-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T/BGD3SoBHLfocSZX2LKEsu6wglJmHcPUwvuw08dCizAIAM8ZY+KPAWQcbhU5SyJ Hr+zHfZwdwNbgs6oXJVTaQ== 0000950130-96-002189.txt : 19960613 0000950130-96-002189.hdr.sgml : 19960613 ACCESSION NUMBER: 0000950130-96-002189 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19960611 SROS: NASD SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SYSTEMED INC /DE CENTRAL INDEX KEY: 0000110074 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 952544661 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-13027 FILM NUMBER: 96579576 BUSINESS ADDRESS: STREET 1: P O BOX 2993 CITY: TORRANCE STATE: CA ZIP: 90509-2993 BUSINESS PHONE: 3105385300 MAIL ADDRESS: STREET 1: P O BOX 2993 CITY: TORRANCE STATE: CA ZIP: 90509-2993 FORMER COMPANY: FORMER CONFORMED NAME: NEWPORT PHARMACEUTICALS INTERNATIONAL INC /DE/ DATE OF NAME CHANGE: 19911003 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN STATES PROPERTIES INC DATE OF NAME CHANGE: 19700918 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MERCK & CO INC CENTRAL INDEX KEY: 0000064978 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221109110 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: ONE MERCK DR STREET 2: P O BOX 100 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 BUSINESS PHONE: 9084234044 MAIL ADDRESS: STREET 1: ONE MERCK DR STREET 2: PO BOX 100 WS3AB-05 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 SC 14D1 1 SCHEDULE 14D-1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------- SYSTEMED INC. (NAME OF SUBJECT COMPANY) S ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF MERCK-MEDCO MANAGED CARE, INC. AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF MERCK & CO., INC. (BIDDERS) COMMON STOCK, $0.001 PAR VALUE (TITLE OF CLASS OF SECURITIES) 871 8531 (CUSIP NUMBER OF CLASS OF SECURITIES) BERT WEINSTEIN, ESQ. 100 SUMMIT AVENUE MONTVALE, NEW JERSEY 07645 (201) 358-5400 ---------------- (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS) Copies to: GARY COOPERSTEIN, ESQ. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON ONE NEW YORK PLAZA NEW YORK, NEW YORK 10004-1980 (212) 859-8128 ---------------- CALCULATION OF FILING FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
TRANSACTION VALUATION* AMOUNT OF FILING FEE - -------------------------------------------------------------------------------- $66,974,319 $13,394.86
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- * For the purpose of calculating the fee only, this amount assumes the purchase of 22,324,773 shares of Common Stock of Systemed Inc. at $3.00 per share. Such number of shares includes all outstanding shares as of April 17, 1996. [_Check]box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. AMOUNT PREVIOUSLY PAID: FILING PARTY: FORM OR REGISTRATION NO.: DATE FILED: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- This Statement relates to a tender offer by S Acquisition Corp., a Delaware corporation (the "Offeror"), and a wholly owned subsidiary of Merck-Medco Managed Care, Inc., a Delaware corporation ("Medco"), and an indirect wholly owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Merck", together with Medco, the "Parent"), to purchase all outstanding shares of common stock, par value $0.001 per share (the "Shares"), of Systemed Inc., a Delaware corporation (the "Company"), at a purchase price of $3.00 per Share, net to the seller in cash, without interest, 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 Letter of Transmittal (which together constitute the "Offer"), copies of which are filed as Exhibits (a)(1) and (a)(2) hereto, respectively, and which are incorporated herein by reference. ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is Systemed Inc. The address of the principal executive offices of the Company is set forth in Section 8 ("Certain Information Concerning the Company") of the Offer to Purchase and is incorporated herein by reference. (b) The exact title of the class of equity securities being sought in the Offer is the common stock, par value $0.001 per share, of the Company. The information set forth in the Introduction to the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6 ("Price Range of Shares; Dividends") of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a) through (d), (g) The information set forth in the Introduction and Section 9 ("Certain Information Concerning the Parent and the Offeror") of the Offer to Purchase, and in Annex I thereto, is incorporated herein by reference. (e) and (f) None of the Offeror, Medco or Merck, nor, to the best of their knowledge, any of the persons listed in Annex I of the Offer to Purchase, has during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) None. (b) The information set forth in the Introduction and Section 11 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company") and Section 8 ("Certain Information Concerning the Company") of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in Section 10 ("Source and Amount of Funds") of the Offer to Purchase is incorporated herein by reference. (b) Not applicable. (c) Not applicable. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a) through (e) The information set forth in the Introduction, Section 11 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company") and Section 12 ("Purpose of the Offer and the 2 Merger; Plans for the Company") and Section 13 ("The Merger Agreement") of the Offer to Purchase is incorporated herein by reference. Except as set forth in Sections 12 and 13 of the Offer to Purchase, neither the Parent nor the Offeror have any present plans or proposals that would result in an extraordinary corporate transaction, such as a merger, reorganization, liquidation or sale or transfer of a material amount of assets involving the Company, or any other material changes in the Company's capitalization, dividend policy, corporate structure or business or composition of its management or personnel. (f) and (g) The information set forth in Section 7 ("Certain Effects of the Transaction") of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) and (b) The information set forth in the Introduction, Section 9 ("Certain Information Concerning the Parent and the Offeror") and Section 13 ("The Merger Agreement") of the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the Introduction and Section 11 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company") of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in the Introduction and in Section 17 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 9 ("Certain Information Concerning the Parent and the Offeror") of the Offer to Purchase is incorporated herein by reference. The incorporation by reference herein of the above-mentioned financial information does not constitute an admission that such information is material to a decision by a security holder of the Company as whether to sell, tender or hold Shares being sought in the Offer. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth in Section 11 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company") and Section 12 ("Purpose of the Offer and the Merger; Plans for the Company") of the Offer to Purchase is incorporated herein by reference. (b) and (c) The information set forth in Section 16 ("Certain Regulatory and Legal Matters") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 7 ("Certain Effects of the Transaction") is incorporated herein by reference. (e) None. (f) The information set forth in the Offer to Purchase and the Letter of Transmittal is incorporated herein by reference in its entirety. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Offer to Purchase, dated June 11, 1996. 3 (a)(2) Letter of Transmittal. (a)(3) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(4) Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Clients. (a)(5) Notice of Guaranteed Delivery. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Summary Advertisement, dated June 11, 1996. (a)(8) Press Release issued by the Parent and the Company on April 29, 1996. (a)(9) Press Release issued by the Parent and the Company on June 11, 1996. (a)(10) Amended and Restated Agreement and Plan of Merger, dated as of June 10, 1996, among Merck, Medco, the Offeror and the Company. (b) None. (c) None. (d) None. (e) Not applicable. (f) None. 4 SIGNATURE AFTER DUE INQUIRY AND TO THE BEST OF ITS KNOWLEDGE AND BELIEF, EACH OF THE UNDERSIGNED CERTIFIES THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND CORRECT. Dated: June 11, 1996 S Acquisition Corp. /s/ Bert I. Weinstein By: _________________________________ Name: Bert I. Weinstein Title: Vice President Merck-Medco Managed Care, Inc. /s/ Bert I. Weinstein By: _________________________________ Name: Bert I. Weinstein Title: Senior Vice President and Co-General Counsel Merck & Co., Inc. /s/ Mary M. McDonald By: _________________________________ Name: Mary M. McDonald Title: Senior Vice President and General Counsel 5 EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO. ------- ----------- -------- (a)(1)-- Offer to Purchase, dated June 11, 1996. (a)(2)-- Letter of Transmittal. (a)(3)-- Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(4)-- Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Clients. (a)(5)-- Notice of Guaranteed Delivery. (a)(6)-- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7)-- Summary Advertisement, dated June 11, 1996. (a)(8)-- Press Release issued by the Parent and the Company on April 29, 1996. (a)(9)-- Press Release issued by the Parent and the Company on June 11, 1996. (a)(10)-- Amended and Restated Agreement and Plan of Merger, dated as of June 10, 1996, among Merck, Medco, the Offeror and the Company. (b) -- None. (d) -- None. (e) -- Not applicable. (f) -- None.
EX-99.(A)(1) 2 OFFER TO PURCHASE, DATED JUNE 11, 1996 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF SYSTEMED INC. AT $3.00 NET PER SHARE BY S ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF MERCK-MEDCO MANAGED CARE, INC. AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF MERCK & CO., INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON TUESDAY, JULY 9, 1996, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY TENDERED BY THE EXPIRATION DATE AND NOT WITHDRAWN THAT NUMBER OF SHARES OF COMMON STOCK OF SYSTEMED INC. WHICH WOULD REPRESENT AT LEAST A MAJORITY OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS AND (ii) SATISFACTION OF CERTAIN OTHER TERMS AND CONDITIONS. SEE SECTION 15. THE OFFER IS BEING MADE PURSUANT TO THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER DATED AS OF JUNE 10, 1996, AMONG MERCK & CO., INC., MERCK-MEDCO MANAGED CARE, INC., S ACQUISITION CORP. AND SYSTEMED INC. THE BOARD OF DIRECTORS OF SYSTEMED INC. HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT, HAS DETERMINED THAT THE TERMS OF EACH OF THE OFFER AND THE MERGER AND THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER. IMPORTANT Any stockholder desiring to tender Shares of common stock should either (i) complete and sign the Letter of Transmittal or a facsimile thereof in accordance with the instructions in the Letter of Transmittal and deliver the Letter of Transmittal with the Shares and all other required documents to the Depositary, or follow the procedure for book-entry transfer set forth in Section 3 or (ii) request his broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him. A stockholder having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if he desires to tender his Shares. Any stockholder who desires to tender Shares and cannot deliver such Shares and all other required documents to the Depositary by the expiration of the Offer must tender such Shares pursuant to the guaranteed delivery procedure set forth in Section 3. Questions and requests for assistance or additional copies of this Offer to Purchase and the Letter of Transmittal may be directed to the Information Agent at its address and telephone number set forth on the back cover of this Offer to Purchase. ---------------- June 11, 1996 TABLE OF CONTENTS
PAGE ---- INTRODUCTION............................................................. 1 1.TERMS OF THE OFFER.................................................... 2 2.ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES......................... 4 3.PROCEDURE FOR TENDERING SHARES........................................ 4 4.WITHDRAWAL RIGHTS..................................................... 6 5.CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................... 7 6.PRICE RANGE OF SHARES; DIVIDENDS...................................... 8 7.CERTAIN EFFECT OF THE TRANSACTION..................................... 8 8.CERTAIN INFORMATION CONCERNING THE COMPANY............................ 9 9.CERTAIN INFORMATION CONCERNING THE PARENT AND THE OFFEROR............. 11 10.SOURCE AND AMOUNT OF FUNDS............................................ 12 11.BACKGROUND OF THE OFFER; PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE COMPANY.................................................... 12 12.PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY............ 13 13.THE MERGER AGREEMENT.................................................. 15 14.DIVIDENDS AND DISTRIBUTIONS........................................... 22 15.CERTAIN CONDITIONS OF THE OFFER....................................... 23 16.CERTAIN REGULATORY AND LEGAL MATTERS.................................. 24 17.FEES AND EXPENSES..................................................... 26 18.MISCELLANEOUS......................................................... 26 ANNEX 1. CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF MERCK, MEDCO AND THE OFFEROR......................... A-1
TO THE HOLDERS OF COMMON STOCK OF SYSTEMED INC. INTRODUCTION S Acquisition Corp., a Delaware corporation (the "Offeror"), and a wholly owned subsidiary of Merck-Medco Managed Care, Inc., a Delaware corporation ("Medco"), and an indirect wholly owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Merck," together with Medco, the "Parent"), hereby offers to purchase all outstanding shares of Common Stock, par value $0.001 per share (the "Shares"), of Systemed Inc., a Delaware corporation (the "Company"), at a purchase price of $3.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which together constitute the "Offer"). Tendering holders of Shares will not be obligated to pay brokerage fees or commissions or, except as set forth in the Letter of Transmittal, transfer taxes on the purchase of Shares by the Offeror pursuant to the Offer. The Offeror will pay all charges and expenses of Norwest Bank Minnesota, N.A. (the "Depositary") and D.F. King & Co., Inc. (the "Information Agent"), in connection with the Offer. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER (AS HEREINAFTER DEFINED) AND THE MERGER AGREEMENT (AS HEREINAFTER DEFINED), HAS DETERMINED THAT THE TERMS OF EACH OF THE OFFER, THE MERGER AND THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES WHICH WOULD REPRESENT AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS (THE "MINIMUM CONDITION"). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE SECTION 15. MORGAN, STANLEY & CO. INCORPORATED, THE COMPANY'S FINANCIAL ADVISOR, HAS DELIVERED TO THE COMPANY'S BOARD OF DIRECTORS ITS WRITTEN OPINION THAT THE CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF THE COMPANY PURSUANT TO THE OFFER AND THE MERGER IS FAIR TO SUCH STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW. A COPY OF SUCH OPINION IS CONTAINED IN THE COMPANY'S STATEMENT ON SCHEDULE 14D-9 WHICH IS BEING DISTRIBUTED TO THE COMPANY'S STOCKHOLDERS. The Offer is being made pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of June 10, 1996 (the "Merger Agreement"), among Merck, Medco, the Offeror and the Company. The Merger Agreement provides that, among other things, as soon as practicable after the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the General Corporation Law of the State of Delaware ("DGCL"), the Offeror will be merged with and into the Company (the "Merger"). See Section 12. Following consummation of the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation") and will be a wholly owned subsidiary of Medco and an indirect wholly owned subsidiary of Merck. At the effective time of the Merger (the "Effective Time"), each issued and outstanding Share (other than Shares owned by the Company as treasury stock, Shares owned by any subsidiary of the Company, Shares owned by the Parent or the Offeror or any subsidiary thereof, or Shares with respect to which appraisal rights are properly exercised under Delaware law ("Dissenting Shares")), will be converted into and represent the right to receive $3.00 (or any higher price that may be paid for each Share pursuant to the Offer) in cash, without interest thereon (the "Offer Price"). See Section 5 for a description of certain tax consequences of the Offer and the Merger. The Company has advised the Offeror that as of April 17, 1996, there were (a) 22,324,773 Shares issued and outstanding and (b) 5,264,301 shares reserved for issuance in connection with (i) the Company's employee stock options ("Stock Options"), (ii) the Company's 8% Convertible Preferred Stock, par value $0.001 per share (the "Convertible Preferred Stock"), (iii) the Company's 10% Senior Secured Convertible Notes due 2002 (the "Convertible Notes") and (iv) the warrants to purchase Shares (the "Warrants"). As of the date hereof, neither the Offeror nor the Parent beneficially owns any Shares. If the Offeror acquires at least 13,794,538 Shares in the Offer or otherwise, it will control a majority of the outstanding Shares on a fully diluted basis and will be able to approve the Merger without the vote of any other stockholder. In the event the Offeror acquires 90% or more of the outstanding Shares through the Offer or otherwise, and redeems or defeases the Convertible Preferred Stock, the Offeror and the Parent would be able to effect the Merger pursuant to the short form merger provisions of the DGCL, without prior notice to, or any action by, any other stockholder of the Company. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 1. TERMS OF THE OFFER. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any extension or amendment), the Offeror will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn in accordance with Section 4. The term "Expiration Date" means 11:59 p.m., New York City time, on Tuesday, July 9, 1996, unless the Offeror shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Offeror, shall expire. If the Offeror shall decide, in its sole discretion, to increase the consideration offered in the Offer to holders of Shares and if, at the time that notice of such increase is first published, sent or given to holders of Shares in the manner specified below, the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that such notice is first so published, sent or given, then the Offer will be extended until the expiration of such period of ten business days. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or a federal holiday, and consists of the time period from 12:01 a.m. through 12:00 Midnight, New York City time. THE OFFER IS CONDITIONED UPON SATISFACTION OF THE MINIMUM CONDITION. SEE SECTION 13. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE SECTION 15. The Offeror reserves the right (but shall not be obligated), in accordance with applicable rules and regulations of the United States Securities and Exchange Commission (the "Commission"), subject to the limitations set forth in the Merger Agreement and described below, to waive or reduce the Minimum Condition or to waive any other condition of the Offer. If the Minimum Condition or any of the other conditions set forth in Section 15 have not been satisfied by 11:59 p.m., New York City time, on Tuesday, July 9, 1996 (or any other time then set as the Expiration Date), the Offeror may, subject to the terms of the Merger Agreement as described below, elect to (1) extend the Offer and, subject to applicable withdrawal rights, retain all tendered Shares until the expiration of the Offer, as extended, (2) subject to complying with applicable rules and regulations of the Commission, accept for payment all Shares so tendered and not extend the Offer or (3) terminate the Offer and not accept for payment any Shares and return all tendered Shares to tendering stockholders. Under the terms of the Merger Agreement, the Offeror may not (except as described in the next sentence), without prior written consent of the Company, decrease the price per Share to be paid pursuant to the Offer, change the form of consideration payable in the Offer, decrease the number of Shares sought pursuant to the Offer, change or impose additional conditions to the Offer or otherwise amend the Offer in any manner adverse to the Company's stockholders. Notwithstanding the foregoing, the Offeror may, without the consent of the Company, extend the Offer (i) if, at the then scheduled Expiration Date, any of the conditions to the Offeror's obligation to accept for payment and pay for Shares 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 2 beyond the initial Expiration Date if all conditions have been satisfied but less than 90% of the outstanding Shares 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 Commission or the staff applicable to the Offer. Assuming the prior satisfaction or waiver of the conditions of the Offer and subject to clauses (ii) and (iii) of the preceding sentence, the Offeror shall, and Parent shall cause the Offeror to, accept for payment and pay for Shares validly tendered and not withdrawn pursuant to the Offer as soon as legally permitted after the commencement thereof. Subject to the limitations set forth in the Merger Agreement and described above, the Offeror reserves the right (but will not be obligated), at any time or from time to time in its sole discretion, to extend the period during which the Offer is open by giving oral or written notice of such extension to the Depositary and by making a public announcement of such extension. There can be no assurance that the Offeror will exercise its right to extend the Offer. Subject to the applicable rules and regulations of the Commission and subject to the limitations set forth in the Merger Agreement, the Offeror also expressly reserves the right, at any time and from time to time, in its sole discretion, (i) to delay payment for any Shares regardless of whether such Shares were theretofore accepted for payment, or to terminate the Offer and not to accept for payment or pay for any Shares not theretofore accepted for payment or paid for, upon the occurrence of any of the conditions set forth in Section 15, by giving oral or written notice of such delay or termination to the Depositary and (ii) at any time or from time to time, to amend the Offer in any respect. The Offeror's right to delay payment for any Shares or not to pay for any Shares theretofore accepted for payment is subject to the applicable rules and regulations of the Commission, including Rule 14e-1(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to the Offeror's obligation to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer. Any extension of the period during which the Offer is open, delay in acceptance for payment or payment, termination or amendment of the Offer will be followed, as promptly as practicable, by public announcement thereof, such announcement in the case of an extension to be issued not later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rules 14d-4(c) and 14e-1(d) under the Exchange Act. Without limiting the obligation of the Offeror under such rule or the manner in which the Offeror may choose to make any public announcement, the Offeror currently intends to make announcements by issuing a press release to the Dow Jones News Service and making any appropriate filing with the Commission. If the Offeror makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer (including a waiver of the Minimum Condition), the Offeror will disseminate additional tender offer materials and extend the Offer if and to the extent required by Rules 14d-4(c), 14d-6(d) and 14(e)-1 under the Exchange Act or otherwise. The minimum period during which a tender offer must remain open following material changes in the terms of the offer or the information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend upon the facts and circumstances, including the relative materiality of the terms or information changes. With respect to a change in price or a change in percentage of securities sought, a minimum ten business day period is generally required to allow for adequate dissemination to stockholders and investor response. The Company has provided the Offeror with the Company's list of stockholders and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the Letter of Transmittal will be mailed to record holders of the Shares and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the list of stockholders or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. 3 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Offeror will accept for payment and will pay for, all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn in accordance with Section 4 promptly after the later to occur of (a) the Expiration Date and (b) subject to compliance with Rule 14e-1(c) under the Exchange Act, the satisfaction or waiver of the conditions set forth in Section 15. Subject to compliance with Rule 14e-1(c) under the Exchange Act, the Offeror expressly reserves the right to delay payment for Shares in order to comply in whole or in part with any applicable law. See Sections 1 and 16. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (collectively, the "Book-Entry Transfer Facilities"), pursuant to the procedures set forth in Section 3, (ii) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) with all required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined below) and (iii) any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message transmitted by a Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Offeror may enforce such agreement against the participant. For purposes of the Offer, the Offeror will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not withdrawn as, if and when the Offeror gives oral or written notice to the Depositary of the Offeror's acceptance of such Shares for payment. In all cases, payment for Shares purchased pursuant to the Offer will be made by deposit of the purchase price with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from the Offeror and transmitting such payment to tendering stockholders. If, for any reason whatsoever, acceptance for payment of any Shares tendered pursuant to the Offer is delayed, or the Offeror is unable to accept for payment Shares tendered pursuant to the Offer, then, without prejudice to the Offeror's rights under Section 1, the Depositary may, nevertheless, on behalf of the Offeror, retain tendered Shares, and such Shares may not be withdrawn, except to the extent that the tendering stockholders are entitled to withdrawal rights as described in Section 4 below and as otherwise required by Rule 14e-1(c) under the Exchange Act. Under no circumstances will interest be paid by the Offeror because of any delay in making such payment. If any tendered Shares are not accepted for payment pursuant to the terms and conditions of the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased or untendered Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares delivered by book-entry transfer to a Book-Entry Transfer Facility, such Shares will be credited to an account maintained within such Book-Entry Transfer Facility), as promptly as practicable after the expiration, termination or withdrawal of the Offer. If, prior to the Expiration Date, the Offeror increases the price being paid for Shares accepted for payment pursuant to the Offer, such increased consideration will be paid to all stockholders whose Shares are purchased pursuant to the Offer. 3. PROCEDURE FOR TENDERING SHARES. Valid Tenders. For Shares to be validly tendered pursuant to the Offer, a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the 4 Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedure set forth below. In addition, either (i) certificates representing such Shares must be received by the Depositary or such Shares must be tendered pursuant to the procedure for book-entry transfer set forth below, and a Book-Entry Confirmation must be received by the Depositary, in each case prior to the Expiration Date or (ii) the guaranteed delivery procedure set forth below must be complied with. No alternative, conditional or contingent tenders will be accepted. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Book-Entry Transfer. The Depositary will make a request to establish an account with respect to the Shares at each Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in a Book-Entry Transfer Facility's system may make book-entry delivery of Shares by causing a Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at a Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. Although delivery of Shares may be effected through book-entry at a Book-Entry Transfer Facility prior to the Expiration Date, (i) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other required documents, must, in any case, be transmitted to and received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase or (ii) the guaranteed delivery procedures described below must be complied with. Signature Guarantee. Signatures on the Letter of Transmittal must be guaranteed by a member in good standing of the Securities Transfer Agents Medallion Program, or by any other bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing being referred to as an "Eligible Institution" and, collectively, as "Eligible Institutions"), unless the Shares tendered thereby are tendered (i) by a registered holder of Shares who has not completed either the box labeled "Special Delivery Instructions" or the box labeled "Special Payment Instructions" on the Letter of Transmittal or (ii) for the account of any Eligible Institution. If the certificates evidencing Shares are registered in the name of a person or persons other than the signer of the Letter of Transmittal, or if payment is to be made, or delivered to, or certificates for unpurchased Shares are to be issued or returned to, a person other than the registered owner or owners, then the tendered certificates must be endorsed or accompanied by duly executed stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed by an Eligible Institution as provided in the Letter of Transmittal. See Instructions 1 and 5 to the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's certificates for Shares are not immediately available or time will not permit all required documents to reach the Depositary prior to the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, such Shares may nevertheless be tendered if all of the following guaranteed delivery procedures are duly complied with: (i) the tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Offeror herewith, is received by the Depositary, as provided below, prior to the Expiration Date; and (iii) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), and any required signature guarantees, or, in the case of a book- entry transfer, an Agent's Message, and any other documents required by the Letter of Transmittal are received by the Depositary within three NASDAQ/National Market System trading days after the date of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the Notice of Guaranteed Delivery. 5 THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (i) certificates for such Shares or a Book-Entry Confirmation, (ii) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with all required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message and (iii) any other documents required by the Letter of Transmittal. BACKUP FEDERAL INCOME TAX WITHHOLDING. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE OFFER, EACH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH HIS CORRECT TAXPAYER IDENTIFICATION NUMBER ("TIN") AND CERTIFY THAT HE IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 8 SET FORTH IN THE LETTER OF TRANSMITTAL. Determination of Validity. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Offeror, in its sole discretion, and its determination will be final and binding on all parties. The Offeror reserves the absolute right to reject any or all tenders of any Shares that are determined by it not to be in proper form or the acceptance of or payment for which may, in the opinion of the Offeror, be unlawful. The Offeror also reserves the absolute right to waive any of the conditions of the Offer, subject to the limitations set forth in the Merger Agreement, or any defect or irregularity in the tender of any Shares. The Offeror's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the Instructions to the Letter of Transmittal) will be final and binding on all parties. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of the Offeror, the Parent, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Other Requirements. By executing the Letter of Transmittal as set forth above, a tendering stockholder irrevocably appoints designees of the Offeror as such stockholder's proxies, each with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such stockholder's right with respect to the Shares tendered by such stockholder and accepted for payment by the Offeror (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after June 10, 1996). All such proxies shall be considered coupled with an interest in the tendered Shares. This appointment is effective when, and only to the extent that, the Offeror accepts for payment the Shares deposited with the Depositary. Upon acceptance for payment, all prior proxies given by the stockholder with respect to such Shares or other securities or rights will, without further action, be revoked and no subsequent proxies may be given or written consent executed (and, if given or executed, will not be deemed effective). The designees of the Offeror will, with respect to the Shares and other securities or rights, be empowered to exercise all voting and other rights of such stockholder as they in their sole judgment deem proper in respect of any annual or special meeting of the Company's stockholders, or any adjournment or postponement thereof. The Offeror reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Offeror's payment for such Shares, the Offeror must be able to exercise full voting and other rights with respect to such Shares and the other securities or rights issued or issuable in respect of such Shares, including voting at any meeting of stockholders (whether annual or special or whether or not adjourned) in respect of such Shares. 4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section 4, tenders of Shares made pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment pursuant to the Offer, may also be withdrawn at any time after Friday, 6 August 9, 1996. If purchase of or payment for Shares is delayed for any reason or if the Offeror is unable to purchase or pay for Shares for any reason, then, without prejudice to the Offeror's rights under the Offer, tendered Shares may be retained by the Depositary on behalf of the Offeror and may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as set forth in this Section 4, subject to Rule 14e-1(c) under the Exchange Act, which provides that no person who makes a tender offer shall fail to pay the consideration offered or return the securities deposited by or on behalf of security holders promptly after the termination or withdrawal of the Offer. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name in which the certificates representing such Shares are registered, if different from that of the person who tendered the Shares. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer set forth in Section 3, any notice of withdrawal must also specify the name and number of the account at the applicable Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Offeror, in its sole discretion, and its determination will be final and binding on all parties. None of the Offeror, the Parent, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Shares properly withdrawn will be deemed not validly tendered for purposes of the Offer, but may be re-tendered at any subsequent time prior to the Expiration Date by following any of the procedures described in Section 3. 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of the principal federal income tax consequences of the Offer and the Merger to holders whose Shares are purchased pursuant to the Offer or whose Shares are converted to cash in the Merger (including pursuant to the exercise of appraisal rights). The discussion applies only to holders of Shares in whose hands Shares are capital assets, and may not apply to Shares received pursuant to the exercise of employee stock options or otherwise as compensation, or to holders of Shares who are in special tax situations (such as insurance companies, tax-exempt organizations or non-U.S. persons). THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON CURRENT LAW. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF SHARES SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH STOCKHOLDER AND THE PARTICULAR TAX EFFECTS OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER INCOME TAX LAWS. The receipt of cash for Shares pursuant to the Offer or the Merger (including pursuant to the exercise of appraisal rights) will be a taxable transaction for federal income tax purposes (and also may be a taxable transaction under applicable state, local and other income tax laws). In general, for federal income tax purposes, a holder of Shares will recognize gain or loss equal to the difference between his adjusted tax basis in the Shares sold pursuant to the Offer or converted to cash in the Merger and the amount of cash received therefor. Gain or loss must be determined separately for each block of Shares (i.e., Shares acquired at the same cost in a single transaction) sold pursuant to the Offer or converted to cash in the Merger. Such gain or loss will be capital gain or loss (other than, with respect to the exercise of appraisal rights, amounts, if any, which are or are deemed to be interest for federal income tax purposes, which amounts will be taxed as ordinary income) and will be long-term gain or loss if, on the date of sale (or, if applicable, the date of the Merger), the Shares were held for more than one year. 7 Payments in connection with the Offer or the Merger may be subject to "backup withholding" at a rate of 31%. Backup withholding generally applies if the stockholder (a) fails to furnish his social security number or TIN, (b) furnishes an incorrect TIN, (c) fails to properly include a reportable interest or dividend payment on his federal income tax return, or (d) under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN provided is his correct number and that he is not subject to backup withholding. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax. Certain persons generally are entitled to exemption from backup withholding, including corporations and financial institutions. Certain penalties apply for failure to furnish correct information and for failure to include reportable payments in income. Each stockholder should consult with his own tax advisor as to his qualification for exemption from backup withholding and the procedure for obtaining such exemption. Tendering stockholders may be able to prevent backup withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. See Section 3. 6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are quoted on the NASDAQ National Market System (the "NASD") under the symbol "SYSM." The following table sets forth for the periods indicated the high and low sales prices per Share on the NASD based on published financial sources.
