SCHEIN HENRY INC, 424B4, 1996-06-21

SCHEIN HENRY INC
424B4, 1996-06-21
CATALOG & MAIL-ORDER HOUSES

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Filed pursuant to Rule 424(b)(4)
Registration No. 333-5157

PROSPECTUS
5,700,000

[LOGO] HENRY SCHEIN(R)

COMMON STOCK

Of the 5,700,000 shares of Common Stock offered hereby, 2,880,500 shares are
being sold by Henry Schein, Inc. (the "Company") and 2,819,500 shares are being
sold by the Selling Stockholders. See "Principal and Selling Stockholders." The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholders.

The Common Stock offered hereby is quoted on the Nasdaq National Market
under the symbol "HSIC." On June 20, 1996, the last reported sale price of the
Common Stock was $35.25 per share. See "Price Range of Common Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
-------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

[CAPTION]
<TABLE>
===============================================================================================
PROCEEDS TO
UNDERWRITING PROCEEDS TO SELLING
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Per Share...... $35.00 $1.365 $33.635 $33.635
Total(3)....... $199,500,000 $7,780,500 $96,885,618 $94,833,882
===============================================================================================
</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting estimated expenses of $1,000,000 payable by the Company.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 855,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If all such shares are
purchased, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to Selling Stockholders will be $229,425,000,
$8,947,575, $125,643,543 and $94,833,882, respectively.

The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by them and subject to their right to reject
orders in whole or in part. It is expected that delivery of the certificates for
the shares of Common Stock will be made on or about June 26, 1996.

WILLIAM BLAIR & COMPANY

ALEX, BROWN & SONS
INCORPORATED

MONTGOMERY SECURITIES

SMITH BARNEY INC.

The date of this Prospectus is June 21, 1996
<PAGE>
[Pictures]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."

2
<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. The Company
operates on a 52-53 week fiscal year that ends on the last Saturday in December;
all references to the Company's operations for a particular year refer to the
year ending on the last Saturday in December. Unless otherwise indicated, all
information in this Prospectus assumes the Underwriters' over-allotment option
is not exercised. See "Underwriting."

THE COMPANY

The Company is the largest direct marketer of healthcare products and
services to office-based healthcare practitioners in the combined North American
and European markets. The Company sells products and services to approximately
230,000 customers in markets that the Company estimates exceeded $9.0 billion in
sales in 1995. The Company's customers are primarily dental practices and dental
laboratories, as well as physician practices, veterinary clinics and
institutions. In 1995, the Company sold products to over 65% of the estimated
100,000 dental practices in the United States. The Company believes that there
is strong awareness of the "Henry Schein" name among office-based healthcare
practitioners due to its more than 60 years of experience in distributing
healthcare products. Through its comprehensive catalogs and other direct sales
and marketing programs, the Company offers its customers a broad product
selection of both branded and private brand products which include approximately
50,000 stock keeping units ("SKUs") in North America and approximately 35,000
SKUs in Europe at published prices that the Company believes are below those of
many of its competitors. The Company also offers various value-added products
and services, such as practice management software. As of March 30, 1996, the
Company had sold over 16,000 dental practice management software systems, more
than any of its competitors. The Company's activities are conducted by the
Company; by its subsidiaries, including Henry Schein UK Holdings Limited in the
United Kingdom, Schein Dental Equipment Corp. ("Schein Dental Equipment") and
S&S Dental Supply, Inc., each of which distributes dental products, and Zahn
Holdings, Inc., which distributes dental laboratory products, as well as their
respective subsidiaries; and by 50%-or-less owned entities, including HS
Pharmaceutical, Inc. ("HS Pharmaceutical") and its subsidiaries, which are
engaged in the manufacture and distribution of certain generic pharmaceutical
products.

During 1995, the Company distributed over 8.5 million pieces of direct
marketing materials (such as catalogs, flyers and order stuffers) to
approximately 600,000 office-based healthcare practitioners. The Company
supports its direct marketing efforts with approximately 400 telesales
representatives who facilitate order processing and generate sales through
direct and frequent contact with customers and with approximately 250 field
sales consultants. The Company utilizes database segmentation techniques to more
effectively market its products and services to customers. In recent years, the
Company has continued to expand its management information systems and has
established strategically located distribution centers in the United States and
Europe to enable it to better serve its customers and increase its operating
efficiency. The Company believes that these investments, coupled with its broad
product offerings, enable the Company to provide its customers with a single
source of supply for substantially all their healthcare product needs and
provide them with convenient ordering and rapid, accurate and complete order
fulfillment. The Company estimates that approximately 99% of all items ordered
in the United States and Canada are shipped without back ordering, and that
approximately 99% of all orders in the United States and Canada received before
6:00 p.m. are shipped on the same day the order is received. In addition, the
Company estimates that over 90% of orders are received by its customers within
two days of placing the order.

3
<PAGE>
increased from $59.9 million in 1991 to $164.7 million in 1995, which
represented 26.7% of the Company's net sales in 1995. In 1990, the Company
established marketing and distribution capabilities in Europe. Net sales in
international markets have increased from $23.6 million in 1991 to $107.7
million in 1995, which represented 17.5% of the Company's net sales in 1995.

The Company believes that there has been consolidation among healthcare
products distributors serving office-based healthcare practitioners and that
this consolidation will continue to create opportunities for the Company to
expand through acquisitions and joint ventures. In recent years, the Company has
acquired or entered into joint ventures with a number of companies engaged in
businesses that are complementary to those of the Company.

In November 1995, the Company completed an initial public offering of
7,089,750 shares of its Common Stock. In the offering, the Company sold
5,090,000 shares of Common Stock at an intitial public offering price of $16.00
per share, and used the net proceeds primarily to repay amounts outstanding
under the Company's revolving credit agreement. Since the initial public
offering, the Company has completed five acquisitions and has entered into
agreements to acquire an additional five companies. Together, these companies
generated approximately $80.0 million in sales in 1995, and collectively serve
office-based healthcare practitioners in the dental, dental laboratory and
medical markets. These acquisitions further the Company's acquisition growth
strategies of leveraging its existing infrastructure, acquiring regional
distributors with networks of field sales consultants and expanding the
Company's network of equipment sales and service centers. As a result of the
acquisitions that have been completed as well as additional hirings, the Company
has increased its domestic field sales consultants from approximately 200 at the
time of the initial public offering to approximately 250 at May 31, 1996. In
addition, in December 1995, the Company introduced a new Windows(R) version of
its dental practice management software and has sold over 2,700 such units
through the first quarter of 1996. The Company has also recently introduced
ArubA(R), an enhanced Windows(R) version of its computerized order entry system,
which also contains an electronic catalog.

Prior to December 1992, the Company's business was conducted by Schein
Holdings, Inc. ("Holdings"), whose subsidiary, Schein Pharmaceutical, Inc.
("Schein Pharmaceutical"), was engaged in the manufacture and distribution of
multi-source pharmaceuticals. In December 1992, the Company was incorporated in
Delaware and Holdings transferred to the Company all the assets and liabilities
of its healthcare distribution business. Holdings retained Schein
Pharmaceutical's business of manufacturing and distributing generic
pharmaceuticals, and the Company did not assume any other liabilities of
Holdings, including the liabilities associated with Schein Pharmaceutical's
business. At the time of the transfer, the Company's and Schein Pharmaceutical's
businesses were being conducted on a stand-alone basis. As part of the transfer
of assets from Holdings to the Company, the Company received Holdings' 50%
interest in HS Pharmaceutical. HS Pharmaceutical's business is conducted
independently from that of Schein Pharmaceutical and was transferred to the
Company because of its historical connection to the Company. Other than certain
common stockholders, there is no affiliation between the Company and Schein
Pharmaceutical, and all transactions between the Company and Schein
Pharmaceutical are on an arms-length basis.

THE OFFERING

Shares Offered by the Company........................ 2,880,500
Shares Offered by the Selling Stockholders........... 2,819,500
Shares Outstanding Immediately After the Offering.... 21,187,494(1)
Use of Proceeds to the Company....................... Repayment of
indebtedness and general
corporate purposes,
including financing
possible
acquisitions. See "Use of Proceeds."
Nasdaq National Market Symbol........................ HSIC

- ------------
(1) Excludes an aggregate of 678,797 shares reserved for issuance upon the
exercise of outstanding options granted under the Company's 1994 Stock
Option Plan and 1996 Non-Employee Director Stock Option Plan and 49,838
shares reserved for issuance under the plans for options not yet granted.
See "Management--Stock Option Plan" and "--Directors Stock Option Plan."

4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED,
YEARS ENDED, -----------------------------
---------------------------------------------------------------------------------- PRO
PRO FORMA, FORMA,
AS AS
ADJUSTED(1) ADJUSTED(1)
------------ MARCH ---------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 30, APRIL 1, 30, MARCH 30,
1991 1992 1993 1994 1995 1995 1995 1996 1996
------------ ------------ ------------ ------------ ------------ ------------ -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Net sales...... $282,110 $ 362,925 $ 415,710 $ 486,610 $ 616,209 $671,448 $136,040 $185,359 $194,101
Gross profit... 82,273 105,699 121,017 142,688 190,584 205,289 40,315 54,949 57,315
Selling,
general &
admin.
expenses...... 79,775 96,287 109,574 128,560 170,823 184,509 37,329 50,245 52,311
Special
charges(2)..... 613 7,510 6,057 23,603 20,797 -- -- -- --
Operating
income
(loss)........ 1,885 1,902 5,386 (9,475) (1,036) 20,780 2,986 4,704 5,004
Net income
(loss)........ $ 986 $ 555 $ 3,910 $ (10,876) $ (10,216) $ 11,323 $ 936 $ 2,464 $ 2,782
Net income per
common share.. $ .63 $ .08 $ .13 $ .14
Average shares
outstanding... 18,017 12,184 18,670 19,785
PRO FORMA
INCOME
DATA(3):
Pro forma
operating
income........ $ 14,128 $ 19,761
Pro forma net
income........ $ 6,978 $ 9,407
Pro forma net
income per
common share.. $ .58 $ .70
Pro forma
average shares
outstanding... 12,127 13,447
SELECTED
OPERATING
DATA:
Number of
orders
shipped....... 1,824,000 2,044,000 2,274,000 2,629,000 627,932 749,724
Average order
size.......... $ 199 $ 203 $ 214 $ 234 $ 216 $ 247
</TABLE>

<TABLE>
<CAPTION>
MARCH 30, 1996
----------------------
PRO FORMA,
AS
ACTUAL ADJUSTED(1)
-------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................... $124,055 $183,371
Total assets.............................................................. 303,733 374,113
Total debt................................................................ 63,647 35,265
Minority interest......................................................... 4,361 4,361
Stockholders' equity...................................................... 144,940 242,194
</TABLE>

- ------------
(1) Gives effect to (a) the Acquisitions that are described in Pro Forma
Condensed Consolidated Financial Information and the borrowings under the
Company's revolving credit facility to finance the Acquisitions, as if these
transactions had occurred on January 1, 1995 for the purpose of the
Statement of Operations Data and as if those transactions pending at March
30, 1996 had occurred at that date with respect to the Balance Sheet Data,
(b) the sale of 5,090 shares of Common Stock at $16.00 per share in
connection with the Company's 1995 initial public offering and the
application of the net proceeds therefrom to repay debt (including debt to
finance the Acquisitions) as if the initial public offering had occurred on
January 1, 1995 with respect to the Statement of Operations Data, and (c)
the sale of a sufficient number of shares of Common Stock by the Company in
this Offering at $35.00 per share to repay debt (including debt to finance
the Acquisitions) as if this Offering had occurred on November 3, 1995 for
the purpose of the Statement of Operations Data and on March 30, 1996 with
respect to the Balance Sheet Data. See "Pro Forma Condensed Consolidated
Financial Information" and Notes 1 and 2 to the Company's Consolidated
Financial Statements.

(2) Includes: (a) for 1991, special professional fees of $0.6 million; (b) for
1992, cash payments of $5.3 million for income taxes resulting from stock
grants made to an executive officer of the Company and special professional
fees of $2.2 million; (c) for 1993, non-cash special management compensation
charges of $0.6 million in amortization of deferred compensation arising
from

(Footnotes continued on following page)

5
<PAGE>
(Footnotes continued from preceding page)
the 1992 stock grants, special professional fees of $2.3 million, $0.7
million paid in connection with an acquisition and $2.5 million resulting
from the buyout of employees' rights to future income contained in their
employment agreements; (d) for 1994, non-cash special management
compensation arising from accelerated amortization of deferred compensation
arising from the 1992 stock grants to an executive officer of the Company of
$17.3 million, which included a 1994 mark-to-market adjustment (because of
certain repurchase features) of $9.1 million, due to the resolution, with
the closing of the Reorganization, of certain contingencies surrounding the
issuance of the stock grants, non-cash special management compensation
charges of $1.6 million (net of prior accruals of approximately $1.9 million
under an executive incentive plan) arising from stock issuances to certain
other senior management of the Company, valued at $3.5 million, cash
payments for income taxes of approximately $2.4 million resulting from these
stock issuances, $0.3 million for additional income taxes resulting from the
1992 stock grants and special professional fees of $2.0 million; and (e) for
1995, non-cash special management compensation charges of $17.5 million
arising from final mark-to-market adjustments (reflecting an increase in
estimated market value from 1994 to the initial public offering price of
$16.00 per share) for stock grants made to an executive officer of the
Company in 1992 and other stock issuances made to certain other senior
management of the Company (because of certain repurchase features which
expired with the initial public offering), an approximate $2.8 million
non-cash special management compensation charge (also based on the initial
public offering price of $16.00 per share) relating to compensatory options
granted in 1995 and a cash payment of $0.5 million for additional income
taxes resulting from stock issuances. Special charges have been eliminated
in the pro forma, as adjusted columns. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Reorganization"
and "Management--Stock Option Plan."

(3) Reflects the pro forma elimination of special charges incurred in 1994 and
1995 for special management compensation of $21.6 million and $20.8 million,
respectively, and special professional fees incurred in 1994 of $2.0 million
arising from the Reorganization, and the related tax effects of $5.8 million
and $1.2 million for 1994 and 1995, respectively. See "Reorganization."

-------------------

The Company's principal executive offices are located at 135 Duryea Road,
Melville, New York 11747, and its telephone number is 516-843-5500.

As used in this Prospectus, the term the "Company" refers to Henry Schein,
Inc., a Delaware corporation, and its subsidiaries, 50% owned companies and
predecessor, unless otherwise stated.

6
<PAGE>
RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby.

Control by Insiders. After the completion of this Offering, Stanley M.
Bergman, Chairman of the Board, Chief Executive Officer and President of the
Company, will own approximately, directly or indirectly, 6.8% of the outstanding
Common Stock and by virtue of a Voting Trust Agreement (which expires December
31, 1998 unless terminated earlier) with certain of the Company's current
principal stockholders, will have the right to vote up to an aggregate of
approximately 39.7% of the outstanding shares of Common Stock. In addition,
until December 31, 1998, under certain circumstances, Mr. Bergman has the right
to direct the nomination of a majority of the nominees to the Company's Board of
Directors and, from January 1, 1999 until December 31, 2003, Mr. Bergman has the
right to direct the nomination of all, or, under certain circumstances, four
(out of nine), of the nominees to the Company's Board of Directors, and in all
such events certain of the current principal stockholders are required to vote
for such nominees. Because of these voting arrangements, Mr. Bergman has
significant influence over matters requiring the approval of the Board of
Directors or stockholders of the Company. Under certain circumstances, these
voting arrangements may terminate prior to December 31, 1998. In that event,
certain of the Company's current principal stockholders may be able to
significantly influence all matters requiring stockholder approval, including
the election of directors. The foregoing, together with certain provisions in
the Company's Amended and Restated Certificate of Incorporation, including a
provision thereof requiring the approval of holders of 60% of the outstanding
stock of the Company entitled to vote prior to consummation of a merger or sale
of substantially all the assets of the Company, may make it more difficult for a
third party to acquire, or may discourage acquisition bids for the Company and
could limit the price that certain investors might be willing to pay in the
future for shares of Common Stock. See "Reorganization," "Principal and Selling
Stockholders" and "Description of Capital Stock."

Competition. The distribution of healthcare products to office-based
healthcare practitioners is intensely competitive. The Company competes with
numerous other companies, including several major manufacturers and
distributors. Some of the Company's competitors have greater financial and other
resources than the Company. Most of the Company's products are available from
several sources, and the Company's customers tend to have relationships with
several distributors. In addition, competitors of the Company could obtain
rights to market particular products to the exclusion of the Company.
Manufacturers also could increase their efforts to sell directly to end-users,
thereby by-passing distributors such as the Company. Consolidation among
healthcare products distributors serving office-based healthcare practitioners
could result in existing competitors increasing their market position through
acquisitions or joint ventures, which may materially adversely affect operating
results. In addition, new competitors may emerge which could materially
adversely affect the Company's operating results. There can be no assurance the
Company will not face increased competition in the future. See
"Business--Competition."

Expansion through Acquisitions and Joint Ventures. The Company intends to
expand in its domestic and international markets, in part, through acquisitions
and joint ventures. However, the Company's ability to successfully expand
through acquisitions and joint ventures will depend upon the availability of
suitable acquisition or joint venture candidates at prices acceptable to the
Company, the Company's ability to consummate such transactions and the
availability of financing on terms acceptable to the Company. There can be no
assurance that the Company will be effective in making acquisitions or joint
ventures. Such transactions involve numerous risks, including possible adverse
short-term effects on the Company's operating results or the market price of the
Company's Common Stock. Certain of the Company's acquisitions and future
acquisitions may also give rise to an obligation by the Company to make
contingent payments or to satisfy certain repurchase obligations, which payments
could have an adverse financial effect on the Company. In addition, integrating
acquired

7
<PAGE>
businesses and joint ventures may result in a loss of customers or product lines
of the acquired businesses or joint ventures, and also requires significant
management attention and may place significant demands on the Company's
operations, information systems and financial resources. In 1996, the Company
completed five acquisitions and entered into agreements to acquire five other
companies. Five of these completed or pending acquisitions are reflected in the
Pro Forma Condensed Consolidated Statements of Operations and account for 4.5%
and 6.0% of pro forma net sales and operating income, respectively, for the
three months ended March 30, 1996. The failure to effectively integrate acquired
businesses and joint ventures with the Company's operations could adversely
affect the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Growth Strategy," "--Sales and
Marketing" and "--Employees."

Fluctuations in Quarterly Earnings. The Company's business has been subject
to seasonal and other quarterly influences. Net sales and operating profits have
been generally higher in the fourth quarter due to the timing of sales of
software, year-end promotions, and purchasing patterns of office-based
healthcare practitioners and have been generally lower in the first quarter due
primarily to increased purchases in the prior quarter. Quarterly results may
also be adversely affected by a variety of other factors, including the timing
of acquisitions and related costs, the release of software enhancements,
promotions, adverse weather, and fluctuations in exchange rates associated with
international operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Practice Management Software. During 1995, approximately $17.2 million, or
2.8%, and $15.7 million, or 8.3%, of the Company's net sales and gross profit,
respectively, were derived from sales of the Company's Easy Dental(R) Plus and
AVImark(R) practice management software to United States dental and veterinary
office-based healthcare practitioners, respectively. Competition among companies
supplying practice management software is intense and increasing. The Company's
future sales of practice management software will depend, among other factors,
upon the effectiveness of the Company's sales and marketing programs, the
Company's ability to enhance its products and the ability to provide ongoing
technical support. There can be no assurance that the Company will be successful
in introducing and marketing software enhancements or new software, or that such
software will be released on time or accepted by the market. The Company's
software products, like software products generally, may contain undetected
errors or bugs when introduced or as new versions are released. While the
Company's current products have not experienced significant post-release
software errors or bugs to date, there can be no assurance that problems will
not occur in the future. Any such defective software may result in increased
expenses related to the software and could adversely affect the Company's
relationship with the customers using such software. The Company does not have
any patents on its software and relies upon copyright, trademark and trade
secret laws; there can be no assurance that such legal protections will be
available or enforceable to protect its software products. The Company's
software products are generally distributed under "shrink-wrap" licenses that
are not signed by the customer and therefore may be unenforceable in certain
jurisdictions. See "Business-- Growth Strategy" and "--Products."

Foreign Operations. During 1995, approximately 17.5% and 17.3% of the
Company's net sales and gross profit, respectively, were derived from sales to
customers located outside the United States and Canada. The Company's
international businesses are subject to a number of inherent risks, including
difficulties in opening and managing foreign offices and distribution centers;
establishing channels of distribution; fluctuations in the value of foreign
currencies; import/export duties and quotas; and unexpected regulatory, economic
and political changes in foreign markets. There can be no assurance that these
factors will not adversely affect the Company's operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Growth Strategy" and "--Distribution."

