medco's by-laws. Mr. Hirsch and William Bartlett,
participating by telephone, voted in favor of the merger. Eugene L. Step and Dr.
Jay N. Cohn, both of whom had voted to preliminarily approve the merger on
November 24, were not able to participate in the meeting because of travel
commitments. Thereafter, all five directors signed affiliate agreements, a
voting agreement and irrevocable proxies as a condition to execution of the
final merger agreement. Contrary to the statements at pages 33 and 34 of the
proxy statement, no written consent of the directors was subsequently executed,
and drafts of the proposed merger agreement were not made available to all
directors before the votes on November 24 and November 30, 1999. As described in
the proxy statement, however, the material terms of the merger agreement were
explained to the Board by Medco's general counsel and others. References in the
proxy statement to unanimous Board action recommending that stockholders vote in
favor of the merger are based upon the vote at the November 30, 1999 meeting.
Board member Mark Hirsch voted against approval of the merger on November 24,
1999 because he was uncertain at that time, and wished to consider further,
whether the merger was in the best interests of Medco and its stockholders. Mr.
Hirsch voted in favor of the merger on November 30, 1999
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when he determined -- after direct discussions with Hambrecht & Quist and
members of management (excluding Mr. Williams), an independent review of
additional publicly available information regarding King, and further
consideration of the risks facing Medco as a stand-alone company -- that the
merger was likely to provide greater value to Medco's stockholders than would
Medco's continued operation on a stand-alone basis, and that it was highly
unlikely that certain termination, expense and collar provisions would have any
practical impact.
YOUR VOTE IS IMPORTANT
Your Board unanimously urges you to vote "FOR" the merger. Remember, SWIB
has not provided any alternative to increase stockholder value -- it has only
sought to jeopardize our agreement with King.
- If you hold your stock in your own name, please sign, date and mail your
proxy card in the enclosed envelope or vote over the Internet at
www.proxyvote.com, or by telephone at (800) 454-8683.
- If you hold your stock through a bank or broker who has provided you with
the option of voting via telephone or the Internet, please utilize one of
these services as a prompt way of submitting your vote immediately.
Please refer to the voting form you received for the appropriate telephone
number or website information and have your control number ready when using
these options. Of course, if you prefer, you may mail the voting form in the
envelope provided.
If you have any questions or need assistance in voting your stock, please
contact our proxy solicitor at (800) 659-6590.
Sincerely,
/s/ Richard C. Williams
Richard C. Williams
Chairman of the Board
/s/ William Bartlett
William Bartlett
/s/ Dr. Jay N. Cohn
Dr. Jay N. Cohn
/s/ Mark B. Hirsch
Mark B. Hirsch
/s/ Eugene L. Step
Eugene L. Step
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Statements contained in this release which are not historical facts are or
may constitute forward looking statements under the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Although the Company
believes the expectations reflected in such forward looking statements are based
upon reasonable assumptions, it can give no assurance that its expectations will
be attained. Forward-looking statements involve known and unknown risks that
could cause the Company's actual results to differ materially from expected
results. Factors that could cause actual results to differ materially include,
among others, assimilation and other risks related to mergers; the high cost and
uncertainty of the research, clinical trials and other development activities
involving pharmaceutical products; the Company's ability to fund its activities
internally or through additional financing, if necessary; the unpredictability
of the duration and results of the U.S. FDA's review of New Drug Applications
and Investigational New Drug Applications and/or the review of other regulatory
agencies worldwide; the possible impairment of, or inability to obtain,
intellectual property rights and the cost of obtaining such rights from third
parties; intense competition; the uncertainty of obtaining, and the Company's
dependence on third parties to manufacture and sell its products; results of
pending or future litigation and other risk factors detailed from time to time
in the Company's SEC filings. The Company does not undertake to publicly update
or revise any of its forward looking statements even if experience or future
changes show that the indicated results or events will not be realized.