HIGH LOW ------ ------ CALENDAR 1994: First Quarter................................................ $6.125 $3.875 Second Quarter............................................... 6.75 4.875 Third Quarter................................................ 9.00 5.25 Fourth Quarter............................................... 9.25 5.00 CALENDAR 1995: First Quarter................................................ $ 8.00 $ 6.00 Second Quarter............................................... 7.50 6.125 Third Quarter................................................ 7.25 5.75 Fourth Quarter............................................... 6.875 3.875 CALENDAR 1996: First Quarter................................................ $ 5.75 $ 2.75 Second Quarter............................................... 3.625 2.50 (through June 7, 1996)
On April 26, 1996, the last full day of trading prior to the public announcement of the execution of the Merger Agreement, the closing price per Share as reported on the NASD was $3.125. On June 10, 1996, the last full day of trading prior to the commencement of the Offer, the closing price per Share as reported on the NASD was $2.875. Stockholders are urged to obtain current market quotations for the Shares. The Company has not paid any cash dividends on the Shares. 7. CERTAIN EFFECT OF THE TRANSACTION. The purchase of the Shares by the Offeror pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and will reduce the number of holders of Shares, which will adversely affect the liquidity and market value of the remaining Shares held by stockholders other than the Offeror. The Company has advised the Offeror that, as of May 31, 1996, there were approximately 4,258 stockholders of record and, as of March 26, 1996, there were approximately 7,200 beneficial owners of the Shares. 8 The extent of the public market for the Shares and, according to published guidelines of The NASDAQ Stock Market, Inc., the continued trading of the Shares on the NASD after purchase of the Shares pursuant to the Offer, will depend upon the number of stockholders remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act and other factors. If, as a result of the purchase of the Shares pursuant to the Offer or otherwise, listing of the Shares on the NASD is discontinued, the market for Shares could be adversely affected. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application by the Company to the Commission if there are fewer than 300 record holders of Shares. It is the intention of the Offeror to seek to cause an application for such termination to be made as soon after consummation of the Offer as the requirements for termination of registration of the Shares are met. If such registration were terminated, the Company would no longer legally be required to disclose publicly in proxy materials distributed to stockholders the information which it now must provide under the Exchange Act or to make public disclosure of financial and other information in annual, quarterly and other reports required to be filed with the Commission under the Exchange Act; the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions would no longer be applicable to the Company; and the officers, directors and 10% stockholders of the Company would no longer be subject to the "short-swing" insider trading reporting and profit recovery provisions of the Exchange Act. Furthermore, if such registration were terminated, persons holding "restricted securities" of the Company may be deprived of their ability to dispose of such securities under Rule 144 promulgated under the Securities Act of 1933, as amended. If registration of the Shares is not terminated prior to the Merger, then the Shares will cease to be quoted on the NASD and the registration of the Shares under the Exchange Act will be terminated following the Merger. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding listing and market quotations, it is possible that, following the Offer, the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. If registration of Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities". 8. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is a Delaware corporation with its principal executive offices located at 970 West 190th Street, Suite 400, Torrance, California. The Company derives substantially all of its business from activities in the pharmacy benefits industry, through its mail service pharmacy and retail pharmacy claims processing subsidiaries. The Company's Quarterly Report on Form 10-Q disclosed that, during the annual renewal process used by many of the Company's customers, the Company learned that certain accounts would not be renewing their contracts with the Company for 1996 primarily due to competitive pricing conditions in the pharmacy benefits management marketplace. The effect of this is a negative impact to current and future quarterly revenues of approximately $6 to $8 million for the current fiscal year. Except as otherwise set forth herein, the information concerning the Company contained in this Offer to Purchase, including financial information, has been furnished by the Company or has been taken from or based upon publicly available documents and records on file with the Commission and other public sources. Although neither the Offeror nor the Parent has any knowledge that would indicate that statements contained herein based upon such documents are untrue, none of the Offeror, Merck or Medco assume any responsibility for the accuracy or completeness of the information concerning the Company, furnished by the Company, or contained in such documents and records or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to the Offeror and the Parent. Set forth below is certain summary consolidated financial data with respect to the Company excerpted or derived from financial information contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 9 1996. More comprehensive financial information is included in such reports and other documents filed by the Company with the Commission, and the following summary is qualified in its entirety by reference to such reports and such other documents and all the financial information (including any related notes) contained therein. Such reports and other documents should be available for inspection and copies thereof should be obtainable in the manner set forth below. SYSTEMED INC. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
3 MONTHS ENDED MARCH AS OF AND FOR THE 31, 1996 YEAR ENDED DECEMBER 31, ----------- ----------------------- 1995 1994 ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA Net Operating Revenues................. $33,192 $ 152,384 $ 141,965 Operating income (loss)................ (2,777) 4,598 3,648 Provision for (benefit from) income taxes................................. (284) 299 342 Net income............................. (2,558) 4,290 3,079 Net earnings (loss) per share.......... (0.12) 0.19 0.14 BALANCE SHEET DATA Working Capital........................ $26,321 $ 27,912 $ 26,577 Total assets........................... 54,206 57,970 53,331 Long-term debt......................... 6,300 6,300 6,320 Stockholders' equity................... 37,298 39,888 33,575
The Parent has received from the Company certain non-public information from the Company. The non-public information included, among other things, certain financial forecasts for the year 1996, which are set forth below. FOR THE YEAR ENDED DECEMBER 31,
1996 1ST QUARTER 1996 2ND QUARTER 1996 3RD QUARTER 1996 4TH QUARTER 1996 -------- ---------------- ---------------- ---------------- ---------------- (DOLLARS IN THOUSANDS) Sales................... $152,082 $32,781 $33,244 $42,033 $44,024 Cost of Sales........... 129,769 28,187 28,452 36,089 37,041 Income (loss) before Taxes.................. 2,335 (774) (88) 1,083 2,112 Net Income (loss)....... 2,101 (696) (79) 975 1,901
In the preparation of the forecasts the Company's management chose not to include several prospective accounts that could significantly improve upon the 1996 results as currently shown. For example, additional mail service revenues from contracts with prospective customers for which the Company believed it was in contention, could boost the revenues by another $38-$40 million in 1996. The Company has subsequently advised the Parent that it does not believe that it will obtain the contracts required to generate a substantial portion of these revenues. Also, further penetration of existing accounts and the addition of new accounts not already shown as prospects in the 1996 budget could add another $5-$7 million in revenues. None of these assumptions give effect to the Offer, the Merger or the financing thereof or the potential combined operations of the Parent and the Company after consummation of such transactions. 10 THE COMPANY HAS ADVISED THE OFFEROR THAT IT DOES NOT AS A MATTER OF COURSE DISCLOSE FORECASTS AS TO FUTURE REVENUES OR EARNINGS, AND THAT THE FORECASTS SET FORTH ABOVE WERE NOT INTENDED TO FORECAST LIKELY OR ANTICIPATED OPERATING RESULTS, BUT INSTEAD WERE MERELY ONE SCENARIO INTENDED TO REPRESENT INTERNAL GOALS AND ILLUSTRATE CAPITAL NEEDS AND OTHER ELEMENTS NECESSARY BASED ON A FINANCIAL MODEL TO ACHIEVE SUCH GOALS. THE FORECASTS SET FORTH ABOVE WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS FOR PROSPECTIVE FINANCIAL INFORMATION. THE FORECASTED INFORMATION IS INCLUDED HEREIN SOLELY BECAUSE SUCH INFORMATION WAS FURNISHED TO THE PARENT OR THE OFFEROR. ACCORDINGLY, THE INCLUSION OF THE FORECASTS IN THIS OFFER TO PURCHASE SHOULD NOT BE REGARDED AS AN INDICATION THAT THE PARENT, THE OFFEROR, THE COMPANY OR THEIR RESPECTIVE FINANCIAL ADVISORS OR THEIR RESPECTIVE OFFICERS AND DIRECTORS CONSIDER SUCH INFORMATION TO BE ACCURATE OR RELIABLE, AND NONE OF SUCH PERSONS ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY THEREFOR. SUCH FORECASTS WERE PREPARED FOR INTERNAL USE AND CAPITAL BUDGETING AND OTHER MANAGEMENT DECISION-MAKING PURPOSES AND ARE SUBJECTIVE IN MANY RESPECTS AND THUS SUSCEPTIBLE TO VARIOUS INTERPRETATIONS AND PERIODIC REVISION BASED UPON ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENT. IN ADDITION, BECAUSE THE ESTIMATES AND ASSUMPTIONS UNDERLYING SUCH FORECASTS ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND ARE BEYOND THE CONTROL OF THE COMPANY AND/OR THE PARENT AND THE OFFEROR, THERE CAN BE NO ASSURANCE THAT SUCH FORECASTS WILL BE REALIZED. ACCORDINGLY, IT IS EXPECTED THAT THERE WILL BE DIFFERENCES BETWEEN ACTUAL AND FORECASTED RESULTS, AND ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR LOWER THAN THOSE SET FORTH ABOVE. FOR EXAMPLE, IN THE FIRST QUARTER OF 1996, THE COMPANY HAD AN ACTUAL NET LOSS OF $2,558,000 AS AGAINST A PROJECTED NET LOSS OF $696,000. The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. The Company is required to disclose in such proxy statements certain information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities and any material interests of such persons in transactions with the Company. Such reports, proxy statements and other information may be inspected at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street (Suite 400), Chicago, Illinois 60661. Such material should also be available for inspection at the offices of The National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington D.C. 20006-1506. 9. CERTAIN INFORMATION CONCERNING THE PARENT AND THE OFFEROR. The Offeror is a Delaware corporation and a wholly owned subsidiary of Medco, a Delaware corporation which is a wholly owned subsidiary of Merck, which is a New Jersey corporation. To date, the Offeror has not conducted any business other than that incident to its formation, the execution and delivery of the Merger Agreement and the commencement of the Offer. The principal executive offices of the Offeror and the Parent are located at P.O. Box 100, Whitehouse Station, NJ 08889-0100. Merck is a leading research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products and services. Merck's industry segment is the Human and Animal Health Products and Services segment, which includes Medco. Set forth below is certain selected historical consolidated financial information with respect to Merck excerpted or derived from financial information contained in Merck's Annual Report on Form 10-K for the year ended December 31, 1995 and Merck's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. More comprehensive financial information is included in such reports and other documents filed by the Parent with the Commission, and the following summary is qualified in its entirety by reference to such reports and such other documents and all the financial information (including any related notes) contained therein. 11 MERCK & CO., INC. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
3 MONTHS AS OF AND FOR THE ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------- 1996 1995 1994 ---------- ------------ ------------ (IN MILLIONS, EXCEPT PER SHARE DATA) OPERATING RESULTS Sales.................................. $ 4,530.4 $ 16,681.1 $ 14,969.8 Earnings before income taxes........... 1,239.0 4,797.2 4,415.2 Taxes on Income........................ 375.2 1,462.0 1,418.2 Net Income............................. 863.8 3,335.2 2,997.0 Earnings per common share.............. 0.70 2.70 2.38 FINANCIAL POSITION Total Current Assets................... $ 8,610.9 8,617.5 6,921.7 Total assets........................... 23,983.9 23,831.8 21,856.6 Long-term debt......................... 1,516.2 1,372.8 1,145.9 Stockholders' equity................... 11,663.4 11,735.7 11,139.0
Merck is subject to the informational requirements of the Exchange Act and in accordance therewith files periodic reports and other information with the Commission relating to its business, financial condition and other matters. Such reports and other information are available for inspection and copying at the offices of the Commission in the same manner as set forth with respect to the Company in Section 8. Except as described in this Offer to Purchase, none of the Offeror, the Parent, nor, to the best knowledge of the Offeror and the Parent, any of the persons listed in Annex I to this Offer to Purchase owns or has any right to acquire any Shares and none of them has effected any transaction in the Shares during the past 60 days. 10. SOURCE AND AMOUNT OF FUNDS. If all Shares (including Shares issuable upon the exercise of Stock Options outstanding as of the date of this Offer to Purchase) are validly tendered and purchased by the Offeror, the aggregate purchase price and all estimated fees and expenses will be approximately $75 million. The Offeror will obtain all of such funds through the Parent, which will obtain such funds from working capital. 11. BACKGROUND OF THE OFFER; PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE COMPANY. Background of the Transaction In mid-1995, representatives of Medco contacted Mr. Sam 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. Thereafter the Company provided certain information to Medco. However, the discussions never advanced beyond the preliminary stage. In the Fall of 1995, Medco again had discussions with the Company concerning the possible acquisition of the Company. However, these further discussions again did not advance beyond the preliminary stage. In late February of 1996, Medco indicated interest in acquiring the Company for a price in the $3.00 per Share price range. At that time, the closing sales price of the Shares on the NASD was $5 1/8 per Share and the Company advised Medco that it was not interested in continuing discussions at that time. Between late February and early April, the sale price of the Shares dropped from $5 1/8 per Share to $2 3/8 per Share. 12 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 Company again advised Medco that it was not interested in continuing discussions at that time. Sometime thereafter, Medco again contacted the Company to inquire whether the Company had reconsidered the proposal made by Medco in early April. Thereafter, the Company provided information to Medco, and representatives of the Company and Medco continued to have informal contacts. Medco provided a draft Merger Agreement to the Company 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. Negotiations took place during late April between the Company and its counsel and Medco and its counsel. On April 28, 1996, the initial Merger Agreement was executed. On May 24, 1996, Merck was granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and Medco and the Company considered whether the transaction could be consummated more quickly if the form of the acquisition was changed from a merger to a tender offer. On June 10, 1996, the Amended and Restated Merger Agreement was executed and the Offeror commenced the Offer. 12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY. The purpose of the Offer, the Merger and the Merger Agreement is to enable the Parent to acquire control of, and the entire equity interest in, the Company. Upon consummation of the Merger, the Company will become a direct wholly owned subsidiary of Medco and an indirect wholly owned subsidiary of Merck. The Offer is being made pursuant to the Merger Agreement. Under the DGCL and the Company's Certificate of Incorporation, the approval of the Board of Directors of the Company, and the affirmative vote of the holders of a majority of the outstanding Shares and Convertible Preferred Stock, voting together as a single class are required to approve and adopt the Merger Agreement and the transactions contemplated thereby, including the Merger. Section 203 of the DGCL prevents certain "business combinations" with an "interested stockholder" (generally, any person who owns or has the right to acquire 15% or more of a corporation's outstanding voting stock) for a period of three years following the date such person became an interested stockholder unless, among other things, prior to the date the interested stockholder became such the board of directors of the corporation approved either the business combination or the transaction in which the interested stockholder became such. The Board of Directors of the Company has unanimously approved the Offer, the Merger and the Merger Agreement and the transactions contemplated thereby including for the purposes of Section 203 of the DGCL, and, unless the Merger is consummated pursuant to the short-form merger provisions under the DGCL described below (in which event no further corporate action is required), the only remaining required corporate action of the Company is the approval and adoption of the Merger Agreement and the transactions contemplated thereby by the affirmative vote of the holders of a majority of the Shares and the Convertible Preferred Stock, voting together as a single class. In the Merger Agreement, the Company has agreed to take all action necessary to convene a meeting of its stockholders as promptly as practicable after the consummation of the Offer for the purpose of considering and taking action on the Merger Agreement and the transactions contemplated thereby, if such action is required by the DGCL. The Parent has agreed that, subject to applicable law, all Shares owned by the Offeror or any other subsidiary of the Parent will be voted in favor of the Merger Agreement and the transactions contemplated thereby (subject to the right of the Parent and the Offeror to vote such Shares as they may elect in the event of a Competing Transaction (as hereinafter defined)). Short Form Merger. Under the DGCL, if the Offeror acquires at least 90% of the outstanding Shares and the outstanding Convertible Preferred Stock is either redeemed or defeased, the Offeror will be able to approve the Merger without a vote of the Company's stockholders. In such event, the Offeror anticipates that it will take 13 all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after such acquisition without a meeting of the Company's stockholders. If the conditions to the Offeror's obligation to purchase Shares in the Offer are satisfied prior to 90% of the outstanding Shares (excluding shares covered by Notices of Guaranteed Delivery) being tendered into the Offer, the Offeror may, subject to certain limitations set forth in the Merger Agreement, delay its purchase of the Shares tendered to it in the Offer. See Section 1. If the Offeror does not otherwise acquire at least 90% of the outstanding Shares pursuant to the Offer or otherwise, a significantly longer period of time may be required to effect the Merger, because a vote of the Company's stockholders would be required under the DGCL. Pursuant to the Merger Agreement, the Company has agreed to take all action necessary under the DGCL and its Certificate of Incorporation and Bylaws to convene a meeting of its stockholders promptly following consummation of the Offer to consider and vote on the Merger, if a stockholders' vote is required. If the Offeror owns a majority of the outstanding Shares, approval of the Merger can be obtained without the affirmative vote of any other stockholder of the Company. Appraisal Rights. No appraisal rights are available in connection with the Offer. However, if the Merger is consummated, stockholders of the Company will have certain rights under the DGCL to dissent and demand appraisal of, and to receive payment in cash of the fair value of, their Shares. Such rights to dissent, if the statutory procedures are complied with, could lead to a judicial determination of the fair value of the Shares, (excluding any element of value arising from the accomplishment or expectation of the Merger), required to be paid in cash to such dissenting holders for their Shares. In addition, such dissenting stockholders would be entitled to receive payment of a fair rate of interest from the date of consummation of the Merger on the amount determined to be the fair value of their Shares. In determining the fair value of the Shares, a Delaware court would be required to take into account all relevant factors. Accordingly, such determination could be based upon considerations other than, or in addition to, the market value of the Shares, including, among other things, asset values and earning capacity. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things, that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. Therefore, the value so determined in any appraisal proceeding could be different from the price being paid in the Offer. In addition, several decisions by Delaware courts have held that, in certain circumstances, a controlling stockholder of a company involved in a merger has a fiduciary duty to other stockholders which requires that the merger be fair to such other stockholders. In determining whether a merger is fair to minority stockholders, Delaware courts have considered, among other things, the type and amount of consideration to be received by the stockholders and whether there was fair dealing among the parties. The Delaware Supreme Court stated in Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that although the remedy ordinarily available to minority stockholders in a cash-out merger is the right to appraisal described above, a damages remedy or injunctive relief may be available if a merger is found to be the product of procedural unfairness, including fraud, misrepresentation or other misconduct. 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 Merger. 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, (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 and rather than an independent 14 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 six 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 six months after Effective Time. The Company executed employment letters with each of Mr. Kenneth Kay, Senior Vice President, Finance and Administration and Chief Financial Officer of the Company, Mr. Paul Hayase, Vice President, General Counsel and Human Resources, and Secretary of the Company and Mr. 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, should the Company be acquired at a price 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 Stock Options initially granted to him. 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. Each of the directors of the Company (other than Mr. Westover, who is not eligible to receive such options) has agreed to forego certain options he was otherwise entitled to receive in 1996 under the Company's 1993 Nonemployee Director Stock Option Plan. 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 Merger and the Offer. The Company has advised the Parent that, 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 Merger and the Offer. Plans for the Company. Except as otherwise set forth in this Offer to Purchase, it is expected that, initially following the Merger, the business and operations of the Company will be continued by the Surviving Corporation substantially as they are currently being conducted, other than with respect to the Company's operations in Costa Rica, Peru and Panama which must be sold prior to consummation of the Offer. The Parent will continue to evaluate the business and operations of the Company during the pendency of the Offer and after the consummation of the Offer and the Merger, and will take such actions as it deems appropriate under the circumstances then existing. The Parent intends to conduct a comprehensive review of the Company's business, operations, capitalization and management with a view to optimizing exploitation of the Company's potential in conjunction with the Parent's business. Except as indicated in this Offer to Purchase, the Parent does not have any present plans or proposals which relate to or would result in an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries, a sale or transfer of a material amount of assets of the Company or any of its subsidiaries or any material change in the Company's capitalization or dividend policy or any other material changes in the Company's corporate structure or business, or the composition of the Company's Board of Directors or management. 13. THE MERGER AGREEMENT. The following is a summary of the material terms of the Merger Agreement, copies of which are filed as exhibits to the Schedule 14D-1. Such summary is not a complete description of this agreement and is qualified in its entirety by reference to the complete text of the Merger Agreement. 15 The Merger Agreement The Offer. The Offeror commenced the Offer in accordance with the terms of the Merger Agreement. Subject to the terms and conditions of the Merger Agreement, the Parent, the Offeror and the Company are required to use all reasonable efforts to take all action as may be necessary, proper or appropriate in order to promptly consummate and make effective the transactions contemplated by the Merger Agreement. Company Actions. Pursuant to the Merger Agreement, the Company has agreed that on the date of the commencement of the Offer it will file with the Commission and mail to its stockholders a Solicitation/Recommendation Statement on Schedule 14D-9 containing the recommendation of the Board of Directors of the Company that the Company's stockholders accept the Offer and approve the Merger and the Merger Agreement. The Merger. The Merger Agreement provides that, upon the terms and subject to the conditions of the Merger Agreement, and in accordance with the DGCL, the Offeror shall be merged with and into the Company at the Effective Time. Following the Merger, the separate corporate existence of the Offeror shall cease and the Company shall continue as the Surviving Corporation and shall succeed to and assume all the rights and obligations of the Offeror in accordance with the DGCL. The Certificate of Incorporation and Bylaws of the Surviving Corporation shall be identical to the Certificate of Incorporation and Bylaws of the Offeror. The directors of the Offeror immediately prior to the Effective Time shall be the directors of the Surviving Corporation as of the Effective Time and the officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation as of the Effective Time. Conversion of Securities. At the Effective Time, each Share issued and outstanding immediately prior thereto shall be canceled and extinguished and each Share (other than Shares held by the Company as treasury stock, Shares owned by any subsidiary of the Company, Shares owned by the Parent or any subsidiary thereof and Dissenting Shares, as defined below) shall, by virtue of the Merger and without any action on the part of the Parent, the Offeror, the Company or the holders of the Shares, be converted into and represent the right to receive the Offer Price. Each share of the common stock of the Offeror issued and outstanding immediately prior to the Effective Time shall, at the Effective Time, by virtue of the Merger and without any action on the part of the Offeror, the Company or the holders of Shares, be converted into and shall thereafter evidence 23,000 (or such other number as Parent may elect) validly issued and outstanding shares of common stock of the Surviving Corporation. Dissenting Shares. 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 Offer Price, 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 under the DGCL. Merger Without a Meeting of Stockholders. In the event that the Offeror shall acquire at least 90% 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. Representations and Warranties. In the Merger Agreement, the Company has made customary representations and warranties to the Offeror, including, but not limited to, representations and warranties relating to the Company's organization and qualification, capitalization, its authority to enter into the Merger Agreement and carry out the related transactions, filings made by the Company with the Commission under the Securities Act of 1933 or the Exchange Act (including financial statements included in the documents filed by the Company under these acts), required consents and approvals, compliance with applicable laws, employee benefit plans, litigation, material liabilities of the Company and its subsidiaries, the payment of taxes, and the absence of certain material adverse changes or events. 16 The Offeror and the Parent have also made customary representations and warranties to the Company, including, but not limited to, representations and warranties relating to the Offeror's and the Parent's organization and qualification, authority to enter into the Merger Agreement and required consents and approvals. Covenants Relating to the Conduct of Business. The Company has covenanted that prior to the Effective Time, except as specifically disclosed to the Parent or as contemplated by any other provision of the Merger Agreement, unless the Parent has consented in writing thereto, the Company (and its subsidiaries): (a) shall operate its business to the extent commercially reasonable only in the usual and ordinary course consistent with past practices; (b) shall use its commercially reasonable efforts to preserve substantially intact its business organization, maintain its rights and franchises, retain the services of its respective officers and key employees and maintain its relationships with its respective customers and suppliers; (c) shall use its commercially reasonable efforts to maintain and keep its properties and assets in as good repair and condition as at present, ordinary wear and tear excepted, and maintain inventories in quantities consistent with its customary business practice; (d) shall use its commercially reasonable efforts to keep in full force and effect insurance and bonds comparable in amount and scope of coverage to that currently maintained; (e) shall not (i) increase the compensation payable to or to become payable to any director or executive officer, except for increases in salary or wages payable or to become payable in the ordinary course of business and consistent with past practice; (ii) grant any severance or termination pay (other than pursuant to the normal severance policy or practice of the Company or its subsidiaries as in effect on the date of the Merger Agreement or employment or severance agreements in effect on the date of the Merger Agreement) to, or enter into any employment or severance agreement with, any director, officer or employee, provided that the Company may adopt a retention bonus program (the "Retention Plan") that provides for the payment of a retention bonus of up to three month's base salary to such employees of the Company (other than senior management) as may be determined by the Company with the consent of the Parent which shall not be unreasonably withheld subject to (a) an employee's receipt of a retention bonus being conditioned on such employee either being terminated by the Company without cause following the Effective Time or remaining as an employee of the Company for not less than six months following the Effective Time and (b) the aggregate amount of all retention bonuses payable to all employees not exceeding $500,000 or (iii) establish, adopt, enter into or amend any employee benefit plan or arrangement except as may be required by applicable law or existing contracts; (f) shall not declare or pay any dividend on, or make any other distribution in respect of, outstanding shares of capital stock, except for dividends by a subsidiary of the Company to the Company or another subsidiary of the Company; (g) shall not (i) redeem, purchase or otherwise acquire any shares of its or any of its subsidiaries' capital stock or any securities or obligations convertible into or exchangeable for any shares of its or its subsidiaries' capital stock (other than any such acquisition directly from any wholly owned subsidiary of the Company in exchange for capital contributions or loans to such subsidiary), or any options, warrants or conversion or other rights to acquire any shares of its or its subsidiaries' capital stock or any such securities or obligations (except in connection with the exercise of outstanding Stock Options and Warrants in accordance with their terms or in connection with the conversion of Convertible Notes and Convertible Preferred Stock in accordance with their terms); (ii) effect any reorganization or recapitalization; or (iii) split, combine or reclassify any of its or its respective subsidiaries' capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for, shares of its or its respective subsidiaries' capital stock; (h) shall not (i) except as declared by the Company, issue, deliver, award, grant or sell, or authorize or propose the issuance, delivery, award, grant or sale (including the grant of any security interests, liens, claims, pledges, limitations in voting rights, charges or other encumbrances) of, any shares of any class of 17 its or its subsidiaries' capital stock (including shares held in treasury), any securities convertible into or exercisable or exchangeable for any such shares, or any rights, warrants or options to acquire, any such shares (except for the issuance of shares upon the exercise of outstanding Stock Options, Warrants or the conversion of Convertible Notes and the Convertible Preferred Stock in accordance with their terms); or (ii) amend or otherwise modify the terms of any such rights, warrants or options the effect of which shall be to make such terms more favorable to the holders thereof; (i) shall not acquire or agree to acquire, by merging or consolidating with, by purchasing an equity interest in or a portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division (other than a wholly owned subsidiary) thereof, or