8
<PAGE>
Dependence on Senior Management. The Company's future performance will
depend, in part, upon the efforts and abilities of certain members of senior
management, particularly Stanley M. Bergman, Chairman, Chief Executive Officer
and President, James P. Breslawski, Executive Vice President, and Steven
Paladino, Senior Vice President and Chief Financial Officer. The loss of service
of one or more of these persons could have an adverse effect on the Company's
business. As of January 1992, the Company entered into an employment agreement
with Mr. Bergman for a term of eight years. The success of certain acquisitions
and joint ventures effected by the Company may depend, in part, on the Company's
ability to retain key management of the acquired business or joint venture. See
"Management--Employment and Other Agreements."

Changes in Healthcare Industry. In recent years, the healthcare industry has
undergone significant change driven by various efforts to reduce costs,
including potential national healthcare reform, trends toward managed care, cuts
in Medicare, consolidation of healthcare distribution companies and collective
purchasing arrangements by office-based healthcare practitioners. The Company's
inability to react effectively to these and other changes in the healthcare
industry could adversely affect its operating results. The Company cannot
predict whether any healthcare reform efforts will be enacted and what effect
any such reforms may have on the Company or its customers and suppliers. See
"Business--Industry."

Government Regulation. The Company and its customers and suppliers are
subject to extensive Federal and state regulation in the United States, as well
as regulation by foreign governments, and the Company cannot predict the extent
to which future legislative and regulatory developments concerning their
practices and products or the healthcare industry may affect the Company. In
addition, the Company, as a marketer, distributor and manufacturer of healthcare
products (including its 50%-owned company, HS Pharmaceutical, which distributes
and manufactures generic pharmaceuticals), is required to obtain the approval of
Federal and foreign governmental agencies, including the Food and Drug
Administration, prior to marketing, distributing and manufacturing certain of
those products, and it is possible that the Company may be prevented from
selling new manufactured products should a competitor receive prior approval.
Further, the Company's plants and operations are subject to review and
inspection by local, state, Federal and foreign governmental entities. The
Company's suppliers are also subject to similar governmental requirements. See
"Business--Government Regulation."

Risk of Product Liability Claims and Insurance. The sale, manufacture and
distribution of healthcare products involves a risk of product liability claims
and adverse publicity. Although the Company has not been subject to a
significant number of such claims or incurred significant liabilities due to
such claims, there can be no assurance that this will continue to be the case.
In addition, the Company maintains product liability insurance coverage and has
certain rights to indemnification from third parties, but there can be no
assurance that claims outside of or exceeding such coverage will not be made,
that the Company will be able to continue to obtain insurance coverage or that
the Company will be successful in obtaining indemnification from such third
parties. The Company also may not be able to maintain existing coverage or
obtain, if it determined to do so, insurance providing additional coverage at
reasonable rates. As of May 31, 1996, the Company was named a defendant in 12
product liability cases. The Company believes that none of the currently pending
cases will have a material adverse effect on the Company. See "Business--Legal
Matters."

Cost of Shipping. Shipping is a significant expense in the operation of the
Company's business. The Company ships its products to customers generally by
United Parcel Service and other delivery services, and typically bears the cost
of shipment. Accordingly, any significant increase in shipping rates could have
an adverse effect on the Company's operating results. Similarly, strikes or
other service interruptions by such shippers could adversely affect the
Company's ability to deliver products on a timely basis. See
"Business--Distribution."

9
<PAGE>
Reliance on Telephone and Computer Systems. Because the Company believes
that its success depends, in part, upon its telesales and direct marketing
efforts and its ability to provide prompt, accurate and complete service to its
customers on a price-competitive basis, any continuing disruption in either its
computer system or its telephone system could adversely affect its ability to
receive and process customer orders and ship products on a timely basis, and
could adversely affect the Company's relations with its customers. See
"Business--Customer Service."

State Sales Tax Collection. As of May 31, 1996, the Company collected sales
tax or other similar tax only on sales of products to residents of 15 states.
Various other states have sought to impose on direct marketers the burden of
collecting state sales taxes on the sale of products shipped to those states'
residents. A successful assertion by a state or states that the Company should
have collected or be collecting state sales taxes on the sale of products
shipped to that state's residents could have an adverse effect on the Company.
See "Business--Distribution."

Potential Volatility of Stock Price. The market price of the Company's
Common Stock may be subject to fluctuations in response to quarter-to-quarter
variations in operating results, changes in earnings estimates by investment
analysts or changes in business or regulatory conditions affecting the Company,
its customers, its suppliers or its competitors. The stock market historically
has experienced volatility which has particularly affected the market prices of
securities of many companies in the healthcare industry and which sometimes has
been unrelated to the operating performances of such companies. These market
fluctuations may adversely affect the market price of the Common Stock.

Anti-takeover Provisions; Possible Issuance of Preferred Stock. Certain
provisions of the Company's Amended and Restated Certificate of Incorporation
and Amended and Restated By-Laws may make it more difficult for a third party to
acquire, or may discourage acquisition bids for, the Company and could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. These provisions, among other things, (i) require
the affirmative vote of the holders of at least 60% of the shares entitled to
vote to approve a sale, lease, transfer or exchange of all or substantially all
of the assets of the Company, (ii) require the affirmative vote of the holders
of at least 66 2/3% of the shares entitled to vote to remove a director or to
fill a vacancy on the Board of Directors, (iii) require the affirmative vote of
the holders of at least 80% of the shares entitled to vote to amend or repeal
certain provisions of the Amended and Restated Certificate of Incorporation and
(iv) require the affirmative vote of at least 66 2/3% of the Board of Directors
to amend or repeal the Amended and Restated By-Laws of the Company. In addition,
the rights of holders of Common Stock will be subject to, and may be adversely
affected by, the rights of any holders of Preferred Stock that may be issued in
the future and that may be senior to the rights of the holders of Common Stock.
Under certain conditions, Section 203 of the Delaware General Corporation Law
would prohibit the Company from engaging in a "business combination" with an
"interested stockholder" (in general, a stockholder owning 15% or more of the
Company's outstanding voting stock) for a period of three years. In addition,
the Company's 1994 Stock Option Plan and 1996 Non-Employee Director Stock Option
Plan provide for accelerated vesting of stock options upon a change in control
of the Company, and in certain instances, agreements between the Company and its
executive officers provide for increased severance payments if such executive
officers are terminated without cause within two years after a change in control
of the Company. See "Description of Capital Stock," "Management--Employment and
Other Agreements," "--Stock Option Plan" and "--Directors Stock Option Plan."

Shares Eligible for Future Sale. Future sales of substantial amounts of
Common Stock (including shares issued upon the exercise of stock options) by the
Company's current stockholders (including certain executive officers, employees
and affiliates of the Company) after this Offering, or the perception that such
sales could occur, could adversely affect the market price for the Common Stock.
The Company and its directors, executive officers and certain stockholders have
agreed, subject to certain exceptions described in "Underwriting," not to offer,
sell or otherwise dispose of any shares of Common Stock or any securities
convertible into Common Stock or register for sale under the Securities Act of

10
<PAGE>
1933, as amended (the "Securities Act"), any Common Stock for a period of 120
days after the date of this Prospectus (the "Lock-Up Period"), without the prior
written consent of the Representatives of the Underwriters. After the
termination of the Lock-Up Period, 8,003,679 shares of Common Stock that will be
owned by certain of the Company's current stockholders, constituting
approximately 37.8% of the Company's then outstanding shares of Common Stock,
may be eligible for immediate resale in the public market pursuant to Rule 144
under the Securities Act. In connection with the Reorganization, the Company
entered into a Registration Rights Agreement with certain of the current
stockholders. The Company has granted certain registration rights in connection
with one of the Acquisitions, and may grant additional registration rights in
connection with future acquisitions. See "Reorganization," "Principal and
Selling Stockholders" and "Underwriting."

Reorganization. In connection with the reorganization of the Company's
ownership and the various agreements entered into in connection therewith
between 1992 and 1994, certain stockholders of the Company made customary
representations, warranties and covenants and provided for indemnification with
respect to the structure of the transaction and for breaches of such
representations, warranties and covenants. No claims for such indemnification
have arisen to date. Applicable accounting rules provide that certain amounts
paid or assumed by such stockholders on behalf of the Company in satisfaction of
indemnity obligations may be required to be recorded by the Company for
financial reporting purposes as an expense. Accordingly, although any such
payment or assumption may not materially impact the Company's cash flow, the
Company's results of operations would be negatively impacted in the period
incurred. In addition, there can be no assurance that such stockholders will
have the resources in the future to meet their respective indemnification
obligations, if any, under such agreements. Also, in connection with the
Reorganization, the Company, Holdings and Marvin H. Schein, a director and
principal stockholder of the Company, agreed to terminate a lifetime consulting
agreement entered into in 1982 between the Company's predecessor and Mr. Schein,
and the Company and Mr. Schein agreed to continue the consulting arrangement on
the terms set forth in a new lifetime consulting agreement (the "Consulting
Agreement"). The current Consulting Agreement modified certain of the terms of
the 1982 agreement, including the elimination of a provision limiting Mr.
Schein's compensation to $100,000 per annum if the Company's pre-tax income were
less than $3.5 million for two consecutive years. The Consulting Agreement
currently provides for initial compensation of $258,000 per year, increasing
$25,000 every fifth year beginning in 1997. The Consulting Agreement also
provides that Mr. Schein will participate in all benefit, compensation, welfare
and perquisite plans, policies and programs generally available to either the
Company's employees or the Company's senior executive officers, excluding the
Company's Stock Option Plan, that Mr. Schein's spouse, and his children until
they attain the age of 21, will be covered by the Company's health plan, and
that the Company will provide Mr. Schein with the use of an automobile and
expenses related thereto. The Consulting Agreement was originally entered into
as part of a recapitalization of the Company's predecessor in 1982 among Mr.
Schein and its other stockholders, and to secure for the Company the consulting
services of Mr. Schein, who had served the Company in various executive
capacities for more than the prior twenty years. See "Reorganization."

Forward-Looking Statements. The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for forward-looking statements. This prospectus
contains forward-looking statements based on current expectations that could be
affected by the risks and uncertainties involved in the Company's business,
including the risks and uncertainties set forth above. Subsequent written or
oral statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements in this
prospectus and those in the Company's reports filed with the Securities and
Exchange Commission (the "Commission").

11
<PAGE>
USE OF PROCEEDS

The net proceeds to be received by the Company from this Offering, after
deducting the underwriting discount and estimated expenses of the Offering
payable by the Company, are $95.9 million. The Company intends to use the net
proceeds of the Offering (i) to repay a portion of the amount outstanding under
the Company's revolving credit agreement (under which approximately $53.2
million principal amount was outstanding as of May 31, 1996), (ii) to repay a
$2.4 million note payable, incurred in connection with a 1995 acquisition (with
interest at prime minus 1%, maturing October 2000), and (iii) for general
corporate purposes, including financing possible acquisitions. In addition,
depending upon their respective closing dates, certain of the proceeds may be
used to fund one or more of the Company's pending acquisitions. The Company's
revolving credit agreement, which terminates July 1, 1999, provides for interest
to be paid at varying rates, depending on certain financial covenants, ranging
from LIBOR plus 0.63% to prime plus 1.0% per annum. See "Pro Forma Condensed
Consolidated Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.

DIVIDEND POLICY

Except for a dividend paid in 1992 at the time of the separation of the
Company from Holdings, the Company has never paid a cash dividend on its Common
Stock. The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future; it intends to retain its earnings to finance
the expansion of its business and for general corporate purposes. Any payment of
dividends will be at the discretion of the Company's Board of Directors and will
depend upon the earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to payment of dividends and
other factors. The revolving credit agreement and the note issued in connection
with the acquisition of Beheermaatschappij Van den Braak en De Vos B.V. ("Van
den Braak") limit the distribution of dividends without the prior written
consent of the lenders. See "Reorganization."

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "HSIC." The following table sets forth, for the fiscal periods indicated,
the high and low sale prices of the Common Stock as reported by Nasdaq.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C> <C> <C>
1995
Fourth Quarter (from November 3, 1995)................... $29 1/2 $20 3/8
1996
First Quarter............................................ $30 3/4 $23 1/2
Second Quarter (through June 20, 1996)................... $43 1/2 $27 1/2
</TABLE>

On June 20, 1996, there were approximately 130 holders of record of the
Company's Common Stock. The last reported sale price per share of the Common
Stock on June 20, 1996 on the Nasdaq National Market was $35.25.

12
<PAGE>
CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at March 30, 1996, on (i) a historical basis and (ii) a pro forma basis,
as adjusted, as if the Other Recent and Pending Acquisitions had occurred on
March 30, 1996 with adjustment to give effect to (a) the issuance of 45,900
shares of Common Stock in connection with one of the Acquisitions, (b) the
borrowings to fund certain of the Acquisitions and (c) the sale by the Company
of shares of Common Stock offered hereby at $35.00 per share and the application
of a portion of the estimated net proceeds of such sale to repay debt (including
debt incurred to finance certain of the Acquisitions). This table should be read
in conjunction with the Company's consolidated financial statements and the
notes thereto appearing elsewhere in this Prospectus. See "Use of Proceeds" and
"Pro Forma Condensed Consolidated Financial Information."
<TABLE>
<CAPTION>
MARCH 30, 1996
-----------------------
PRO FORMA,
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Bank credit lines................................................... $ 8,085 $ 8,085
Current maturities of long-term debt................................ 3,861 3,879
-------- -----------
Total short-term debt............................................. $ 11,946 $ 11,964
-------- -----------
-------- -----------
Long-term debt, less current maturities:
Revolving credit agreement.......................................... $ 39,000 $ 13,000
Other............................................................... 12,701 10,301
-------- -----------
Total long-term debt.............................................. 51,701 23,301
-------- -----------
Minority interest..................................................... 4,361 4,361
-------- -----------
Stockholders' equity:
Common stock, $.01 par value; 60,000,000 shares authorized;
18,358,673 shares issued, actual; 21,285,073 shares issued, pro
forma, as adjusted(1)............................................. 183 213
Additional paid-in capital.......................................... 123,866 221,090
Retained earnings................................................... 22,210 22,210
Treasury stock, at cost, 51,679 shares.............................. (769) (769)
Foreign currency translation adjustment............................. (550) (550)
-------- -----------
Total stockholders' equity........................................ 144,940 242,194
-------- -----------
Total capitalization............................................ $201,002 $ 269,856
-------- -----------
-------- -----------
</TABLE>

- ------------

(1) Excludes (a) 221,397 shares of Common Stock reserved for issuance upon the
exercise of outstanding options at an exercise price of $4.21 per share,
402,400 shares reserved for issuance at an exercise price of $16.00 per
share, 35,000 shares reserved for issuance at an exercise price of $29.00
per share and 10,000 shares reserved for issuance at an exercise price of
$31.00 per share granted under the Company's 1994 Stock Option Plan, and an
additional 9,838 shares reserved for issuance under such Plan as of May 31,
1996, which additional shares may be issued at an exercise price equal to
not less than the fair market value at the time of grant; and (b) 10,000
shares of Common Stock reserved for issuance upon the exercise of
outstanding options at an exercise price of $29.00 per share (the fair
market value of the Common Stock on the date of grant) granted under the
1996 Non-Employee Directors Stock Option Plan, and an additional 40,000
shares reserved for issuance under such Plan as of May 31, 1996, which
additional shares may be issued at an exercise price equal to not less than
the fair market value at the time of grant. See "Management--Stock Option
Plan" and "--Directors Stock Option Plan."

13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA

The following selected consolidated financial information with respect to
the Company's financial position as of December 31, 1994 and December 30, 1995,
and its results of operations for the years ended December 25, 1993, December
31, 1994 and December 30, 1995, has been derived from the audited consolidated
financial statements of the Company appearing elsewhere in this Prospectus. The
selected consolidated financial information with respect to the Company's
results of operations for the years ended December 28, 1991 and December 26,
1992 and with respect to the Company's financial position as of December 28,
1991, December 26, 1992 and December 25, 1993 has been derived from audited
financial statements of the Company that are not included in this Prospectus.
The selected consolidated financial information for the three months ended April
1, 1995 and March 30, 1996 has been derived from the unaudited consolidated
financial statements of the Company, which, in the opinion of management,
include all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the information set forth therein. The results for the three
months ended March 30, 1996 are not necessarily indicative of the results that
may be expected for the full year. The selected financial data presented below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus. The Selected Operating Data, Net Sales by Market Data and Balance
Sheet Data presented below have not been audited.
<TABLE>
<CAPTION>
YEARS ENDED, THREE MONTHS ENDED,
---------------------------------------------------------------------------------- -------------------
PRO FORMA,
AS
ADJUSTED(1)
------------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 30, APRIL 1, MARCH 30,
1991 1992 1993 1994 1995 1995 1995 1996
------------ ------------ ------------ ------------ ------------ ------------ -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $282,110 $ 362,925 $ 415,710 $ 486,610 $ 616,209 $671,448 $136,040 $ 185,359
Cost of sales........... 199,837 257,226 294,693 343,922 425,625 466,159 95,725 130,410
------------ ------------ ------------ ------------ ------------ ------------ -------- ---------
Gross profit............ 82,273 105,699 121,017 142,688 190,584 205,289 40,315 54,949
Selling, general and
administrative
expenses............... 79,775 96,287 109,574 128,560 170,823 184,509 37,329 50,245
Special management
compensation(2)......... -- 5,283 617 21,596 20,797 -- -- --
Special contingent
consideration(3)....... -- -- 3,216 -- -- -- -- --
Special professional
fees(4)................ 613 2,227 2,224 2,007 -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ -------- ---------
Operating
income(loss)............ 1,885 1,902 5,386 (9,475) (1,036) 20,780 2,986 4,704
Interest income......... 1,374 1,210 856 251 475 475 69 395
Interest expense........ (2,196) (2,953) (3,216) (3,756) (5,833) (3,344) (1,288) (961)
Other income
(expense)--net......... 312 255 (634) 541 276 321 97 (97)
------------ ------------ ------------ ------------ ------------ ------------ -------- ---------
Income (loss) before
taxes on income
(recovery), minority
interest and equity in
earnings of
affiliates............. 1,375 414 2,392 (12,439) (6,118) 18,232 1,864 4,041
Taxes on income......... 827 622 1,351 (1,630) 5,126 7,810 781 1,783
Minority interest in net
income (loss) of
subsidiaries........... (325) (249) 318 561 509 524 172 (70)
Equity in earnings of
affiliates............. 113 514 1,296 494 1,537 1,425 25 136
------------ ------------ ------------ ------------ ------------ ------------ -------- ---------
Income (loss) before
cumulative effect of
accounting change...... 986 555 2,019 (10,876) (10,216) 11,323 936 2,464
Cumulative effect of
accounting change...... -- -- 1,891 -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ -------- ---------
Net income (loss)....... $ 986 $ 555 $ 3,910 ($ 10,876) ($ 10,216) $ 11,323 $ 936 $ 2,464
------------ ------------ ------------ ------------ ------------ ------------ -------- ---------
------------ ------------ ------------ ------------ ------------ ------------ -------- ---------
Net income per common
share.................. $ .63 $ .08 $ .13
Average shares
outstanding............ 18,017 12,184 18,670
PRO FORMA INCOME
DATA(5):
Pro forma operating
income................. $ 14,128 $ 19,761
Pro forma net income.... $ 6,978 $ 9,407
Pro forma net income per
common share........... $ .58 $ .70
Pro forma average shares
outstanding............ 12,127 13,447

<CAPTION>
PRO FORMA,
AS
ADJUSTED(1)
-----------
MARCH 30,
1996
-----------
<S> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 194,101
Cost of sales........... 136,786
-----------
Gross profit............ 57,315
Selling, general and
administrative
expenses............... 52,311
Special management
compensation(2)........ --
Special contingent
consideration(3)....... --
Special professional
fees(4)................ --
-----------
Operating
income(loss)............ 5,004
Interest income......... 395
Interest expense........ (682)
Other income
(expense)--net.......... (64)
-----------
Income (loss) before
taxes on income
(recovery), minority
interest and equity in
earnings of
affiliates............. 4,653
Taxes on income......... 2,044
Minority interest in net
income (loss) of
subsidiaries........... (37)
Equity in earnings of
affiliates............. 136
-----------
Income (loss) before
cumulative effect of
accounting change...... 2,782
Cumulative effect of
accounting change...... --
-----------
Net income (loss)....... $ 2,782
-----------
-----------
Net income per common
share.................. $ .14
Average shares
outstanding............ 19,785
PRO FORMA INCOME
DATA(5):
Pro forma operating
income.................
Pro forma net income....
Pro forma net income per
common share...........
Pro forma average shares
outstanding............
</TABLE>

14
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED, THREE MONTHS ENDED,
---------------------------------------------------------------------------------- -------------------
PRO FORMA,
AS
ADJUSTED(1)
------------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 30, APRIL 1, MARCH 30,
1991 1992 1993 1994 1995 1995 1995 1996
------------ ------------ ------------ ------------ ------------ ------------ -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Number of orders
shipped................ 1,824,000 2,044,000 2,274,000 2,629,000 627,932 749,724
Average order size...... $ 199 $ 203 $ 214 $ 234 $ 216 $ 247

NET SALES BY MARKET
DATA:
Dental(6)............... $195,047 $ 228,264 $ 245,616 $ 266,212 $ 317,933 $ 71,828 $ 94,536
Medical................. 43,975 58,314 78,628 97,914 134,979 26,962 40,127
Veterinary.............. 15,974 19,481 24,312 27,872 29,680 6,650 8,458
Technology(7)........... 3,470 5,825 7,738 10,685 25,914 5,631 5,965
International(8)........ 23,644 51,041 59,416 83,927 107,703 24,969 $ 36,273
------------ ------------ ------------ ------------ ------------ -------- ---------
$282,110 $ 362,925 $ 415,710 $ 486,610 $ 616,209 $136,040 $ 185,359
------------ ------------ ------------ ------------ ------------ -------- ---------
------------ ------------ ------------ ------------ ------------ -------- ---------
BALANCE SHEET DATA (AT
PERIOD END):
Working capital......... $ 28,999 $ 28,276 $ 74,125 $ 76,392 $ 103,899 $ 82,341 $ 124,055
Total assets............ 114,453 137,957 160,793 190,020 296,867 193,496 303,733
Total debt.............. 24,835 41,373 56,567 61,138 43,049 66,959 63,647
Minority interest....... 338 411 1,051 1,823 4,547 2,097 4,361
Stockholders' equity.... 39,143 40,117 43,897 39,567 142,851 41,818 144,940

PRO FORMA,
AS
ADJUSTED(1)
-----------
MARCH 30,
1996
-----------

<S> <C>
SELECTED OPERATING DATA:
Number of orders
shipped................
Average order size......
NET SALES BY MARKET
DATA:
Dental(6)...............
Medical.................
Veterinary..............
Technology(7)...........
International(8)........