otherwise acquire or agree to acquire any assets of any other person (other than the purchase of assets from suppliers or vendors (i) for resale or use by or for customers which assets do not constitute capital items, (ii) that consist of office supplies or materials not constituting capital items or (iii) in an amount not to exceed $250,000 in the aggregate (or such greater amount as may be consented to by the Parent which consent shall not be unreasonably withheld), in each case, in the ordinary course of business and consistent with past practice); (j) shall not sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, any of its assets, except for the sale of the Company's operations in Costa Rica, Peru and Panama or for dispositions of inventories and of assets in the ordinary course of business and consistent with past practice; (k) shall 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 the Parent 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 the Parent a copy of such inquiry or proposal; provided, however, that nothing contained in this subsection (k) 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 the Parent 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. "Competing Transaction" means 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 this 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 in connection therewith; (iv) any person (other than the Parent or its subsidiaries) shall have acquired beneficial ownership or the right to acquire beneficial ownership of, or any "group" (as such term 18 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; (l) shall not propose or adopt any amendments to its Certificate of Incorporation or By-Laws that would have an adverse impact on the consummation of the transactions contemplated by the Merger Agreement; (m) shall not (A) change any of its methods of accounting in effect at December 31, 1995, or (B) make or rescind any express or deemed election relating to taxes, settle or compromise any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to taxes, or change any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of the federal income tax returns for the taxable year ending December 31, 1995, except, in the case of clause (A) or clause (B), as may be required by law or generally accepted accounting principles; (n) shall not incur any obligation for borrowed money or purchase money indebtedness, whether or not evidenced by a note, bond, debenture or similar instrument; (o) shall not enter into or amend (i) any material contract with any supplier that is not terminable or cancelable by the Company or its subsidiary party thereto upon notice of 90 days or less without penalty or increased cost; or (ii) any contract which restricts the Company and/or its subsidiaries from doing business anywhere in the world or from engaging in or competing in any line of business or with any person; or (p) shall not agree in writing or otherwise to do any of the foregoing. Stock Options. As soon as practicable following the date of Merger Agreement, the Board of Directors of the Company shall adopt such resolutions or take such other actions as may be required to provide that, at the Effective Time, each Stock Option outstanding immediately prior to the Effective Time of the Merger shall: (a) if such Stock Option is vested before or as a consequence of the Merger and exercisable and the holder of such Stock Option shall have elected by written notice to Parent prior to the date five (5) business days prior to the Effective Time to receive the payment contemplated by this clause (a), be canceled in exchange for a payment from the Surviving Corporation (subject to any applicable withholding taxes) equal to the excess of the amount in cash, without interest, equal to the price per Share paid pursuant to the Offer (the "Merger Consideration") over the exercise price per share of the Shares subject to such Stock Option, payable in cash immediately following the Effective Time of the Merger; provided, however, that with respect to any person subject to Section 16(a) of the Exchange Act any such amount to be paid shall be paid as soon as practicable after the first date payment can be made without liability for such person under Section 16(b) of the Exchange Act; or (b) with respect to any Stock Option not canceled pursuant to clause (a) above, be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Stock Option, the number of shares of common stock, no par value per share, of Merck ("Merck Common Stock") equal to the product of (1) the number of Shares issuable upon exercise of such Option and (2) the Merger Consideration 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 (1) the aggregate exercise price for the Shares otherwise purchasable pursuant to such Stock Option divided by (2) the number of shares of Merck Common Stock issuable per Share upon exercise of such Option set forth above, provided, however, that in the case of any option to which Sections 422 and 423 of the Code applies by reason of its qualification under any of Sections 422- 424 of the Code, Merck shall use reasonable efforts to cause the option price, the number of shares purchasable pursuant to such option and the terms and conditions of exercise of such option to be determined in order to comply with Section 424(a) of the Code. Pursuant to the Merger Agreement, Merck has agreed to (i) reserve for issuance the number of shares of Merck Common Stock that will become issuable upon the exercise of such Stock Options pursuant to the Merger 19 Agreement and (ii) at the Effective Time, execute a document evidencing the assumption by Merck of the Company's obligations with respect thereto. Merck has agreed to file a registration statement on Form S-8 (or any successor form), or another appropriate form with respect to the shares of Merck Common Stock subject to such options as soon as practicable after the Effective Time and to use its best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding. 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 Merger), to the fullest extent a corporation is permitted to indemnify its own directors and officers under DGCL. The Company's indemnification obligations are guaranteed under the Merger Agreement by Medco and Merck. The Merger Agreement also requires Parent 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. Employee Benefits. From and after the Effective Time, subject to applicable law, the Parent shall cause the Surviving Corporation to honor all employment agreements, individual severance arrangements, the Retention Plan and the Company's existing severance policy for any employee who is terminated by the Company without cause within six months following the Effective Time; provided, however, that nothing in the Merger Agreement shall preclude any change effected on a prospective basis. Board Representation. The Merger Agreement provides that, promptly upon the purchase of Shares pursuant to the Offer, the Offeror shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as will give the Offeror, subject to compliance with Section l4(f) of the Exchange Act and the rules and regulations promulgated thereunder, 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 Offeror bears to the number of Shares outstanding, and the Company shall, upon request by the Offeror, 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 Offeror's designees to be elected to the Board of Directors and shall cause the Offeror's designees to be so elected. The Company shall take, at its expense, all action required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this provision and shall include in the Schedule 14D-9 or otherwise timely mail to its stockholders such information with respect to the Company and its officers and directors as is required by Section 14(f) and Rule 14f-l in order to fulfill its obligations under this provision. The Parent will supply to the Company in writing and be solely responsible for any information with respect to itself and its or the Offeror's nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-l. In the event that the Offeror'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"). In such event, if the Company Director is unable to serve for any reason whatsoever, the other directors shall designate a person to fill such vacancy who shall not be a designee, stockholder or affiliate of the Parent or the Offeror and such person shall be deemed to be a Company Director for purposes of the Merger Agreement. Notwithstanding anything in the Merger Agreement to the contrary, in the event that the Offeror'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 the Parent's and the Offeror'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, 20 (e) amend, repeal or otherwise modify the provisions with respect to indemnification set forth in the Company's Certificate of Incorporation or By- Laws in a 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 at or prior to the Effective Time (including, without limitation, the transactions contemplated by the Merger Agreement) unless such notification is required by law or (f) cancel the Company's current directors' and officers' liability insurance policies (or comparable policies). Conditions Precedent. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) the Offeror shall have purchased pursuant to the Offer a number of Shares which satisfies the Minimum Condition; (b) the Merger Agreement and the Merger shall have been approved and adopted by the requisite vote of stockholders of the Company; (c) no governmental or regulatory authority, domestic or foreign ("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 this Agreement illegal or otherwise prohibiting consummation of the transactions contemplated by this Agreement; and (d) the applicable waiting period under the HSR Act shall have expired or been terminated. The Offer is also subject to other terms and conditions. See Section 15. Termination. The Merger Agreement provides that it may be terminated and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding the approval of the stockholders entitled to vote thereon: (a) by mutual consent of Parent and the Company; (b) by Parent, upon a breach of any representation, warranty, covenant or agreement on the part of the Company set forth in the Merger Agreement, such that the conditions set forth in Section 7.02(a) or 7.02(b) of the Merger Agreement regarding compliance with representations, warranties and covenants would not be satisfied; (c) by the Company, upon breach of any representation, warranty, covenant or agreement on the part of Parent set forth the Merger Agreement, such that the conditions set forth in Section 7.03(a) or 7.03(b) of the Merger Agreement regarding compliance with representations, warranties and covenants would not be satisfied; (d) by either Parent or the Company, if there shall be any order which is final and nonappealable preventing the consummation of the Merger; (e) by either Parent or the Company if the Offer shall have expired or been terminated in accordance with its terms as the result of the failure of any of the conditions set forth in Section 15 without the Offeror having purchased any Shares pursuant to the Offer; (f) by either Parent or the Company, if the Merger shall not have been consummated before September 30, 1996; (g) by either Parent or the Company, if the Merger Agreement shall fail to receive the requisite vote for approval and adoption by the stockholders of the Company; (h) by Parent, if (i) the Board of Directors of the Company withdraws, modifies or changes its recommendation of the Merger Agreement, the Offer or the Merger in a manner adverse to Parent or Offeror or shall have resolved to do any of the foregoing or the Board of Directors of the Company shall have recommended to the stockholders of the Company any competing transaction or resolved to do so; (ii) if the Board of Directors of the Company shall have recommended to the shareholders of the Company a Competing Transaction; or (iii) 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 or; (iv) any person (other than Parent 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 21 and the rules and regulations promulgated thereunder), shall have been formed which beneficially owns, or has the right to acquire beneficial ownership of more than 30% of the then outstanding shares of capital stock of the Company; and (i) by the Company (i) if the Board of Directors of the Company determines in good faith after consultation with independent legal counsel (which may include the Company's regularly engaged legal counsel) that it is required by DGCL to enter into a definitive agreement for a Competing Transaction which the Board has determined is financially superior to the transactions contemplated by the Merger Agreement and is reasonably likely to be consummated; (ii) the Offer shall not have been timely commenced in accordance with the Merger Agreement; or (iii) the Offer shall have expired or have been terminated without any Shares being purchased thereunder or if no Shares shall have been purchased thereunder by September 30, 1996, unless failure to so purchase Shares has been caused by or results from a breach by the Company of the Merger Agreement. Effect of Termination and Abandonment. (a) In the event of a termination of the Merger Agreement (A) by the Company pursuant to subsection (i) of clause (h) contained in Termination above or (B) for any reason other than a breach by Parent or the Offeror and, with respect to a termination under clause (B) only, (i) the Board of Directors of the Company shall have withdrawn its recommendation of (or encouraged stockholders not to approve) the Offer or the Merger or shall have recommended (or encouraged stockholders to support) any Competing Transaction, or shall have resolved to do any of the foregoing (and such withdrawal, recommendation or encouragement is not the result of a material breach by Parent or the Offeror of any representation, warranty or obligation under the Merger Agreement), (ii) prior to such termination, the Company shall have received any proposal for a Competing Transaction which the Board of Directors has determined is more favorable to the Company's stockholders than the transactions contemplated by the Merger Agreement, or (iii)(A) at any time prior to the termination of the Merger Agreement (I) the stockholders of the Company shall have failed to approve the Merger Agreement at the Company's stockholders' meeting, (II) any person (other than Parent or any of its subsidiaries) shall have publicly announced any proposal for a Competing Transaction and (B) at any time on or prior to one year after the date of the Merger Agreement, any person (other than Parent or any of its subsidiaries) shall either (I) become the beneficial owner of 50% or more of the outstanding Shares or (II) consummate a Competing Transaction, then the Company shall promptly, but in no event later than two business days after the first of such events set forth in (A) or (B) to occur, (x) pay Parent the sum of $2,000,000 in cash and (y) reimburse Parent for all documented out-of- pocket costs and expenses (including, without limitation, all documented legal, investment banking, printing and related fees and expenses) incurred by Parent or the Offeror or on their behalf in connection with the Merger Agreement or the transactions contemplated thereby, up to a maximum of $250,000 and the Company and its subsidiaries and affiliates shall have no other liabilities or obligations (and the Parent and the Offeror shall have no other claim or right against the Company or any of its subsidiaries of affiliates) in connection with the Merger Agreement and the transactions contemplated thereby. (b) In the event that Offeror fails to purchase Shares in the Offer on account of the failure of the conditions set forth in subsection (ii) of the introductory paragraph of Section 15, and paragraphs (a) or (b) of Section 15, the Parent shall reimburse the Company for all documented out of pocket expenses incurred by the Company or on its behalf in connection with the Merger Agreement or the transactions contemplated thereby, up to a maximum of $500,000, and the Parent shall also pay the Company $500,000 in cash and the Parent and its subsidiaries and affiliates shall have no other liabilities or obligations (and the Company shall have no other claim or right against the Parent or any of its subsidiaries or affiliates) in connection with the Merger Agreement and the transactions contemplated thereby. 14. DIVIDENDS AND DISTRIBUTIONS. The Merger Agreement provides that the Company will not, among other things, prior to the Effective Time (i) declare, set aside or pay any dividend or make any other distribution or payment with respect to any shares of its capital stock, (ii) directly or indirectly redeem, purchase, or otherwise acquire any shares of capital stock of the Company or capital stock of any of its subsidiaries or make any commitment for any such action or (iii) split, combine or reclassify any of its capital stock. 22 15. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other term of the Offer or the Merger Agreement, the Offeror shall not be required to accept for payment or pay for, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) of the Exchange Act, any Shares 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 which would represent at least a majority of the outstanding Shares on a fully diluted basis and (ii) any waiting period under the HSR Act applicable to the purchase of Shares pursuant to the Offer shall have been expired or been terminated. Furthermore, notwithstanding any other term of the Offer or the Merger Agreement, the Offeror shall not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate or amend the Offer if, immediately prior to the acceptance of such Shares 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 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 the Parent to hold the Surviving Corporation or its assets separate, (iii) seeking relief which would adversely effect the right of Parent to own the Shares and to control the Surviving Corporation and its subsidiaries, or (iv) seeking relief which would adversely effect the right of any of the Surviving Corporation and its subsidiaries to own its assets and to operate its businesses (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); (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; (c) the Company and the Offeror 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; (d) except where the inaccuracies of any representations and warranties of the Company would not, in the aggregate of all such inaccuracies, result in a change or have an effect that, individually or when taken together with all other such changes or effects, would be, or would be reasonably likely to be, materially adverse to the financial condition, assets, liabilities, business or operations of the Company and its subsidiaries, taken as a whole (a "Company Material Adverse Effect"), 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); (e) the Company shall not have performed or complied with any agreement in covenants required by the Merger Agreement to be performed or complied with by it on or prior to the Expiration Date, except where the failure to so comply would not have a Company Material Adverse Effect. The Company shall have not performed or complied with its obligations to sell or shut down its operations in Costa Rica, Peru and Panama; (f) any consent, approval or authorization legally required to be obtained to consummate the Merger shall not have been obtained from or made with all required Governmental Entities; (g) the Company's Board of Directors shall have withdrawn, modified or changed its recommendation of the Offer in any manner adverse to the Parent or the Offeror, or shall have recommended acceptance of any Competing Transaction or shall have resolved to do any of the foregoing; or 23 (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 Parent and the Offeror, in any case, and regardless of the circumstances (including any action or inaction by Parent or the Offeror or any of their affiliates other than any action or inaction constituting a material breach by Parent or the Offeror 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 of, or payment for the Shares. The foregoing conditions are for the sole benefit of the Offeror and may be asserted by the Offeror regardless of the circumstances giving rise to any such condition and may be waived by the Offeror, in whole or in part, at any time and from time to time, in the sole discretion of the Offeror. The failure by the Offeror 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 not theretofore accepted for payment shall forthwith be returned by the Depositary to the tendering stockholders. 16. CERTAIN REGULATORY AND LEGAL MATTERS. Except as set forth in this Section, the Offeror is not aware of any approval or other action by any governmental or administrative agency which would be required for the acquisition or ownership of Shares by the Offeror as contemplated herein. Should any such approval or other action be required, it will be sought, but the Offeror has no current intention to delay the purchase of Shares tendered pursuant to the Offer pending the outcome of any such matter, subject, however, to the Offeror's right to decline to purchase Shares if any of the conditions specified in Section 15 shall have occurred. There can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions, or that adverse consequences might not result to the Company's business or that certain parts of the Company's business might not have to be disposed of if any such approvals were not obtained or other action taken. Antitrust. Under the provisions of the HSR Act applicable to the Offer, the acquisition of Shares under the Offer may be consummated following the expiration or early termination of the applicable waiting period under the HSR Act. Early termination of the waiting period under the HSR Act was granted on May 24, 1996. The Department of Justice, Antitrust Division (the "Antitrust Division") and the Federal Trade Commission ("FTC") frequently scrutinize the legality under the antitrust laws of transactions such as the Offeror's proposed acquisition of the Company. At any time before or after the Offeror's acquisition of Shares pursuant to the Offer, the Antitrust Division or the FTC could take such action under the antitrust laws as either deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or the consummation of the Merger or seeking the divestiture of Shares acquired by the Offeror or the divestiture of substantial assets of the Company or its subsidiaries or the Parent or its subsidiaries. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made, or, if such a challenge is made, of the result thereof. See Section 15. State Takeover Laws. The Company is incorporated under the laws of the State of Delaware. In general, Section 203 of the DGCL prevents an "interested stockholder" (including a person who owns or has the right to acquire 15% or more of a corporation's outstanding voting stock) from engaging in a "business combination" (defined to include mergers and certain other transactions) with a Delaware corporation for a period of three years following the date such person became an interested stockholder unless, among other things, the 24 corporation's board of directors approves such business combination or the transaction in which the interested stockholder becomes such prior to the date the interested stockholder becomes such. The Board of Directors of the Company has approved the Offer, the Merger and the Merger Agreement for the purposes of Section 203 of the DGCL. A number of other states have adopted laws and regulations applicable to attempts to acquire securities of corporations which are incorporated, or have substantial assets, stockholders, principal executive offices or principal places of business, or whose business operations otherwise have substantial economic effects in such states. In Edgar v. MITE Corp., the Supreme Court of the United States invalidated on constitutional grounds the Illinois Business Takeover statute, which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However in 1987, in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of Indiana may, as a matter of corporate law and, in particular, with respect to those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquirer from voting on the affairs of a target corporation without the prior approval of the remaining presenting stockholders. The state law before the Supreme Court was by its terms applicable only to corporations that had a substantial number of stockholders in the state and were incorporated there. The Company, directly or through subsidiaries, conducts business in a number of states, some of which have enacted takeover laws. Except as described above with respect to Section 203 of the DGCL, the Offeror has not attempted to comply with any such laws. Should any person seek to apply any state takeover law, the Offeror will take such action as then appears desirable, which may include challenging the validity or applicability of any such statute in appropriate court proceedings. In the event it is asserted that one or more state takeover laws is applicable to the Offer or the Merger, and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer, the Offeror might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, the Offeror might be unable to accept for payment any Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer and the Merger. In such case, the Offeror may not be obligated to accept for payment any Shares tendered. See Section 15. Appraisal Rights. Holders of the Shares do not have appraisal rights as result of the Offer. However, if the Merger is consummated, holders of the Shares at the Effective Time of the Merger will have certain rights pursuant to the provisions of Section 262 of the DGCL to dissent and demand appraisal of their Shares. Under Section 262, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Merger) and to receive payment of such fair value in cash, together with a fair rate of interest, if any. Any such judicial determination of the fair value of the Shares could be based upon factors other than, or in addition to, the price per share to be paid in the Merger or the market value of the Shares. The value so determined could be more or less than the price per share to be paid in the Merger. Going Private Transactions. The Commission has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions and which may under certain circumstances be applicable to the Merger or any other merger involving the Company. However, Rule 13e-3 would be inapplicable if (a) the Shares are deregistered under the Exchange Act prior to the merger or (b) any such merger is consummated within one year after the purchase of the Shares pursuant to the Offer and such merger provides for stockholders to receive cash for their Shares in an amount at least equal to the amount paid per Share in the Offer. If applicable, Rule 13e-3 requires, among other things, that certain financial information concerning the fairness of the proposed transaction and the consideration offered to minority stockholders in such transaction be filed with the Commission and disclosed to stockholders prior to the consummation of the transaction. Legal Proceedings. In April and May, 1996, three purported shareholder class action lawsuits, two in the Los Angeles Superior Court of the State of California and one in the Court of Chancery of the State of Delaware, were filed with respect to the Merger. The actions name as defendants the Company and the members of its board of directors, and the Delaware action also names Merck as a defendant. The actions allege that the 25 Company's board of directors violated its fiduciary duties in entering into the Merger Agreement, in that, among other things, the consideration offered was below the fair value of the stock and its trading price prior to the announcement of the Merger, and the directors failed to take appropriate steps to assure that they were receiving the highest possible price for the Shares. The actions seek to enjoin the Merger, and also seek damages in an unspecified amount. The Company has indicated that it believes the actions to be 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. The Offeror is not aware of any other pending or overtly threatened legal proceedings which would affect the Offer or the Merger. If any such matters were to arise, the Merger Agreement provides that, under certain circumstances, the Offeror could decline to accept for payment or pay for any Shares tendered in the Offer. See Section 15. 17. FEES AND EXPENSES. Neither the Offeror nor the Parent, nor any officer, director, stockholder, agent or other representative of the Offeror or the Parent, will pay any fees or commissions to any broker, dealer or other person (other than the Information Agent and the Depositary) for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies and other nominees will, upon request, be reimbursed by the Offeror for customary mailing and handling expenses incurred by them in forwarding materials to their customers. The Offeror has retained D.F. King & Co., Inc. as Information Agent and Norwest Bank Minnesota, N.A. as Depositary in connection with the Offer. The Information Agent and the Depositary will receive reasonable and customary compensation for their services hereunder and reimbursement for their reasonable out-of-pocket expenses. The Information Agent and the Depositary will also be indemnified by the Offeror against certain liabilities in connection with the Offer. 18. MISCELLANEOUS. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares residing in any jurisdiction in which the making or acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Offeror by one or more registered brokers or dealers licensed under the laws of such jurisdiction. No person has been authorized to give any information or make any representation on behalf of the Offeror other than as contained in this Offer to Purchase or in the Letter of Transmittal, and, if any such information or representation is given or made, it should not be relied upon as having been authorized by the Offeror. The Offeror and the Parent have filed with the Commission the Schedule 14D- 1, pursuant to Section 14(d)(1) of the Exchange Act and Rule 14d-1 promulgated thereunder, furnishing certain information with respect to the Offer. Such Schedule 14D-1 and any amendments thereto, including exhibits, may be examined and copies may be obtained at the same places and in the same manner as set forth with respect to the Company in Section 8 (except that they will not be available at the regional offices of the Commission). S ACQUISITION CORP. June 11, 1996 26 ANNEX I CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF MERCK, MEDCO AND THE OFFEROR 1. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARENT. Set forth below is the name, age, current business address, citizenship, present principal occupation or employment and five-year employment history of each director and executive officer of Merck. Unless otherwise indicated, each person identified below has been employed by Merck for the last five years, and each such person's business address is P.O. Box 100, Whitehouse Station, N.J. Directors are indicated with an asterisk. All persons listed below are citizens of the United States unless otherwise indicated. PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR NAME EMPLOYMENT HELD DURING THE LAST FIVE YEARS ---- ---------------------------------------------- *H. Brewster Atwater, Jr. ......... Director; Retired; Chairman of the Board and Chief Executive Officer, General Mills, Inc. (consumer foods and restaurants) for more than five years. *Sir Derek Birkin.................. Director; Chairman of the Board, The RTZ Corporation PLC (international mining company) since June 1991; Chief Executive and Deputy Chairman from April 1985 to May 1991. Sir Derek is a British citizen. *Lawrence A. Bossidy............... Director; Chairman of the Board (since January 1992) and Chief Executive Officer (since July 1991), Allied Signal, Inc. (aerospace, Automotive products and engineered materials technology); Vice Chairman, General Electric Company from January 1984 to July 1991. *William G. Bowen, Ph.D. .......... Director; President, The Andrew W. Mellon Foundation (philanthropic foundation) for more than five years. *Johnnetta B. Cole, Ph.D. ......... Director; President, Spelman College for more than five years. *Carolyne K. Davis, Ph.D. ......... Director; International Health Care Consultant for more than five years. *Lloyd C. Elam, M.D. .............. Director; Professor of Psychiatry, Meharry Medical College for more than five years. *Charles E. Exley, Jr. ............ Director; Retired; Chairman of the Board and Chief Executive Officer, NCR Corporation (business information processing systems) from January 1988 to September 1991. *Raymond V. Gilmartin.............. November, 1994--Chairman of the Board, President and Chief Executive Officer; June, 1994--President and Chief Executive Officer; Prior to June, 1994, Mr. Gilmartin was President and Chief Executive Officer (1989 to 1992) and Chairman, President and Chief Executive Officer (1992 to 1994) of Becton Dickinson and Company (medical supplies and devices and diagnostic systems). A-1 PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR NAME EMPLOYMENT HELD DURING THE LAST FIVE YEARS ---- ---------------------------------------------- *William N. Kelley, M.D. .......... Director; Chief Executive Officer, University of Pennsylvania Medical Center and Health System and Executive Vice President, Dean of the School of Medicine and Robert G. Dunlop Professor of Medicine, Biochemistry and Biophysics, University of Pennsylvania, for more than five years. *Samuel O. Thier, M.D. ............ Director; President, Massachusetts General Hospital since May 1994; President, Brandeis University from October 1991 to May 1994; President, National Academy of Sciences, Institute of Medicine from November 1985 to September 1991. *Dennis Weatherstone............... Director; Retired; Chairman of the Board, J.P. Morgan & Co. Incorporated and Morgan Guaranty Trust Company of New York (banking and other financial services) for more than five years. Mr. Weatherstone is also a British citizen. David W. Anstice................... September, 1994--President, Human Health- U.S./Canada--responsible for the Company's prescription drug business in the United States and Canada, worldwide coordination of marketing policies and medical and scientific affairs; January, 1994--President, Human Health-Europe; January, 1993--Senior Vice President, Merck Human Health Division (MHHD)- Europe; April, 1991--Senior Vice President, MHHD and President, U.S. Human Health; July, 1989--Vice President, Marketing, Merck Sharp & Dohme Division. Mr. Anstice is an Australian citizen. Celia A. Colbert................... November, 1993--Secretary and Assistant General Counsel; September, 1993-- Secretary; February, 1993--Secretary, New Products Committee; October, 1992-- Counsel, Corporate Staff; May, 1991-- Associate Counsel, Corporate Staff; November, 1988--Senior Attorney, Corporate Staff. Clifford S. Cramer................. July, 1993--Vice President, Planning and Development--responsible for strategic planning and external growth activities; April, 1990--Executive Director, Corporate Development. Caroline Dorsa..................... January, 1994--Treasurer; July, 1993-- Executive Director, Customer Marketing, U.S. Human Health (USHH); June, 1992-- Executive Director, Pricing and Strategic Planning, USHH; April, 1990--Executive Director, Financial Evaluation and Analysis. R. Gordon Douglas Jr. ............. January, 1994--President, Merck Vaccines--responsible for all functional areas, including development, manufacture and marketing, of the vaccines business; April, 1991--President, Merck Vaccine Division; October, 1989--Senior Vice President, Medical & Scientific Affairs. A-2 PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR NAME EMPLOYMENT HELD DURING THE LAST FIVE YEARS ---- ---------------------------------------------- Kenneth C. Frazier................. April, 1994--Vice President, Public Affairs; May, 1992--Vice President, General Counsel and Secretary, Astra/Merck Group; Prior to May, 1992, Mr. Frazier was a partner at the law firm Drinker, Biddle & Reath for more than five years. Bernard J. Kelly................... December, 1993--President, Merck Manufacturing Division (MMD); August, 1993--Senior Vice President, Operations, MMD; September, 1991--Senior Vice President, Administration, Planning and Quality, MMD; September, 1989--Vice President, Business Affairs, Merck AgVet Division. Judy C. Lewent..................... September, 1994--Senior Vice President and Chief Financial Officer--responsible for financial and public affairs functions, The Merck Company Foundation, internal auditing and the Company's joint venture relationships; December, 1993-- Senior Vice President and Chief Financial Officer--responsible for financial and public affairs functions and The Merck Company Foundation; June, 1993--Senior Vice President, Chief Financial Officer and Controller; January, 1993--Senior Vice President and Chief Financial Officer; April, 1990--Vice President, Finance and Chief Financial Officer Henri Lipmanowicz.................. January, 1995--President, Human Health-- Intercontinental Region and Japan-- responsible for the Company's prescription drug operations in the Near East, the Far East, Eastern Europe, Africa, Latin America, Australia, New Zealand and Japan; January, 1994-- President, Human Health--Merck Intercontinental Region (MIR)/Japan; June, 1991--Senior Vice President, MIR, Merck Human Health Division; April, 1989--Vice President, Mid-Europe, Merck Sharp & Dohme International Division. Mr. Lipmanowicz is a French citizen. Per G. H. Lofberg.................. January, 1994--President, Merck-Medco Managed Care, Inc.; April, 1991--Senior Executive Vice President, Strategic Planning and Marketing, Medco Containment Services, Inc.; Prior to April, 1991, Mr. Lofberg was an executive officer of Medco for more than five years. Mr. Lofberg is a Swedish citizen. Mary M. McDonald................... January, 1993--Senior Vice President and General Counsel; April, 1991--Vice President and General Counsel; May, 1990--Assistant General Counsel and Counsel, Merck Sharp & Dohme International Division. Peter E. Nugent.................... September, 1993--Vice President, Controller; July, 1989--Vice President, Corporate Taxes. A-3 PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR NAME EMPLOYMENT HELD DURING THE LAST FIVE YEARS ---- ---------------------------------------------- John M. Preston.................... April, 1993--President, Merck AgVet Division; July, 1992--Executive Vice President, Merck AgVet Division; September, 1991--Vice President, Business Affairs, MSD AGVET Division; February, 1991--Executive Director, Technical Services, MSD AGVET Division. Edward M. Scolnick................. September, 1994--Executive Vice President, Science and Technology and President, Merck Research Laboratories (MRL)--responsible for worldwide research function and activities of Merck Manufacturing Division, computer resources and corporate licensing; December, 1993--Executive Vice President, Science and Technology, MRL--responsible for worldwide research function and activities of Merck Manufacturing Division and computer resources; January, 1993--Executive Vice President and President, MRL--responsible for worldwide research function and activities of Merck AgVet Division and computer resources; April, 1991--Senior Vice President and President, MRL--responsible for worldwide research function and activities of Merck Frosst Canada, Inc.; May, 1985-- President, Merck Sharp & Dohme Research Laboratories Division. Bennett M. Shapiro................. September, 1990--Executive Vice President, Worldwide Basic Research, Merck Research Laboratories Deborah K. Smith................... May 1996--Senior Vice President Human Resources; Senior Vice President, Human Resources; Bausch & Lomb Incorporated (April 1995-May 1996) Corporate Vice President, Global Human Resources Initiatives, Xerox Corporation (1994- 1995); Vice President, Human Resources and Support Services, Development and Manufacturing Group and Corporate Strategic Services, Xerox Corporation (1986-1994). Per Wold-Olsen..................... September, 1994--President, Human Health- Europe--responsible for the Company's European prescription drug business; January, 1994, Senior Vice President, Worldwide Human Health Marketing; September, 1991--Senior Vice President, Human Health Marketing, Merck Human Health Division (MHHD); June, 1991--Vice President, Human Health Marketing, MHHD; January, 1990--Regional Director-- Scandinavia and Vice President, MSD Europe. Mr. Wold-Olsen is a Norwegian citizen. A-4 2. DIRECTORS AND EXECUTIVE OFFICERS OF MEDCO. Unless otherwise indicated, each person identified below has been employed by Merck or Medco for the last five years and all information concerning the current business address, present principal occupation or employment and five-year employment history for each person is the same as the information given above. All persons listed below are citizens of the United States unless otherwise indicated. PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR NAME EMPLOYMENT HELD DURING THE LAST FIVE YEARS ---- ---------------------------------------------- Michael G. Atieh................... Director; April 19, 1994--Senior Vice President--Sales; January 1994--Vice President, Public Affairs of Merck; April 1990--Treasurer of Merck. Judy C. Lewent..................... Director. Per G. H. Lofberg (Swedish Director, President and Chief Executive citizen).......................... Officer. Mary M. McDonald................... Director. Peter E. Nugent.................... Director. Bert I. Weinstein.................. Director; April 1995--Senior Vice President and Co-General Counsel; April 1991--General Counsel of Merck. Thomas Apker....................... Senior Vice President; Mr. Apker has served in various executive positions with Merck-Medco for more than the past 5 years. Simon X. Benito.................... January 1994--Executive Vice President; for more than 5 years prior to that Mr. Benito was senior executive of Merck. Caroline Dorsa..................... Treasurer. Wayne G. Gattinella................ January 1992--Senior Vice President; prior to that Mr. Gattinella was Vice President--Consumer Marketing for MCI. Carl I. Kanter..................... May 1992--Senior Vice President and Co- General Counsel; for more than five years prior thereto, Mr. Kanter was a senior partner of the law firm of Strook & Strook & Lavan (7 Hanover Square, New York, NY). Margaret McGlynn................... August 1995--Senior Vice President; October 1994--Senior Vice President U.S. Human Health Managed Care at Merck; Jan. 1996--Senior Vice President Business Planning at Medco; Jan 1993--Vice President Business Management at Merck; May 1991--Executive Director Customer Marketing at Merck. Joann A. Reed...................... Senior Vice President; Ms. Reed has served in various executive positions with Medco for more than the past 5 years. A-5 PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR NAME EMPLOYMENT HELD DURING THE LAST FIVE YEARS ---- ---------------------------------------------- Richard Schatzberg................. Executive Vice President; Mr. Schatzberg has served in various executive positions with Medco for more than the past 5 years. Isaac Shulman...................... Senior Vice President; Mr. Shulman has served in various executive positions with Medco for more than the past 5 years. Joseph V. Valesio.................. Executive Vice President; Mr. Valesio has served in various executive positions with Medco for more than the past 5 years. 3. DIRECTORS AND EXECUTIVE OFFICERS OF THE OFFEROR. Unless otherwise indicated, each person identified below has been employed by the Parent for the last five years and all information concerning the current business address, present principal occupation or employment and five-year employment history for each person is the same as the information given above. Directors are indicated with an asterisk. All persons listed below are citizens of the United States unless otherwise indicated. *Per G. H. Lofberg (Swedish President and Chief Executive Officer. citizen) Karl I. Kanter Vice President and Treasurer. Bert I. Weinstein Vice President and Secretary. A-6 Facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or his broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of the addresses set forth below: THE DEPOSITARY FOR THE OFFER IS: NORWEST BANK MINNESOTA, N.A. ---------------- Facsimile Transmission: (612) 450-4163 Confirm by Telephone: (612) 450-4064 By Mail: By Hand: By Overnight Courier: Norwest Shareowner Norwest Shareowner Services Norwest Shareowner Services 161 North Concord Exchange Services P.O. Box 64858 2nd Floor 161 North Concord St. Paul, MN 55164-0858 South St. Paul, MN 55075 Exchange or South St. Paul, MN 55075 Norwest Trust Company of New York 3 New York Plaza 15th Floor New York, NY 10004 Any questions or requests for assistance or additional copies of the Offer to Purchase and the Letter of Transmittal and Notice of Guaranteed Delivery may be directed to the Information Agent at its telephone number and location listed below. Stockholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: D.F. KING & CO., INC. 77 Water Street New York, New York 10005 Toll Free (800) 549-6864 Banks and Brokerage Firms, please call: (212) 269-5550 EX-99.(A)(2) 3 LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF SYSTEMED INC. PURSUANT TO THE OFFER TO PURCHASE DATED JUNE 11, 1996 BY S ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF MERCK-MEDCO MANAGED CARE, INC. AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF MERCK & CO., INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON TUESDAY, JULY 9, 1996, UNLESS THE OFFER IS EXTENDED. THE DEPOSITARY: NORWEST BANK MINNESOTA, N.A. Facsimile Transmission: (612) 450-4163 Confirm by Telephone: (612) 450-4064 By Mail: By Hand: By Overnight Courier: Norwest Shareowner Norwest Shareowner Services Norwest Shareowner Services 161 North Concord Exchange Services P.O. Box 64858 2nd Floor 161 North Concord St. Paul, MN 55164- South St. Paul, MN 55075 Exchange 0858 or South St. Paul, MN Norwest Trust Company of 55075 New York 3 New York Plaza 15th Floor New York, NY 10004 --------------- DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders of Systemed Inc. if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if delivery of Shares (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (hereinafter collectively referred to as the "Book- Entry Transfer Facilities") pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as defined below). Stockholders whose certificates for Shares are not immediately available or who cannot deliver their Shares and all other documents required hereby to the Depositary by the Expiration Date (as defined in the Offer to Purchase), or who cannot comply with the book-entry transfer procedures on a timely basis, may nevertheless tender their Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. DESCRIPTION OF SHARES TENDERED - -------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARES TENDERED (PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY) - -------------------------------------------------------------------------------------------------- NUMBER OF SHARE SHARES NUMBER CERTIFICATE REPRESENTED BY OF SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** ----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- TOTAL SHARES
- ------------------------------------------------------------------------------- * Need not be completed by stockholders tendering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares represented by any certificates delivered to the Depositary are being tendered. See Instruction 4. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY [_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of Tendering Institution__________________________________________________ Account No. ________________________________________________________________ at [_]The Depository Trust Company [_]Philadelphia Depository Trust Company Transaction Code No. __________________________________________________________ [_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Tendering Stockholder(s)____________________________________________ Date of Execution of Notice of Guaranteed Delivery_____________________________ Window Ticket Number (if any)__________________________________________________ Name of Institution which Guaranteed Delivery__________________________________ If delivery is by book-entry transfer__________________________________________ Name of Tendering Institution_______________________________________________ Account No. _____________________________________________________________ at [_]The Depository Trust Company [_]Philadelphia Depository Trust Company Transaction Code No. _______________________________________________________ Ladies and Gentlemen: The undersigned hereby tenders to S Acquisition Corp., a Delaware corporation (the "Offeror"), and a wholly owned subsidiary of Merck-Medco Managed Care, Inc., a Delaware corporation ("Medco"), and an indirect wholly owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Merck", together with Medco, the "Parent"), the above-described shares of common stock, $0.001 par value per share (the "Shares"), of Systemed Inc., a Delaware corporation (the "Company"), pursuant to the Offeror's offer to purchase all of the outstanding Shares at a purchase price of $3.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated June 11, 1996 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together with the Offer to Purchase constitute the "Offer"). The Offer is being made in connection with the Amended and Restated Agreement and Plan of Merger, dated as of June 10, 1996, among Merck, Medco, the Offeror and the Company. Subject to and effective upon acceptance for payment of and payment for the Shares tendered herewith, the undersigned hereby sells, assigns and transfers to or upon the order of the Offeror all right, title and interest in and to all the Shares that are being tendered hereby (and any and all other Shares or other securities issued or issuable in respect thereof on or after June 10, 1996) and appoints the Depositary the true and lawful agent and attorney-in- fact of the undersigned with respect to such Shares (and all such other Shares or securities), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares (and all such other Shares or securities), or transfer ownership of such Shares (and all such other Shares or securities) on the account books maintained by any of the Book-Entry Transfer Facilities, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of the Offeror, (b) present such Shares (and all such other Shares or securities) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and all such other Shares or securities), all in accordance with the terms of the Offer. The undersigned hereby irrevocably appoints representatives of the Offeror as the attorneys and proxies of the undersigned, each with full power of substitution, to exercise all voting and other rights of the undersigned in such manner as each such attorney and proxy or his substitute shall in his sole judgment deem proper, with respect to all of the Shares tendered hereby which have been accepted for payment by the Offeror prior to the time of any vote or other action (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after June 10, 1996), at any meeting of stockholders of the Company (whether annual or special and whether or not an adjourned meeting) or otherwise. This proxy is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by the Offeror in accordance with the terms of the Offer. Such acceptance for payment shall revoke any other proxy or written consent granted by the undersigned at any time with respect to such Shares (and all such other Shares or other securities or rights), and no subsequent proxies will be given or written consents will be executed by the undersigned (and if given or executed, will not be deemed effective). The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after June 10, 1996) and that when the same are accepted for payment by the Offeror, the Offeror will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Offeror to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby (and all such other Shares or other securities or rights). All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute an agreement between the undersigned and the Offeror upon the terms and subject to the conditions of the Offer. Unless otherwise indicated under "Special Payment Instructions," please issue the check for the purchase price of any Shares purchased, and return any Shares not tendered or not purchased, in the name(s) of the undersigned (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above). Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price of any Shares purchased and return any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the purchase price of any Shares purchased and return any Shares not tendered or not purchased in the name(s) of, and mail said check and any certificates to, the person(s) so indicated. The undersigned recognizes that the Offeror has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if the Offeror does not accept for payment any of the Shares so tendered. SPECIAL PAYMENT INSTRUCTIONS (SEE SPECIAL DELIVERY INSTRUCTIONS INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the To be completed ONLY if the check for the purchase price of check for the purchase price of Shares purchased or certificates Shares purchased or certificates for Shares not tendered or not for Shares not tendered or not purchased are to be issued in the purchased are to be mailed to name of someone other than the someone other than the under- undersigned, or if Shares ten- signed or to the undersigned at dered by book-entry transfer that an address other than that shown are not purchased are to be re- below the undersigned's signa- turned by credit to an account at ture(s). one of the Book-Entry Transfer Facilities other than that desig- nated above. Mail check and/or certificates to: Name______________________________ Issue check and/or certificates (PLEASE PRINT) to: Address __________________________ __________________________________ Name _____________________________ (ZIP CODE) (PLEASE PRINT) __________________________________ Address __________________________ (TAXPAYER IDENTIFICATION NO.) __________________________________ (ZIP CODE) __________________________________ (TAXPAYER IDENTIFICATION NO.) (See Substitute Form W-9) [_] Credit unpurchased Shares tendered by book-entry transfer to the account set forth below: Name of Account Party ____________ Account No. ______________________ at [_] The Depository Trust Company [_] Philadelphia Depository Trust Company SIGN HERE (Complete Substitute Form W-9 below) ____________________________________________________________________________ ____________________________________________________________________________ (Signature(s) of Owner(s) ____________________________________________________________________________ Name(s) ____________________________________________________________________ ____________________________________________________________________________ Capacity (full title) ______________________________________________________ Address ____________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ (Include Zip Code) ____________________________________________________________________________ Area Code and Telephone Number _____________________________________________ Taxpayer Identification Number _____________________________________________ Dated: ______________________________________________________________ , 1996 (Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by the person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5). GUARANTEE OF SIGNATURE(S) (See Instructions 1 and 5) FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE BELOW. Authorized Signature(s) ____________________________________________________ Name _______________________________________________________________________ Name of Firm _______________________________________________________________ Address ____________________________________________________________________ ____________________________________________________________________________ (Include Zip Code) Area Code and Telephone Number _____________________________________________ Dated: ______________________________________________________________ , 1996 PAYOR'S NAME: NORWEST BANK MINNESOTA, N.A. PART I--PLEASE PROVIDE YOUR PART III--Social TIN IN THE BOX AT THE RIGHT Security Number or AND CERTIFY BY SIGNING AND Employer DATING BELOW. Identification Number SUBSTITUTE FORM W-9 DEPARTMENT OF THE TREASURY ---------------------- INTERNAL (If awaiting TIN REVENUE write "Applied For") SERVICE -------------------------------------------------------- PART II--For Payees exempt from backup withholding, see the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 and complete as instructed therein. PAYOR'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER ("TIN") Certification--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct TIN (or I am waiting for a number to be issued to me); and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS--You must cross out Item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you were no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed Guidelines). -------------------------------------------------------- SIGNATURE: _____________________________ DATE: ______ NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a TIN has not been issued to me, and either (1) I have mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a TIN by the time of payment, 31% of all payments pursuant to the Offer made to me thereafter will be withheld until I provide a number. Signature: ______________________________________________ Date: ____________ INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Guarantee of Signatures. Except as otherwise provided below, signatures on all Letters of Transmittal must be guaranteed by a firm that is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program or by any other bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each of the foregoing constituting an "Eligible Institution"), unless the Shares tendered thereby are tendered (i) by a registered holder of Shares who has not completed either the box labeled "Special Payment Instructions" or the box labeled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. See Instruction 5. If the certificates are registered in the name of a person or persons other than the signer of this Letter of Transmittal, or if payment is to be made or delivered to, or certificates evidencing unpurchased Shares are to be issued or returned to, a person other than the registered owner or owners, then the tendered certificates must be endorsed or accompanied by duly executed stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates or stock powers, with the signatures on the certificates or stock powers guaranteed by an Eligible Institution as provided herein. See Instruction 5. 2. Delivery of Letter of Transmittal and Shares. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if the delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) and any other documents required by this Letter of Transmittal, or an Agent's Message in the case of a book entry delivery, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal by the Expiration Date. Stockholders who cannot deliver their Shares and all other required documents to the Depositary by the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Offeror, must be received by the Depositary prior to the Expiration Date; and (c) the certificates for all tendered Shares, in proper form for tender, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), and any other documents required by this Letter of Transmittal, must be received by the Depositary within three NASDAQ/National Market System trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. The method of delivery of Shares, the Letter of Transmittal and all other required documents, including delivery through a Book-Entry Transfer Facility, is at the option and risk of the tendering stockholder. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. No alternative, conditional or contingent tenders will be accepted, and no fractional Shares will be purchased. By executing this Letter of Transmittal (or a manually signed facsimile thereof), the tendering stockholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached thereto. 4. Partial Tenders (not applicable to stockholders who tender by book-entry transfer). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the appropriate box on this Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the purchase price is to be made, or Shares not tendered or not purchased are to be returned, in the name of any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, the certificate must be endorsed or accompanied by, appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Offeror of the authority, of such person so to act must be submitted. 6. Stock Transfer Taxes. The Offeror will pay any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be returned in the name of, any person other than the registered holder(s), then the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter of Transmittal. 7. Special Payment and Delivery Instruction. If the check for the purchase price of any Shares purchased is to be issued, or any Shares not tendered or not purchased are to be returned, in the name of a person other than the person(s) signing this Letter of Transmittal or if the check or any certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Stockholders tendering Shares by book-entry transfer may request that Shares not purchased be credited to such account at any of the Book-Entry Transfer Facilities as such stockholder may designate under "Special Payment Instructions." If no such instructions are given, any such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facilities designated above. 8. Substitute Form W-9. The tendering stockholder is required to provide the Depositary with such stockholder's correct TIN on Substitute Form W-9, which is provided above, unless an exemption applies. Failure to provide the information on the Substitute Form W-9 may subject the tendering stockholder to a $50 penalty and to 31% federal income tax backup withholding on the payment of the purchase price for the Shares. 9. Requests for Assistance or Additional Copies. Requests for assistance or additional copies of the Offer to Purchase and this Letter of Transmittal may be obtained from the Information Agent or the Dealer Manager at their respective addresses or telephone numbers set forth below. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE COPY HEREOF (TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). IMPORTANT TAX INFORMATION Under federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary with such stockholder's correct TIN on the Substitute Form W-9. If such stockholder is an individual, the TIN is such stockholder's social security number. If the Depositary is not provided with the correct TIN, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. Such statements may be obtained from the Depositary. All exempt recipients (including foreign persons wishing to qualify as exempt recipients) should see the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup federal income tax withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of his or her correct TIN by completing the form certifying that the TIN provided on the Substitute Form W- 9 is correct. WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the record owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidelines on which number to report. The Information Agent for the Offer is: D. F. KING & CO., INC. 77 Water Street New York, New York 10005 Toll Free (800) 549-6864 June 11, 1996 EX-99.(A)(3) 4 LETTER TO BROKERS, DEALERS, COMMERCIAL BANKS, TR CO'S OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF SYSTEMED INC. AT $3.00 NET PER SHARE BY S ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF MERCK-MEDCO MANAGED CARE, INC. AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF MERCK & CO., INC. - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON TUESDAY, JULY 9, 1996, UNLESS THE OFFER IS EXTENDED - -------------------------------------------------------------------------------- June 11, 1996 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: S Acquisition Corp., a Delaware corporation (the "Offeror"), and a wholly owned subsidiary of Merck-Medco Managed Care, Inc. a Delaware corporation ("Medco"), and an indirect wholly owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Merck", together with Medco, the "Parent"), is offering to purchase, all outstanding shares of common stock, par value $.001 per share (the "Shares"), of Systemed Inc., a Delaware corporation (the "Company"), at a purchase price of $3.00 per Share, net to the seller in cash, without interest, 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") enclosed herewith. The Offer is being made in connection with the Amended and Restated Agreement and Plan of Merger, dated as of June 10, 1996, among Merck, Medco, the Offeror and the Company (the "Merger Agreement"). Holders of Shares whose certificates for such Shares (the "Certificates") are not immediately available or who cannot deliver their Certificates and all other required documents to the Depositary or complete the procedures for book-entry transfer prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares in your name or in the name of your nominee. Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase dated June 11, 1996. 2. The Letter of Transmittal to tender Shares for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal (with manual signatures) may be used to tender Shares. 3. A letter to stockholders of the Company from Mr. Sam Westover, the President and Chief Executive Officer of the Company, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by the Company and mailed to the stockholders of the Company, each recommending that stockholders accept the Offer and tender their Shares. 4. The Notice of Guaranteed Delivery for Shares to be used to accept the Offer if neither of the two procedures for tendering Shares set forth in the Offer to Purchase can be completed on a timely basis. 5. A printed form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name, with space provided for obtaining such clients' instructions with regard to the Offer. 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON TUESDAY, JULY 9, 1996, UNLESS THE OFFER IS EXTENDED. Please note the following: 1. THE OFFER IS BEING MADE PURSUANT TO THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER DATED AS OF JUNE 10, 1996, AMONG MERCK, MEDCO, THE OFFEROR AND THE COMPANY. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER AGREEMENT AND HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER. 2. The tender price is $3.00 per Share, net to the seller in cash, without interest. 3. The Offer is being made for all of the outstanding Shares. 4. The Offer is conditioned upon (i) there being validly tendered by the expiration date and not withdrawn that number of Shares representing at least a majority of all outstanding shares of common stock of the Company on a fully diluted basis and (ii) satisfaction of certain other terms and conditions set forth in the Offer to Purchase. 5. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth the Letter of Transmittal, stock transfer taxes on the transfer of Shares pursuant to the Offer. In order to take advantage of the Offer, (i) a duly executed and properly completed Letter of Transmittal (or a manually signed facsimile thereof) and any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) or other required documents should be sent to the Depositary and (ii) certificates representing the tendered Shares or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) should be delivered to the Depositary in accordance with the instructions set forth in the Offer. If holders of Shares wish to tender, but it is impracticable for them to forward their Certificates or other required documents or complete the procedures for book-entry transfer prior to the Expiration Date, a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. Neither the Offeror, the Parent nor any officer, director, stockholder, agent or other representative of the Offeror will pay any fees or commissions to any broker, dealer or other person (other than the Depositary and the Information Agent as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. The Offeror will, however, upon request, reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Offeror will pay or cause to be paid any transfer taxes payable on the transfer of Shares to it, except as otherwise provided in the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to D. F. King & Co., Inc. 77 Water Street, New York, New York 10005, (212) 269- 5550 or (800) 549-6864. Requests for copies of the enclosed materials may be directed to the Information Agent at the above address and telephone number. Very truly yours, S ACQUISITION CORP. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF THE PARENT, THE OFFEROR, THE DEPOSITARY, THE INFORMATION AGENT OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. EX-99.(A)(4) 5 LETTER TO CLIENTS OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF SYSTEMED INC. AT $3.00 NET PER SHARE BY S ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF MERCK-MEDCO MANAGED CARE, INC. AND AN INDIRECT WHOLLY OWNED SUBSIDIARY OF MERCK & CO., INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON TUESDAY, JULY 9, 1996, UNLESS THE OFFER IS EXTENDED June 11, 1996 To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated June 11, 1996 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer") relating to an offer by S Acquisition Corp., a Delaware corporation (the "Offeror"), and a wholly owned subsidiary of Merck-Medco Managed Care, Inc., a Delaware corporation ("Medco"), and an indirect wholly owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Merck", together with Medco, the "Parent"), to purchase all outstanding shares of common stock, par value $.001 per share (the "Shares"), of Systemed Inc., a Delaware corporation (the "Company"), at a purchase price of $3.