BALANCE SHEET DATA (AT
PERIOD END):
Working capital......... $ 183,371
Total assets............ 374,113
Total debt.............. 35,265
Minority interest....... 4,361
Stockholders' equity.... 242,194
</TABLE>

(2) Includes: (a) for 1992, cash payments of $5.3 million for income taxes
resulting from stock grants made to an executive officer of the Company; (b)
for 1993, non-cash special management compensation charges of $0.6 million
in amortization of deferred compensation arising from the 1992 stock grants;
(c) for 1994, non-cash special management compensation arising from
accelerated amortization of deferred compensation arising from the 1992
stock grants to an executive officer of the Company of $17.3 million, which
included a 1994 mark-to-market adjustment (because of certain repurchase
features) of $9.1 million, due to the resolution, with the closing of the
Reorganization, of certain contingencies surrounding the issuance of the
stock grants, non-cash special management compensation charges of $1.6
million (net of prior accruals of approximately $1.9 million under an
executive incentive plan) arising from stock issuances to certain other
senior management of the Company, valued at $3.5 million, cash payments for
income taxes of approximately $2.4 million resulting from these stock
issuances and $0.3 million for additional income taxes resulting from the
1992 stock grants; and (d) for 1995, non-cash special management
compensation charges of $17.5 million arising from final mark-to-market
adjustments (reflecting an increase in estimated market value from 1994 to
the initial public offering price of $16.00 per share) for stock grants made
to an executive officer of the Company in 1992 and other stock issuances
made to certain other senior management of the Company (because of certain
repurchase features which expired with the initial public offering), an
approximate $2.8 million non-cash special management compensation charge
(also based on the initial public offering price of $16.00 per share)
relating to compensatory options granted in 1995 and a cash payment of $0.5
million for additional income taxes resulting from such stock issuances.
Special management compensation has been eliminated in the pro forma, as
adjusted columns. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Reorganization" and
"Management--Stock Option Plan."

(3) Includes $0.7 million paid in connection with an acquisition and $2.5
million resulting from the buyout of employees' rights to future income
contained in their employment agreements. Special contingent consideration
has been eliminated in the pro forma, as adjusted columns. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

(4) Includes special professional fees incurred by the Company in connection
with the Reorganization. Special professional fees have been eliminated in
the pro forma, as adjusted columns. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Reorganization."

(5) Reflects the pro forma elimination of special charges incurred in 1994 and
1995 for special management compensation of $21.6 million and $20.8 million,
respectively, and special professional fees incurred in 1994 of $2.0 million
arising from the Reorganization, and the related tax effect of $5.8 million
and $1.2 million for 1994 and 1995, respectively. See "Reorganization."

(6) Dental consists of the Company's dental sales in the United States and
Canada.

(7) Technology consists of the Company's practice management software sales and
sales of certain other value-added products and services.

(8) International consists of sales (substantially all dental) to customers
outside the United States and Canada, primarily in Europe.

15
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)

The Pro Forma Condensed Consolidated Financial Information reflects (1)
financial information with respect to (i) the Company's 1995 acquisition of
Veratex (for the period set forth below), (ii) the Company's acquisition of, or
agreement to acquire, five other businesses in 1996 consisting of a 100%
interest in three companies which had net sales of approximately $31.4 million
in 1995 and an 80% interest in one company which had net sales of $4.0 million
in 1995 and (iii) the acquisition by one of the Company's 50% owned companies of
a 100% interest in a company which had net sales of approximately $2.9 million
in 1995 (collectively, the acquisitions in (ii) and (iii) are referred to as the
"Other Recent and Pending Acquisitions" and together with Veratex, such
acquisitions are referred to as the "Acquisitions"), and (2) the sale of
5,090,000 shares of Common Stock at $16.00 per share in the Company's 1995
initial public offering and the application of the net proceeds therefrom to
reduce debt, including debt to finance the Acquisitions (for the period set
forth below). Two of the companies included in the Other Recent and Pending
Acquisitions distribute dental supplies and equipment, one distributes dental
laboratory equipment and supplies, one manufactures and distributes dental
products and one distributes medical supplies. Since December 30, 1995, the
Company also acquired or entered into agreements to acquire five other
companies, the financial information for which is not reflected in the Pro Forma
Condensed Consolidated Financial Information and is not material either
individually or in the aggregate. The aggregate cash purchase price for the
Acquisitions is expected to be approximately $30.9 million, payable $22.8
million in cash and $8.1 million in notes. In addition, the Company will issue
approximately 45,900 shares of Common Stock in connection with one of the
Acquisitions. The Acquisitions will be accounted for under the purchase method
of accounting, except for the acquisition by one of the Company's 50% owned
companies, which will be accounted for under the equity method. There can be no
assurance that any of the pending acquisitions will be consummated.

The Pro Forma Condensed Consolidated Financial Information gives effect to
the adjustments described in the notes attached thereto. The financial
information of Veratex at March 30, 1996 and for the three months then ended and
for the period from July 7, 1995 to December 31, 1995 are included in the
consolidated financial information of the Company for such periods. The
accompanying pro forma condensed consolidated balance sheet combines the
historical consolidated balance sheet of the Company and the balance sheets of
the Other Recent and Pending Acquisitions as if such acquisitions had occurred
on March 30, 1996. The accompanying pro forma condensed consolidated statement
of operations for the year ended December 30, 1995 (1) combines the historical
consolidated statements of operations of the Company and the Acquisitions and
(2) reflects the sale of shares in the Company's 1995 initial public offering
and the application of the net proceeds therefrom to reduce debt, as if all the
Acquisitions and the initial public offering had occurred at January 1, 1995.
The accompanying pro forma condensed consolidated statement of operations for
the three months ended March 30, 1996 combines the historical consolidated
financial statements of operations of the Company (which includes Veratex) and
the Other Recent and Pending Acquisitions as if all such acquisitions had
occurred at December 31, 1995. The Pro Forma Condensed Consolidated Financial
Information, as adjusted, also gives effect to the completion of this Offering
and the use of a portion of the proceeds therefrom to reduce debt. See "Use of
Proceeds."

The Pro Forma Condensed Consolidated Financial Information is based on an
allocation of the expected purchase prices for the Other Recent and Pending
Acquisitions. Furthermore, such information does not purport to represent what
the Company's actual results of operations would have been had the Acquisitions,
the initial public offering or the Offering occurred on the dates indicated or
for any future period or date. The pro forma adjustments give effect to
available information and assumptions that the Company believes are reasonable.
The Pro Forma Condensed Consolidated Financial Information should be read in
conjunction with the Company's historical consolidated financial statements and
the notes thereto and the financial statements of Veratex and the notes thereto
appearing elsewhere in this Prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

16
<PAGE>
HENRY SCHEIN, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
OTHER
HENRY RECENT AND
SCHEIN, PENDING PRO FORMA PRO FORMA PRO FORMA
INC. ACQUISITIONS ADJUSTMENTS COMBINED(1) AS ADJUSTED(2)
------------ ----------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current:
Cash and cash equivalents....................... $ 7,500 $ 341 $ (59)(3) $ 7,782 $ 59,715
Accounts receivable, net........................ 104,859 4,347 (10)(3) 109,196 109,196
Inventories..................................... 87,897 3,386 (56)(3) 91,227 91,227
Deferred income taxes........................... 6,715 333 -- 7,048 7,048
Other........................................... 18,579 259 (12)(3) 18,826 18,826
------------ ----------- ----------- --------------- --------------
Total current assets.......................... 225,550 8,666 (137) 234,079 286,012
Property and equipment, net...................... 30,816 171 (32)(3) 30,955 30,955
Goodwill and other intangibles, net.............. 26,186 -- 9,779(4) 35,965 35,965
Investments and other............................ 21,181 -- -- 21,181 21,181
------------ ----------- ----------- --------------- --------------
$303,733 $ 8,837 $ 9,610 $ 322,180 $374,113
------------ ----------- ----------- --------------- --------------
------------ ----------- ----------- --------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........... $ 89,549 $ 3,176 $(2,048)(5) $ 90,677 $ 90,677
Bank credit lines............................... 8,085 360 (360)(3) 8,085 8,085
Current maturities of long-term debt............ 3,861 18 -- 3,879 3,879
------------ ----------- ----------- --------------- --------------
Total current liabilities..................... 101,495 3,554 (2,408) 102,641 102,641
Long-term debt................................... 51,701 -- 15,567(6) 67,268 23,301
Due to stockholder............................... -- 2,249 (2,249)(7) -- --
Other liabilities................................ 1,236 380 -- 1,616 1,616
Minority interest................................ 4,361 -- -- 4,361 4,361

Common stock and paid-in capital................. 124,049 -- 1,354(8) 125,403 221,303
Retained earnings................................ 22,210 -- -- 22,210 22,210
Treasury stock................................... (769) -- -- (769) (769)
Foreign currency translation adjustment.......... (550) -- -- (550) (550)
Net assets of Other Recent and Pending
Acquisitions.................................... -- 2,654 (2,654)(9) -- --
------------ ----------- ----------- --------------- --------------
Total stockholders' equity.................. 144,940 2,654 (1,300) 146,294 242,194
------------ ----------- ----------- --------------- --------------
$303,733 $ 8,837 $ 9,610 $ 322,180 $374,113
------------ ----------- ----------- --------------- --------------
------------ ----------- ----------- --------------- --------------
</TABLE>

- ------------

(1) Gives effect to the Other Recent and Pending Acquisitions.

(2) Adjusted to give effect to the application of the estimated net proceeds to
the Company from this Offering to repay debt and to provide cash for the
balance of the proceeds.

(3) To eliminate certain assets and liabilities which were not acquired by the
Company in connection with one of the Other Recent and Pending
Acquisitions.

(4) To record (i) goodwill of $9.0 million relating to the Other Recent and
Pending Acquisitions and (ii) other intangibles of $0.8 million relating to
non-compete agreements in connection with three Other Recent and Pending
Acquisitions.

(5) To (i) eliminate $0.5 million of liabilities which were not assumed by the
Company in connection with one of the Other Recent and Pending Acquisitions
and (ii) record payment of certain accrued liabilities of approximately
$1.5 million with proceeds from borrowings from the Company's revolving
credit facility in connection with one Other Recent and Pending
Acquisition.

(6) To reflect additional borrowings under the Company's revolving credit
facility to finance the Other Recent and Pending Acquisitions.

(7) To eliminate $0.4 million due the stockholder of one of the Other Recent
and Pending Acquisitions which is not being assumed by the Company and
repay approximately $1.8 million of stockholder debt in connection with one
Other Recent and Pending Acquisition which is to be financed by borrowings
under the Company's revolving credit facility.

(8) To reflect approximately 45,900 shares of Common Stock to be issued in
connection with one of the Other Recent and Pending Acquisitions.

(9) To eliminate the net assets acquired of the Other Recent and Pending
Acquisitions.

17
<PAGE>
HENRY SCHEIN, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
OTHER
HENRY RECENT AND
SCHEIN, PENDING PRO FORMA PRO FORMA PRO FORMA
INC. ACQUISITIONS ADJUSTMENTS COMBINED(1) AS ADJUSTED(2)
-------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $185,359 $ 8,742 $-- $ 194,101 $194,101
Cost of sales.............................. 130,410 6,376 -- 136,786 136,786
-------- ------------ ----------- ----------- --------------
Gross profit............................... 54,949 2,366 -- 57,315 57,315
Selling, general and administrative
expenses................................... 50,245 2,036 30(3) 52,311 52,311
-------- ------------ ----------- ----------- --------------
Operating income........................... 4,704 330 (30) 5,004 5,004
Interest income (expense)--net............. (566) (41) (257)(4) (864) (287)
Other--net................................. (97) 33 -- (64) (64)
-------- ------------ ----------- ----------- --------------
Income before taxes on income, minority
interest and equity in earnings of
affiliates................................ 4,041 322 (287) 4,076 4,653
Taxes on income............................ 1,783 51 (19)(5) 1,815 2,044
Minority interest in net loss of
subsidiaries.............................. (70) -- 33(6) (37) (37)
Equity in earnings of affiliates........... 136 -- -- 136 136
-------- ------------ ----------- ----------- --------------
Net income................................. $ 2,464 $ 271 $ (301) $ 2,434 $ 2,782
-------- ------------ ----------- ----------- --------------
-------- ------------ ----------- ----------- --------------
Pro forma net income per common share...... $ 0.13 $ 0.14
----------- --------------
----------- --------------
Pro forma weighted average common and
common equivalent shares outstanding...... 18,716 19,785
----------- --------------
----------- --------------
</TABLE>

- ------------

(1) Gives effect to the Other Recent and Pending Acquisitions and 45.9 shares of
Common Stock to be issued in connection therewith.

(2) Adjusted to give effect to (i) the interest savings, net of taxes, from the
application of the net proceeds from this Offering to repay debt and (ii)
the sale of sufficient shares of Common Stock at $35.00 per share to fund
such repayment.

(3) To adjust selling, general and administrative expenses for amortization of
goodwill and non-compete agreements of $105 arising from the Other Recent
and Pending Acquisitions and to eliminate non-recurring shareholder
compensation of approximately $75 in connection with one of the Other Recent
and Pending Acquisitions. Goodwill is amortized on a straight-line basis
over 30 years based on the expected benefit period. The non-compete
agreements are amortized on a straight-line basis over lives ranging from 5
to 7 years.

(4) To reflect an increase in interest expense due to additional borrowings
under the Company's revolving credit facility and other debt incurred to
finance the Other Recent and Pending Acquisitions calculated based on an
average interest rate of 6.4% which approximates the incremental borrowing
rate in effect for the respective period. If interest rates were to vary
1/4% from the assumed rates, the effect on pro forma net income would be $7,
and there would not be any effect on pro forma net income per common share.

(5) To eliminate the income tax effect of the pro forma adjustments in (3) and
(4) above and the adjustment of income taxes on certain of the Acquisitions
to an estimated combined rate of 40%.

(6) To record the minority interests in the income of one of the Other Recent
and Pending Acquisitions.

18
<PAGE>
HENRY SCHEIN, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
OTHER RECENT
HENRY AND
SCHEIN, PENDING PRO FORMA PRO FORMA PRO FORMA,
INC. VERATEX ACQUISITIONS ADJUSTMENTS COMBINED (1) AS ADJUSTED (2)
------------ ------- ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $616,209 $19,853 $ 35,386 $ -- $671,448 $ 671,448
Cost of sales..................... 425,625 14,079 26,455 -- 466,159 466,159
------------ ------- ------------ ----------- ------------ ---------------
Gross profit...................... 190,584 5,774 8,931 -- 205,289 205,289
Selling, general and
administrative expenses.......... 170,823 5,015 8,159 512(3) 184,509 184,509
Special charges................... 20,797 -- -- (20,797)(4) -- --
------------ ------- ------------ ----------- ------------ ---------------
Operating income (loss)........... (1,036) 759 772 20,285 20,780 20,780
Interest income (expense) - net... (5,358) -- (181) 1,986(5) (3,553) (2,869)
Other - net....................... 276 -- 45 -- 321 321
------------ ------- ------------ ----------- ------------ ---------------
Income (loss) before taxes on
income, minority interest and
equity in earnings of
affiliates....................... (6,118) 759 636 22,271 17,548 18,232
Taxes on income................... 5,126 296 166 1,951(6) 7,539 7,810
Minority interest in net income of
subsidiaries..................... 509 -- -- 15(7) 524 524
Equity in earnings of
affiliates....................... 1,537 -- -- (112)(8) 1,425 1,425
------------ ------- ------------ ----------- ------------ ---------------
Net income (loss)................. $(10,216) $ 463 $ 470 $ 20,193 $ 10,910 $ 11,323
------------ ------- ------------ ----------- ------------ ---------------
------------ ------- ------------ ----------- ------------ ---------------
Pro forma net income per common
share............................ $ 0.61 $ 0.63
------------ ---------------
------------ ---------------
Pro forma weighted average common
and common stock equivalent
shares outstanding............... 17,772 18,017
------------ ---------------
------------ ---------------
</TABLE>

- ------------

(1) Gives effect to (i) the Acquisitions and 45.9 shares of Common Stock to be
issued in connection therewith and (ii) the sale of 5,090 shares in the
Company's initial public offering and the application of the net proceeds
therefrom to reduce debt.

(2) Adjusted to give effect to the interest savings, net of taxes, from the
application of net proceeds from this Offering to repay debt and issuance of
shares of Common Stock at $35.00 per share sufficient to fund such
repayment.

(3) To adjust selling, general and administrative expenses for (i) $375 of
increased general and administrative expenses incurred by the Company in
connection with one of the Acquisitions, (ii) amortization of goodwill and
non-compete agreements of $637 arising from the Acquisitions, and (iii) the
elimination of non-recurring shareholder compensation incurred in connection
with one of the Acquisitions of $500. Goodwill is amortized on a
straight-line basis over 30 years based on the expected benefit period. The
non-compete agreements are amortized on a straight-line basis over lives
ranging from 5 to 7 years.

(4) To eliminate non-recurring special management compensation.

(5) To reflect (i) an increase of $2,117 in interest expense due to additional
borrowings under the Company's revolving credit facility and other debt
incurred to finance the Acquisitions, calculated based on an average
interest rate of 8.3% which approximates the incremental borrowing rate in
effect for the respective periods, and (ii) reflect a reduction in interest
expense resulting from assumed repayment of debt from proceeds of the
initial public offering. If interest rates were to vary /1 4% from the
assumed rates, the effect on pro forma net income would be approximately
$45.0, and there would not be any effect on pro forma net income per common
share.

(6) To eliminate the income tax effect of the pro forma adjustments in (3)
through (5) above and the adjustment of income taxes on certain of the
Acquisitions to an estimated combined rate of 40%.

(7) To record the minority interests in the income of certain of the
Acquisitions.

(8) To record equity in net income of one of the Acquisitions.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's consolidated
financial condition and consolidated results of operations should be read in
conjunction with the Company's consolidated financial statements and notes
thereto included elsewhere in this Prospectus.

OVERVIEW

The Company's results of operations in recent years have been significantly
impacted by strategies and transactions undertaken by the Company to expand its
business, both domestically and internationally, in part to address significant
changes in the healthcare industry, including potential national healthcare
reform, trends toward managed care, cuts in Medicare, consolidation of
healthcare distribution companies and collective purchasing arrangements. The
Company's results of operations in recent years have also been impacted by the
Reorganization. See "Reorganization."

The Company's net sales have grown at a compounded annual rate of
approximately 21.6%, from $282.1 million in 1991 to $616.2 million in 1995. This
growth reflects increased direct marketing activities by the Company in serving
its dental customers and the utilization by the Company of its sales and
marketing strategies and cost effective infrastructure to expand the Company's
presence in the medical and veterinary markets. During this same period, the
Company established distribution capabilities in Europe, introduced practice
management software products and consummated 29 acquisitions and joint ventures.

Since 1991, the Company has expanded its field sales force to include
approximately 50 field sales consultants who focus exclusively on the medical
market. The Company has also expanded the number of SKUs offered to each of the
medical and veterinary markets to over 15,000 at March 30, 1996. In addition,
the Company has increased the number of direct mailings to physicians and
veterinarians and its outbound telesales contacts to these professionals. During
this period of increased focus on the medical and veterinary markets, the
Company's net sales to these markets increased from $59.9 million in 1991 to
$164.7 million in 1995, representing a compounded annual growth rate of
approximately 28.6%. For the three months ended March 30, 1996, net sales to the
medical and veterinary markets represented 26.2% of the Company's total net
sales.

Commencing in 1990, the Company began to pursue opportunities in
international markets. The Company established local distribution centers, hired
telesales personnel and field sales consultants, entered into joint ventures
with companies serving international customers and acquired local distributors.
The Company's net sales to such markets increased from $23.6 million in 1991 to
$107.7 million in 1995. At March 30, 1996, the Company operated subsidiaries or
joint ventures in the United Kingdom, The Netherlands, Belgium, Germany, France,
Spain and Ireland which generated approximately 19.6% of the Company's net sales
for the three months ended March 30, 1996.

From 1993 through 1995, the Company entered into joint ventures with or
acquired three medical distributors and 21 dental distributors, the most
significant of which were Van den Braak and Veratex, which were acquired in
November 1993 and July 1995, respectively. Van den Braak had net sales of
approximately $10.6 million in the fiscal year ended December 25, 1993, while
Veratex had net sales of approximately $39.5 million in the fiscal year ended
December 31, 1994. Since December 31, 1995, the Company has acquired or entered
into acquisition agreements with ten additional businesses.

From 1992 through 1994, the Company was a party to a series of transactions
leading to the Reorganization that resulted in, among other things, the Company
being separated from Holdings and the distribution of shares of the Common Stock
of the Company to its then current stockholders. In December 1992, an executive
officer of the Company received certain stock grants in the Company and Schein
Pharmaceutical valued at approximately $6.2 million and $2.6 million,
respectively, and cash of approximately $5.3 million to pay income taxes on the
stock grants received. These stock grants were

20
<PAGE>
subject to the occurrence of certain future events, including the fulfillment of
the employment term by the executive officer. Accordingly, these stock grants,
totaling $8.8 million, were treated as deferred compensation while the cash
payments were charged to earnings as special management compensation in the year
ended December 26, 1992. During 1993, the Company amortized the deferred
compensation relating to stock grants by the Company to the executive officer
resulting in a charge to earnings of $0.6 million. In 1994, the contingencies
relating to the stock granted to the executive officer were eliminated, such
that these shares became fully vested. Accordingly, deferred compensation of
$8.8 million, less the 1993 amortization of $0.6 million, plus a mark-to-market
adjustment (because of certain repurchase features) of approximately $9.1
million, along with a $0.3 million cash payment for income taxes relating to the
1992 stock grants, was expensed in 1994 as special management compensation.

In addition, in connection with the Reorganization, certain senior
management of the Company were issued shares of Common Stock of the Company in
1994 and 1995 to extinguish an obligation under a pre-existing long-term
incentive plan and to provide them with an ownership interest in the Company. In
connection with the issuance of the shares, a cash payment for income taxes
relating to such stock issuances of approximately $2.4 million was paid. This
cash bonus, plus $3.5 million, the fair value of the related stock issued, net
of amounts accrued under the long-term incentive plan of approximately $1.9
million, resulted in an additional special management compensation charge to the
Company of approximately $4.0 million in 1994. Charges to earnings for the year
ended 1995 related to a mark-to-market adjustment (because of certain repurchase
features) for stock grants made to an executive officer of the Company and the
stock issuances of the other senior management of approximately $15.5 million
and cash payments of $0.5 million for income taxes related to the stock
issuances. Due to the elimination of repurchase features on the stock issued to
the executive officers of the Company and other senior management upon closing
of the initial public offering in the fourth quarter of 1995, the Company
incurred special management compensation charges of approximately $2.0 million
for an additional mark-to-market adjustment to reflect the difference between
the actual initial public offering price of $16.00 per share and the prior
estimated initial public offering price of $15.00 per share.

Additionally, the Company has granted certain employees options for shares
of the Company's Common Stock which became exercisable upon the Company's
initial public offering on November 3, 1995, at which time substantially all
such options vested. Non-recurring special compensation charges for the options
issued to employees recorded in the fourth quarter of 1995 amounted to
approximately $2.8 million. In addition, the Company recorded an approximate
$1.1 million related tax benefit.

Special charges for special management compensation and special professional
fees incurred in connection with the Reorganization aggregated $0.6 million,
$7.5 million, $2.8 million, $23.6 million and $20.8 million for 1991, 1992,
1993, 1994 and 1995, respectively. There were no special management compensation
charges incurred in each of the three month periods ended April 1, 1995 and
March 30, 1996.

In addition, in 1993 the Company incurred special contingent consideration
charges of $0.7 million and $2.5 million in connection with an acquisition and
the buyout of employees' rights to future income contained in their employment
agreements, respectively.

21
<PAGE>
expanding the Company's network of equipment sales and service centers. Through
the acquisitions that have been completed as well as additional hirings, the
Company has increased its domestic field sales consultants from approximately
200 at the time of the initial public offering to approximately 250 at May 31,
1996. In addition, in December 1995, the Company introduced a new Windows(R)
version of its dental practice management software and has sold over 2,700 such
units through the first quarter of 1996. The Company has also recently
introduced ArubA(R), an enhanced Windows(R) version of its computerized order
entry system, which also contains an electronic catalog.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the net sales by
market of the Company and the percentage change in such items for the years
ended 1993, 1994 and 1995 and for the three months ended April 1, 1995 compared
to the three months ended March 30, 1996.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES PERCENTAGE INCREASE
------------------------------------------------------------------------ ----------------------------------
THREE MONTHS
ENDED APRIL 1,
YEARS ENDED, THREE MONTHS ENDED, 1995 TO
------------------------------------------ --------------------------- THREE MONTHS
DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30, 1993 TO 1994 TO ENDED MARCH
1993 1994 1995 1995 1996 1994 1995 30, 1996
------------ ------------ ------------ ------------ ------------ ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES BY
MARKET:
Dental(1).......... 59.1% 54.7% 51.6% 52.8% 51.0% 8.4% 19.4% 31.6%
Medical............ 18.9 20.1 21.9 19.8 21.6 24.5 37.9 49.1
Veterinary......... 5.8 5.7 4.8 4.9 4.6 14.6 6.5 26.9
Technology(2)...... 1.9 2.2 4.2 4.1 3.2 38.1 142.1 5.9
International(3)... 14.3 17.3 17.5 18.4 19.6 41.2 28.4 45.2
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0% 17.1 26.6 36.3
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

- ------------
(1) Dental consists of the Company's dental sales in the United States and
Canada.

(2) Technology consists of the Company's practice management software sales and
sales of certain other value-added products and services.

(3) International consists of sales (substantially all dental) to customers
outside the United States and Canada, primarily in Europe.

Three Months Ended March 30, 1996 Compared to Three Months Ended April 1, 1995

Net sales increased $49.4 million, or 36.3%, to $185.4 million for the three
months ended March 30, 1996 from $136.0 million for the three months ended April
1, 1995. Of the $49.4 million increase, approximately $22.7 million represented
a 31.6% increase in the Company's dental business, $13.2 million represented a
49.1% increase in its medical business, $11.3 million represented a 45.2%
increase in its international business, $1.8 million represented a 26.9%
increase in its veterinary business and $0.4 million represented a 5.9% increase
in the Company's technology business. The dental net sales increase was
primarily the result of the Company's increased emphasis on its integrated sales
and marketing approach (which coordinates the efforts of its field sales
consultants with its direct marketing and telesales personnel), entering the
U.S. market for large dental equipment and acquisitions. Of the approximately
$13.2 million increase in medical net sales, approximately $6.1 million, or
46.2%, represented increased net sales to renal dialysis centers, with the
effects of acquisitions and increased outbound telesales activity primarily
accounting for the balance of the increase in net sales. In the international
market, the increase in net sales was primarily due to acquisitions and
increased unit volume growth. In the veterinary market, the increase in net
sales was primarily due to increased account penetration.

22
<PAGE>
Gross profit increased by $14.6 million, or 36.2%, to $54.9 million for the
three months ended March 30, 1996, from $40.3 million for the three months ended
April 1, 1995, while gross profit margin remained consistent at 29.6% for the
same period. The $14.6 million increase in gross profit was primarily due to
increased account penetration and the effects of acquisitions.

Selling, general and administrative expenses increased by $12.9 million, or
34.6%, to $50.2 million for the three months ended March 30, 1996 from $37.3
million for the three months ended April 1, 1995. Selling and shipping expenses
increased by $10.5 million, or 44.3%, to $34.2 million for the three months
ended March 30, 1996 from $23.7 million for the three months ended April 1,
1995. As a percentage of net sales, selling and shipping expenses increased 1.0%
to 18.4% for the three months ended March 30, 1996 from 17.4% for the three
months ended April 1, 1995. The increase in selling and shipping expenses as a
percentage of net sales was primarily due to an increase in the number of field
sales consultants. General and administrative expenses increased $2.4 million,
or 17.6%, to $16.0 million for the three months ended March 30, 1996 from $13.6
million for the three months ended April 1, 1995, primarily as a result of
acquisitions. As a percentage of net sales, general and administrative expenses
decreased 1.4% to 8.6% for the three months ended March 30, 1996 from 10.0% for
the three months ended April 1, 1995 due primarily to the relatively fixed
nature of general and administrative expenses when compared to the 36.3%
increase in sales volume for the same period.

Interest expense--net decreased $0.6 million, or 50.0%, to $0.6 million for
the three months ended March 30, 1996 from $1.2 million for the three months
ended April 1, 1995. This decrease was primarily due to a reduction in interest
expense which resulted from a decline in average interest rates to 7.2% for the
three months ended March 30, 1996 from 8.0% for the three months ended April 1,
1995 and a $10.7 million decrease in the Company's average borrowings which
primarily resulted from the availability of additional equity capital from the
Company's initial public offering in November 1995, reduced by cash used for
acquisitions.

Equity in earnings of affiliates increased by $0.1 million to $0.1 million
for the three months ended March 30, 1996. This increase in equity in earnings
of affiliates was primarily due to the acquisition of an unconsolidated
affiliate during the fourth quarter of 1995.

For the three months ended March 30, 1996, the Company's provision for taxes
was $1.8 million, while pre-tax income was $4.0 million, resulting in an
effective tax rate of 44.1%. The difference between the effective tax rate and
the Federal statutory rate relates primarily to state income taxes and currently
non-deductible net operating losses of certain foreign subsidiaries in France,
which are not included in the Company's consolidated tax return. For the three
months ended April 1, 1995, the Company's provision for taxes was $0.8 million,
while pre-tax income was $1.9 million. The effective tax rate of 41.9% for the
three months ended April 1, 1995 differed from the Federal statutory rate,
primarily due to state income taxes.

1995 Compared to 1994

Net sales increased $129.6 million, or 26.6%, to $616.2 million in 1995 from
$486.6 million in 1994. Of the $129.6 million increase, approximately $51.7
million represented a 19.4% increase in the Company's dental business, $37.1
million represented a 37.9% increase in its medical business, $23.8 million
represented a 28.4% increase in its international business, $15.2 million
represented a 142.1% increase in its technology business and $1.8 million
represented a 6.5% increase in the Company's veterinary business. The dental net
sales increase, after taking into consideration acquisitions, was primarily due
to the Company's increase in field sales consultants and telesales personnel,
database marketing programs and promotional activities. Of the approximately
$37.1 million increase in medical net sales, approximately $17.0 million, or
45.8%, represents incremental net sales to renal dialysis centers, with the
effects of acquisitions and increased telesales personnel accounting for the
other major increase in net sales. In the international market, the increase in
net sales was due to the full year benefit of an acquisition made in France in
July 1994, acquisitions made in 1995, increased unit volume growth

23
<PAGE>
and favorable exchange rate translation adjustments. The increase in net sales
for the Company's technology market was primarily the result of an increase in
unit sales due to the release of the new Windows(R) version of Easy Dental(R)
Plus software in December 1995 and substantial price increases. The increased
pricing on the Easy Dental(R) Plus software product was accompanied by
substantial sales promotions and related expense. In the veterinary market, the
Company now earns a commission on certain products which the manufacturer now
sells direct. Including those sales on a basis similar to 1994, sales to the
veterinary market would have increased by approximately 20.0%.

Gross profit increased by $47.9 million, or 33.6%, to $190.6 million in
1995, from $142.7 million in 1994, while gross profit margin increased by 1.6%
to 30.9% from 29.3% for the same period. Of the 1.6% increase in gross profit
margin, approximately 87.5%, or 1.4%, was primarily attributed to increased
sales volume of the Company's Easy Dental(R) Plus software, which carried a
higher gross profit margin than other products sold by the Company. The higher
net sales volume for the Company's technology business, up 142.1% to $25.9
million from $10.7 million for the same period last year, was primarily due to
the release of the new Windows(R) version of Easy Dental(R) Plus software, which
increased unit sales, coupled with substantial price increases. The increased
pricing on the Easy Dental(R) Plus software product was accompanied with
substantial sales promotions. The balance of the change in gross profit margin
was due to changes in product mix.

Selling, general and administrative expenses increased by $42.2 million, or
32.8%, to $170.8 million in 1995 from $128.6 million in 1994. Selling and
shipping expenses increased by $34.8 million, or 44.8%, to $112.5 million in
1995 from $77.7 million in 1994. As a percentage of net sales, selling and
shipping expenses increased 2.4% to 18.3% in 1995 from 15.9% in 1994. The
increase in selling and shipping expenses as a percentage of net sales was
primarily due to substantial sales promotions offered by the Company's
technology group in conjunction with the promotion of Easy Dental(R) Plus
software and the new Windows(R) version released in December 1995, which
accounted for approximately 0.9% of the 2.4% increase in selling and shipping
expenses as a percentage of net sales. The balance of the increase was due
primarily to various promotional programs and incremental field sales and
marketing personnel. General and administrative expenses increased $7.4 million,
or 14.5%, to $58.3 million in 1995 from $50.9 million in 1994, primarily as a
result of acquisitions. As a percentage of net sales, general and administrative
expenses decreased 1.0% to 9.5% in 1995 from 10.5% in 1994 due primarily to the
relatively fixed nature of general and administrative expenses when compared to
the 26.6% increase in sales volume for the same period.

Special charges decreased by $2.8 million to $20.8 million for 1995, from
$23.6 million for 1994. Special charges for 1995 included final, non-cash
mark-to-market adjustments of approximately $17.5 million for stock grants made
to an executive officer of the Company and stock issuances to other senior
management and approximately $2.8 million for options granted to certain
employees of the Company to acquire shares of the Company's Common Stock, and
cash payments of approximately $0.5 million for income taxes related to the
stock issuances to other senior management. In addition, the Company recorded an
approximate $1.1 million related tax benefit.

Interest expense--net increased $1.9 million, or 54.3%, to $5.4 million in
1995 from $3.5 million in 1994. This increase was due to two factors: average
interest rates rose to 8.3% in 1995 from 6.4% in 1994, and the Company's average
borrowings increased by $11.3 million in 1995 as compared to 1994 as a result of
higher working capital requirements and financing of acquisitions.

Equity in earnings of affiliates increased by $1.0 million, or 200.0%, to
$1.5 million in 1995 from $0.5 million in 1994. This increase in equity in
earnings of affiliates was primarily due to an increase in earnings of one
unconsolidated affiliate which was the result of increased sales volume and the
acquisition of another unconsolidated affiliate during the fourth quarter of
1995.

In 1995, the Company's provision for taxes was $5.1 million, while the
pre-tax loss was $6.1 million. The difference between the tax provision and the
amount that would have been recoverable by applying the statutory rate to
pre-tax loss was attributable substantially to the non-deductibility for

24
<PAGE>
income tax purposes of the $17.5 million appreciation in the value of the stock
issued to an executive officer and other senior management of the Company. On a
pro forma basis, to give effect to special charges, taxes on income for 1995
were $6.3 million, resulting in an effective tax rate of 42.9%. The difference
between the pro forma effective tax rate and the Federal statutory rate relates
primarily to state income taxes and currently non-deductible net operating
losses of certain foreign subsidiaries, primarily in France, which are not
included in the Company's consolidated tax return. In 1994, the income tax
recovery was $1.6 million, while the pre-tax loss was $12.4 million. The
effective tax rate of the Company for 1994 differed from the Federal statutory
rate, primarily due to non-deductible special charges of approximately $9.1
million arising from the appreciation in the value of stock issued to an
executive officer of the Company and currently non-deductible net operating
losses of certain foreign subsidiaries.

1994 Compared to 1993

Net sales increased $70.9 million, or 17.1%, to $486.6 million in 1994 from
$415.7 million in 1993. Of the $70.9 million increase, $24.5 million represented
a 41.2% increase in the Company's international business, $20.6 million and
$19.3 million represented an 8.4% and 24.5% increase in the Company's dental and
medical businesses, respectively, and $3.0 million represented a 38.1% increase
in net sales of the Company's technology products. The net sales increase for
the Company's international business was the result of the full year benefit of
certain acquisitions in the United Kingdom and the Netherlands, which took place
in July and October, respectively, of 1993 and comprised $12.1 million and $5.1
million, respectively, of the 1994 international net sales increase. Dental net
sales increases were primarily due to the Company's increase in telesales
personnel and field sales consultants, database marketing programs and
promotional activities. Medical net sales of products to renal dialysis centers
increased $9.9 million over 1993, while net sales to podiatrists increased $4.5
million as the result of an acquisition of a medical supply company in August
1994. Additionally, net sales of a medical supply company acquired in November
1992 increased 66.2% over 1993. Net sales of technology products increased
primarily due to increased unit net sales and price increases on the Company's
Easy Dental(R) Plus software product, which accounted for the 1994 increase.

The Company's gross profit increased by $21.7 million, or 17.9%, to $142.7
million in 1994 from $121.0 million in 1993. Of the $21.7 million increase,
approximately $8.9 million, or 41.0%, was attributable to the Company's
international business, and $9.0 million, or 41.5%, was attributable to the
Company's dental business. The gross profit increase for the Company's
international business reflects the full year benefit of certain acquisitions in
the United Kingdom and the Netherlands, which took place in July and October,
respectively, of 1993 and comprised $4.4 million and $2.8 million, respectively,
of the 1994 increase. The Company's dental gross profit increase was primarily
due to higher unit sales and increased sales of Henry Schein brand products. The
overall increase in gross profit margin to 29.3% from 29.1% was primarily due to
increased sales of higher margin products and higher margins realized on the
Company's Easy Dental(R) Plus products, offset in part by lower gross profit
margins on the Company's medical business, which decreased from 26.0% in 1993 to
21.7% in 1994 as a result of increased price competition and increased sales of
lower margin products to renal dialysis centers.

Selling, general and administrative expenses increased by $19.0 million, or
17.3%, to $128.6 million in 1994 from $109.6 million in 1993. Selling and
shipping expenses increased by $14.9 million, or 23.7%, to $77.7 million in 1994
from $62.8 million in 1993. The increase in selling and shipping expenses was
due to increased sales volume, the full year impact of certain acquisitions in
the United Kingdom and The Netherlands, an increase in promotional activities
relating to the sale of Easy Dental(R) Plus software and the impact of an
acquisition. As a percentage of net sales, selling and shipping expenses
increased 0.8% to 15.9% in 1994 from 15.1% in 1993. This increase was due to the
full year impact of certain acquisitions in The Netherlands and the United
Kingdom, and the acquisition of a medical supply company in 1994. General and
administrative expenses increased $4.1

25
<PAGE>
million, or 8.8%, to $50.9 million in 1994 from $46.8 million in 1993. As a
percentage of net sales, general and administrative expenses decreased 0.8% to
10.5% in 1994 from 11.3% in 1993.