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer. The Offer is being made in connection with the Amended and Restated Agreement and Plan of Merger, dated as of June 10, 1996, among Merck, Medco, the Offeror and the Company (the "Merger Agreement"). This material is being forwarded to you as the beneficial owner of Shares carried by us in your account but not registered in your name. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. Accordingly, we request instructions as to whether you wish to tender any or all of the Shares held by us for your account, upon the terms and conditions set forth in the Offer. Please note the following: 1. THE OFFER IS BEING MADE PURSUANT TO THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER DATED AS OF JUNE 10, 1996, AMONG MERCK, MEDCO, THE OFFEROR AND THE COMPANY. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER AGREEMENT AND HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER. 2. The tender price is $3.00 per Share, net to the seller in cash, without interest. 3. The Offer is being made for all of the outstanding Shares. 4. The Offer and withdrawal rights will expire at 11:59 p.m., New York City time, on Tuesday, July 9, 1996, unless the Offer is extended. 5. The Offer is conditioned upon (i) there being validly tendered by the expiration date and not withdrawn that number of Shares representing at least a majority of all outstanding shares of common stock of the Company on a fully diluted basis and (ii) satisfaction of certain other terms and conditions set forth in the Offer to Purchase. 6. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in the Letter of Transmittal, stock transfer taxes on the transfer of Shares pursuant to the Offer. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form contained in this letter. An envelope to return your instruction to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise indicated in such instruction form. PLEASE FORWARD YOUR INSTRUCTIONS TO US AS SOON AS POSSIBLE TO ALLOW US AMPLE TIME TO TENDER YOUR SHARES ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. The Offer is made solely by the Offer to Purchase and the related Letters of Transmittal and any supplements or amendments thereto. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares residing in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the securities laws of such jurisdiction. INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK, OF SYSTEMED INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated June 11, 1996 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer") in connection with the offer by S Acquisition Corp., a Delaware corporation (the "Offeror"), and a wholly owned subsidiary of Merck-Medco Managed Care, Inc., a Delaware corporation, and an indirect wholly owned subsidiary of Merck & Co., Inc., a New Jersey corporation, to purchase, among other things, all outstanding shares of common stock, par value $.001 per share ("Shares"), of Systemed Inc., a Delaware corporation. This will instruct you to tender to the Offeror the number of Shares indicated below (or if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of shares of Common Stock to be Tendered:* Account Number: Date: SIGN HERE - --------------------------------- - --------------------------------- Signature(s) - --------------------------------- - --------------------------------- (Print Name(s)) - --------------------------------- (Print Address(es)) - --------------------------------- (Area Code and Telephone Number(s)) - --------------------------------- (Taxpayer Identification or Social Security Number(s)) - -------- * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. EX-99.(A)(5) 6 NOTICE OF GUARANTEED DELIVERY NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK OF SYSTEMED INC. This form, or one substantially equivalent hereto, must be used to accept the Offer (as defined below) if certificates for shares of common stock, par value $.001 per share (the "Shares"), of Systemed Inc., a Delaware corporation (the "Company"), are not immediately available or if the procedure for book- entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary on or prior to the Expiration Date (as defined in the Offer to Purchase). Such form may be delivered by hand or facsimile transmission, or mail to the Depositary. See Section 3 of the Offer to Purchase, dated June 11, 1996 (the "Offer to Purchase"). THE DEPOSITARY FOR THE OFFER IS: NORWEST BANK MINNESOTA, N.A. Facsimile Transmission: (612) 450-4163 Confirm by Telephone: (612) 450-4064 By Mail: By Hand: By Overnight Courier: Norwest Shareowner Norwest Shareowner Services Norwest Shareowner Services 161 North Concord Exchange Services P.O. Box 64858 2nd Floor 161 North Concord St. Paul, MN 55164-0858 South St. Paul, MN 55075 Exchange South St. Paul, MN 55075 or Norwest Trust Company of New York 3 New York Plaza New York, NY 10004 ---------------- DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR TRANSMISSION OF INSTRUMENTS VIA A FACSIMILE, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal or an Agent's Message and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED. Ladies and Gentlemen: The undersigned hereby tenders to S Acquisition Corp., a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase, and the related Letter of Transmittal with respect to the Shares (which together constitute the "Offer"), receipt of which is hereby acknowledged, Shares of the Company, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Number of Shares: ___________________ SIGN HERE _____________________________________ Certificate No(s) (if available): Name(s): _____________________________________ _____________________________________ _____________________________________ _____________________________________ (Please Print) If Shares will be tendered by book- entry transfer: ____________________ Address: ____________________________ _____________________________________ Name of Tendering Institutions (Zip Code) _____________________________________ Area Code and Telephone No.: Account No.: _____________________ at _____________________________________ [_] The Depository Trust Company Signature(s): _______________________ [_] Philadelphia Depository Trust _____________________________________ Company GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program or a bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, guarantees the delivery to the Depositary of the Shares tendered hereby, together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile(s) thereof) and any other required documents, or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery of Shares, all within three Nasdaq/National Market System trading days of the date hereof. Name of Firm: _______________________ Title: ______________________________ _____________________________________ Name: _______________________________ (Authorized Signature) (Please Print or Type) Address: ____________________________ Area Code and Telephone No.: ________ DO NOT SEND CERTIFICATES FOR SHARES WITH THIS FORM CERTIFICATES SHOULD BE SENT WITH LETTER OF TRANSMITTAL Dated: __________________, 1996 EX-99.(A)(6) 7 FORM W-9 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. Social Security numbers have nine digits separated by two hyphens, i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen, i.e., 00-0000000. The table below will help determine the number to give the payer. - --------------------------------------------------------------------------------
GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF: - -------------------------------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals (joint account) The actual owner of the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint account) The actual owner of the account or, if joint funds, either person(1) 4. Custodian account of a minor (Uniform Gift to Minors Act) The minor(2) 5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor(1) The ward, minor, 6. Account in the name of guardian or committee for a or incompetent designated ward, minor, or incompetent person person(3) 7. a. The usual revocable savings trust account (grantor is The grantor- also trustee) trustee(1) b. So-called trust account that is not a legal or valid trust under state law 8. Sole proprietorship account The owner(4)
- -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF: - ------------------------------------------------------------------------------ 9. A valid trust, estate, or pension trust The legal entity (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or educational organization The organization account 12. Partnership account held in the name of the business The partnership 13. Association, club, or other tax-exempt organization The organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of Agriculture in the name The public of a public entity (such as a State or local government, entity school district, or prison) that receives agricultural program payments
- -------------------------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your num- ber, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: . A corporation. . A financial institution. . An organization exempt from tax under section 501(a), or an individual re- tirement plan. . The United States or any agency or instrumentality thereof. . A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency, or instrumentality thereof. . A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. . A real estate investment trust. . A common trust fund operated by a bank under section 584(a) . An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. . Payments of patronage dividends where the amount received is not paid in money. . Payments made by certain foreign organizations. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by indi-viduals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not pro- vided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to non-resident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. Exempt payees described above must still complete the Substitute Form W-9 en- closed herewith to avoid possible erroneous backup withholding. FILE SUBSTI- TUTE FORM W-9 WITH THE PAYER, REMEMBERING TO CERTIFY YOUR TAXPAYER IDENTIFICA- TION NUMBER ON THE FORM AND WRITE "EXEMPT" ON THE FACE OF THE FORM. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE.-- Section 6109 requires most recipients of dividend, in- terest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are re- quired to file tax returns. Beginning January 1, 1993, payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Cer- tain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reason- able cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you fail to include any portion of an includible payment for interest, dividends, or pat- ronage dividends in gross income and such failure is due to negligence, a pen- alty of 20% is imposed on any portion of an under-payment attributable to that failure. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Fal-sifying certifications or affirmations may subject you to criminal penalties including fines and/or im- prisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(A)(7) 8 SUMMARY ADVERTISEMENT, DATED 06/11/96 This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase dated June 11, 1996 and the related Letter of Transmittal and is being made to all holders of Shares. The Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If the Purchaser becomes aware of any valid statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, the Purchaser will make a good faith effort to comply with such state statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, the Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock of Systemed Inc. at $3.00 Net Per Share by S Acquisition Corp. a wholly owned subsidiary of Merck-Medco Managed Care, Inc. and an indirect wholly owned subsidiary of Merck & Co., Inc. S Acquisition Corp., a Delaware corporation (the "Purchaser"), and a wholly owned subsidiary of Merck-Medco Managed Care, Inc., a Delaware corporation ("Medco"), and an indirect wholly owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Merck", together with Medco, the "Parent"), is offering to purchase all outstanding shares of common stock, $.001 par value (the "Shares"), of Systemed Inc., a Delaware corporation (the "Company"), at a price of $3.00 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated June 11, 1996 and the related Letter of Transmittal (which together constitute the "Offer"). - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON TUESDAY, JULY 9, 1996, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- The Offer is conditioned upon, among other things (i) there being validly tendered by the expiration date and not withdrawn that number of shares of common stock of Systemed Inc. which would represent at least a majority of the outstanding Shares on a fully diluted basis and (ii) satisfaction of certain other terms and conditions. See Section 15 of the Offer to Purchase. The Offer is being made pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of June 10, 1996 (the "Merger Agreement"), among Merck, Medco, the Purchaser and the Company. The Merger Agreement provides that, among other things, as soon as practicable after the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with relevant provisions of the General Corporation Law of the State of Delaware ("Delaware Law"), the Purchaser will be merged with and into the Company (the "Merger"). Following the consummation of the Merger, the Company will continue as the surviving corporation and will be a wholly owned subsidiary of Medco and an indirect wholly owned subsidiary of Merck. At the effective time of the Merger, each outstanding Share (other than Shares owned by the Company as treasury stock, Shares owned by any subsidiary of the Company, Shares owned by the Parent or the Purchaser or any subsidiary thereof, or Shares with respect to which appraisal rights are properly exercised under Delaware Law) will be converted into and represent the right to receive $3.00 (or any higher price that may be paid for each Share pursuant to the Offer) in cash, without interest thereon. The Board of Directors of the Company has unanimously approved the Offer, the Merger and the Merger Agreement, has determined that the terms of each of the Offer and the Merger and the terms of the Merger Agreement are fair to and in the best interests of the Company's stockholders, and recommends that the Company's stockholders accept the Offer and tender their Shares in the Offer. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in of the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not properly withdrawn as, if, and when the Purchaser gives oral or written notice to the depositary (the "Depositary") of its acceptance of such Shares for payment. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purposes of receiving payments from the Purchaser and transmitting payments to tendering stockholders whose Shares have theretofore been accepted for payment. In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates for such Shares or timely Book-Entry Confirmation (as defined in Section 2 of the Offer to Purchase) of such Shares, if such procedure is available, into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed with all required signature guarantees or, in the case of a book-entry transfer, an Agent's Message and (iii) all other documents required by the Letter of Transmittal. Under no circumstances will interest be paid on the purchase price for Shares to be paid by the Purchaser, regardless of any delay in making such payment. The term "Expiration Date" shall mean 11:59 p.m., New York City time, on Tuesday July 9, 1996, unless and until the Purchaser, in accordance with the terms of the Offer and the Merger Agreement, shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser, shall expire. Subject to the terms of the Merger Agreement, the Purchaser expressly reserves the right, in its sole discretion, at any time or from time to time, to extend for any reason the period of time during which the Offer is open, including the occurrence of any of the events specified in Section 15 of the Offer to Purchase, by giving oral or written notice of such extension to the Depositary. Any such extension will be followed by a public announcement thereof by no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. Without limiting the manner in which the Purchaser may choose to make any public announcement, the Purchaser will have no obligation to publish, advertise or otherwise communicate any such announcement other than by issuing a press release to the Dow Jones News Service or as otherwise may be required by law. Except as otherwise provided below, tenders of Shares made pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may be withdrawn any time prior to the Expiration Date and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after Friday, August 9, 1996 or such later date as may apply if the Offer is extended. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth below. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If certificates evidencing Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the tendering stockholder must also submit the serial numbers shown on the particular certificate evidencing the Shares to be withdrawn, and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, as defined in Section 3 of the Offer to Purchase. If Shares have been tendered pursuant to the procedure for book-entry transfer set forth in Section 3 of the Offer to Purchase any notice of withdrawal must also specify the name and number of the account at the applicable Book-Entry Transfer Facility (as defined in Section 2 of the Offer to Purchase) to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Purchaser, in its sole discretion, whose determination shall be final and binding on all parties. None of the Purchaser, the Parent, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Shares properly withdrawn will thereafter be deemed not validly tendered for purposes of the Offer, but may be tendered at any time to the Expiration Date by following any of the procedures described in Section 3 of the Offer to Purchase. The Company has provided the Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to stockholders. The Offer to Purchase, the related Letter of Transmittal and any relevant materials will be mailed to record holders of Shares whose names appear on the Company's stockholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees appear on the Company's stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing. The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6 under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Offer to Purchase and the related Letter of Transmittal contain important information which should be read carefully before any decision is made with respect to the Offer. Requests for copies of the Offer to Purchase, the related Letter of Transmittal and other tender offer documents may be directed to the Information Agent as set forth below, and copies will be furnished promptly at the Purchaser's expense. Questions or requests for assistance may be directed to the Information Agent as set forth below. Neither the Parent nor the Purchaser will pay any fees or commissions to any broker or dealer or other person (other than the Depositary and the Information Agent) in connection with the solicitation of tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, New York 10005 Toll Free (800) 549-6864 Banks and Brokerage Firms, please call: (212) 269-5550 EX-99.(A)(8) 9 PRESS RELEASE ISSUED 4/29/96 MERCK-MEDCO MANAGED CARE TO ACQUIRE SYSTEMED Montvale, NJ, April 29, 1996 - Merck-Medco Managed Care, Inc., a subsidiary of Merck & Co., Inc., announced that it has reached a definitive agreement with Systemed Inc. (NASDAQ:SYSM) to acquire Systemed in a merger for $3.00 per share in cash for a total of approximately $67 million. The agreement has been approved by the Boards of Directors of both Merck and Systemed and is expected to be completed subject to regulatory reviews and the approval of Systemed's shareholders. Systemed, based in Torrance, California, develops and administers pharmacy benefit programs for employers, insurers and governmental agencies throughout the United States. It operates a mail service pharmacy located in Des Moines, Iowa, and a claims processing operation in Cleveland, Ohio. In 1995, the company had sales of $152 million and net income of $4.3 million. "Systemed brings Merck-Medco Managed Care important new customers who now will benefit from the significant investments we've made in advanced clinical and health-management programs since our acquisition by Merck-investments which enable us to provide patients with the safest, most effective and economical pharmaceutical care," said Per G.H. Lofberg, President, Merck-Medco Managed Care. "We believe that combining our operations with those of Merck-Medco Managed Care is in the best long-term interests of our shareholders, customers and employees," said Mr. Sam Westover, President and Chief Executive Officer, Systemed. "Merck-Medco shares our commitment to providing patients with high-quality pharmaceutical care, while at the same time helping benefit sponsors reduce overall health-care costs." Systemed said a meeting will be scheduled for its shareholders to vote on the proposed acquisition. The acquisition is also subject to Hart-Scott-Rodino antitrust clearance and other customary conditions. Merck-Medco Managed Care, Inc., is the leading pharmacy benefit manager in the United States. It serves employers, unions, health maintenance organizations, Blue Cross/Blue Shield plans and insurance companies, providing pharmaceutical benefits to more than 47 million Americans. ### EX-99.(A)(9) 10 PRESS RELEASE ISSUED 6/11/96 EXHIBIT 99.(A)(9) 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. # # # # # EX-99.(A)(10) 11 AMEND. & RESTATED AGREE. & PLAN OF MERGER AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER BY AND AMONG MERCK & CO., INC. MERCK-MEDCO MANAGED CARE, INC. S ACQUISITION CORP. AND SYSTEMED INC. TABLE OF CONTENTS ARTICLE I THE OFFER AND THE MERGER........................................ 1 SECTION 1.01 The Offer................................................ 1 SECTION 1.02 Company Actions.......................................... 2 SECTION 1.03 The Merger............................................... 3 SECTION 1.04 Effective Time........................................... 3 SECTION 1.05 Effect of the Merger..................................... 3 SECTION 1.06 Certificate of Incorporation; By-Laws.................... 4 SECTION 1.07 Directors and Officers................................... 4 ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES............. 4 SECTION 2.01 Conversion of Securities................................. 4 SECTION 2.02 Payment for Shares....................................... 4 SECTION 2.03 Stock Transfer Books..................................... 5 SECTION 2.04 Stock Options, Payment Rights............................ 6 SECTION 2.05 Dissenting Shares........................................ 6 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 7 SECTION 3.01 Organization and Qualification; Subsidiaries............. 7 SECTION 3.02 Certificates of Incorporation and By-Laws................ 7 SECTION 3.03 Capitalization........................................... 7 SECTION 3.04 Authority................................................ 9 SECTION 3.05 No Conflict; Required Filings and Consents............... 9 SECTION 3.06 Permits; Compliance...................................... 10 SECTION 3.07 Reports; Financial Statements............................ 10 SECTION 3.08 Absence of Certain Changes or Events..................... 11 SECTION 3.09 Absence of Litigation.................................... 11 SECTION 3.10 Employee Benefit Plans, Labor Matters.................... 12 SECTION 3.11 Taxes.................................................... 13 SECTION 3.12 Disclosure............................................... 13 SECTION 3.13 Certain Business Matters................................. 13 SECTION 3.14 Opinion of Financial Advisor............................. 13 SECTION 3.15 Vote Required............................................ 14 SECTION 3.16 Brokers.................................................. 14 SECTION 3.17 Certain Agreements....................................... 14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PARENT SUB........ 15 SECTION 4.01 Organization and Qualification; Subsidiaries............. 15 SECTION 4.02 Certificate of Incorporation and By-Laws................. 15 SECTION 4.03 Capitalization........................................... 15 SECTION 4.04 Authority................................................ 15 SECTION 4.05 No Conflict; Required Filings and Consents............... 16 SECTION 4.06 Permits; Compliance...................................... 16 SECTION 4.07 Absence of Litigation.................................... 17 SECTION 4.08 Ownership of Parent Sub; No Prior Activities............. 17 SECTION 4.09 Brokers.................................................. 17 ARTICLE V COVENANTS....................................................... 17 SECTION 5.01 Affirmative Covenants of the Company..................... 17 SECTION 5.02 Negative Covenants of the Company........................ 18 SECTION 5.03 Access and Information................................... 20 SECTION 5.04 Confidentiality.......................................... 20 SECTION 5.05 Rights Agreement......................................... 20 ARTICLE VI ADDITIONAL AGREEMENTS.......................................... 20 SECTION 6.01 Meeting of Stockholders.................................. 20
i SECTION 6.02 Proxy Statement........................................ 21 SECTION 6.03 Board Representation................................... 22 SECTION 6.04 Appropriate Action; Consents; Filings.................. 22 SECTION 6.05 Public Announcements................................... 23 SECTION 6.06 Indemnification of Directors and Officers.............. 23 SECTION 6.07 Obligations of Parent Sub.............................. 24 SECTION 6.08 Supplemental Indentures; Assumption of Certain Obligations to Issue Company Common Stock............. 24 SECTION 6.09 Employment Agreements and Benefit Plans................ 24 ARTICLE VII CLOSING CONDITIONS.......................................... 25 Conditions to Obligations of Each Party Under This SECTION 7.01 Agreement............................................. 25 SECTION 7.02 Additional Conditions to Obligations of Parent......... 25 SECTION 7.03 Additional Conditions to Obligations of the Company.... 25 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................... 26 SECTION 8.01 Termination............................................ 26 SECTION 8.02 Effect of Termination.................................. 27 SECTION 8.03 Amendment.............................................. 27 SECTION 8.04 Waiver................................................. 27 SECTION 8.05 Fees, Expenses and Other Payments...................... 27 ARTICLE IX GENERAL PROVISIONS........................................... 28 Effectiveness of Representations, Warranties and SECTION 9.01 Agreements............................................ 28 SECTION 9.02 Notices................................................ 29 SECTION 9.03 Certain Definitions.................................... 29 SECTION 9.04 Conveyance Taxes....................................... 30 SECTION 9.05 Headings............................................... 30 SECTION 9.06 Severability........................................... 30 SECTION 9.07 Entire Agreement....................................... 30 SECTION 9.08 Assignment............................................. 31 SECTION 9.09 Parties in Interest.................................... 31 SECTION 9.10 Failure or Indulgence Not Waiver; Remedies Cumulative.. 31 SECTION 9.11 Governing Law.......................................... 31 SECTION 9.12 Counterparts........................................... 31
ii Amended and Restated Agreement and Plan of Merger dated as of June 10, 1996 (this "Agreement"), among Merck & Co., Inc., a New Jersey corporation ("M"), Merck-Medco Managed Care, Inc., a Delaware corporation ("MC", together with M, "Parent"), S Acquisition Corp., a Delaware corporation ("Parent Sub") and a wholly owned subsidiary of Parent, and Systemed Inc., a Delaware corporation (the "Company"). Whereas, Parent, Parent Sub and the Company entered into an Agreement and Plan of Merger, dated as of April 28, 1996 (the "Initial Agreement"); Whereas, the parties herein desire to amend the Initial Agreement and accordingly the parties agree to amend and restate the Initial Agreement in its entirety to read as set forth below; Whereas, the respective Boards of Directors of Parent, Parent Sub and the Company have each approved the acquisition of the Company on the terms and subject to the conditions set forth herein; Whereas, in furtherance of such acquisition, Parent agrees to cause Parent Sub to make a tender offer to purchase all the issued and outstanding shares of Common Stock, par value $0.001 per share, of the Company (the "Company Common Stock"), at a price of $3.00 per share net to the seller in cash, without interest, upon the terms and subject to the conditions set forth herein (such tender offer, as it may be amended or supplemented from time to time as permitted under this Agreement, the "Offer"); and the Board of Directors of the Company has adopted resolutions approving the Offer and recommending that the Company's stockholders accept the Offer; Whereas, the Company, upon the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware ("Delaware Law"), will merge with Parent Sub (the "Merger"); Whereas, the Board of Directors of the Company has determined that the Merger is fair to, and in the best interests of, the Company and the holders of Company Common Stock and has approved and adopted this Agreement and the transactions contemplated hereby, and recommended approval and adoption of this Agreement by the stockholders of the Company; Whereas, the Board of Directors of Parent has approved and adopted this Agreement and the transactions contemplated hereby; Now, Therefore, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto agree as follows: ARTICLE I The Offer and the Merger Section 1.01 The Offer (a) Sbject to the provisions of this Agreement, as promptly as practicable (but in no event later than five business days after the date of this Agreement), Parent Sub shall, and Parent shall cause Parent Sub to, commence, within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Offer at a cash price of $3.00 per share, net to the seller in cash, without interest. The obligation of Parent Sub to, and of Parent to cause Parent Sub to, consummate the Offer and accept for payment and pay for any shares of Common Stock tendered shall be subject to the satisfaction of the conditions set forth in Annex I and to the terms and conditions of this Agreement. (b) On the date of commencement of the Offer, Parent and Parent Sub shall file with the Securities and Exchange Commission (the "SEC") with respect to the Offer a Tender Offer Statement on Schedule l4D-l (as amended and supplemented from time to time, the "Schedule 14D-1"), which shall comply in all material respects with the provisions of applicable federal securities laws, and shall contain the offer to purchase relating to the Offer and the form of the related letter of transmittal (which documents, as amended or supplemented from time to time, are referred to collectively as the "Offer Documents"). Parent shall deliver copies of the proposed forms of the Schedule 14D-1 and the Offer Documents to the Company within a reasonable time prior to the commencement of the Offer for review and comment by the Company and its counsel (who shall provide any comments thereon as soon as practicable). Parent agrees to provide in writing to the Company and its counsel, promptly after receipt thereof, any comments that either Parent, Parent Sub or their counsel may receive from the SEC or its staff with respect to the Schedule 14D-1 or the Offer Documents. Parent and Parent Sub shall promptly correct any information in the Schedule l4D-l or the Offer Documents that shall become false or misleading in any material respect, and shall take all steps necessary to cause the Schedule 14D-1 or the Offer Documents as so corrected to be filed with the SEC and disseminated to the stockholders of the Company as and to the extent required by applicable laws. (c) The Offer shall initially expire 20 business days after the date of its commencement, unless this Agreement is terminated in accordance with Article VIII, in which case the Offer (whether or not previously extended in accordance with the terms hereof) shall expire on such date of termination. Neither Parent nor Parent Sub shall, without the prior written consent of the Company, decrease the price per share of Company Common Stock payable in the Offer, change the form of consideration payable in the Offer, decrease the number of shares of Company Common Stock sought pursuant to the Offer, change or impose additional conditions to the Offer or otherwise amend the Offer in any manner adverse to the Company's stockholders. Notwithstanding the foregoing, Parent Sub 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 Parent Sub's obligation to accept for payment and pay for shares of Company Common Stock set forth in Annex I hereto 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 Company 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. Assuming the prior satisfaction or waiver of the conditions of the Offer set forth in Annex I hereto and subject to clauses (ii) and (iii) of the preceding sentence, Parent Sub shall, and Parent shall cause Parent Sub to, accept for payment and pay for shares of Company Common Stock validly tendered and not withdrawn pursuant to the Offer as soon as legally permitted after the commencement thereof. (d) Parent shall provide or cause to be provided to Parent Sub on a timely basis the funds necessary to purchase any shares of Company Common Stock that Parent Sub becomes obligated to purchase pursuant to the Offer and shall be liable on a direct and primary basis for the performance by Parent Sub of its obligations under this Agreement. Section 1.02 Company Actions. (a) The Company hereby approves of and consents to the Offer and represents that (i) the Board of Directors of the Company, at a meeting duly called and held, has adopted resolutions (A) determining that this Agreement and the terms of each of the Offer and the Merger are fair to and in the best interests of the Company and its stockholders, (B) approving the Offer, the Merger and this Agreement and acknowledging that such approval is effective for purposes of Section 203 of Delaware Law and (C) recommending acceptance of the Offer and approval of the Merger and this Agreement by the Company's stockholders and (ii) Morgan, Stanley & Co. Incorporated ("Morgan Stanley") has delivered to the Board of Directors of the Company its opinion that the proposed consideration to be received by the Company's stockholders pursuant to the Offer and the Merger is fair to such stockholders from a financial point of view. The Company hereby consents to the inclusion in the Offer Documents of the recommendation of the Board of Directors of the Company described in the first sentence of this Section 1.02(a) and Morgan Stanley has consented to inclusion of its opinion in the Schedule 14D-9 (as defined in Section 1.02(b)). 