Special charges increased by $17.5 million to $23.6 million from $6.1
million for 1993. Special charges included approximately $21.3 million in
special management compensation expense, an additional cash payment of $0.3
million for additional income taxes resulting from 1992 stock grants, and
approximately $2.0 million in special professional fees. The significant
increase in special management compensation expense was the result of the
completion of the Reorganization which caused certain stock grants awarded an
executive officer of the Company valued at $17.3 million to become fully vested,
and the issuance of stock valued at $3.5 million to certain senior management of
the Company along with cash payments for income taxes of approximately $2.4
million, net of prior executive incentive plan accruals of $1.9 million. Charges
to earnings in connection with the stock grants and issuances ceased upon the
closing of the initial public offering when the contingent buy-back features
relating to these stock grants and issuances terminated.

Interest expense--net increased $1.1 million, or 48.5%, to $3.5 million in
1994 from $2.4 million in 1993. The increase was primarily due to an increase in
average debt of $9.9 million in 1994 offset in part by decreased average
interest rates of 6.4% in 1994 from 6.6% in 1993.

Other income (expense)--net increased $1.1 million to income of $0.5 million
in 1994 from an expense of $0.6 million in 1993. This increase was primarily
attributable to a foreign exchange gain of approximately $0.5 million.

Equity in earnings of affiliates decreased by $0.8 million, or 61.9%, to
$0.5 million in 1994 from $1.3 million in 1993. This decrease in equity in
earnings of affiliates was primarily due to decreased sales volume as a result
of increased competition for the products sold by an unconsolidated 50%-owned
company.

Taxes on income (recovery) decreased $3.0 million, to a recovery of $1.6
million in 1994 from an expense of $1.4 million in 1993 due primarily to the
recognition in 1994 of certain Reorganization expenses amounting to $14.5
million. The effective tax recovery rate for 1994 was lower than the statutory
rate due primarily to non-deductible special management compensation charges of
approximately $9.1 million and currently non-deductible net operating losses of
certain foreign subsidiaries.

Inflation

Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.

Effect of Recently Issued Accounting Standards

Recently issued accounting standards applicable to the Company include
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which establishes accounting standards for, among other things,
the impairment of long-lived assets, and certain identifiable intangibles and
goodwill. SFAS No. 121 is effective for financial statements for fiscal years
beginning after December 15, 1995 and has not had any effect on the Company's
consolidated financial statements. In addition, the Company does not intend to
adopt the fair value method of accounting for stock options as permitted by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."

26
<PAGE>
QUARTERLY RESULTS

The following table sets forth summary quarterly unaudited financial
information for 1994 and 1995, and the first quarter of 1996, excluding
non-recurring special charges and the related tax effects. In the opinion of
management, this quarterly information has been prepared on a basis consistent
with the Company's audited consolidated financial statements appearing elsewhere
in this Prospectus and reflects all necessary adjustments (consisting only of
normal, recurring adjustments) for a fair presentation of such unaudited
quarterly results when read in conjunction with the audited financial statements
and the notes thereto. The operating results for any quarter are not necessarily
indicative of results for any future period and there can be no assurance that
any trends reflected in such results will continue in the future.
<TABLE>
<CAPTION>
1996
QUARTER
1994 QUARTERS ENDED 1995 QUARTERS ENDED ENDED
------------------------------------------- ------------------------------------------ ---------
MARCH 26, JUNE 25, SEPT. 24, DEC. 31, APRIL 1, JULY 1, SEPT. 30, DEC. 30, MARCH 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996
--------- -------- --------- -------- -------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......... $ 108,356 $115,793 $ 122,695 $139,766 $136,040 $139,753 $ 156,667 $183,749 $ 185,359
Gross profit...... 31,695 33,708 34,998 42,287 40,315 42,107 48,090 60,072 54,949
Operating
income........... 1,876 3,347 4,516 4,389 2,986 4,689 5,188 6,898 4,704
Net income........ 881 1,520 1,577 3,000 936 2,066 2,093 4,312 2,464
Earnings per
share............ .07 .13 .13 .25 .08 .17 .17 .26 .13
</TABLE>

The Company's business has been subject to seasonal and other quarterly
influences. Net sales and operating profits have been generally higher in the
fourth quarter due to the timing of sales of software, year-end promotions and
purchasing patterns of office-based healthcare practitioners and have been
generally lower in the first quarter due primarily to the increased purchases in
the prior quarter. Quarterly results also may be materially affected by a
variety of other factors, including the timing of acquisitions and related
costs, the release of software enhancements, timing of purchases, special
promotional campaigns, fluctuations in exchange rates associated with
international operations and adverse weather conditions.

RISK MANAGEMENT

The Company has operations in the United States, Canada, the United Kingdom,
The Netherlands, Belgium, Germany, France, the Republic of Ireland and Spain.
Each of the Company's operations endeavors to protect its margins by using
foreign currency forward contracts to hedge the estimated foreign currency
payments to foreign vendors. The total U.S. dollar equivalent of all foreign
currency forward contracts hedging vendor payments was $4.8 million as of the
end of the first quarter in 1996. The gain (or loss) on the income statement due
to foreign currency fluctuations, net of a one-time gain of approximately $0.5
million in 1994 resulting from hedging the Van den Braak acquisition loan
described below, was $0.2 for 1995 and $0.6 million for the three months ended
March 30, 1996.

The Company considers its investment in foreign operations to be both long
term and strategic. As a result, the Company does not hedge the long term
translation exposure to its balance sheet. The Company experienced a positive
translation adjustment of $0.3 million in 1995, and a negative translation
adjustment of $0.4 million for the three months ended March 30, 1996, which were
reflected in the balance sheet as an adjustment to stockholders' equity. The
cumulative translation adjustment at the end of the first quarter of 1996 showed
a net negative translation adjustment of $0.6 million.

The Company issues a Canadian catalog once a year with prices stated in
Canadian dollars; however, orders are shipped from the Company's United States
warehouses resulting in U.S. dollar costs for Canadian dollar sales. To minimize
the exposure to fluctuations in foreign currency exchange rates, the Company
enters into foreign currency forward contracts with major international banks
and

27
<PAGE>
an unconsolidated 50%-owned company to convert estimated monthly Canadian dollar
receipts into U.S. dollars. The Company usually enters into these forward
contracts prior to the issuance of its Canadian catalog and for the expected
life of the catalog. As of March 30, 1996, the Company had 19 forward contracts
outstanding for the forward sale of 5.7 million Canadian dollars. The last of
the contracts expire on December 27, 1996; however, the Company anticipates
entering into new contracts in the normal course of its business.

The Company borrowed money in U.S. dollars under a term loan related to the
Van den Braak acquisition. The Company loaned the proceeds to Henry Schein B.V.
in Netherland Guilders ("NLG") with principal and interest payable in NLGs. To
minimize the resultant exposure to fluctuations in foreign currency exchange
rates, the Company entered into a series of foreign currency forward contracts
to sell NLGs for U.S. dollars. As of March 30, 1996, the Company had 10
contracts outstanding for the forward sale of NLG 8.2 million. The last contract
expires on October 31, 1997.

The Company entered into two interest rate swaps with major financial
institutions to exchange variable rate interest for fixed rate interest. The net
result was to substitute a weighted average fixed interest rate of 7.81% for the
variable LIBOR rate on $13.0 million of the Company's debt. The interest rate
swaps expire in October and November of 2001.

The Company from time to time makes loans to its international subsidiaries.
These loans are generally in the local currency of the subsidiary. The Company
generally uses forward contracts to fully hedge the foreign currency exposure on
these loans. As of March 30, 1996, the United States dollar value equivalent of
the Company's three foreign currency forward contracts was $0.8 million.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal capital requirements have been to fund (a) working
capital needs resulting from increased sales, extended payment terms on various
products and special inventory buying opportunities, (b) capital expenditures
and (c) acquisitions. Since sales have been strongest during the fourth quarter
and special inventory buying opportunities are most prevalent just before the
end of the year, the Company's working capital requirements have been generally
higher from the end of the third quarter to the end of the first quarter of the
following year. The Company currently finances its business primarily through a
revolving credit facility.

Net cash provided by (used in) operating activities for 1993, 1994, 1995,
the three months ended April 1, 1995 and the three months ended March 30, 1996,
was ($3.3 million), $6.3 million, ($10.8 million), ($2.6 million) and ($16.0
million), respectively. Cash used in operating activities decreased from 1992 to
1993 primarily due to higher net income, as well as greater net cash due to the
net effects of certain non-cash charges in excess of non-cash benefits and a
reduction in current assets, were in part offset by reductions in trade payables
and accrued expenses. The increase in cash provided by operating activities from
1993 to 1994 was primarily due to increases in trade payables and the net
effects of certain non-cash charges in excess of non-cash benefits were in part
offset by increases in trade receivables and a net loss. The increase in cash
used in operating activities from 1994 to 1995 was primarily due to a net loss,
as well as increases in trade receivables and the net effects of certain non-
cash charges in excess of non-cash benefits, were in part offset by increases in
trade payables. The increase in cash used in operating activities for the three
months ended April 1, 1995 and the three months ended March 30, 1996 was
primarily due to increases in trade receivables and decreases in trade payables,
were in part offset by decreases in inventories and net income.

Net cash used in investing activities increased $1.6 million in 1993 to $4.9
million; $3.0 million in 1994 to $7.9 million; $21.6 million to $29.5 million in
1995 and $1.3 million for the three months ended March 30, 1996 to $3.7 million
from $2.4 million for the three months ended April 1, 1995. Cash used in
investing activities has primarily been attributable to business acquisitions in
1995 and capital

28
<PAGE>
expenditures with respect to the opening of a distribution facility in 1993, a
new corporate headquarters in 1994 and the opening of new facilities in Europe
and the United States in 1995.

Net cash provided by financing activities was $6.2 million, $3.7 million,
$43.4 million, $6.7 million and $19.7 million for 1993, 1994, 1995, the three
months ended April 1, 1995 and the three months ended March 30, 1996,
respectively. Net cash provided by financing activities decreased in 1994 as
cash flow from operating activities increased by $9.6 million. Net cash provided
by financing activities increased in 1995 due primarily to proceeds from the
Company's initial public offering, which financed, among other things, capital
expenditures, additional working capital requirements and business acquisitions.
Net cash provided by financing activities increased in the three months ended
March 30, 1996 due primarily to additional long-term borrowings to finance
additional working capital requirements and business acquisitions.

The Company entered into a $45.0 million revolving credit facility on
September 30, 1993 that was amended and restated on July 5, 1995 to increase the
facility to $65.0 million. Borrowings under the facility were $35.8 million,
$17.0 million and $39.0 million at the end of 1994, at the end of 1995 and at
March 30, 1996, respectively. At March 30, 1996, the Company's main revolving
credit facility was unsecured. In addition, the Company's subsidiaries have
revolving credit facilities that total approximately $13.9 million.

On May 5, 1995 the Company entered into a 12-year straight amortization term
loan for $1.2 million. In addition, the Company has borrowed funds in connection
with its operations in Europe. See "Risk Management."

The aggregate purchase price for the acquisitions completed during fiscal
1995 and through May 31, 1996 was approximately $26.0 million and $8.0 million,
respectively, payable $16.4 million and $8.0 million in cash and $9.6 million
and $0 million in notes, respectively. The cash portion of the purchase price
was primarily funded by the Company's revolving credit facility. The use of
proceeds from the initial public offering, completed in November 1995, included
a pay-down of the Company's revolving credit facility and the pay-off of certain
1995 acquisition notes, as well as other existing debt. Certain of the
acquisitions call for contingent payments if certain financial targets are met.
In addition, with respect to certain acquisitions and ventures, minority
shareholders have the right at certain times to require the Company to acquire
their shares at either fair market value or a formula price based on earnings of
the entity.

The Company believes that its anticipated cash flow from operations, as well
as the availability of funds under its existing credit agreements and the net
proceeds of this offering, will provide it with liquidity sufficient to meet its
currently foreseeable capital needs.

29
<PAGE>
BUSINESS

GENERAL

The Company is the largest direct marketer of healthcare products and
services to office-based healthcare practitioners in the combined North American
and European markets. The Company sells products and services to approximately
230,000 customers in markets the Company estimates exceeded $9.0 billion in
sales in 1995. The Company's customers are primarily dental practices and dental
laboratories, as well as physician practices, veterinary clinics and
institutions. In 1995, the Company sold products to over 65% of the estimated
100,000 dental practices in the United States. The Company believes that there
is strong awareness of the "Henry Schein" name among office-based healthcare
practitioners due to its more than 60 years of experience in distributing
healthcare products. Through its comprehensive catalogs and other direct sales
and marketing programs, the Company offers its customers a broad product
selection of both branded and private brand products which include approximately
50,000 SKUs in North America and approximately 35,000 SKUs in Europe at
published prices that the Company believes are below those of many of its
competitors. The Company also offers various value-added products and services,
such as practice management software. As of March 30, 1996, the Company had sold
over 16,000 dental practice management software systems, more than any of its
competitors. The Company's activities are conducted by the Company; by its
subsidiaries, including Henry Schein UK Holdings Limited in the United Kingdom
Schein Dental Equipment and S&S Dental Supply, Inc., each of which distributes
dental products, and Zahn Holdings, Inc., which distributes dental laboratory
products, as well as their respective subsidiaries; and by 50%-or-less owned
entities, including HS Pharmaceutical and its subsidiaries, which are engaged in
the manufacture and distribution of certain generic pharmaceutical products.

The Company intends to increase its sales to existing dental customers by
intensifying its direct marketing efforts, by offering additional products and
services, and by augmenting its direct marketing and telesales efforts with
additional field sales consultants. The Company, which had traditionally focused
primarily on the dental market, is currently utilizing these strategies and its
cost-effective infrastructure to further expand into the medical and veterinary
markets. Net sales to these markets increased from $59.9 million in 1991 to
$164.7 million in 1995, which represented 26.7% of the Company's net sales in
1995. In 1990, the Company established marketing and distribution capabilities
in Europe. Net sales in international markets have increased from $23.6 million
in 1991 to $107.7 million in 1995, which represented 17.5% of the Company's net
sales in 1995.

The Company was formed on December 23, 1992 as a wholly-owned subsidiary of
Holdings. At that time, Holdings conducted the business in which the Company is
now engaged and, in addition, owned 100% of the outstanding capital stock of
Schein Pharmaceutical, a company engaged in the manufacture and distribution of
multi-source pharmaceutical products. In December 1992, Holdings separated the
Company's business from Schein Pharmaceutical by transferring to the Company all
of the assets (including Holdings' 50% interest in HS Pharmaceutical) and
liabilities of the healthcare distribution business now conducted by the
Company. The Company did not assume any other liabilities of Holdings, including
the liabilities associated with Schein Pharmaceutical's business. In February
1994, the Company, Holdings and their stockholders entered into a number of
reorganization agreements, and in September 1994, pursuant to such agreements,
all of the Common Stock held by Holdings was distributed to certain of the
current stockholders of the Company. For a more complete description of these
transactions, see "Reorganization."

INDUSTRY OVERVIEW

The Company distributes its products, supplies and equipment primarily to
office-based healthcare practitioners in the dental, medical and veterinary
markets.

30
<PAGE>
Dental. According to industry estimates, United States sales of dental
supplies and equipment have increased from $1.9 billion in 1992 to more than
$2.2 billion in 1995. In addition, according to industry estimates, in 1995
there were approximately 130,000 active dentists serving the United States
marketplace in about 100,000 dental practices. Based upon such information, the
Company believes that the average annual purchase of dental supplies and
equipment in 1995 was approximately $17,000 per dentist. The Company estimates
that the European market for dental supplies and equipment was more than $2.3
billion in 1995.

Medical. According to industry estimates, United States sales of medical
supplies and equipment to office-based physicians were more than $4.0 billion in
1995. In addition, according to industry estimates, in 1995 there were
approximately 390,000 office-based physicians serving the United States
marketplace, and based upon such information, the Company believes that the
average annual purchase of medical supplies and equipment in 1995 was
approximately $10,000 per office-based physician.

Veterinary. According to industry estimates, United States sales of supplies
and equipment to veterinarians whose practices are directed primarily to small
animals were approximately $500 million in 1995 (excluding sales of food
products, which the Company does not distribute). In addition, according to
industry estimates, in 1995 there were approximately 35,000 veterinarians whose
practices were directed primarily to small animals, practicing in approximately
21,000 small animal veterinary clinics in the United States. Based upon such
information, the Company believes that the average annual purchase of supplies
and equipment in 1995 was approximately $14,000 per veterinarian.

The office-based healthcare practitioner industry in the United States is
highly fragmented and geographically diverse. The industry ranges from sole
practitioners working out of relatively small offices to group practices or
service corporations comprised of a few to a large number of practitioners who
have combined or otherwise associated their practices. Due in part to the
inability of office-based practitioners to store and manage large quantities of
supplies in their offices, the distribution of healthcare supplies and small
equipment to office-based practitioners has traditionally been characterized by
frequent, small quantity orders, and a need for rapid, reliable and
substantially complete order fulfillment. The purchasing decision within an
office-based healthcare practice is typically made by the practitioner or by an
administrative assistant, and supplies and small equipment are generally
purchased from more than one healthcare product distributor. As a result,
distributors serving office-based healthcare practitioners generally offer a
wide selection of products at competitive prices. Most of the Company's large
competitors rely on an extensive field sales force to generate sales leads and
to take and service orders. Other distributors utilize a direct response
marketing approach, relying primarily on the use of direct mail catalogs and
related marketing materials and in-house telesales representatives to generate
orders. Certain direct marketers, including the Company, also utilize field
sales personnel to enhance their relationships with their direct mail customers
and to service and support the distribution of certain products and equipment
that generally require a greater level of customer support.

In recent years, the healthcare industry has increasingly focused on cost
containment. This trend has benefitted distributors capable of providing a broad
array of products and services at low prices. This trend has also accelerated
the growth of HMOs, group practices, other managed care accounts and collective
buying groups who, in addition to their emphasis on obtaining products at low
prices, tend to favor distributors capable of producing specialized management
information support. The Company believes that the trend towards cost
containment has the potential to favorably impact demand for practice management
systems and software that can enhance the efficiency and facilitate the
management of the practitioner's specific practice.

The supply industry serving office-based healthcare practitioners is highly
fragmented, with numerous national distributors and approximately 900 regional
distributors in North America and Europe serving the office-based practitioner
market. The Company believes that consolidation within the supply industry
serving office-based healthcare practitioners will result in a number of
distributors,

31
<PAGE>
particularly companies with limited financial and marketing resources, seeking
to combine with larger companies that can provide expansion opportunities. This
consolidation may also result in distributors seeking to acquire companies that
can enhance their current product offerings, expand the services they can offer
or provide opportunities for the distributor to serve a broader customer base.

BUSINESS STRENGTHS

The Company believes the following factors have been of principal importance
in its ability to achieve its present position in the dental, medical and
veterinary markets.

Direct Sales and Marketing Expertise. The Company believes that its more
than 60 years of experience in distributing products to healthcare practitioners
and more than 30 years of direct marketing experience has resulted in strong
awareness of the "Henry Schein" name among healthcare practitioners. The Company
supports its direct marketing effort with approximately 400 telesales
representatives who facilitate order processing and generate sales through
direct and frequent contact with its customers. The Company maintains an
in-house advertising department that produced more than 8.5 million pieces of
direct marketing material during 1995, such as general and specialty catalogs,
flyers and order stuffers, customized by market and country. The Company's
database of approximately 600,000 office-based healthcare practitioners allows
it to utilize customer segmentation techniques to more effectively market its
products and services.

Broad Product Offerings at Low Prices. The Company believes that it has one
of the most extensive product offerings in each of the markets it serves. The
Company presently offers approximately 50,000 SKUs to its North American
customers and approximately 35,000 SKUs to its European customers. Over 80% of
the Company's products in dollar volume are offered under national name brands,
and the remainder are offered under the "Henry Schein" private brand. The
Company believes its cost effective infrastructure enables it to offer products
at prices below those of many of its competitors. In addition, the Company's
pricing policy in the United States and Canada is to match its competitors'
lowest advertised price. See "Competition." Through the breadth of its product
offerings and its competitive prices, the Company strives to be a single source
of supply to a wide variety of healthcare practitioners.

Commitment to Superior Customer Service. As part of the Company's commitment
to providing superior customer service, the Company offers its customers ease of
order placement and rapid, accurate and complete order fulfillment, and the
ability to order products 24-hours a day. Products can be ordered by mail, fax,
telephone (either automated or by speaking to a telesales representative), or
via a computerized order entry system. The Company estimates that approximately
99% of all items ordered in the United States and Canada are shipped without
back ordering, and that approximately 99% of all orders in the United States and
Canada received before 6:00 p.m. are shipped on the same day the order is
received. In addition, the Company estimates that over 90% of orders are
received by its customers within two days of placing the order.

Cost-Effective Infrastructure. The Company's capital expenditures of
approximately $18.0 million over the last three fiscal years have enabled it to
operate more cost-effectively and achieve greater service efficiency at higher
sales volumes. The Company believes that these enhancements, as well as its
strategically located distribution centers in the United States and Europe,
enable it to provide its customers with broad geographic coverage on a
cost-effective basis. In addition, the Company believes that this infrastructure
provides opportunities for the Company to service and support increased net
sales without the need for commensurate increases in expenses.

32
<PAGE>
GROWTH STRATEGY

The Company believes that the continuing application of its business
strengths, coupled with a focus on the following growth strategies, will enhance
its ability to increase sales to existing dental customers, increase its medical
customer base and increase sales to its veterinary customers.

Increased Penetration of Existing Dental Customer Base. Over 65% of the
estimated 100,000 dental practices in the United States are customers of the
Company. The Company estimates that it had sales in 1995 of more than $10,000 to
less than 10% of its dental customers in the United States, and therefore
believes that it has an opportunity to increase its sales to a substantial
number of its existing dental customers. The Company intends to accomplish this
objective by (i) utilizing its current customer database to better focus its
marketing efforts, (ii) increasing the number of field sales consultants, (iii)
expanding its dental product and service offerings and (iv) increasing its focus
on large corporate accounts.

Increased Penetration of Medical Market. In 1985, the Company began to
increase its focus on the medical market. The Company believes this market
possesses many of the same characteristics as the dental market, and therefore,
opportunities exist to increase its customer base by utilizing its core
infrastructure and strength in direct marketing. The Company's net sales of
medical products have grown from $44.0 million in 1991 to $135.0 million in
1995. The Company has approximately 50 field sales consultants exclusively
dedicated to the medical market. The Company intends to expand its medical
customer base by increasing the number of field sales consultants in selected
markets, expanding its product offerings and increasing its focus on large
corporate accounts.

Increased Penetration of Existing Veterinary Customer Base. In 1985, the
Company began to increase its focus on the veterinary market. The Company's net
sales of veterinary products have grown from $16.0 million in 1991 to $29.7
million in 1995. In 1995, the Company sold products to more than 65% of the
estimated 21,000 veterinary clinics in the United States. The Company estimates
that it is the primary supplier of veterinary supplies to less than 5% of its
veterinary customers in the United States, and therefore believes that it has an
opportunity to increase its sales to a substantial number of its existing
veterinary customers. The Company intends to increase its sales to its existing
customers by utilizing its current customer database to better focus its
marketing efforts.

Acquisitions and Joint Ventures. The Company believes that consolidation
within the supply industry serving office-based healthcare practitioners is
continuing to create opportunities for the Company to acquire businesses or
enter into joint ventures that can complement the Company's current business.
During 1993 through 1995, the Company entered into joint ventures with, or
acquired, an additional 21 businesses. From January 1, 1996 to May 31, 1996, the
Company completed five acquisitions and has entered into agreements to acquire
five other companies. The Other Recent and Pending Acquisitions which were
reflected in the Pro Forma Condensed Consolidated Statement of Operations
accounted for 4.5% and 6.0% of the Company's pro forma net sales and operating
income, respectively, for the three months ended March 30, 1996. See "Risk
Factors."

Value-Added Products and Services. The Company offers its customers practice
management software, assistance with arranging electronic claims processing and
financing sources for patient billings and equipment, and large equipment
installation and repair services. The Company intends to continue to market and
expand these products and services. The Company believes that offering these
products and services enhances its relationships with its customers, promotes
customer loyalty and should increase sales of consumable supply products.

International Expansion. Sales by the Company to customers located outside
the United States and Canada have increased from approximately $23.6 million in
1991 to $107.7 million in 1995. Since 1990, the Company has established
operating subsidiaries and joint ventures in the United Kingdom, The
Netherlands, Belgium, Germany, France, Republic of Ireland and Spain. The
Company believes it is a leading distributor of healthcare products to dental
practitioners in the United Kingdom and The

33
<PAGE>
Netherlands. The Company intends to facilitate its expansion into new
territories principally by entering into joint ventures and acquisitions with
established local distributors.

CUSTOMERS

The Company serves approximately 230,000 customers worldwide in the dental,
medical and veterinary markets. The Company's dental customers include
office-based dental practices, dental laboratories, universities, institutions,
governmental agencies and large group and corporate accounts; medical customers
include office-based physician practices, podiatrists, renal dialysis centers,
surgery centers, institutions and governmental agencies; and the Company's
veterinary products are sold primarily to office-based veterinarians serving
primarily small animals.

Approximately 105,000, or 44.1%, of the Company's customers in 1995 were
dental practices and laboratories in the United States and Canada. The Company's
average annual sales to these customers was approximately $3,000 per customer in
1995. Medical and veterinary customers accounted for approximately 75,000 and
16,000, respectively, of the Company's total customers in 1995, or 31.5% and
6.7%, respectively. The average annual sales to its medical and veterinary
customers in 1995 was approximately $1,800 and $1,900 per customer,
respectively. International customers, which are predominantly dental practices
and laboratories in Europe, totalled approximately 42,000, and accounted for
17.7% of the Company's total customers in 1995. The Company's average annual
sales to these customers were approximately $2,600 per customer in 1995.

The Company believes that its customers generally order from two or more
suppliers for their healthcare product needs, and often use one supplier as
their primary resource. The Company believes that its customers generally have
larger order sizes and order more frequently from their primary suppliers. The
Company estimates that it serves as a primary supplier to less than 10% of its
total customer base, and believes it has an opportunity to increase sales by
increasing its level of business with those customers for which it serves as a
secondary supplier.

Over the past several years the Company has expanded its customer base to
include larger purchasing organizations, including certain dental laboratories,
institutions, government agencies, renal dialysis centers and surgery centers.
More recently, as cost-containment pressures have resulted in increased demand
for low-cost products and value-added services, the Company has targeted
specific groups of practices under common ownership, institutions and
professional groups. For example, the Company has an exclusive direct marketing
agreement with an American Medical Association ("AMA") sponsored service and a
veterinarian-sponsored service, pursuant to which member practitioners have
access to the services' lower priced products. In 1995, the AMA-sponsored
service and the veterinarian-sponsored purchasing service accounted for net
sales of over $16.7 million. These services, government institutions and
agencies, and other large or collective purchasers, require low-cost pricing and
detailed product and usage information and reporting. The Company believes it is
well situated to meet the needs of these customers, given its broad, low-cost
product offerings, and its management information systems. No single customer
accounted for more than 4.0% of net sales in 1995.

SALES AND MARKETING

The Company's sales and marketing efforts, which are designed to establish
and solidify customer relationships through frequent direct marketing contact,
emphasize the Company's broad product lines, competitive prices and ease of
order placement. In addition, the Company's marketing efforts involve personal
interaction with field sales consultants in certain locations. The key elements
of the Company's program in the United States are:

. Direct Marketing. During 1995, the Company distributed over 8.5
million pieces of direct marketing material, including catalogs, flyers,
order stuffers and other promotional materials to approximately 600,000
office-based healthcare practitioners. The Company's principal U.S. dental
catalog, which is issued semi-annually, contains an average of over 300
pages and includes

34
<PAGE>
approximately 18,000 SKUs. The number of catalogs and other material
received by each customer depends upon the market they serve as well as
their purchasing history. The Company's catalogs include detailed
descriptions and specifications of both branded and private brand products
and are utilized by healthcare practitioners as a reference source. By
evaluating its customers' purchasing patterns, area of specialty, past
product selections and other criteria, the Company identifies customers who
may respond better to specific promotions or products. To facilitate its
direct marketing activities, the Company maintains an in-house advertising
department which performs many creative services, which the Company believes
streamlines the production process, provides greater flexibility and
creativity in catalog production, and results in cost savings.

. Telesales. The Company supports its direct marketing with
approximately 400 inbound and outbound telesales representatives who
facilitate order processing and generate new sales through direct and
frequent contact with customers. Inbound telesales representatives are
responsible for assisting customers in purchasing decisions as well as
answering product pricing and availability questions. In addition to
assisting customers, inbound telesales representatives also market
complementary or promotional products. The Company's telesales
representatives utilize on-line computer terminals to enter customer orders
and to access information about products, product availability, pricing,
promotions and customer buying history.

The Company utilizes outbound telesales representatives and programs to
better market its services to those customer accounts identified by the
Company as either being high volume or high order frequency accounts. The
Company's U.S. dental outbound telesales representatives, accounted for
$78.6 million of the Company's net sales in 1995. The Company has
approximately 85 medical and veterinary telesales representatives who make
outbound calls in addition to handling inbound telesales. Outbound telesales
representatives strive to manage long-term relationships with these
customers through frequent and/or regularly scheduled phone contact and
personalized service.

The Company's telesales representatives generally participate in an
initial two-week training course designed to familiarize the sales
representatives with the Company's products, services and systems. In
addition, generally all telesales representatives attend periodic training
sessions and special sales programs and receive incentives, including
monthly commissions.

. Field Sales Consultants. In 1992, the Company initiated its field
sales consultant program and now has approximately 250 field sales
consultants covering certain of its major North American and European
markets. The field sales consultants concentrate on attracting new customers
and increasing sales to customers who do not currently order a high
percentage of their total product needs from the Company. This strategy is
designed to complement the Company's direct marketing and telesales
strategies and to enable the Company to better market, service and support
the sale of more sophisticated products and equipment. Once a field sales
consultant has established a relationship with a customer, the
representative encourages the customer to use the Company's automated
ordering process or its telesales representatives for its day-to-day needs.
This simplifies the ordering process for the customer and increases the
effectiveness of the field sales consultant.

CUSTOMER SERVICE

A principal element of the Company's customer service approach is to offer
an order entry process that is convenient, easy and flexible. Customers
typically place orders with one of the Company's experienced telesales
representatives. Orders may also be placed 24-hours a day by fax, mail,
PROTONE(R) (the Company's 24-hour automated phone service) or its computerized
order entry system. The Company has developed an enhanced Windows(R)-based
version of its computerized order entry system, known as ArubA(R), which was
introduced at the end of 1995.

35
<PAGE>
The Company focuses on providing rapid and accurate order fulfillment and
high fill rates. The Company estimates that approximately 99% of all items
ordered in the United States and Canada are shipped without back ordering, and
that approximately 99% of all orders in the United States and Canada received
before 6:00 p.m. are shipped on the same day the order is received. In addition,
because the Company seeks to service a customer's entire order from the
distribution center nearest the customer's facility, the Company estimates that
over 90% of orders are received by its customers within two days of placing the
order. The Company continually monitors its customer service through customer
surveys, focus groups and daily statistical reports. The Company maintains a
liberal return policy to better assure customer satisfaction with its products.

PRODUCTS

The following chart sets forth the principal categories of products offered
by the Company (and in the case of the dental laboratory products, its
wholly-owned subsidiary, Zahn Holdings, Inc., and its subsidiaries) and certain
top selling types of products in each category, with the percentage of 1995 net
sales in parenthesis:
<TABLE>
<CAPTION>
DENTAL PRODUCTS (67.3%)
- -------------------------------------------------------------------------------------------
CONSUMABLE DENTAL PRODUCTS DENTAL LABORATORY
AND SMALL EQUIPMENT (59.3%) PRODUCTS (5.8%) LARGE DENTAL EQUIPMENT (2.2%)
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
X-Ray Products; Infection Teeth; Composites; Gypsum; Dental Chairs, Units and
Control; Handpieces; Acrylics; Articulators; and Lights; X-Rays; and Equipment
Preventatives; Impression Abrasives Repair
Materials; Composites; and
Anesthetics

VALUE-ADDED PRODUCTS AND
MEDICAL PRODUCTS (23.5%) VETERINARY PRODUCTS (4.9%) SERVICES (4.3%)
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Branded and Generic Branded and Generic Software and Related
Pharmaceuticals; Surgical Pharmaceuticals; Surgical Products; and Financial
Products; Diagnostic Tests; Products; and Dental Products Products
Infection Control; and
Vitamins
</TABLE>

The percentages of 1993 and 1994 net sales were as follows: consumable
dental products and small equipment, 63.3% and 61.8%, respectively; dental
laboratory products, 6.1% and 6.6%, respectively; large dental equipment, 4.2%
and 3.6%, respectively; medical products, 18.6% and 20.1%, respectively;
veterinary products, 5.9% and 5.7%, respectively; and value-added products and
services, 1.9% and 2.2%, respectively.

Consumable Supplies and Equipment

The Company offers approximately 50,000 SKUs to its customers in North
America, of which approximately 40,000 SKUs are offered to its dental customers,
approximately 11,000 are offered to its medical customers and approximately
15,000 are offered to its veterinary customers. Over 20% of the Company's
products are offered to all three types of the Company's customers in North
America. The Company offers approximately 35,000 SKUs to its customers in
Europe. Approximately 4,000 of the Company's SKUs accounted for 80% of the
Company's sales in the United States in 1995. Approximately 17% of the Company's
net sales in 1995 were from sales of products offered under the Henry Schein
private brand (i.e., products manufactured by various third parties and HS
Pharmaceutical for distribution by the Company under the Henry Schein(R) brand).
The Company believes that the Henry Schein private brand line of over 5,000 SKUs
offered in the United States and Canada is one of the most extensive in the
industry. The Company also distributes certain generic pharmaceuticals
manufactured by HS Pharmaceutical, a 50%-owned company, and has recently begun
to manufacture and distribute certain large dental equipment as a result of its
acquisition of Schein Dental Equipment, a

36
<PAGE>
distributor and manufacturer of large dental equipment which, prior to its
acquisition, was owned 73.7% by Marvin H. Schein, a director and principal
stockholder of the Company. The Company updates its product offerings regularly
to meet its customers' changing needs.

Value-Added Products and Services

In an effort to promote customer loyalty, the Company offers certain
value-added products and services. These products and services include the
following:

. Practice Management Software. The Company sells practice management
software systems to its dental and veterinary customers. The Company has
sold over 16,000 of its Easy Dental(R) Plus software systems as of the end
of fiscal 1995, and over 2,000 of its AVImark(R) veterinary software
systems. In December 1995, the Company released its new Windows(R) version
of Easy Dental(R) Plus and sold over 2,700 such units through the first
quarter of 1996. The Company's practice management software provides
practitioners with patient treatment history, billing and accounts
receivable analysis and management, an appointment calendar, electronic
claims processing and word processing programs, and the Company provides
technical support and conversion services from other software. In addition,
the Easy Dental(R) Plus software will allow the customer to connect with the
Company's order entry management systems.

. Financial Services. The Company has begun to offer its customers
assistance in managing their practices by providing access to a number of
financial services and products at rates which the Company believes are
lower than what they would be able to secure independently. The patient
financing program provides the Company's customers a method for reducing
receivables and improving cash flow by providing patients access to
financing. The Company facilitates the processing of credit applications,
payments to its customers and electronic bankcard processing through a
third-party provider for a transaction fee. The Company does not assume any
financial obligation to its customers or their patients in these programs.

. Equipment Repair and Installation. The Company offers a repair
service, ProRepair(R), which provides one-to-two-day turnaround for
handpieces and certain small equipment. The Company also provides in-office
installation and repair services for large equipment in certain markets in
North America and Europe. The Company intends to expand its repair service
business and sales of large dental equipment in connection with its
acquisition of Schein Dental Equipment and the opening of equipment sales
and service centers. The Company opened two new dental equipment sales and
service centers in North America in 1996, and as of May 31, 1996 had a total
of 18 centers in North America and Europe. See "Certain Transactions."

INFORMATION SYSTEMS

The Company's management information systems generally allow for centralized
management of key functions, including inventory and accounts receivable
management, purchasing, sales and distribution. A key attribute of the Company's
management information systems is the daily operating control reports which
allow managers throughout the Company to share information and monitor daily
progress relating to sales activity, gross profit, credits and returns,
inventory levels, stock balancing, unshipped orders, order fulfillment and other
operational statistics. The Company is in the process of expanding and upgrading
its order processing and accounts receivable information system in the United
States.

DISTRIBUTION

The Company distributes its products in the United States and Canada
primarily from its strategically located distribution centers in the Eastern,
Central and Western United States. The Company maintains significant inventory
levels of certain products in order to satisfy customer demand for prompt
delivery and complete order fulfillment of their product needs. These inventory
levels are managed on a daily basis with the aid of the Company's sophisticated
purchasing and stock status

37
<PAGE>
management information systems. The Company's European distribution centers
include locations in the United Kingdom, France, The Netherlands, Germany and
Spain. Once a customer's order is entered, it is electronically transmitted to
the distribution center nearest the customer's location and a packing slip for
the entire order is printed for order fulfillment. The Company's automated
freight manifesting and laser bar code scanning facilitates the speed of the
order fulfillment. The Company currently ships most of its orders in the United
States by United Parcel Service. In certain areas of the United States, the
Company delivers its orders via contract carriers.

PURCHASING

The Company believes that effective purchasing is a key element to
maintaining and enhancing its position as a low-cost provider of healthcare
products. The Company frequently evaluates its purchase requirements and
suppliers' offerings and prices in order to obtain products at the best possible
cost. The Company believes that its ability to make high volume purchases has
enabled it to obtain favorable pricing and terms from its suppliers. The Company
obtains its products for its North American distribution centers from over 1,200
suppliers of name brand products; in addition, the Company has established
relationships with numerous local vendors to obtain products for its European
distribution centers. In 1995, the Company's top 10 vendors and the Company's
single largest vendor, accounted for approximately 28.5% and 10.4%,
respectively, of the Company's aggregate purchases.

COMPETITION

The distribution and manufacture of healthcare supplies and equipment is
intensely competitive. Many of the products the Company sells are available to
the Company's customers from a number of suppliers. In addition, competitors of
the Company could obtain exclusive rights from manufacturers to market
particular products. Manufacturers could also seek to sell directly to
end-users, and thereby eliminate the role of distributors, such as the Company.
Significant price reductions by the Company's competitors could result in a
similar reduction in the Company's prices as a consequence of its policy of
matching its competitors' lowest advertised prices. Any of these competitive
pressures may materially adversely affect operating results.

In the United States, the Company competes with other distributors, as well
as several major manufacturers of dental, medical and veterinary products,
primarily on the basis of price, breadth of product line, customer service and
value-added services and products. In the sale of its dental products, the
Company's two principal national competitors are Patterson Dental Co. and
Sullivan Dental Products, Inc. In addition, the Company competes against a large
number of other distributors that operate on a national, regional and local
level. The Company's largest competitors in the sale of medical products are
General Medical Corp. and Physician's Sales and Service, Inc., which are
national distributors. In the veterinary product market, the Company's two
principal national competitors include The Butler Company and Burns Veterinary
Supply. The Company also competes against a large number of small local and
regional veterinary distributors, as well as a number of manufacturers that sell
direct to veterinarians whose practices are directed primarily to small animals.
With regard to the Company's practice management software, the Company competes
against a fragmented group of competitors, none of which currently have a
significant share of the market. The Company believes that it competes in Canada
substantially on the same basis as in the United States.

The Company also faces intense competition in its international markets,
where the Company competes on the basis of price and customer service against a
large number of dental product distributors and manufacturers in the United
Kingdom, The Netherlands, Belgium, Germany, France, the Republic of Ireland and
Spain. The Company has several large competitors in these markets, including
ORBIS and the GACD Group.

38
<PAGE>
GOVERNMENTAL REGULATION

The Company's business is subject to requirements under various local,
state, Federal and foreign governmental laws and regulations applicable to the
manufacture and distribution of pharmaceuticals and medical devices. Among the
Federal laws with which the Company must comply are the Federal Food, Drug, and
Cosmetic Act, the Prescription Drug Marketing Act of 1987, and the Controlled
Substances Act. It is possible that the Company may be prevented from selling
manufactured products if the Company (including its 50%-owned company, HS
Pharmaceutical, which distributes and manufactures generic pharmaceuticals) were
to receive an adverse report following an inspection by the Food and Drug
Administration (the "FDA") or the Drug Enforcement Administration, or if a
competitor were to receive prior approval of new products from the FDA. A
violation of a law by HS Pharmaceutical could cause its operations to be
suspended. A suspension could have an adverse effect on the Company's equity in
earnings of affiliates and could cause the Company to seek alternative sources
of products manufactured by HS Pharmaceutical, possibly at higher prices than
currently paid by the Company.