2 (b) The Company shall file with the SEC on the date of commencement of the Offer a Solicitation/Recommendation Statement on Schedule 14D-9 (as amended and supplemented from time to time, the "Schedule 14D-9") containing such recommendations of the Board of Directors of the Company with respect to the Offer and the Merger and shall disseminate the Schedule 14D-9 to stockholders of the Company as required by Rule 14d-9 promulgated under the Exchange Act. The Schedule 14D-9 shall comply in all material respects with the provisions of applicable federal securities laws. The Company shall deliver copies of the proposed form of the Schedule 14D-9 to Parent within a reasonable time prior to the filing thereof with the SEC for review and comment by Parent and its counsel (who shall provide any comments thereon as soon as practicable). The Company agrees to provide in writing to Parent and its counsel, promptly after receipt thereof, any comments that the Company or its counsel may receive from the SEC or its staff with respect to the Schedule l4D-9. The Company shall promptly correct any information in the Schedule l4D-9 that shall become false or misleading in any material respect, and shall take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to the stockholders of the Company as and to the extent required by applicable laws. (c) In connection with the Offer, the Company shall promptly furnish Parent with (or cause Parent to be furnished with) mailing labels, security position listings and any available listing or computer file containing the names and addresses of the record holders of the shares of Company Common Stock as of a recent date, and of those persons becoming record holders after such date, and shall furnish Parent with such information and assistance as Parent or its agents may reasonably request in communicating the Offer to the stockholders of the Company. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Parent and Parent Sub shall, and shall cause each of their affiliates to, hold in confidence the information contained in any of such labels, listings and files, use such information only in connection with the Offer and the Merger, and, if this Agreement is terminated, deliver to the Company all copies of such information or extracts therefrom then in their possession or under their control. Section 1.03 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Delaware Law, at the Effective Time (as defined in Section 1.04), Parent Sub shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Parent Sub shall cease and the Company shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). The name of the Surviving Corporation shall be Systemed, Inc. Section 1.04 Effective Time. As promptly as practicable after the satisfaction or, if permissible, waiver of the conditions set forth in Article VII, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, Delaware Law (the date and time of such filing being the "Effective Time"). Section 1.05 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of Parent Sub and the Company shall vest in the Surviving Corporation, and all debts, liabilities and duties of Parent Sub and the Company shall become the debts, liabilities and duties of the Surviving Corporation. 3 Section 1.06 Certificate of Incorporation; By-Laws. At the Effective Time, the Certificate of Incorporation and the By-Laws of Parent Sub, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation and the By-Laws of the Surviving Corporation. Section 1.07 Directors and Officers. The directors of Parent Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified. ARTICLE II Conversion of Securities; Exchange of Certificates Section 2.01 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Parent Sub, the Company or the holders of any of the following securities: (a) Subject to the other provisions of this Section 2.01, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (excluding any treasury shares, shares held by Parent or any direct or indirect wholly owned subsidiary of Parent and Dissenting Shares (as defined in Section 2.05)) shall be converted into the right to receive an amount in cash, without interest, equal to the price per share of Company Common Stock paid pursuant to the Offer (the "Merger Consideration"). (b) All such shares of Company Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each certificate previously evidencing any such shares shall thereafter represent the right to receive the Merger Consideration. The holders of such certificates previously evidencing such shares of Company Common Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares of Company Common Stock except as otherwise provided herein or by law. Such certificates previously evidencing shares of Company Common Stock shall be exchanged for the Merger Consideration upon the surrender of the certificates representing such shares. (c) Each share of Company Common Stock held in the treasury of the Company and each share of Company Common Stock owned by Parent or any direct or indirect wholly owned subsidiary of Parent or of the Company immediately prior to the Effective Time shall be canceled and extinguished and no payment shall be made with respect thereto. (d) Each share of capital stock of Parent Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchangeable for 23,000 (or such lesser number as Parent may elect by notice in writing to the Company) shares of the common stock, par value $.001, of the Surviving Corporation. Section 2.02 Payment for Shares. (a) Prior to the Effective Time, Parent shall authorize one or more commercial banks (acceptable to the Company) organized under the laws of the United States or any state thereof with capital, surplus and undivided profits of at least $500,000,000 to act as Paying Agent hereunder (the "Paying Agent"). When and as needed, Parent shall make available to the Paying Agent sufficient funds to make the payments pursuant to Section 2.01 hereof to holders (other than Parent Sub or any of its subsidiaries) of shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time (such amounts being hereinafter referred to 4 as the "Exchange Fund"), and to make the appropriate cash payments, if any, to holders of Dissenting Shares. The Paying Agent shall, pursuant to irrevocable instructions, make the payments provided for in the preceding sentence out of the Exchange Fund. The Exchange Fund shall not be used for any other purpose, except as provided in this Agreement. (b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, Parent will instruct the Paying Agent to mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time evidenced outstanding shares of Company Common Stock (other than Dissenting Shares) (the "Certificates"), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for payment in cash therefor. Upon surrender of a Certificate for cancellation to the Paying Agent together with such letter of transmittal, duly executed, and such other customary documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor cash in an amount equal to the product of the number of shares of Company Common Stock represented by such Certificate multiplied by the Merger Consideration, and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of shares of Company Common Stock which is not registered in the transfer records of the Company, cash may be paid in accordance with this Article II to a transferee if the Certificate evidencing such shares of Company Common Stock is presented to the Paying Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.02, each Certificate shall represent for all purposes after the Effective Time only the right to receive upon such surrender the Merger Consideration in cash multiplied by the number of shares of Company Common Stock evidenced by such Certificate, without any interest thereon. (c) Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the holders of shares of Company Common Stock for six months after the Effective Time shall be delivered to Parent, upon demand, and any holders of shares of Company Common Stock who have not theretofore complied with this Article II shall thereafter look only to Parent for payment of their claim for the Merger Consideration to which they are entitled pursuant to this Agreement. (d) Withholding Rights. Parent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as Parent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by Parent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by Parent. (e) No Liability. Neither Parent nor the Surviving Corporation shall be liable to any holder of shares of Company Common Stock for any cash or cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Section 2.03 Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of shares of Company Common Stock thereafter on the records of the Company. On or after the Effective Time, any certificates presented to the Paying Agent or Parent for any reason shall be converted into the Merger Consideration. 5 Section 2.04 Stock Options, Payment Rights. As soon as practicable following the date of this Agreement, the Board of Directors of the Company (or, if appropriate, any committee administering the Employee Option Plans (defined in Section 3.03(a)(i)) shall (except to the extent that Parent and the holder of a Stock Option otherwise agree prior to the Effective Time) adopt such resolutions or take such other actions as may be required to provide that, at the Effective Time, each Stock Option (as defined in Section 3.03(a)(i)) outstanding immediately prior to the Effective Time of the Merger shall: (a) if such Stock Option is vested before or as a consequence of the Merger and exercisable and the holder of such Stock Option shall have elected by written notice to Parent prior to the date five (5) business days prior to the Effective Time to receive the payment contemplated by this clause (a), be cancelled in exchange for a payment from the Surviving Corporation (subject to any applicable withholding taxes) equal to the excess of the Merger Consideration over the exercise price per share of Company Common Stock subject to such Stock Option, payable in cash immediately following the Effective Time of the Merger; provided, however, that with respect to any person subject to Section 16(a) of the Exchange Act any such amount to be paid shall be paid as soon as practicable after the first date payment can be made without liability for such person under Section 16(b) of the Exchange Act; or (b) with respect to any Stock Option not cancelled pursuant to clause (a) above, be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Stock Option, the number of shares of common stock, no par value per share, of M ("M Common Stock") equal to the product of (1) the number of shares of Company Common Stock issuable upon exercise of such Option and (2) the Merger Consideration divided by the average of the closing sales prices of M 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 (1) the aggregate exercise price for the shares of Company Common Stock otherwise purchasable pursuant to such Stock Option divided by (2) the number of shares of M Common Stock issuable per share of Company Common Stock upon exercise of such Option set forth above, provided, however, that in the case of any option to which Sections 422 and 423 of the Code applies by reason of its qualification under any of Sections 422-424 of the Code ("qualified stock options"), M shall use reasonable efforts to cause the option price, the number of shares purchasable pursuant to such option and the terms and conditions of exercise of such option to be determined in order to comply with Section 424(a) of the Code. M shall (i) reserve for issuance the number of shares of M Common Stock that will become issuable upon the exercise of such Stock Options pursuant to this Section 2.04 and (ii) at the Effective Time, execute a document evidencing the assumption by M of the Company's obligations with respect thereto under this Section 2.04. As soon as practicable after the Effective Time, M shall file a registration statement on Form S-8 (or any successor form), or another appropriate form with respect to the shares of M Common Stock subject to such options and shall use its best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding. Section 2.05 Dissenting Shares. Notwithstanding any other provisions of this Agreement to the contrary, shares of Company Common Stock that are outstanding immediately prior to the Effective Time and which are held by stockholders who shall have not voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of Delaware Law (collectively, the "Dissenting Shares") shall not be converted into or represent the right to receive the Merger Consideration. Such stockholders shall be entitled to receive payment of the appraised value of such shares of Company Common Stock held by them in accordance with the provisions of such Section 262, except that all Dissenting Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares of Company Common Stock under such Section 262 shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without 6 any interest thereon, the Merger Consideration, upon surrender, in the manner provided in Section 2.02, of the certificate or certificates that formerly evidenced such shares of Company Common Stock. ARTICLE III Representations and Warranties of the Company Except as set forth in the Disclosure Schedule delivered by the Company to Parent concurrently with the execution of the Initial Agreement (the "Company Disclosure Schedule"), which shall identify exceptions by specific Section references, the Company hereby (which, for purposes of this Article III, shall be deemed to be pursuant to the Initial Agreement and as if this Amended and Restated Agreement had never been executed) represents and warrants to Parent that: Section 3.01 Organization and Qualification; Subsidiaries. Each of the Company and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of the business conducted by it or the ownership or leasing of its properties makes such qualification necessary, other than where the failure to be so duly organized, validly existing and in good standing, or to have such power and authority, or to be duly qualified and in good standing, as the case may be, would not have a Company Material Adverse Effect. The term "Company Material Adverse Effect" as used in this Agreement shall mean any change or effect that, individually or when taken together with all other such changes or effects, would be, or would be reasonably likely to be, materially adverse to the financial condition, assets, liabilities, business or operations of the Company and its subsidiaries, taken as a whole. Section 3.01 of the Company Disclosure Schedule sets forth, as of the date of this Agreement, a true and complete list of all the Company's directly or indirectly owned subsidiaries, together with (A) the jurisdiction of incorporation of each subsidiary and the percentage of each subsidiary's outstanding capital stock or other equity interests owned by the Company or another subsidiary of the Company, and (B) indication of whether each such subsidiary is a "Significant Subsidiary" as defined in Section 9.03(f). There are no partnerships or joint venture arrangements or other business entities in which the Company or any subsidiary of the Company owns an equity interest that is material to the business of the Company and its subsidiaries, taken as a whole. Section 3.02 Certificates of Incorporation and By-Laws. The Company has heretofore furnished to Parent complete and correct copies of the Certificates of Incorporation and the By-Laws or the equivalent organizational documents, in each case as amended or restated, of the Company and its subsidiaries. Neither the Company nor any of its subsidiaries is in violation of any of the provisions of its Certificate of Incorporation or By- Laws. Section 3.03 Capitalization. (a) The authorized capital stock of the Company consists of 30,000,000 shares of Company Common Stock and 2,000,000 shares of 8% Convertible Preferred Stock, par value $.001 (the "Convertible Preferred"). As of April 17, 1996, (i) 22,324,773 shares of Company Common Stock were issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights created by statute, the Company's Certificate of Incorporation or By-Laws or any agreement to which the Company is a party or is bound; (ii) 161,325 shares of Convertible Preferred were issued and outstanding, (iii) 3,454,275 shares of Company Common Stock were reserved for future issuance pursuant to (1) outstanding employee stock options (the "Company Stock Options") granted pursuant to the following plans: the Company's 1986 Employee Non Qualified Stock Option Plan, the Company's 1987 Employee Stock Option Plan, the Company's 1993 Non-Employee Director Stock Option Plan and the Company's 1993 Employee Stock Option Plan 7 (collectively, the "Employee Option Plans"), and (2) outstanding stock options granted to certain directors and key employees of the Company outside of any Employee Option Plans (the "Executive Stock Options," together with the Company Stock Options, collectively, the "Stock Options"); (iv) 375,234 shares of Company Common Stock were reserved for issuance pursuant to the Company's 1990 Employee Stock Purchase Plan; (v) 1,073,253 shares of Company Common Stock were reserved for future issuance pursuant to the Company's 10% Senior Secured Convertible Notes due 2002 ("Convertible Notes"); (vi) 143,750 shares were reserved for issuance in connection with warrants to purchase Company Common Stock (the "Warrants"); and (vii) 217,789 shares of Company Common Stock were reserved for issuance pursuant to the Convertible Preferred. Except as described in this Section 3.03 or in Section 3.03 of the Company Disclosure Schedule, as of the date of this Agreement, no other shares of Company capital stock are issued and outstanding and no shares of Company Common Stock are reserved for any other purpose. Between April 17, 1996 and the date of this Agreement, no shares of Company Common Stock have been issued by the Company, except pursuant to the exercise of Stock Options, or Warrants or the conversion of Convertible Notes or Convertible Preferred prior to the date of this Agreement, in each case in accordance with their terms. Since April 17, 1996, the Company has not granted any options in, or other rights to purchase, shares of Company Common Stock or Convertible Preferred. The Company has outstanding preferred stock purchase rights of the Company (the "Rights") issued pursuant to the Rights Agreement, dated August 17, 1994, between the Company and the First National Bank of Boston (the "Company Rights Agreement"). Each of the outstanding shares of capital stock of, or other equity interests in, each of the Company and its subsidiaries is duly authorized and validly issued, and, in the case of shares of capital stock, fully paid and nonassessable, and except as disclosed in Section 3.03 of the Company Disclosure Schedule, such shares or other equity interests owned by the Company or its subsidiaries are owned free and clear of all security interests, liens, claims, pledges, voting rights, charges or other encumbrances of any nature whatsoever. Neither the execution, delivery, and performance of this Agreement nor the consummation of the transactions contemplated hereby will result in any change in the conversion price, conversion ratio, exchange ratio or other similar term of any outstanding security (including any preferred stock or convertible debt security) of the Company or any of its subsidiaries. (b) Except as set forth in Section 3.03(a) above, there are no options, warrants or other rights (including registration rights), agreements, arrangements or commitments of any character to which the Company or any of its subsidiaries is a party relating to the issued or unissued capital stock of the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to grant, issue or sell any shares of the capital stock of the Company or any of its subsidiaries, by sale, lease, license or otherwise. Except as set forth in Section 3.03 of the Company Disclosure Schedule, there are no obligations, contingent or otherwise, of the Company or any of its subsidiaries to (x) repurchase, redeem or otherwise acquire any shares of Company Common Stock or Company preferred stock, or the capital stock or other equity interests of any subsidiary of the Company or (y) (other than advances to subsidiaries in the ordinary course of business) provide material funds to, or make any material investment in (whether in the form of a loan, capital contribution or otherwise), or provide any guarantee with respect to the obligations of, any subsidiary of the Company or any other person. Neither the Company nor any of its subsidiaries directly or indirectly owns, or has agreed to purchase or otherwise acquire, any capital stock of, or any interest convertible into or exchangeable or exercisable for any capital stock of, any corporation, partnership, joint venture or other business association or entity (other than the subsidiaries of the Company set forth in Section 3.01 of the Company Disclosure Schedule). Except as set forth in Section 3.03 of the Company Disclosure Schedule and except for any agreements, arrangements or commitments between the Company and its subsidiaries or between such subsidiaries, there are no agreements, arrangements or commitments of any character (contingent or otherwise) pursuant to which any person is or may be entitled to receive any payment based on the revenues or earnings, or calculated in accordance therewith, of the Company or any of its subsidiaries. There are no voting trusts, proxies or other agreements or understandings to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound with respect to the voting of any shares of capital stock of the Company or any of its subsidiaries. (c) The Company has made available to Parent complete and correct copies of (i) the Employee Option Plans and the forms of Company Stock Options issued pursuant to the Employee Option Plans, including all 8 amendments thereto and (ii) the forms of the Warrants and the Executive Stock Options including all amendments thereto. The Company has previously provided to Parent a complete and correct list setting forth as of April 17, 1996, (i) the number of Stock Options and Warrants outstanding, (ii) the exercise price for the outstanding Stock Options and Warrants, and (iii) the number of Stock Options and Warrants exercisable. Section 3.04 Authority. The Company has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby and thereby to be consummated by the Company (other than with respect to the Merger, the approval and adoption of this Agreement by the holders of a majority of the outstanding shares of Company Common Stock and the Convertible Preferred, voting together). The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby has been duly authorized by all necessary corporate action and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated hereby (other than with respect to the approval and adoption of this Agreement, approval by the holders of a majority of the outstanding shares of Company Common Stock and the Convertible Preferred, voting together, in accordance with Delaware Law). This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery thereof by Parent and Parent Sub, constitutes a legal, valid and binding obligation of the Company. Section 3.05 No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, (i) conflict with or violate the Certificate of Incorporation or By-Laws, or the equivalent organizational documents, in each case as amended or restated, of the Company or any of its subsidiaries, (ii) conflict with or violate any federal, state, foreign or local law, statute, ordinance, rule, regulation, order, judgment or decree (including, without limitation, the Prescription Drug Marketing Act, the Federal Controlled Substances Act of 1970, tit. II, 84 Stat. 1242, the Food, Drug and Cosmetic Act, 21 U.S.C. (S)(S) 301 et seq., and any applicable state Pharmacy Practice Acts, Controlled Substances Acts, Dangerous Drug Acts and Food, Drug and Cosmetic Acts) (collectively, "Laws") applicable to the Company or any of its subsidiaries or by which any of their respective properties is bound or subject to or (iii) except as set forth in Section 3.05 of the Company Disclosure Schedule, result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of a lien or encumbrance on any of the properties or assets of the Company or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other interest or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties is bound or subject to, except for any such conflicts or violations described in clause (ii) or breaches, defaults, events, rights of termination, amendment, acceleration or cancellation, payment obligations or liens or encumbrances described in clause (iii) that would not have a Company Material Adverse Effect. Assuming the accuracy of the representation contained in the last sentence of Section 4.05(a), the Board of Directors of the Company has taken all actions necessary under Delaware Law, including approving the transactions contemplated in this Agreement, to ensure that Section 203 of Delaware Law does not, or will not, apply to the transactions contemplated in this Agreement. (b) The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, require the Company to obtain any consent, approval, authorization or permit of, or except as set forth in Section 3.05 of the Company Disclosure Schedule, to make any filing with or notification to, any governmental or regulatory authority, domestic or foreign ("Governmental Entities"), except (i) for applicable requirements, if any, of the Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act, state securities or blue sky laws ("Blue Sky Laws"), the NASD and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the filing and recordation of appropriate 9 Merger documents as required by Delaware Law and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not, either individually or in the aggregate, prevent the Company from performing its obligations under this Agreement and would not have a Company Material Adverse Effect. Section 3.06 Permits; Compliance. Except as set forth in Section 3.06 of the Company Disclosure Schedule or the SEC Reports, each of the Company and its subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the "Company Permits"), and there is no action, proceeding or investigation pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits, except where the failure to possess, or the suspension or cancellation of, such Company Permits would not have a Company Material Adverse Effect. Except as set forth in Section 3.06 of the Company Disclosure Schedule or the SEC Reports, neither the Company nor any of its subsidiaries is in conflict with, or in default or violation of, or is permitting to exist any condition that is in conflict with or default of, (a) any Law and all rules of professional conduct applicable thereto and applicable to the Company or any of its subsidiaries or by which any of their respective properties is bound or subject to or (b) any of the Company Permits, except for any such conflicts, defaults or violations which would not have a Company Material Adverse Effect. Except as set forth in Section 3.06 of the Company Disclosure Schedule, since January 1, 1996, neither the Company nor any of its subsidiaries has received from any Governmental Entity (including, without limitation, any state board of pharmacy) any written notification with respect to possible conflicts, defaults or violations of Laws, except for written notice relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Company Material Adverse Effect. Section 3.07 Reports; Financial Statements. (a) Since December 31, 1993, (x) the Company has filed all forms, reports, statements and other documents required to be filed with (i) the SEC, including, without limitation, (A) all Annual Reports on Form 10-K, (B) all Quarterly Reports on Form 10-Q, (C) all proxy statements relating to meetings of stockholders (whether annual or special), (D) all Reports on Form 8-K, (E) all other reports or registration statements and (F) all amendments and supplements to all such reports and registration statements (collectively referred to as the "SEC Reports") and (ii) any other applicable state securities authorities and (y) the Company and its respective subsidiaries has filed all forms, reports, statements and other documents required to be filed with any other applicable federal or state regulatory authorities where the Company has a Company Permit, including, without limitation, state boards of pharmacy, the U.S. Drug Enforcement Administration, the U.S. Food and Drug Administration, state insurance and state and federal health regulatory authorities, except where the failure to file any such forms, reports, statements or other documents would not have a Company Material Adverse Effect (all such forms, reports, statements and other documents in clauses (x) and (y) of this Section 3.07(a) being referred to herein, collectively, as the "Reports"). The Reports, including all Reports filed after the date of this Agreement and prior to the Effective Time, (i) were or will be prepared in all material respects in accordance with the requirements of applicable Law (including with respect to the SEC Reports, the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such SEC Reports) and (ii) did not at the time they were filed, or will not at the time they are filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as and to the extent set forth on the consolidated balance sheet of the Company and its subsidiaries at December 31, 1995, including all notes thereto, or as set forth in the SEC Reports or Section 3.07(a) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) which, individually or in the aggregate, would have a Company Material Adverse Effect. 10 (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the SEC Reports filed prior to or after the date of this Agreement (i) have been or will be prepared in accordance with the published rules and regulations of the SEC and generally accepted accounting principles applied on a consistent basis throughout the periods involved (except (A) to the extent required by changes in generally accepted accounting principles and (B) with respect to SEC Reports filed prior to the date of this Agreement, as may be indicated in the notes thereto) and (ii) fairly present or will fairly present the consolidated financial position of the Company and its subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated (including reasonable estimates of normal and recurring year-end adjustments), except that (x) any unaudited interim financial statements were or will be subject to normal and recurring year-end adjustments, and (y) any pro forma financial statements contained in such consolidated financial statements is not necessarily indicative of the consolidated financial position of the Company and its subsidiaries, as the case may be, as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated. Section 3.08 Absence of Certain Changes or Events. Except as disclosed in the SEC Reports filed prior to the date of this Agreement or as contemplated in this Agreement or as set forth in Section 3.08 of the Company Disclosure Schedule, since January 1, 1996 the Company and its subsidiaries have conducted their respective businesses only in the ordinary course and in a manner consistent with past practice and there has not been: (i) any material damage, destruction or loss (not covered by insurance) with respect to any material assets of the Company or any of its subsidiaries which resulted in a Company Material Adverse Effect; (ii) any change in the accounting methods, principles or practices of the Company or any of its subsidiaries; (iii) except for dividends by a subsidiary of the Company to the Company or another subsidiary of the Company, any declaration, setting aside or payment of any dividends or distributions in respect of shares of Company Common Stock or the shares of stock of, or other equity interests in, any subsidiary of the Company or any redemption, purchase or other acquisition of any of the Company's securities or any of the securities of any subsidiary of the Company; (iv) except as permitted pursuant to Section 5.02(a), any increase in the benefits under, or the establishment or amendment of, any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option (including, without limitation, the granting of stock options, stock appreciation rights, performance awards, or restricted stock awards), stock purchase or other employee benefit plan, or any increase in the compensation payable or to become payable to directors, officers or employees of the Company or its subsidiaries, except for (A) increases in salaries or wages payable or to become payable in the ordinary course of business and consistent with past practice or (B) the granting of stock options in the ordinary course of business to employees and directors of the Company or its subsidiaries; or (v) a Company Material Adverse Effect. Section 3.09 Absence of Litigation. Except as set forth in Section 3.09 of the Company Disclosure Schedule, there is no claim, action, suit, litigation, proceeding, arbitration or, to the knowledge of the Company, investigation of any kind, at law or in equity (including actions or proceedings seeking injunctive relief), pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries or any properties or rights of the Company or any of its subsidiaries (except for claims, actions, suits, litigations, proceedings, arbitrations, or investigations which individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect), and neither the Company nor any of its subsidiaries is subject to any continuing order of, consent decree, settlement agreement or other similar written agreement with, or, to the knowledge of the Company, continuing investigation by, any Governmental Entity, or any judgment, order, writ, injunction, decree or award of any Governmental Entity or arbitrator, including, without limitation, cease-and-desist or other orders, except as disclosed in the SEC Reports filed prior to the date of this Agreement and except for matters which, individually or in the aggregate, would not have a Company Material Adverse Effect. 