The Federal Food, Drug, and Cosmetic Act generally regulates the
introduction, manufacture, advertising, labeling, packaging, storage, handling,
marketing and distribution of, and recordkeeping for, pharmaceuticals and
medical devices shipped in interstate commerce. The Prescription Drug Marketing
Act of 1987, which amended the Federal Food, Drug and Cosmetic Act, establishes
certain requirements applicable to the wholesale distribution of prescription
drugs, including the requirement that wholesale drug distributors be registered
with the Secretary of Health and Human Services or licensed by each state in
which they conduct business in accordance with federally established guidelines
on storage, handling and record maintenance. Under the Controlled Substances
Act, the Company, as a distributor of controlled substances, is required to
obtain annually a registration from the Attorney General in accordance with
specified rules and regulations and is subject to inspection by the Drug
Enforcement Administration acting on behalf of the Attorney General. The Company
is required to maintain licenses and permits for the distribution of
pharmaceutical products and medical devices under the laws of the states in
which it operates. In addition, the Company's dentist and physician customers
are subject to significant governmental regulation. There can be no assurance
that regulations that impact dentists' or physicians' practices will not have a
material adverse impact on the Company's business.

The Company believes that it is in substantial compliance with all of the
foregoing laws and the regulations promulgated thereunder and possesses all
material permits and licenses required for the conduct of its business.

PROPRIETARY RIGHTS

The Company holds trademarks relating to the "Henry Schein" name and logo,
as well as certain other trademarks. Pursuant to certain agreements executed in
connection with the reorganization of the Company, both the Company and Schein
Pharmaceutical are entitled to use the "Schein" name in connection with their
respective businesses, but Schein Pharmaceutical is not entitled to use the name
"Henry Schein." The Company intends to protect its trademarks to the fullest
extent practicable. See "Reorganization."

EMPLOYEES

As of April 30, 1996, the Company had more than 2,700 full-time employees in
the United States and Europe, including approximately 400 telesales
representatives, 250 field sales consultants, 900 warehouse employees, 70
computer programmers and technicians, 250 management employees and 800 office,
clerical and administrative employees. None of the Company's employees are
represented by a collective bargaining agreement. The Company believes that its
relations with its employees are excellent.

39
<PAGE>
FACILITIES

The Company owns or leases the following properties:

<TABLE>
<CAPTION>
OWN OR APPROXIMATE LEASE
PROPERTY LOCATION LEASE SQUARE FOOTAGE EXPIRATION DATE
- --------------------------- ---------------------- ------- -------------- ---------------
<S> <C> <C> <C> <C>
Distribution Center........ Eastern United States Own 173,000 N/A
Distribution Center........ Central United States Lease 225,000 December 1999
Distribution Center........ Western United States Lease 71,500 June 2002
Distribution Center........ United Kingdom Lease 85,000 December 2004
Corporate Headquarters..... Eastern United States Lease 100,000 December 2005
Other Facilities........... Western United States Own 75,000 N/A
</TABLE>

The Company also leases space in other locations in the United States,
Canada, France, Germany, the Republic of Ireland, The Netherlands, Spain, and
the United Kingdom. Two 50% owned companies also lease space in the United
States and Canada.

The Company believes that its properties are generally in good condition,
are well maintained, and are generally suitable and adequate to carry on the
Company's business.

The Company has additional operating capacity at its listed facilities.

LEGAL MATTERS

The manufacture or distribution of certain products by the Company involves
a risk of product liability claims, and from time to time the Company is named
as a defendant in products liability cases as a result of its distribution of
pharmaceutical and other healthcare products. As of May 31, 1996, the Company
was named a defendant in 12 such cases. The Company believes it is adequately
covered by insurance in all these cases, subject to certain self retention
limits, and that none of the currently pending cases will have a material
adverse effect on the Company. In addition, the Company was a defendant in
several cases involving the distribution of the drug L-Tryptophan, all of which
have been resolved at no cost to the Company. With respect to possible future
claims, if any, the manufacturer of L-Tryptophan has agreed to defend and
indemnify the Company for the period in which the Company served as a
distributor of this product. The Company believes that this agreement provides
adequate protection for future claims.

The Company has various insurance policies, including product liability
insurance covering risks and in amounts it considers adequate. In many cases the
Company is covered by indemnification from the manufacturer of the product.
There can be no assurance that the coverage maintained by the Company is
sufficient to cover all future claims or will be available in adequate amounts
or at a reasonable cost, or that indemnification agreements will provide
adequate protection for the Company.

As part of the Company's effort to expand its field sales force, the Company
frequently hires field sales consultants with experience in the office-based
healthcare practitioner industry. The Company's hiring practices have from time
to time resulted in litigation instituted by former employers of the field sales
consultants hired by the Company. On October 19, 1995, an action was filed
against the Company by H. Meer Dental Supply Co., Inc. ("Meer"), in the United
States District Court for the Eastern District of Michigan, Southern Division.
The complaint alleges unfair competition, predatory pricing or anti-competitive
conduct and, through the hiring of Meer sales representatives, improper
interference with Meer's relationships with its employees and customers and
misappropriation of trade secrets. There are two additional litigations that
similarly allege improper interference with employee and customer relationships.
The plaintiffs in these actions seek unspecified damages, and Meer and one of
the other plaintiffs also seek an injunction against the Company. Meer had
sought a temporary restraining order in a similar action brought in September
1995 in the United States District Court, Southern District of Ohio, Eastern
Division, which order was denied on the basis of the court concluding that it
could not make a finding at that time that there was a likelihood that Meer
would prevail on the merits. The Company intends to vigorously defend these
litigations. The Company believes that none of these three actions will have a
material adverse effect on the Company.

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<PAGE>
REORGANIZATION

GENERAL

In December 1992, Holdings separated the Company's business from Schein
Pharmaceutical by transferring to the Company all of the assets and liabilities
of the healthcare distribution business now conducted by the Company, which
assets included Holdings' 50% interest in HS Pharmaceutical. No other assets or
liabilities, including the assets and liabilities associated with Schein
Pharmaceutical's business, were transferred to the Company. In connection with
that transaction, the Company agreed to indemnify Holdings for all of the
liabilities assumed by the Company, and Holdings agreed to indemnify the Company
for the liabilities associated with Schein Pharmaceutical's business of
manufacturing and distributing generic pharmaceuticals. Other than certain
common stockholders, there is no affiliation between the Company and Schein
Pharmaceutical, and all transactions between the Company and Schein
Pharmaceutical are on an arms-length basis.

In February 1994 the Company, Holdings, Stanley M. Bergman, Marvin H.
Schein, Pamela Joseph, Pamela Schein, Steven Paladino, James P. Breslawski,
Martin Sperber (the Chief Executive Officer of Schein Pharmaceutical) and
certain other parties entered into a number of reorganization agreements. In
September 1994, pursuant to the reorganization agreements, all of the Common
Stock held by Holdings was distributed to certain of the current stockholders of
the Company. Marvin H. Schein, Pamela Schein and Pamela Joseph have agreed to
severally indemnify the Company against certain potential costs and claims, if
any, which might be incurred by the Company in the future from the transactions
related to the Reorganization. The Company and Schein Pharmaceutical also agreed
that after September 1994 the Company would be entitled to use the "Henry
Schein" name in activities involving non-pharmaceutical products and
pharmaceuticals for dental and veterinary purposes, which activities may include
marketing, distributing, labelling, packaging, manufacturing (such as HS
Pharmaceutical's manufacturing of generic pharmaceuticals and Schein Dental
Equipment's manufacturing of large dental equipment, which are the principal
manufacturing activities currently conducted by the Company, its subsidiaries
and 50%-or-less owned entities--see "Certain Transactions--Acquisition of The
Schein Dental Equipment Corp.") and selling such products. The Company and
Schein Pharmaceutical also agreed that after September 1994, Schein
Pharmaceutical would be entitled to use the "Schein Pharmaceutical" name in
similar activities involving pharmaceuticals for non-dental human treatment.
Schein Pharmaceutical is not permitted to use the name "Henry Schein."

REORGANIZATION AGREEMENTS

Agreements Relating to Control of the Company

One of the Reorganization agreements, a Voting Trust Agreement (the "Voting
Trust"), gives Stanley M. Bergman (or his successor trustee) the right to vote
all of the shares of Common Stock owned by certain stockholders of the Company,
which will be approximately 39.7% of the outstanding shares of Common Stock
immediately after the completion of this Offering. Another of the Reorganization
agreements, the Amended and Restated HSI Agreement (the "Global Agreement"),
provides that the Board of Directors of the Company may consist of up to 11
members, and that until the earlier of January 1, 1999 or the termination of the
Voting Trust, Mr. Bergman (or his successor trustee) has the right to nominate
all but three of the nominees to the Board of Directors. Marvin H. Schein,
Pamela Joseph and Pamela Schein have the right to serve as or nominate the
remaining three directors. In general, from the earlier of January 1, 1999 or
the termination of the Voting Trust until the earlier of January 1, 2004 or the
first date on which Marvin H. Schein and his family group no longer beneficially

41
<PAGE>
own at least 25% of the outstanding Common Stock that they owned immediately
after the Reorganization, or the date of certain changes in the Company's
management, Mr. Bergman (or his successor trustee) has the right to nominate all
of the nominees to the Board of Directors, provided, that if Marvin H. Schein
does not approve such nominations, Mr. Bergman (or his successor trustee) and
Mr. Schein will each nominate four nominees (of which one will be an independent
nominee) and the ninth nominee will be selected by the two independent nominees.
As a result of the foregoing, until December 31, 1998, Mr. Bergman, as a
practical matter, will be able to significantly influence all matters requiring
stockholder approval, including the election of directors, and until January 1,
2004, Mr. Bergman will have the ability to significantly influence the election
of all or a substantial number of the directors of the Company.

The Global Agreement also requires the parties to the Voting Trust and
Marvin H. Schein to vote in favor of the individuals so nominated until the
earlier of January 1, 1999 or the termination of the Voting Trust, and to vote
their shares in favor of the nominees of Stanley M. Bergman until January 1,
2004. The Voting Trust terminates on December 31, 1998, but is subject to
earlier termination if, among other things, Stanley M. Bergman ceases to be
employed by or serve as a director of the Company (unless certain other members
of current management are serving as senior executives of the Company) or the
Company consummates a business combination which results in Marvin H. Schein
(including his family members) owning less than 5% of the voting securities of
the surviving corporation.

The Global Agreement affords Marvin H. Schein or his designee the right to
serve on each committee of the Board of Directors to which the Board of
Directors has delegated decision-making authority and the right to call a
special meeting of the Board of Directors. The Global Agreement also limits the
Company's ability to adopt a shareholder rights plan or "fair price amendment,"
if such plan or amendment would affect Marvin H. Schein or Pamela Schein
(including their respective family members), as long as Marvin H. Schein or
Pamela Schein own certain specified percentages of the outstanding Common Stock.
The Global Agreement also limits the ability of Marvin H. Schein, Pamela Schein
and Pamela Joseph to participate in any solicitation of proxies or any election
contest.

Restrictions on Transfers

The Global Agreement places certain restrictions on the ability of the
parties thereto to transfer any of the shares of Common Stock owned by them and
further provides that the Company may not, prior to the earlier of December 31,
2003 or the first date on which neither Marvin H. Schein nor Pamela Schein
(including their respective family members) own at least 5% of the outstanding
shares of Common Stock, (i) issue in one or more private transactions securities
having more than 20% of the total votes that can be cast in any election of
directors of the Company without first offering Marvin H. Schein and Pamela
Schein (including their respective family members) the right to purchase such
securities; (ii) issue securities in connection with a business combination
having more than 20%, or resulting in a person owning more than 20%, of the
total votes that can be cast in any election of directors without the consent of
Marvin H. Schein; or (iii) issue preferred stock having the right to cast more
than 20% of the total votes that can be cast in any election of directors of the
Company. In addition, certain members of management have agreed not to transfer
their shares until November 3, 1998, subject to acceleration in Mr. Bergman's
discretion. Restrictions on the ability of stockholders to transfer their stock
may make it more difficult for a third party to acquire, or may discourage
acquisition bids for, the Company, and could limit the price that certain
investors might be willing to pay in the future for shares of Common Stock.

The Global Agreement provides that the Company will indemnify each of the
other parties to the Reorganization agreements, and their family groups, from
damages resulting from (i) claims asserted by third parties relating to the
Reorganization agreements and (ii) any material breach of a representation,
warranty or covenant made by the Company in any of the Reorganization
agreements. Marvin H. Schein has agreed to consult with Pamela Schein prior to
the exercise of certain of his rights of approval and consent under the
Reorganization agreements.

42
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the directors
and executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
CORPORATE
Stanley M. Bergman........................ 46 Chairman, Chief Executive Officer,
President and Director
James P. Breslawski....................... 42 Executive Vice President and Director
Gerald A. Benjamin........................ 44 Senior Vice President--Administration and
Customer Satisfaction and Director
Leonard A. David.......................... 48 Vice President--Human Resources, Special
Counsel and Director
Diane Forrest............................. 48 Senior Vice President--Information
Services and Chief Information Officer
Stephen R. LaHood......................... 48 Senior Vice President--Distribution
Services
Mark E. Mlotek............................ 40 Vice President, General Counsel, Secretary
and Director
Steven Paladino........................... 39 Senior Vice President, Chief Financial
Officer and Director
BUSINESS UNITS
Jeffrey P. Gasparini...................... 40 Senior Vice President, Medical Group
Ian G. Rosmarin........................... 45 President--Professional Services Group
James W. Stahly........................... 47 President--North American Dental Group
Michael Zack.............................. 43 Senior Vice President--International Group

OTHER DIRECTORS
Barry J. Alperin.......................... 55 Director
Pamela Joseph............................. 53 Director
Donald J. Kabat........................... 60 Director
Marvin H. Schein.......................... 54 President, Schein Dental Equipment, and
Director
Irving Shafran............................ 52 Director
</TABLE>

BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS

STANLEY M. BERGMAN has been Chairman, Chief Executive Officer and President
since 1989, and a director of the Company since 1982. Mr. Bergman held the
position of Executive Vice President of the Company and Schein Pharmaceutical
from 1985 to 1989 and Vice President of Finance and Administration of the
Company from 1980 to 1985. Mr. Bergman is a certified public accountant.

JAMES P. BRESLAWSKI has been Executive Vice President of the Company since
1990, with primary responsibility for the North American Dental Group, the
Veterinary Group and corporate creative services, and a director of the Company
since 1990. Between 1980 and 1990, Mr. Breslawski held various positions with
the Company, including Chief Financial Officer, Vice President of Finance and
Administration and Controller. Mr. Breslawski is a certified public accountant.

GERALD A. BENJAMIN has been Senior Vice President of Administration and
Customer Satisfaction since 1993, including responsibility for the worldwide
human resource function, and has been a director of the Company since September
1994. Prior to holding his current position, Mr. Benjamin was Vice President of
Distribution Operations of the Company from 1990 to 1992 and Director of
Materials Management of the Company from 1988 to 1990. Before joining the
Company, Mr. Benjamin was

43
<PAGE>
employed for 13 years in various management positions at Estee Lauder, where his
last position was Director of Materials Planning and Control.

LEONARD A. DAVID has been Vice President of Human Resources and Special
Counsel since January 1995. Mr. David held the office of Vice President, General
Counsel and Secretary from 1990 to 1995 and practiced corporate and business law
for eight years prior to joining the Company. Mr. David has been a director of
the Company since September 1994.

DIANE FORREST joined the Company in 1994 as Senior Vice President of
Information Services and Chief Information Officer. Prior to joining the
Company, Ms. Forrest was employed by Tambrands Inc. as Vice President of
Information Services from 1987 to 1994, KPMG Peat Marwick as Senior Manager in
the management consulting division from 1982 to 1987 and Nabisco Brands, Inc. as
Corporate Manager of Manufacturing Systems from 1978 to 1982.

STEPHEN R. LAHOOD joined the Company in 1992 as Senior Vice President of
Distribution Services. Prior to joining the Company, Mr. LaHood was employed by
Lex/Schweber Electronics Inc. as Vice President of Operations and Quality from
1988 to 1991. Mr. LaHood also spent ten years at Johnson & Johnson Products,
Inc., where his last position was Manager of Corporate Business Planning and
thereafter, seven years at Schering-Plough Corporation where his last position
was Senior Director of Manufacturing Operations.

MARK E. MLOTEK joined the Company in December 1994 as Vice President,
General Counsel and Secretary, and became a director of the Company in September
1995. Prior to joining the Company, Mr. Mlotek was a partner in the law firm of
Proskauer Rose Goetz & Mendelsohn LLP, counsel to the Company, specializing in
mergers and acquisitions, corporate reorganizations and tax law from 1989 to
1994.

STEVEN PALADINO has been Senior Vice President and Chief Financial Officer
of the Company since 1993, and has been a director of the Company since 1992.
From 1990 to 1992, Mr. Paladino served as Vice President and Treasurer and from
1987 to 1990 served as Corporate Controller of the Company. Before joining the
Company, Mr. Paladino was employed as a public accountant for seven years and
most recently was with the international accounting firm of BDO Seidman, LLP.
Mr. Paladino is a certified public accountant.

JEFFREY P. GASPARINI joined the Company in February 1996 as Senior Vice
President of the Medical Group. Prior to joining the Company, Mr. Gasparini was
employed by General Medical Corp. since 1982, where his last position was
Corporate Vice President of Operations and member of the Executive Board.

IAN G. ROSMARIN joined the Company in 1992 as General Manager of the
Canadian Division and in 1993 was named to his current position of President of
the Professional Service Group of the Company. Prior to joining the Company, Mr.
Rosmarin was President of Rosmarin Management and Investment Corporation for 13
years. Mr. Rosmarin is a Canadian Chartered Accountant.

JAMES W. STAHLY joined the Company in 1994 as President of the North
American Dental Group of the Company. Before joining the Company, Mr. Stahly was
employed by Fox Meyer Corporation for seven years, where his last position was
Senior Vice President--Hospital and Alternate Care Sales. Prior to his
employment with Fox Meyer, Mr. Stahly spent 16 years at McKesson Drug Company.

MICHAEL ZACK has been responsible for the International Group of the Company
since 1989. Mr. Zack was employed by Polymer Technology (a subsidiary of Bausch
& Lomb) as Vice President of International Operations from 1984 to 1989 and by
Gruenthal Inc. as Manager of International Subsidiaries from 1975 to 1984.

44
<PAGE>
BARRY J. ALPERIN has been a director of the Company since May 1996. Mr.
Alperin has also been a private consultant since August 1995. Mr. Alperin served
as a director of Hasbro, Inc. from 1986 through May 1996 and as Vice Chairman of
Hasbro, Inc. from 1990 through July 1995. Mr. Alperin served as Co-Chief
Operating Officer of Hasbro, Inc. from 1989 through 1990 and as its Senior Vice
President and Executive Vice President from 1985 through 1989. Mr. Alperin
recently served as Chairman of the Board for Toy Manufacturers of America, an
industry trade association. Mr. Alperin currently serves as a director for
Seaman Furniture Co., Inc. and K'nex Industries, Inc.

PAMELA JOSEPH has been a director of the Company since September 1994. For
the past five years Ms. Joseph has been a self-employed artist, and is president
of MA Nose Studios, Inc. Ms. Joseph is also a trustee of Alfred University.

DONALD J. KABAT has been a director of the Company since May 1996. From 1992
until the present, Mr. Kabat has served as President of D.K. Consulting
Services, Inc. and Chief Financial Officer of Central Park Skaters, Inc. From
1970 to 1992, Mr. Kabat was a partner in Andersen Consulting, an affiliate of
Arthur Andersen, LLP.

MARVIN H. SCHEIN has been a director of the Company since September 1994 and
has provided consulting services to the Company since 1982. Mr. Schein founded
Schein Dental Equipment and had been its President for more than 15 years. Prior
to founding Schein Dental Equipment, Mr. Schein held various management and
executive positions with the Company.

IRVING SHAFRAN has been a director of the Company since September 1994 and
was nominated by Pamela Schein as her designee for director of the Company. Mr.
Shafran has been an attorney in private practice for more than twenty-five
years. From 1991 through mid-1995, Mr. Shafran was a partner in the law firm of
Anderson Kill Olick and Oshinsky, PC.

The Company's Board of Directors is currently composed of eleven directors,
six of whom are employees of the Company. Directors serve until the next annual
stockholders' meeting or until their successors have been duly elected and
qualified.

COMMITTEES OF THE BOARD OF DIRECTORS

During fiscal 1995, the Board of Directors held six meetings.