11 Section 3.10 Employee Benefit Plans, Labor Matters. (a) Section 3.10 of the Company Disclosure Schedule contains a true and complete list of each employee benefit plan, program, arrangement and contract (including, without limitation, any "employee benefit plan," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), which is now or previously has been sponsored, maintained or contributed to or required to be contributed to by the Company or any of its subsidiaries, and with respect to which the Company or any of its subsidiaries has or may have liability, contingent or otherwise, (the "Benefit Plans"), and the Company has provided to Parent with respect to each Benefit Plan a true and correct copy of (i) the most recent annual report (Series 5500) filed with the Internal Revenue Service (the "IRS"), (ii) all material documents embodying or relating to each Benefit Plan, (iii) each trust agreement relating to such Benefit Plan, (iv) the most recent summary plan description for each Benefit Plan for which a summary plan description is required, (v) the most recent actuarial report or valuation prepared for each Benefit Plan, (vi) if the Benefit Plan is funded, the most recent annual and periodic accounting of the assets of the Benefit Plan and (vii) the most recent determination letter, if any, issued by the IRS with respect to any Benefit Plan intended to be qualified under Section 401(a) of the Code. (b) With respect to each Benefit Plan (i) except as would not have a Company Material Adverse Effect, the Company and each of its subsidiaries have performed all obligations required to be performed by them under each Benefit Plan and neither the Company nor any of its subsidiaries is in default under or in violation of any Benefit Plan, (ii) except as would not have a Company Material Adverse Effect, each Benefit Plan has been established and maintained in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA and the Code, (iii) each Benefit Plan intended to qualify under Section 401 of the Code is, and since its inception has been, so qualified and a determination letter has been issued by the IRS to the effect that each such Benefit Plan is so qualified and that each trust forming a part of any such Benefit Plan is exempt from tax pursuant to Section 501(a) of the Code and no circumstances exist which would adversely affect this qualification or exemption; (iv) there are no actions, proceedings, arbitrations, suits or claims pending, or to the knowledge of the Company, threatened or anticipated (other than routine claims for benefits) with respect to any Benefit Plan; (v) each Benefit Plan can be amended, terminated or otherwise discontinued without liability to the Company, or any of its subsidiaries; and (vi) no Benefit Plan is under audit or investigation by any governmental agency, and to the knowledge of the Company or any of its subsidiaries, no such audit or investigation is pending or threatened. (c) No "employee pension benefit plan" within the meaning of Section 3(2) of ERISA is now or previously has been sponsored, maintained, contributed to or required to be contributed to by the Company or any of its subsidiaries. (d) Neither the Company nor any subsidiary has any liability, contingent or otherwise, to or with respect to any employee benefit plan, program or arrangement other than the Benefit Plans. (e) The Company and its subsidiaries are not parties to any collective bargaining or other labor union contracts applicable to persons employed by the Company or its subsidiaries and no collective bargaining agreement is being negotiated by the Company or any of its subsidiaries. There is no pending or threatened labor dispute, strike or work stoppage against the Company or any of its subsidiaries which may interfere with the respective business activities of the Company or its subsidiaries except where such dispute, strike or work stoppage would not have a Company Material Adverse Effect. To the knowledge of the Company, the Company and its subsidiaries and their respective representatives or employees, are in compliance with all applicable federal, state and local laws, rules and regulations (domestic and foreign) respecting employment, employment practices, labor, terms and conditions of employment and wages and hours, in each case, with respect to employees, except where failure to be in compliance would not have a Company Material Adverse Effect. (f) The Company has provided to Parent (i) copies of all employment agreements with officers of the Company; (ii) copies of all agreements with consultants who are individuals obligating the Company to make annual cash payments in an amount exceeding $100,000; (iii) a schedule listing all officers of the Company who 12 have executed a non-competition agreement with the Company; (iv) copies of all severance agreements, programs and policies of the Company with or relating to its employees which are not Benefit Plans; and (v) copies of all plans, programs, agreements and other arrangements of the Company with or relating to its employees which contain change in control provisions which are not Benefit Plans. (g) No Benefit Plan provides retiree medical or retiree life insurance benefits to any person and except as provided in the employment agreements referred to in clause (i) of Section 3.10(f), the Company is not contractually obligated (whether or not in writing) to provide any person with life insurance or medical benefits upon retirement or termination of employment, except as required under Section 4980B of the Code. Except as set forth in Section 3.10 of the Company Disclosure Schedule, no payment or benefit which will or may be made by the Company or any of its subsidiaries or by Parent, Parent Sub or Surviving Corporation with respect to any employee of the Company or any of its subsidiaries will be characterized as an "excess parachute payment," within the meaning of Section 280G(b)(1) of the Code. Section 3.11 Taxes. Except for such matters that would not have a Company Material Adverse Effect, the Company and its subsidiaries have timely filed or will timely file all returns and reports required to be filed by them with any taxing authority with respect to Taxes for any period ending on or before the Effective Time, taking into account any extension of time to file granted to or obtained on behalf of the Company and its subsidiaries and all Taxes arising with respect to taxable periods or portions thereof ending on or prior to the Effective Time have been paid or will be paid, whether or not shown to be due on such returns. No deficiency for any material amount of Tax has been asserted or assessed by a taxing authority against the Company or its subsidiaries. All liability for Taxes of the Company or its subsidiaries that are or will become due or payable with respect to periods covered by the financial statements referred to in Section 3.07(b) hereof have been paid or adequately reserved for on such financial statements. Section 3.12 Disclosure. Neither this Agreement nor any certificate or schedule furnished or made to Parent or Parent Sub by or on behalf of the Company or any of its subsidiaries pursuant to this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. Section 3.13 Certain Business Matters. Neither the Company nor any of its subsidiaries nor any directors, officers, agents or employees of the Company or any of its subsidiaries has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful payment. Section 3.13 of the Company Disclosure Schedule sets forth certain information relating to the Company's operations in Costa Rica, Panama and Peru. The information set forth on Section 3.13 of the Company Disclosure Schedule is true and correct. Section 3.14 Opinion of Financial Advisor. The Company has received the oral opinion of Morgan Stanley on the date of this Agreement to the effect that the Merger Consideration to be received by the holders of Company Common Stock in the Merger is fair, from a financial point of view, to such holders. 13 Section 3.15 Vote Required. The affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock and the Convertible Preferred, voting together, is the only vote of the holders of any class or series of Company capital stock necessary to approve the Merger. Section 3.16 Brokers. Except as set forth in Section 3.16 of the Company Disclosure Schedule, no broker, finder or investment banker (other than Morgan Stanley) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. Prior to the date of this Agreement, the Company has made available to Parent a complete and correct copy of all agreements between the Company and Morgan Stanley pursuant to which such firm will be entitled to any payment relating to the transactions contemplated by this Agreement. Section 3.17 Certain Agreements. (a) Except as set forth in Section 3.17(a) of the Company Disclosure Schedule, during the twelve months immediately prior to the date hereof, no Significant Customer has or Significant Customers have cancelled or otherwise terminated or threatened in writing to terminate its or their relationship with the Company or its subsidiaries. For purposes of this Section 3.17, "Significant Customer" or "Significant Customers" shall mean any customer or customers of the Company's pharmacy management business which, individually or in the aggregate, accounted for 7.5% or more of the consolidated revenues of the Company during the fiscal year ended December 31, 1995. The information set forth in Section 3.17 of the Company Disclosure Schedule is true and correct. (b) Section 3.17(b) of the Company Disclosure Schedule sets forth a true and correct list of all contracts, agreements and understandings (as of the date hereof with respect to (i) and (ii)) (whether or not executed by the parties) (a "Contract") to which the Company and/or its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties is bound or subject to, in the following categories: (i) Contracts with the Company's 25 largest mail service customers and 10 largest retail customers, (ii) any Contracts with pharmaceutical manufacturers or wholesalers, (iii) any material leases for real property (including, without limitation, the lease with Summit Office Park Limited Partnership relating to the facility in Independence, Ohio and the lease with Mid-America Development Company relating to the facility in West Des Moines, Iowa), (iv) Contracts which restrict the Company and/or its subsidiaries from doing business anywhere in the world or from engaging in or competing in any line of business or with any person and (v) any other Contract that is material to the business and operations of the Company and its subsidiaries taken as a whole. The Company has heretofore furnished to Parent all of the Contracts required to be set forth in Section 3.17(b) of the Company Disclosure Schedule requested by Parent. With respect to each Contract required to be set forth in Section 3.17(b) of the Company Disclosure Schedule, (i) there has been no breach or default under any such Contract by the Company or any of its subsidiaries or, to the knowledge of the Company, by any other party which breach or default would have a Company Material Adverse Effect; (ii) except as set forth in Section 3.09 of the Company Disclosure Schedule, there are no material disagreements with respect to any of the terms and conditions under which the parties to any Contract are being serviced; (iii) such Contract is a valid and binding obligation of the Company and/or its subsidiary party thereto, is in full force and effect with respect to the Company and/or its subsidiary party thereto and is enforceable against the Company and/or its subsidiary party thereto in accordance with its terms, except as the enforceability thereof may be limited by (A) applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or similar laws in effect which affect the enforcement of creditors' rights generally or (B) general principles of equity, whether considered in a proceeding at law or in equity; and (iv) no action has been taken by the Company or any subsidiary and no event has occurred which, with notice or lapse of time or both, would give to others any rights of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of a lien or encumbrance on any of the properties or assets of the Company or any of its subsidiaries under, any such 14 Contract except for events, rights of termination, amendment, acceleration or cancellation, payment obligations or liens or encumbrances that would not have a Company Material Adverse Effect. (c) There are no pending, or to the knowledge of the Company, threatened condemnation proceedings relating to any parcel of real property leased by the Company and/or any of its subsidiaries (including, without limitation, the leased facilities in Independence, Ohio and West Des Moines, Iowa) other than with respect to any immaterial facility leased by the Company and/or any of its subsidiaries. (d) Except as set forth in Section 3.17(b)(ii) of the Company Disclosure Schedule, each pharmaceutical manufacturing Contract required to be set forth on such Schedule is terminable or cancelable by the Company or its subsidiary party thereto upon no more than 90 days notice without any penalty or increased cost. ARTICLE IV Representations and Warranties of Parent and Parent Sub Except as set forth in the Disclosure Schedule delivered by Parent and Parent Sub to the Company prior to the execution of the Initial Agreement (the "Parent Disclosure Schedule"), which shall identify exceptions by specific Section references, Parent and Parent Sub hereby (which, for purposes of this Article IV, shall be deemed to be pursuant to the Initial Agreement and as if this Amended and Restated Agreement had never been executed) jointly and severally represent and warrant to the Company that: Section 4.01 Organization and Qualification; Subsidiaries. Each of Parent and Parent Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and Parent is duly qualified and in good standing to do business in each jurisdiction in which the nature of the business conducted by it or the ownership or leasing of its properties makes such qualification necessary, other than where the failure to be so duly qualified and in good standing would not have a Parent Material Adverse Effect. The term "Parent Material Adverse Effect" as used in this Agreement shall mean any change or effect that, individually or when taken together with all such other changes or effects, would prevent Parent or Parent Sub from performing their obligations under this Agreement. Section 4.02 Certificate of Incorporation and By-Laws. Parent has heretofore furnished to the Company a complete and correct copy of the Certificates of Incorporation and the By-Laws, as amended or restated, of each of Parent and Parent Sub. Neither Parent nor Parent Sub is in violation of any of the provisions of its Certificate of Incorporation or By- Laws. Section 4.03 Capitalization. The authorized capital stock of Parent Sub consists of 1,000 shares of Parent Sub common stock, 100 shares of which are duly authorized validly issued, fully paid and nonassessable and all of which are owned by Parent. Section 4.04 Authority. (a) Parent has all requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby and to be consummated by Parent. The execution and delivery of this Agreement by Parent and the consummation by Parent of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no other corporate proceedings on the part of Parent are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Parent and, 15 assuming the due authorization, execution and delivery thereof by the Company, constitute the legal, valid and binding obligation of Parent. (b) Parent Sub has the requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby to be consummated by Parent Sub. The execution and delivery of this Agreement by Parent Sub and the consummation by Parent Sub of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no other corporate proceedings on the part of Parent Sub are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Parent Sub and, assuming the due authorization, execution and delivery thereof by the Company, constitutes a legal, valid and binding obligation of Parent Sub. Section 4.05 No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by Parent and Parent Sub does not, and the performance of this Agreement by Parent and Parent Sub will not (i) conflict with or violate the Certificate of Incorporation or By-Laws or the equivalent organizational documents, in each case as amended or restated, of Parent or Parent Sub, (ii) conflict with or violate any Laws in effect as of the date of this Agreement applicable to Parent or Parent Sub or by which any of their respective properties is bound or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of Parent or Parent Sub pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or Parent Sub is a party or by which Parent or Parent Sub or any of their respective properties is bound or subject to, except for any such conflicts or violations described in clause (ii) or breaches, defaults, events, rights of termination, amendment, acceleration or cancellation or liens or encumbrances described in clause (iii) that would not have a Parent Material Adverse Effect. Neither Parent nor any of its affiliates or associates (as each such term is defined in Section 203 of Delaware Law) is an "interested stockholder" (as such term is defined in Section 203 of Delaware Law) of the Company. (b) The execution and delivery of this Agreement by Parent and Parent Sub does not, and the performance of this Agreement by Parent and Parent Sub will not, require Parent or Parent Sub to obtain any consent, approval, authorization or permit of, or to make any filing with or notification to, any Governmental Entities, except (i) for applicable requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws and the HSR Act and the filing and recordation of appropriate Merger documents as required by Delaware Law and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not, either individually or in the aggregate, prevent Parent or Parent Sub from performing its obligations under this Agreement. Section 4.06 Permits; Compliance. Each of Parent and its subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, identification numbers, approvals and orders (collectively, the "Parent Permits") necessary to own, lease and operate its properties and to carry on its business as it is now being conducted, and there is no action, proceeding or investigation pending or, to the knowledge of Parent, threatened regarding suspension or cancellation of any of the Parent Permits, except where the failure to possess, or the suspension or cancellation of, such Parent Permits would not have a Parent Material Adverse Effect. Neither Parent nor any of its subsidiaries is in conflict with, or in default or violation of (a) any Law and all rules of professional conduct applicable thereto applicable to Parent or any of its subsidiaries or by which any of their respective properties is bound or subject to or (b) any of the Parent Permits, except for any such conflicts, defaults or violations which would not have a Parent Material Adverse Effect. 16 Section 4.07 Absence of Litigation. Except as disclosed in the forms, reports, statements and other documents filed by M with the SEC ("Parent SEC Reports") prior to the date of this Agreement, (a) there is no claim, action, suit, litigation, proceeding, arbitration or, to the knowledge of Parent, investigation of any kind, at law or in equity (including actions or proceedings seeking injunctive relief), pending or, to the knowledge of Parent, threatened against Parent or any of its subsidiaries or any properties or rights of Parent or any of its subsidiaries (except for claims, actions, suits, litigations, proceedings, arbitrations or investigations which, individually or in the aggregate, would not have a Parent Material Adverse Effect) and (b) neither Parent nor any of its subsidiaries is subject to any continuing order of, consent decree, settlement agreement or other similar written agreement with, or, to the knowledge of Parent, continuing investigation by, any Governmental Entity, or any judgment, order, writ, injunction, decree or award of any Governmental Entity or arbitrator, including, without limitation, cease-and-desist or other orders, except for such matters which would not have a Parent Material Adverse Effect. Section 4.08 Ownership of Parent Sub; No Prior Activities. (a) Parent Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement. (b) Except for obligations or liabilities incurred in connection with its incorporation or organization and the transactions contemplated by this Agreement and except for this Agreement and any other agreements or arrangements contemplated by this Agreement, Parent Sub has not and will not have incurred, directly or indirectly, through any subsidiary or affiliate, any obligations or liabilities or engaged in any business activities or any type or kind whatsoever or entered into any agreements or arrangements with any person. Section 4.09 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Parent Sub. ARTICLE V Covenants Section 5.01 Affirmative Covenants of the Company. The Company hereby covenants and agrees that, from and after the date of the Initial Agreement and prior to the Effective Time, unless otherwise expressly contemplated by this Agreement or consented to in writing by Parent, the Company will and will cause its subsidiaries to: (a) operate its business to the extent commercially reasonable only in the usual and ordinary course consistent with past practices; (b) use its commercially reasonable efforts to preserve substantially intact its business organization, maintain its rights and franchises, retain the services of its respective officers and key employees and maintain its relationships with its respective customers and suppliers; (c) use its commercially reasonable efforts to maintain and keep its properties and assets in as good repair and condition as at present, ordinary wear and tear excepted, and maintain inventories in quantities consistent with its customary business practice; and (d) use its commercially reasonable efforts to keep in full force and effect insurance and bonds comparable in amount and scope of coverage to that currently maintained; provided, however, that in the event the Company deems it necessary to take certain actions that would otherwise be proscribed by clauses (a)-(d) of this Section 5.01, the Company shall consult with Parent and Parent shall 17 consider in good faith the Company's request to take such action and not unreasonably withhold its consent to such action. Section 5.02 Negative Covenants of the Company. Except as expressly contemplated by this Agreement and except as set forth in Section 5.02 of the Company Disclosure Schedule, or otherwise consented to in writing by Parent, from the date of this Agreement until the Effective Time, the Company will not do, and will not permit any of its subsidiaries to do, any of the following: (a) (i) increase the compensation payable to or to become payable to any director or executive officer, except for increases in salary or wages payable or to become payable in the ordinary course of business and consistent with past practice; (ii) grant any severance or termination pay (other than pursuant to the normal severance policy or practice of the Company or its subsidiaries as in effect on the date of this Agreement or employment or severance agreements in effect on the date of this Agreement) to, or enter into any employment or severance agreement with, any director, officer or employee, provided that the Company may adopt a retention bonus program (the "Retention Plan") that provides for the payment of a retention bonus of up to three month's base salary to such employees of the Company (other than senior management) as may be determined by the Company with the consent of the Parent which shall not be unreasonably withheld subject to (a) an employee's receipt of a retention bonus being conditioned on such employee either being terminated by the Company without cause following the Effective Time or remaining as an employee of the Company for not less than six months following the Effective Time and (b) the aggregate amount of all retention bonuses payable to all employees not exceeding $500,000 or (iii) establish, adopt, enter into or amend any employee benefit plan or arrangement except as may be required by applicable Law or existing contracts; (b) declare or pay any dividend on, or make any other distribution in respect of, outstanding shares of capital stock, except for dividends by a subsidiary of the Company to the Company or another subsidiary of the Company; (c) (i) redeem, purchase or otherwise acquire any shares of its or any of its subsidiaries' capital stock or any securities or obligations convertible into or exchangeable for any shares of its or its subsidiaries' capital stock (other than any such acquisition directly from any wholly owned subsidiary of the Company in exchange for capital contributions or loans to such subsidiary), or any options, warrants or conversion or other rights to acquire any shares of its or its subsidiaries' capital stock or any such securities or obligations (except in connection with the exercise of outstanding Stock Options and Warrants referred to in Section 3.03(a) in accordance with their terms or in connection with the conversion of Convertible Notes and Convertible Preferred in accordance with their terms); (ii) effect any reorganization or recapitalization; or (iii) split, combine or reclassify any of its or its respective subsidiaries' capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for, shares of its or its respective subsidiaries' capital stock; (d) (i) except as are described in Section 3.03(b) of the Company Disclosure Schedule, issue, deliver, award, grant or sell, or authorize or propose the issuance, delivery, award, grant or sale (including the grant of any security interests, liens, claims, pledges, limitations in voting rights, charges or other encumbrances) of, any shares of any class of its or its subsidiaries' capital stock (including shares held in treasury), any securities convertible into or exercisable or exchangeable for any such shares, or any rights, warrants or options to acquire, any such shares (except for the issuance of shares upon the exercise of outstanding Stock Options, Warrants or the conversion of Convertible Notes and Convertible Preferred in accordance with their terms); or (ii) amend or otherwise modify the terms of any such rights, warrants or options the effect of which shall be to make such terms more favorable to the holders thereof; (e) acquire or agree to acquire, by merging or consolidating with, by purchasing an equity interest in or a portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division (other than a wholly owned subsidiary) thereof, or otherwise acquire or agree to acquire any assets of any other person (other than the purchase of assets from suppliers or vendors (i) for resale or use by or for customers which assets do not constitute capital items, 18 (ii) that consist of office supplies or materials not constituting capital items or (iii) in an amount not to exceed $250,000 in the aggregate (or such greater amount as may be consented to by the Parent which consent shall not be unreasonably withheld), in each case, in the ordinary course of business and consistent with past practice); (f) sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, any of its assets, except as set forth in Section 3.13 of the Company Disclosure Schedule or for dispositions of inventories and of assets in the ordinary course of business and consistent with past practice; (g) 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 Parent 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 Parent a copy of such inquiry or proposal; provided, however, that nothing contained in this subsection (g) 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 Delaware Law and (B) the Company (x) promptly provides notice to Parent 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 this 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 this 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 in connection therewith; (iv) any person (other than Parent or any of 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 this Agreement or acquisitions in arbitrage transactions); or (v) any public announcement of a proposal, plan or intention to do any of the foregoing; (h) propose or adopt any amendments to its Certificate of Incorporation or By-Laws that would have an adverse impact on the consummation of the transactions contemplated by this Agreement; (i) (A) change any of its methods of accounting in effect at December 31, 1995, or (B) make or rescind any express or deemed election relating to taxes, settle or compromise any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to taxes, or change any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of 19 the federal income tax returns for the taxable year ending December 31, 1995, except, in the case of clause (A) or clause (B), as may be required by Law or generally accepted accounting principles; (j) incur any obligation for borrowed money or purchase money indebtedness, whether or not evidenced by a note, bond, debenture or similar instrument; (k) enter into or amend (i) any material contract with any supplier that is not terminable or cancelable by the Company or its subsidiary party thereto upon notice of 90 days or less without penalty or increased cost; or (ii) any contract which restricts the Company and/or its subsidiaries from doing business anywhere in the world or from engaging in or competing in any line of business or with any person; or (l) agree in writing or otherwise to do any of the foregoing. Section 5.03 Access and Information. Subject to confidentiality agreements to which the Company or any of its subsidiaries is a party, the Company shall, and shall cause its subsidiaries to (i) afford to Parent and its officers, directors, employees, accountants, consultants, legal counsel, agents and other representatives (collectively, the "Parent Representatives") reasonable access at reasonable times upon reasonable prior notice to the officers, employees, agents, properties, offices and other facilities of the Company and its subsidiaries and to the books and records thereof and (ii) furnish promptly to Parent and the Parent Representatives such information concerning the business, properties, contracts, records and personnel of the Company and its subsidiaries (including, without limitation, financial, operating and other data and information) as may be reasonably requested, from time to time, by Parent. Section 5.04 Confidentiality. The parties will comply with all of their respective obligations under the Confidentiality Agreement dated June 29, 1995. Section 5.05 Rights Agreement. The Company shall take all necessary action prior to the Effective Time to cause the dilution provision of the Company Rights Agreement to be inapplicable to the transactions contemplated by this Agreement, without any payment to holders of rights issued pursuant to such Rights Agreement. ARTICLE VI Additional Agreements Section 6.01 Meeting of Stockholders. If required by applicable law in order to consummate the Merger, the Company shall, as promptly as practicable following the purchase of the shares of Company Common Stock in the Offer, take all action necessary in accordance with Delaware Law and its Certificate of Incorporation and By-Laws to convene a meeting of the Company's stockholders to act on the Merger Agreement (the "Stockholders' Meeting"). At the Stockholders' Meeting, all of the shares of Company Common Stock then owned by Parent, Parent Sub or any other subsidiary of Parent shall be voted to approve the Merger and this Agreement (subject to applicable law and subject to the right of Parent, Parent Sub or any other subsidiary of Parent to vote such shares of Company Common Stock as they elect in the event of a Competing Transaction that is being recommended by the Board of Directors of the Company in lieu of the Merger). The Company shall use its reasonable best efforts to solicit from stockholders of the Company proxies in favor of the approval and adoption of the Merger Agreement and to secure the vote or consent of stockholders required by Delaware Law to approve and adopt the Merger Agreement, unless otherwise required by the applicable fiduciary duties of the directors of Company, as 20 determined by such directors in good faith after consultation with independent legal counsel (which may include the Company's regularly engaged legal counsel). Section 6.02 Proxy Statement. (a) If required under applicable law, the Company shall prepare and file with the SEC a proxy statement, and a form of proxy, in connection with the vote of the Company's stockholders with respect to the Merger (such proxy statement, together with any amendments thereof or supplements thereto, in each case in the form or forms mailed to the Company's stockholders, being the "Proxy Statement"). Each of Parent and the Company shall furnish all information concerning it and the holders of its capital stock as the other may reasonably request in connection with the Proxy Statement. As promptly as practicable after the Proxy Statement has been cleared by the SEC, the Company shall mail the Proxy Statement to its stockholders. The Proxy Statement shall include the recommendation of the Company's Board of Directors in favor of the Merger unless otherwise required by the applicable fiduciary duties of the directors of the Company, as determined by such directors in good faith after consultation with independent legal counsel (which may include the Company's regularly engaged legal counsel). If a Proxy Statement is not required to be disseminated to stockholders of the Company under the federal securities laws in connection with the Merger, the Company shall prepare and mail to stockholders of the Company, as promptly as practicable following the purchase of shares of Company Common Stock in the Offer, such notices and other materials as may be required under the Delaware Law in connection with the consummation of the Merger. The Company shall give Parent and its counsel the opportunity to review such notices and other materials and all amendments and supplements thereto prior to their being mailed. (b) The information supplied by the Company for inclusion in any of the Proxy Statement to be sent to the stockholders of the Company in connection with the Stockholders' Meeting, the Schedule 14D-1, the Schedule 14D-9 or the Offer Documents shall not, in the case of the Schedule 14D-1, the Schedule 14D-9 or the Offer Documents (or any amendment thereof or supplement thereto), at the time filed with the SEC and upon expiration of the Offer, or in the case of the Proxy Statement, at the date the Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to stockholders, at the time of the Stockholders' Meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event or circumstance relating to the Company or any of its affiliates, or its or their respective officers or directors, should be discovered by the Company which should be set forth in a supplement to the Schedule 14D-1, the Schedule 14D-9, the Offer Documents or the Proxy Statement, the Company shall promptly inform Parent. All documents that the Company is responsible for filing with the SEC in connection with the transactions contemplated herein will comply as to form and substance in all material respects with the applicable requirements of the Securities Act and the rules and regulations thereunder. (c) The information supplied by Parent for inclusion in any of the Proxy Statement to be sent to the stockholders of the Company in connection with the Stockholders' Meeting, the Schedule 14D-1, the Schedule 14D-9 or the Offer Documents shall not, in the case of the Schedule 14D-1, the Schedule 14D-9, or the Offer Documents (or any amendment thereof or supplement thereto), at the time filed with the SEC and upon expiration of the Offer, or in the case of the Proxy Statement, at the date the Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to stockholders, at the time of the Stockholders' Meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event or circumstance relating to Parent or any of its respective affiliates, or to their respective officers or directors, should be discovered by Parent which should be set forth in a supplement to the Schedule 14D-1, the Schedule 14D-9, the Offer Documents or the Proxy Statement, Parent shall promptly inform the Company. All documents that Parent is responsible for filing with the SEC in connection with the transactions contemplated herein will comply as to form and substance in 21 all material respects with the applicable requirements of the Securities Act and the rules and regulations thereunder and the Exchange Act and the rules and regulations thereunder. Section 6.03 Board Representation. Promptly upon the purchase of shares of Company Common Stock pursuant to the Offer, Parent Sub 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 Parent Sub, subject to compliance with Section l4(f) of the Exchange Act and the rules and regulations promulgated thereunder, representation on the Board of Directors equal to the product of (a) the total number of directors on the Board of Directors of the Company and (b) the percentage that the number of shares of Company Common Stock purchased by Parent Sub bears to the number of shares of Company Common Stock outstanding, and the Company shall, upon request by Parent Sub, 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 Parent Sub's designees to be elected to the Board of Directors of the Company and shall cause Parent Sub's designees to be so elected. The Company shall take, at its expense, all action required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 6.03 and shall include in the Schedule 14D-9 or otherwise timely mail to its stockholders such information with respect to the Company and its officers and directors as is required by Section 14(f) and Rule 14f-l in order to fulfill its obligations under this Section 6.03. Parent will supply to the Company in writing and be solely responsible for any information with respect to itself and its or Parent Sub's nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-l. In the event that Parent Sub's designees are elected to the Board of Directors of the Company, until the Effective Time, the Board of Directors shall have at least one director who is a director on the date hereof (the "Company Director"). In such event, if the Company Director is unable to serve for any reason whatsoever, the other directors shall designate a person to fill such vacancy who shall not be a designee, stockholder or affiliate of Parent or Parent Sub and such person shall be deemed to be a Company Director for purposes of this Agreement. Notwithstanding anything in this Agreement to the contrary, in the event that Parent Sub's designees are elected to the Board of Directors of the Company, after the acceptance for payment of shares of Company Common Stock 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 this Agreement by the Company, (b) exercise or waive any of the Company's rights, benefits or remedies hereunder, (c) extend the time for performance of Parent's and Parent Sub's respective obligations hereunder, (d) take any other action by the Board of Directors of the Company under or in connection with this 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 this 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 this Agreement), unless such modification is required by Law or (f) cancel the Company's current policies of directors' and officers' liability insurance. Section 6.04 Appropriate Action; Consents; Filings. (a) The Company and Parent shall cooperate with each other in every way and shall each use their commercially reasonable efforts to (i) consummate and make effective the transactions contemplated by this Agreement, (ii) obtain from any Governmental Entities any consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained or made by Parent or the Company or any of their subsidiaries in connection with the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated herein, including, without limitation, the Offer and the Merger, (iii) make all necessary filings, and thereafter make any other required submissions, with respect to this Agreement, the Offer and the Merger required under (A) the Exchange Act and the rules and regulations thereunder, and any other applicable federal or state securities laws, (B) the HSR Act and (C) any other applicable Law; provided that Parent and the Company shall cooperate with each other in connection with the making of all such filings, including providing copies of all such documents to the nonfiling party and its advisors prior to filing and, if requested, to accept all reasonable additions, deletions or changes suggested in connection therewith. In connection with the foregoing, 22 each of the Company and the Parent shall file their respective notifications under the HSR Act within five business days of the date hereof and shall, if there is a "second request" for additional information, work diligently to comply with such request. The Company and Parent shall furnish all information required for any application or other filing to be made pursuant to the rules and regulations of any applicable Law (including all information required to be included in the Proxy Statement) in connection with the transactions contemplated by this Agreement. (b) (i) Each of the Company and Parent shall give (or shall cause their respective subsidiaries to give) any notices to third parties, and use, and cause their respective subsidiaries to use, its commercially reasonable efforts to obtain any third party consents (A) necessary, proper or advisable to consummate the transactions contemplated in this Agreement, (B) disclosed or required to be disclosed in the Company Disclosure Schedule, (C) otherwise required under any contracts, licenses, leases or other agreements in connection with the consummation of the transactions contemplated herein or (D) required to prevent a Company Material Adverse Effect from occurring prior to or after the Effective Time. (ii) In the event the Company shall fail to obtain any third party consent described in subsection (b)(i) above, the Company shall use its commercially reasonable efforts, and shall take any such actions reasonably requested by Parent to mitigate any adverse effect upon the Company and Parent, their respective subsidiaries, and their respective businesses resulting, or which could reasonably be expected to result after the Effective Time, from the failure to obtain such consent. (c) Notwithstanding anything contained in this Section 6.04 or elsewhere in this Agreement, in connection with the consummation of the Merger or any other transaction contemplated by this Agreement, Parent and its subsidiaries and their affiliates shall not be required (i) to take any action which involves substantial cost or expenses or has any impact or effect on their businesses or operations, (ii) to institute, prosecute, defend or appeal any judicial or administrative action, (iii) to sell, hold separate or dispose of any assets or operations or to withdraw from doing business in any jurisdiction or (iv) to enter into any consent or administrative decree or order. Section 6.05 Public Announcements. Unless otherwise required by applicable Law or stock exchange requirements or the requirements of the NASD (and in each such event only if time does not permit), Parent and the Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to the Offer or the Merger and shall not issue any such press release or make any such public statement prior to such consultation. Section 6.06 Indemnification of Directors and Officers. (a) The Certificate of Incorporation and By-Laws of the Surviving Corporation shall contain the provisions with respect to indemnification set forth in the Certificate of Incorporation and By-Laws of the Company on the date of this Agreement, which provisions shall not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at any time prior to the Effective Time were directors or officers of the Company in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement), unless such modification is required by Law. (b) From and after the Effective Time, the Surviving Corporation shall indemnify, defend and hold harmless the present and former officers and directors of the Company (collectively, the "Indemnified Parties") against all losses, expenses, claims, damages, liabilities or amounts that are paid in settlement of, with the approval of Parent and the Surviving Corporation (which approval shall not unreasonably be withheld), or otherwise in connection with any claim, action, suit, proceeding or investigation (a "Claim"), based in whole or in part on the fact that such person 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, without limitation, the transactions contemplated by this 23 Agreement), in each case to the full extent permitted under Delaware Law (and shall pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the fullest extent permitted under Delaware Law, upon receipt from the Indemnified Party to whom expenses are advanced of the undertaking to repay such advances contemplated by Section 145(e) of Delaware Law). Parent shall guarantee the Surviving Corporation's obligations pursuant to this Section 6.06(b). (c) Without limiting the foregoing, in the event any Claim is brought against any Indemnified Party (whether arising before or after the Effective Time) after the Effective Time (i) the Indemnified Parties may retain the Company's regularly engaged independent legal counsel, or other independent legal counsel satisfactory to them provided that such other counsel shall be reasonably acceptable to Parent and the Surviving Corporation, (ii) the Surviving Corporation shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received and (iii) the Surviving Corporation will use its commercially reasonable efforts to assist in the vigorous defense of any such matter, provided that the Surviving Corporation shall not be liable for any settlement of any Claim effected without its written consent, which consent shall not be unreasonably withheld. Any Indemnified Party wishing to claim indemnification under this Section 6.06, upon learning of any such Claim, shall notify the Surviving Corporation (although the failure so to notify the Surviving Corporation shall not relieve the Surviving Corporation from any liability which the Surviving Corporation may have under this Section 6.06 except to the extent such failure materially prejudices the Surviving Corporation), and shall deliver to the Surviving Corporation the undertaking contemplated by Section 145(e) of Delaware Law. The Indemnified Parties as a group may retain one law firm (in addition to local counsel) to represent them with respect to each such matter unless there is, under applicable standards of professional conduct (as determined by counsel to the Indemnified Parties), a conflict on any significant issue between the positions of any two or more Indemnified Parties, in which event, such additional counsel as may be required may be retained by the Indemnified Parties. (d) For a period of three years after the Effective Time, Parent shall cause to be maintained in effect the current policies of directors' and officers' liability insurance maintained by the Company (provided that Parent may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are no less advantageous) with respect to Claims arising from facts or events which occurred before the Effective Time (at an aggregate cost no greater than one and one-half times the current annual premium paid by the Company for its existing coverage). (e) This Section 6.06 is intended to be for the benefit of, and shall be enforceable by, the Indemnified Parties, their heirs and personal representatives and shall be binding on Parent and Parent Sub and the Surviving Corporation and their respective successors and assigns. Section 6.07 Obligations of Parent Sub. Parent shall take all action necessary to cause Parent Sub to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement. Section 6.08 Supplemental Indentures; Assumption of Certain Obligations to Issue Company Common Stock. As of the Effective Time, Parent shall enter into such supplemental indentures as may be required under the terms of the indenture for the Convertible Notes. Holders of Convertible Notes who convert after the Effective Time shall be entitled to receive cash based on the Merger Consideration. Section 6.09 Employment Agreements and Benefit Plans. (a) Parent shall cause the Surviving Corporation to honor all employment agreements, individual severance arrangements, the Retention Plan and the Company's existing severance policy for any employee who is terminated by the Company without cause within six months following the Effective Time. Nothing contained herein shall limit the right of the Surviving Corporation to amend or terminate any Benefit Plan. 24 (b) In the event that Parent Sub's designees are elected to the Board of Directors of the Company, after acceptance for payment of shares of Company Common Stock pursuant to the Offer and prior to the Effective Time, Parent shall use its reasonable best efforts to cause the Company to honor all employment agreements, individual severance arrangements, the Retention Plan and the Company's existing severence policy. ARTICLE VII Closing Conditions Section 7.01 Conditions to Obligations of Each Party Under This Agreement. The respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable Law: (a) Minimum Condition. Parent Sub shall have purchased, pursuant to the Offer a number of shares of Company Common Stock which satisfies the Minimum Condition (as defined in Annex I hereto). (b) Stockholder Approval. This Agreement and the Merger shall have been approved and adopted by the requisite vote of the stockholders of the Company. (c) No Order. 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 this Agreement illegal or otherwise prohibiting consummation of the transactions contemplated by this Agreement. (d) HSR Act. The applicable waiting period under the HSR Act shall have expired or been terminated. Section 7.02 Additional Conditions to Obligations of Parent. The obligations of Parent to effect the Merger are also subject to the following conditions: (a) Representations and Warranties. 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, the representations and warranties of the Company set forth in this Agreement, shall have been true and correct in all respects as of the date of the Initial Agreement and as of the Effective Time as if made at such time (except that those representations and warranties which address matters only as of a particular date 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). Parent shall have received a certificate of the President or Chief Financial Officer of the Company to such effect. (b) Agreements and Covenants. The Company shall have performed or complied with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, except where the failure to so comply would not have a Company Material Adverse Effect. Parent shall have received a certificate of the President or Chief Financial Officer of the Company to that effect. The Company shall have performed or complied with its obligations under the second last paragraph of Section 3.13 of the Company Disclosure Schedule. Section 7.03 Additional Conditions to Obligations of the Company. The obligation of the Company to effect the Merger is also subject to the following conditions: (a) Representations and Warranties. Except where the inaccuracies of any representations and warranties of the Parent or the Parent Sub would not, in the aggregate of all such inaccuracies, have a Parent Material Adverse Effect, the representations and warranties of Parent set forth in this Agreement shall have been true and correct in all respects as of the date of the Initial Agreement and as of the Effective Time as 25 if made at such time (except that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date except where the failure to be so true and correct would not have a Parent Material Adverse Effect). The Company shall have received a certificate of the Chief Financial Officer of Parent to such effect. (b) Agreements and Covenants. Parent shall have performed or complied with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, except where the failure to comply would not have a Parent Material Adverse Effect. The Company shall have received a certificate of the Chief Financial Officer of Parent to that effect. ARTICLE VIII Termination, Amendment and Waiver Section 8.01 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of this Agreement and the Merger by the stockholders of the Company: (a) by mutual consent of Parent and the Company; (b) by Parent, upon a breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement, such that the conditions set forth in Section 7.02(a) or Section 7.02(b) would not be satisfied (a "Terminating Company Breach"), provided that, if such Terminating Company Breach is curable by the Company through the exercise of its commercially reasonable efforts and for so long as the Company continues to exercise such commercially reasonable efforts, Parent may not terminate this Agreement under this Section 8.01(b); (c) by the Company, upon breach of any representation, warranty, covenant or agreement on the part of Parent set forth in this Agreement, such that the conditions set forth in Section 7.03(a) or Section 7.03(b) would not be satisfied ("Terminating Parent Breach"), provided that, if such Terminating Parent Breach is curable by Parent through the exercise of its commercially reasonable efforts and for so long as Parent continues to exercise such commercially reasonable efforts, the Company may not terminate this Agreement under this Section 8.01(c); (d) by either Parent or the Company, if there shall be any Order which is final and nonappealable preventing the consummation of the Merger; (e) by either Parent or the Company if the Offer shall have expired or been terminated in accordance with its terms as the result of the failure of any of the conditions set forth in Annex I hereto without Parent Sub having purchased any shares of Company Common Stock pursuant to the Offer; (f) by either Parent or the Company, if the Merger shall not have been consummated before September 30, 1996; (g) by either Parent or the Company, if the Agreement shall fail to receive the requisite vote for approval and adoption by the stockholders of the Company at the Stockholders' Meeting; (h) by Parent, if (i) the Board of Directors of the Company withdraws, modifies or changes its recommendation of this Agreement, the Offer or the Merger in a manner adverse to Parent or Parent Sub or shall have resolved to do any of the foregoing or the Board of Directors of the Company shall have recommended to the stockholders of the Company any competing transaction or resolved to do so; (ii) if the Board of Directors of the Company shall have recommended to the shareholders of the Company a Competing Transaction; or (iii) 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 or; (iv) any person (other than Parent 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 26 and the rules and regulations promulgated thereunder), shall have been formed which beneficially owns, or has the right to acquire beneficial ownership of more than 30% of the then outstanding shares of capital stock of the Company; and (i) by the Company if (i) the Board of Directors of the Company determines in good faith after consultation with independent legal counsel (which may include the Company's regularly engaged legal counsel) that it is required by Delaware Law to enter into a definitive agreement for a Competing Transaction which the Board has determined is financially superior to the transactions contemplated by this Agreement and is reasonably likely to be consummated; (ii) the Offer shall not have been timely commenced in accordance with Section 1.01; or (iii) the Offer shall have expired or have been terminated without any shares of Company Common Stock being purchased thereunder or if no shares of Company Common Stock shall have been purchased thereunder by September 30, 1996 unless failure to so purchase shares of Company Common Stock has been caused by or results from a breach by the Company of this Agreement. The right of any party hereto to terminate this Agreement pursuant to this Section 8.01 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party or any of their respective officers or directors, whether prior to or after the execution of this Agreement. Section 8.02 Effect of Termination. Except as provided in Section 8.05 or Section 9.01, in the event of the termination of this Agreement pursuant to Section 8.01, this Agreement shall forthwith become void, there shall be no liability on the part of Parent, Parent Sub or the Company or any of their respective officers or directors to the other and all rights and obligations of any party hereto shall cease, except that nothing herein shall relieve any Party for any breach of this Agreement, other than for breach of representations and warranties. Section 8.03 Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided, however, that, after approval of the Merger by the stockholders of the Company, no amendment may be made which would reduce the amount or change the type of consideration into which each share of Company Common Stock shall be converted pursuant to this Agreement upon consummation of the Merger. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. Section 8.04 Waiver. At any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other party hereto, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto and (c) waive compliance by the other party with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. Section 8.05 Fees, Expenses and Other Payments. (a) Except as provided in Sections 8.05(c) and (d), all Expenses (as defined in paragraph (b) of this Section 8.05) incurred by the parties hereto shall be borne solely and entirely by the party which has incurred such Expenses; provided, however, that the allocable share of each of Parent and the Company for all Expenses related to printing, filing and mailing the Proxy Statement and all SEC and other regulatory filing fees incurred in connection with the Proxy Statement shall be one-half. 27 (b) "Expenses" as used in this Agreement shall include all out-of-pocket expenses (including, without limitation, all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party hereto and its affiliates) incurred by a party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and performance of this Agreement, the preparation, printing, filing and mailing of the Proxy Statement and the mailing of the Proxy Statement, the solicitation of stockholder approvals and all other matters related to the closing of the transactions contemplated herein. (c) In the event of a termination of this Agreement (A) by the Company pursuant to Section 8.01(i) (i) or (B) for any reason other than a breach by Parent or Parent Sub and, with respect to a termination under clause (B) only, (i) the Board of Directors of the Company shall have withdrawn its recommendation of (or encouraged stockholders not to approve) the Offer or the Merger or shall have recommended (or encouraged stockholders to support) any Competing Transaction, or shall have resolved to do any of the foregoing (and such withdrawal, recommendation or encouragement is not the result of a material breach by Parent or Parent Sub of any representation, warranty or obligation under this Agreement), (ii) prior to such termination, the Company shall have received any proposal for a Competing Transaction which the Board of Directors has determined is more favorable to the Company's stockholders than the transactions contemplated by this Agreement, or (iii)(A) at any time prior to the termination of this Agreement (I) the stockholders of the Company shall have failed to approve this Agreement at the Stockholders' Meeting, or (II) any person (other than Parent or any of its subsidiaries) shall have publicly announced any proposal for a Competing Transaction and (B) at any time on or prior to one year after the date of this Agreement, any person (other than Parent or any of its subsidiaries) shall either (I) become the beneficial owner of 50% or more of the outstanding shares of Company Common Stock or (II) consummate a Competing Transaction, then the Company shall promptly, but in no event later than two business days after the first of such events set forth in (A) or (B) to occur, (x) pay Parent the sum of $2,000,000 in cash and (y) reimburse Parent for all documented out-of-pocket costs and expenses (including, without limitation, all documented legal, investment banking, printing and related fees and expenses) incurred by Parent or Parent Sub or on their behalf in connection with this Agreement or the transactions contemplated hereby, up to a maximum of $250,000 and the Company and its subsidiaries and affiliates shall have no other liabilities or obligations (and the Parent and Parent Sub shall have no other claim or right against the Company or any of its subsidiaries of affiliates) in connection with this Agreement and the transactions contemplated hereby. (d) In the event that Parent Sub fails to purchase Company Common Stock in the Offer on account of the failure of the conditions set forth in sub-section (ii) of the introductory paragraph of Annex I, and paragraphs (a) or (b) of Annex I hereto, the Parent shall reimburse the Company for all documented out of pocket Expenses incurred by the Company or on its behalf in connection with this Agreement or the transactions contemplated hereby, up to a maximum of $500,000, and the Parent shall also pay the Company $500,000 in cash and the Parent and its subsidiaries and affiliates shall have no other liabilities or obligations (and the Company shall have no other claim or right against the Parent or any of its subsidiaries or affiliates) in connection with this Agreement and the transactions contemplated hereby. ARTICLE IX General Provisions Section 9.01 Effectiveness of Representations, Warranties and Agreements. The representations, warranties and agreements in this Agreement shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Article VIII, except that the agreements set forth in Articles I and II and Section 6.06 shall survive the Effective Time and those set forth in Sections 5.04, 8.02, 8.05 and Article IX hereof shall survive termination. 28 Section 9.02 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered, mailed or transmitted, and shall be effective upon receipt if delivered personally, mailed by registered or certified mail (postage prepaid, return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like changes of address) or sent by electronic transmission to the telecopier number specified below: (a) If to Parent or Parent Sub: MERCK-MEDCO MANAGED CARE, INC. 100 Summit Avenue Montvale, New Jersey 07645 Attention: Bert Weinstein, Esq. Telecopy: (201) 358-5773 with a copy to: MERCK & CO. One Merck Drive Whitehouse Station, New Jersey 08889 Attention: Mary M. McDonald, Esq. Telecopy: (908) 423-1501 and a copy to Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Gary P. Cooperstein, Esq. Telecopy: (212) 859-8586 (b) If to the Company: SYSTEMED INC. 970 W. 190th Street, Suite 400 Torrance, California 90502 Attention: Samuel Westover Telecopy: (310) 538-1522 with a copy to: Munger, Tolles & Olson 355 South Grand Avenue, 35th Floor Los Angeles, California 90071 Attention: Robert B. Knauss, Esq. Telecopy: (213) 687-3702 Section 9.03 Certain Definitions. For purposes of this Agreement, the term: (a) "affiliate" means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person; (b) "business day" means any day other than a day on which banks in the State of New York are authorized or obligated to be closed; (c) "control" (including the terms "controlled", "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise; 29 (d) "knowledge" or "known" shall mean, with respect to any matter in question, if an executive officer of the Company or Parent, as the case may be, has actual knowledge of such matter; (e) "person" means an individual, corporation, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d) of the Exchange Act); (f) "Significant Subsidiary" or "Significant Subsidiaries" means any subsidiary of the Company or Parent, as the case may be, that would constitute a Significant Subsidiary of such party within the meaning of Rule 1-02 of Regulation S-X of the SEC and, in the case of the Company, including without limitation, Systemed Pharmacy Inc., an Ohio corporation, and Systemed Pharmacy Inc., a Delaware corporation. (g) "subsidiary" or "subsidiaries" of the Company, Parent, the Surviving Corporation or any other person, means any corporation, partnership, joint venture or other legal entity of which the Company, Parent, the Surviving Corporation or such other person, as the case may be (either alone or through or together with any other subsidiary), owns, directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity; and (h) "Tax" or "Taxes" shall mean any and all taxes, charges, fees, levies, payable to any federal, state, local or foreign taxing authority or agency, including, without limitation, (i) income, franchise, profits, gross receipts, minimum, alternative minimum, estimated, ad valorem, value added, sales, use, service, real or personal property, capital stock, license, payroll, withholding, disability, employment, social security, workers compensation, unemployment compensation, utility, severance, excise, stamp, windfall profits, transfer and gains taxes, (ii) customs duties, imposts, charges, levies or other similar assessments of any kind, and (iii) interest, penalties and additions to tax imposed with respect thereto. Section 9.04 Conveyance Taxes. The Parent shall be liable for and shall hold the holders of shares of Company Common Stock harmless against any New York State Real Property Gains Tax, New York State Real Estate Transfer Tax and the New York City Real Property Transfer Tax which become payable in connection with the transactions contemplated by this Agreement. Section 9.05 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 9.06 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. Section 9.07 Entire Agreement. This Agreement (together with the Exhibits), and the Confidentiality Agreement constitute the entire agreement of the parties and supersede all prior agreements and undertakings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof. 30 Section 9.08 Assignment. This Agreement shall not be assigned by operation of law or otherwise. Section 9.09 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied (other than the provisions of Section 6.05) is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. Section 9.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. Section 9.11 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. Section 9.12 Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. 31 In Witness Whereof, Parent, Parent Sub and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. Merck & Co., Inc. /s/ Mary M. McDonald By: _________________________________ Name: Mary M. McDonald Title: Senior Vice President and General Cousel Merck-Medco Managed Care, Inc. /s/ Bert I. Weinstein By: _________________________________ Name: Bert I. Weinstein Title: Senior Vice President and Co-General Counsel S Acquisition Corp. /s/ Bert I. Weinstein By: _________________________________ Name: Bert I. Weinstein Title: Vice President Systemed Inc. /s/ Sam Westover By: _________________________________ Name: Sam Westover Title: President and Chief Executive Officer 32 ANNEX I TO AGREEMENT AND PLAN OF MERGER Conditions to the Offer. Notwithstanding any other term of the Offer or this Agreement, Parent Sub shall not be required to accept for payment or pay for, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) of the Exchange Act, any shares of Company 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 Company Common Stock which would represent at least a majority of the outstanding shares of Company Common Stock on a fully diluted basis (the "Minimum Condition") and (ii) any waiting period under the HSR Act applicable to the purchase of shares of Company Common Stock pursuant to the Offer shall have expired or been terminated. Furthermore, notwithstanding any other term of the Offer or this Agreement, Parent Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any shares of Company 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 Company 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 shall be threatened or pending (i) challenging the consummation of any of the transactions contemplated by this Agreement, (ii) seeking rescission of the transactions contemplated by this Agreement following consummation or seeking to cause the Parent to hold the Surviving Corporation or its assets separate, (iii) seeking relief which would adversely effect the right of Parent to own the Company Common Stock and to control the Surviving Corporation and its subsidiaries, or (iv) seeking relief which would adversely effect the right of any of the Surviving Corporation and its subsidiaries to own its assets and to operate its businesses (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 Parent Sub shall have reached an agreement or understanding that the Offer or this Agreement be terminated or this 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, any of the representations and warranties of the Company set forth in this 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 this 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 performed or complied with its obligations under the second last paragraph of Section 3.13 of the Company Disclosure Schedule; 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 (g) the Company's Board of Directors shall have withdrawn, modified or amended its recommendation of the Offer in any manner adverse to Parent and Parent Sub, or shall have recommended acceptance of any Competing Transaction or shall have resolved to do any of the foregoing; or A-1 (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 Parent and Parent Sub, in any case, and regardless of the circumstances (including any action or inaction by Parent or Parent Sub or any of their affiliates other than any action or inaction constituting a material breach by Parent or Parent Sub of their obligations under this Agreement) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment, purchase of, or payment for the shares of Company Common Stock. The foregoing conditions are for the sole benefit of Parent Sub and may be asserted by Parent Sub regardless of the circumstances giving rise to any such condition and may be waived by Parent Sub, in whole or in part, at any time and from time to time, in the sole discretion of Parent Sub. The failure by Parent Sub 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 Company Common Stock not theretofore accepted for payment shall forthwith be returned by the Paying Agent to the tendering stockholders. A-2 -----END PRIVACY-ENHANCED MESSAGE-----