The Board of Directors established an Audit Committee of independent
directors in January 1996. The Audit Committee oversees the Company's financial
reporting process on behalf of the Board of Directors. In fulfilling its
responsibility, since January 1996, the Audit Committee recommended to the Board
of Directors, subject to stockholder approval, the selection of the Company's
independent public accountants. The Audit Committee also discussed the Company's
consolidated financial statements and the adequacy of the Company's internal
controls. The Audit Committee met with the independent public accountants to
discuss the results of their audit of the Company, their evaluation of the
Company's internal controls and the overall quality of the Company's financial
reporting. In May 1996, Messrs. Alperin and Kabat became the members of the
Audit Committee.

The Board of Directors established a Compensation Committee in January 1996
which is currently comprised of Messrs. Bergman, Alperin and Kabat. The
Compensation Committee will make recommendations regarding the compensation and
benefit policies and procedures of the Company.

The Board of Directors has a Stock Option Committee which currently consists
of Messrs. Bergman, Breslawski and Schein. The Stock Option Committee determines
grants under the Company's 1994 Stock Option Plan. The Stock Option Committee
held no meetings during fiscal 1995.

45
<PAGE>
LIMITATIONS ON LIABILITY

The Company's Amended and Restated Certificate of Incorporation provides
that no director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty by such director
as a director, except for liability: (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions of the
director not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) in respect of certain unlawful dividend payments or
stock redemptions or purchases, or (iv) for any transaction from which the
director derived an improper personal benefit. The effect of these provisions is
to eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of fiduciary duty as a director (including
breaches resulting from grossly negligent behavior), except in the situations
described above. These provisions will not limit the liability of directors
under federal securities laws and will not affect the availability of equitable
remedies such as an injunction or recision based upon a director's breach of his
or her duty of care. In addition, the Company intends to enter into agreements
with each of its directors and certain of its officers providing for
indemnification of those individuals under certain circumstances. The Company
has obtained director and officer liability insurance that insures the Company's
directors and officers against certain liabilities.

COMPENSATION OF DIRECTORS

No directors received compensation in fiscal 1995, other than reimbursement
of expenses, for their services as directors. Messrs. Alperin and Kabat each
receive a $20,000 annual retainer. Messrs. Alperin and Kabat also receive $500
per board meeting and $250 per committee meeting attended. Each director will be
reimbursed for their out-of-pocket expenses in attending board and committee
meetings. In addition, Messrs. Alperin and Kabat have been granted options to
purchase 5,000 shares of the Company's Common Stock under the Company's 1996
Non-Employee Director Stock Option Plan.

See "Certain Transactions" for a description of Marvin H. Schein's
Consulting Agreement, including amounts paid in compensation to Mr. Schein.

46
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth information concerning compensation of the
Company's Chief Executive Officer and the four most highly paid executive
officers (collectively, the "Named Executive Officers") of the Company whose
salary and bonus exceeded $100,000 for the fiscal years ended December 31, 1994
and December 30, 1995.

SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------- -------------------------------------
OTHER ANNUAL RESTRICTED OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK STOCK LTIP COMPENSATION
POSITION YEAR ($) ($) ($)(1) AWARDS($)(2) OPTIONS PAYOUTS($)(3) ($)(4)
- ----------------------------- ---- ------- ------- ------------ ----------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanley M. Bergman........... 1995 479,050 307,034 19,343 -- -- -- 36,144
Chairman, Chief Executive 1994 469,050 260,496 258,259 -- -- 17,303,475 24,988
Officer and President
James P. Breslawski.......... 1995 270,782 66,000 13,500 -- -- -- 21,458
Executive Vice President 1994 257,782 60,000 1,000,364 1,171,788 -- 382,618 19,184
Gerald A. Benjamin........... 1995 205,000 52,500 13,500 -- 47,200 -- 15,064
Senior Vice President 1994 185,000 42,500 189,174 220,761 -- 243,825 13,722
of Administration and
Customer Satisfaction
Steven Paladino.............. 1995 205,000 52,500 13,500 -- 54,700 -- 14,812
Senior Vice President and 1994 185,000 42,500 189,174 220,761 -- 243,825 13,496
Chief Financial Officer
Randolph W. Jones(5)......... 1995 283,445 -- 13,500 -- -- -- 21,640
President of the Diversified 1994 275,945 35,000 100,697 98,117 24,800 264,732 21,266
Healthcare Group
</TABLE>
- ------------
(1) The 1994 amounts shown in this column include amounts recorded for each of
Messrs. Breslawski, Benjamin, Paladino and Jones of $986,864, $175,674,
$175,674 and $87,197, respectively, to pay income taxes attributable to the
stock issuances made to each of them in 1994 and auto allowances of $13,500
for each executive, excluding Mr. Bergman. Mr. Bergman was given a cash
bonus of $258,259 in 1994 to pay certain additional income taxes
attributable to the stock issuances described below in footnote 3. The 1995
amounts include auto allowances of $13,500 for each executive, excluding Mr.
Bergman, and $19,343 of compensation to Mr. Bergman for the use of a car and
related expenses.

(2) Mr. Breslawski was issued 165,528 shares of Common Stock with an aggregate
value of approximately $1.2 million on December 31, 1994. Messrs. Benjamin
and Paladino were each issued 31,185 shares of Common Stock with an
aggregate value of approximately $220,761 on December 31, 1994. Mr. Jones
was issued 13,860 shares of Common Stock with an aggregate value of $98,117
on December 31, 1994.

(3) Mr. Bergman was issued 1,466,685 shares of Common Stock and was issued
shares of common stock of Schein Pharmaceutical on December 24, 1992. The
value of these shares on September 30, 1994 was $17.3 million in the
aggregate. These shares when issued had a value of $6.2 million and $2.6
million, respectively, the entire amount of which was charged as deferred
compensation. The issuances to Mr. Bergman are being included herein at
their fair market value on September 30, 1994 because, on that date, certain
contingencies relating to the stock were eliminated and the shares became
fully vested. Accordingly, the deferred compensation which was charged in
1992 and a mark-to-market adjustment to fair market value on such date was
recorded in 1994. Mr. Breslawski received $382,618 in 1994 in satisfaction
of his Executive Incentive Plan balance, payable with 30,294 shares of
Common Stock with an aggregate value of $214,454 on December 31, 1994 and a
$168,164 cash payment. Each of Messrs. Benjamin and Paladino received
$243,825 in 1994 in satisfaction of their Executive Incentive Plan balance,
payable with 19,305 shares of Common Stock with an aggregate value of
$136,662 on December 31, 1994 and $107,163 in cash. Mr. Jones received
$264,732 in 1994 in satisfaction of his Executive Incentive Plan balance,
payable with 19,800 shares of Common Stock with an aggregate value of
$140,166 on December 31, 1994 and $124,566 in cash.

(4) The 1994 amounts shown in this column represent (i) profit sharing
contributions made by the Company on behalf of Mr. Bergman, Mr. Breslawski
and Mr. Jones of $9,434, on behalf of Mr. Benjamin of $7,519 and on behalf
of Mr. Paladino of $7,524, (ii) contributions under the Company's Employee
Stock Ownership Plan ("ESOP") made by the Company on each executives' behalf
of $4,500 and (iii) excess life insurance and Supplemental Executive
Retirement Plan ("SERP") contributions of $1,186 and $9,868 for Mr. Bergman,
$950 and $4,300 for Mr. Breslawski, $653 and $1,050 for Mr. Benjamin, $422
and $1,050 for Mr. Paladino, and $1,747 and $5,585 for Mr. Jones,
respectively. The 1995 amounts shown in this column represent (i) profit
sharing contributions made by the Company on behalf of each executive of
$6,000, (ii) ESOP contributions made by the Company on each executives'
behalf of $4,500, (iii) excess life insurance and SERP contributions of
$2,610 and $23,034 for Mr. Bergman, $1,003 and $8,455 for Mr. Breslawski,
$714 and $3,850 for Mr. Benjamin, $462 and $3,850 for Mr. Paladino, and
$1,799 and $9,341 for Mr. Jones, respectively, and (iv) an anniversary bonus
to Mr. Breslawski of $1,500.

(5) As of February 9, 1996, Mr. Jones was no longer an executive officer of the
Company.
47
<PAGE>
The following table summarizes the number of shares and the terms and
conditions of stock options granted to the Named Executive Officers in fiscal
1995.

OPTION GRANTS IN FISCAL 1995

<TABLE>
<CAPTION>
PERCENT POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS EXERCISE MARKET PRICE ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE PER SHARE ON PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES PER DATE OF OPTION TERM
OPTIONS IN FISCAL SHARE GRANT EXPIRATION ------------------------
NAME GRANTED 1995(1) ($/SH) ($/SH) DATE 0% ($) 5% ($) 10% ($)
- -------------------------------- ---------- ---------- -------- ------------ ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanley M. Bergman.............. -- -- -- -- -- -- -- --
James P. Breslawski............. -- -- -- -- -- -- -- --
Gerald A. Benjamin.............. 17,500(2) 2.7% 16.00 16.00 11/3/2005 0 176,050 446,250
29,700(3) 4.6% 4.21 7.08 5/1/2005 85,239 217,480 420,365
Steven Paladino................. 25,000(2) 3.8% 16.00 16.00 11/3/2005 0 251,500 637,500
29,700(3) 4.6% 4.21 7.08 5/1/2005 85,239 217,480 420,365
Randolph W. Jones............... 5,000(2) 0.8% 16.00 16.00 11/3/2005 0 50,300 127,500
19,800(4) 3.0% 4.21 7.08 5/1/2005 56,826 144,936 280,243
</TABLE>

- ------------

(1) In fiscal 1995, the Company granted options to purchase 651,297 shares of
Common Stock, consisting of 237,897 Class A options and 413,400 Class B
options.

(2) Options are exercisable in three annual installments. The first installment
was exercisable on November 3, 1995. As of March 1996, Mr. Jones' options
were cancelled.

(3) Options are currently exercisable.

(4) Options are exercisable in six annual installments. The first installment
was exercisable on December 31, 1995. As of March 1996, 16,500 of Mr. Jones'
options were cancelled.

The following table summarizes the number of all unexercised options held by
the Named Executive Officers at the end of fiscal 1995, and their value at that
date if they were in-the-money. No stock options were exercised in fiscal 1995.

AGGREGATE FISCAL 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/95 OPTIONS AT 12/31/95
---------------------------------- ----------------------------------------
EXERCISABLE UNEXERCISABLE
------------------- -------------------
NAME EXERCISABLE (#) UNEXERCISABLE (#) SHARES (#) TOTAL $ SHARES (#) TOTAL $
- ----------------------------------- --------------- ----------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Stanley M. Bergman................. -- -- -- -- -- --
James P. Breslawski................ -- -- -- -- -- --
Gerald A. Benjamin................. 29,700 17,500 29,700 751,113 17,500 236,250
Steven Paladino.................... 29,700 25,000 29,700 751,113 25,000 337,500
Randolph W. Jones(1)............... 3,300 21,500 3,300 83,457 21,500 484,785
</TABLE>

- ------------

(1) As of March 1996, Mr. Jones' unexercisable options were cancelled.

EMPLOYMENT AND OTHER AGREEMENTS

The Company and Mr. Stanley M. Bergman entered into an employment agreement
dated as of January 1, 1992, providing for his continued employment as Chairman
of the Board, President and Chief Executive Officer until December 31, 1999. The
employment agreement provides Mr. Bergman with a base salary of $504,050 for
1996, $519,050 for 1997, $544,050 for 1998, and $559,050 for 1999. In addition,
the employment agreement provides for incentive compensation to be determined by
the Compensation Committee of the Board of Directors (or, if there is no
Compensation Committee, the

48
<PAGE>
Board of Directors). Based on the range of incentive compensation provided for
in the employment agreement, it is anticipated that incentive compensation for
1996 will be in the range of $70,000 to $425,000. The range of incentive
compensation increases to $75,000 to $445,000 in 1997, $80,000 to $465,000 in
1998, and $85,000 to $485,000 in 1999. The employment agreement also provides
that Mr. Bergman will continue to participate in all benefit, welfare and
perquisite plans, policies and programs generally available to either the
Company's employees or the Company's senior executive officers. The Company
provides Mr. Bergman with the use of an automobile and expenses related thereto,
and other miscellaneous benefits. If Mr. Bergman's employment with the Company
is terminated without cause or terminated by Mr. Bergman following a material
breach by the Company of the employment agreement which is not cured during the
requisite period for cure of such breach, Mr. Bergman will receive all amounts
then owed to him as salary and deferred compensation and any benefits accrued
and owed to him or his beneficiaries under the then applicable benefit plans,
programs and policies of the Company. In addition, Mr. Bergman will receive as
severance pay, 100% of his then annual base salary and a payment equal to the
account balance or accrued benefit Mr. Bergman would have been credited with
under each pension plan maintained by the Company, assuming the Company would
have continued contributions until the natural expiration of the employment
agreement, less Mr. Bergman's vested account balance or accrued benefits under
each pension plan. Unless the employment agreement is terminated for cause or
pursuant to Mr. Bergman's voluntary resignation, the Company will continue the
participation of Mr. Bergman and his family in the health and medical plans,
policies and programs in effect with respect to senior executive officers of the
Company and their families. Coverage for Mr. Bergman and his spouse will
continue from the end of Mr. Bergman's employment until their respective deaths,
and coverage for his children will continue until their attainment of the age of
twenty-one.

The Company has entered into agreements with the Named Executive Officers
and certain other senior managers to provide that if an executive's employment
is terminated by the executive or by the Company without cause or for good
reason and not within two years after a change in control of the Company, the
Company will pay to the executive severance pay equal to one month's base salary
for each month the executive has been employed by the Company, with a minimum of
six months and a maximum of twelve months, subject to offset for remuneration
for subsequent employment. If the executive is terminated within two years
following a change in control of the Company which has not been approved by a
supermajority of the Board of Directors, the executive's severance pay will
equal three times the severance pay the executive would have received had no
change of control occurred, plus three times the amount of executive's incentive
bonus for the year preceding the year of termination.

See "Certain Transactions" for a description of Marvin H. Schein's
Consulting Agreement.

STOCK OPTION PLAN

The Company maintains the Henry Schein, Inc. 1994 Stock Option Plan ("Stock
Option Plan") for the benefit of certain employees of the Company and its
designated subsidiaries. The purpose of the Stock Option Plan is to enable the
Company and its designated subsidiaries to attract, retain and motivate key
employees who are important to the success and growth of the Company and to
create a mutuality of interest between the key employees and the stockholders of
the Company by granting the key employees options to purchase Common Stock.
Under the Stock Option Plan, 678,635 shares of Common Stock may be issued. The
Stock Option Plan provides for two classes of options: Class A Options, which
shall have an exercise price of $4.21 per share, and Class B Options, which have
an exercise price of not less than the fair market value of the Common Stock at
the time of grant. Class A Options to purchase an aggregate of 221,397 shares of
Common Stock are presently outstanding, and Class B Options to purchase an
aggregate of 447,400 shares of Common Stock are presently outstanding. The
maximum number of Class A Options have been issued. If options are canceled,
expire or terminate unexercised, the shares of Common Stock shall again be
available for the grant of options, provided that the number of shares covered
by Class A Options shall be reduced by the number of Class

49
<PAGE>
A Options that are canceled, expire or are terminated. Both incentive stock
options and non-qualified stock options may be issued under the Stock Option
Plan.

The maximum number of shares of Common Stock with respect to which options
may be granted under the Stock Option Plan to each participant could not exceed
100,000 shares in 1995, and shall not exceed 50,000 in each year thereafter. To
the extent that shares for which options are permitted to be granted to a
participant during a year are not covered by a grant of an option in such year,
such shares shall automatically increase the number of shares of Common Stock
available for grant of options to the participant in the subsequent year.

The Stock Option Plan is administered by a committee appointed by the
Company's Board of Directors, consisting of two or more directors, each of whom
qualifies as a disinterested person (within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")). The committee has the full authority and discretion, subject to the
terms of the Stock Option Plan, to determine those individuals who are eligible
to be granted options and the amount and type of options. Terms and conditions
of options are set forth in written option agreements, consistent with the terms
of the Stock Option Plan. No option shall be granted under the Stock Option Plan
on or after the tenth anniversary of September 30, 1994 (the effective date of
the Stock Option Plan), but options granted prior to such date may extend beyond
that date.

The Stock Option Plan provides that it may be amended by the Company's Board
of Directors or the committee, except that no amendment may, without the
approval of stockholders of the Company, (i) increase the total number of shares
of Common Stock which may be acquired upon exercise of options granted under the
Stock Option Plan, (ii) change the types of employees eligible to participate in
the Stock Option Plan, (iii) effect any change that would require stockholder
approval under securities laws, (iv) effect any change that would require
stockholder approval under Section 162(m) of the Code or (v) reduce the purchase
price of an outstanding option below the fair market value of a share of Common
Stock on the date of such amendment. The Company's Board of Directors or the
stockholders may, however, make or authorize any appropriate adjustments to the
number of shares of Common Stock available, and the terms of outstanding
options, under the Stock Option Plan to reflect a recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation, any issue of bonds, debentures, preferred
or preference stocks, the dissolution or liquidation of the Company or any of
its subsidiaries, or any sale or transfer of the assets of the Company's
business or any other corporate event.

The options entitle the holder to purchase a specified number of shares of
Common Stock, subject to vesting provisions, at a price set by the committee at
the time of grant, subject to certain limitations. The term of each option will
be specified by the committee upon grant, but may not exceed ten years from the
date of grant (five years in the case of owners of 10% or more of the Company's
outstanding voting stock). The committee will determine the time or times at
which each option may be exercised. Options may be exercisable in installments,
and the exercisability of options may be accelerated in some cases, including
upon a change of control of the Company (as defined in the Stock Option Plan).

Under the Stock Option Plan, the committee may grant incentive stock options
that qualify under Section 422 of the Code or non-qualified stock options. The
incentive stock options are subject to additional requirements under the Stock
Option Plan, as well as under the Code.

A participant may elect to exercise one or more of his options by giving
written notice to the committee of such election at any time after the closing
of this Offering. The participant shall specify the number of options to be
exercised and provide payment in full of the aggregate purchase price for the
shares of Common Stock for which options are being exercised. Payment may be
made (i) in cash or by check, bank draft or money order, (ii) if so permitted by
the committee, through delivery of unencumbered shares of Common Stock, a
promissory note or a combination of cash and either of the foregoing, or (iii)
on such other terms and conditions as may be acceptable to the committee.

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<PAGE>
There were no options granted to the Named Executive Officers under the
Stock Option Plan in 1994 or prior to 1994. In 1995, Class A Options to acquire
237,897 common shares were issued to certain executive management, including
Class A Options exercisable into 29,700 shares of Common Stock to Messrs.
Benjamin and Paladino and 19,800 shares of Common Stock to Mr. Jones, all of
which are outstanding (except for 16,500 Class A Options granted to Mr. Jones
which were cancelled in March 1996), at an exercise price of $4.21 per share,
substantially all of which became exercisable upon the closing of the initial
public offering, at which time the $2,805,000 excess of the initial public
offering price of $16.00 over the exercise price was charged to special
management compensation expense.

On November 3, 1995, the Company issued Class B Options to acquire 413,400
shares of common stock to certain employees, including Class B Options to
acquire 17,500, 25,000 and 5,000 shares of Common Stock to Messrs. Benjamin,
Paladino and Jones, respectively, substantially all of which are outstanding, at
an exercise price of $16.00 per share, substantially all of which become
exercisable ratably over three years from the date of issuance.

The Class A Options and Class B Options granted to the Named Executive
Officers are exercisable up to the tenth anniversary of the date of issuance,
subject to acceleration upon termination of employment. As of December 30, 1995,
none of such options were exercised.

DIRECTORS STOCK OPTION PLAN

The Company maintains The Henry Schein, Inc. 1996 Non-Employee Director
Stock Option Plan (the "Director Plan"). The purposes of the Director Plan are
to enable the Company to attract, retain and motivate directors of the Company
who are not employees of the Company or its subsidiaries and who are important
to the success of the Company and to create a mutuality of interest between the
non-employee directors and the stockholders of the Company by granting such
directors options to purchase Common Stock of the Company. Under the Director
Plan, each director who is not also an officer or employee of the Company is
eligible to receive options to purchase shares of the Company's Common Stock. An
aggregate of 50,000 shares are available for purchase pursuant to the exercise
of options granted under the Director Plan. If options are cancelled, expire or
terminate unexercised, the shares of Common Stock shall again be available for
the grant of options under the Director Plan.

The Director Plan is administered by a committee comprised of two or more
directors appointed by the Board of Directors, each of whom qualifies as a
"disinterested person" within the meaning of Rule 16b-3 promulgated under the
Exchange Act. The committee has the full authority and discretion to determine
those individuals who are to be granted options and the amount of options. Terms
and conditions of options will be set forth in written option agreements
consistent with the terms of the Director Plan. No options shall be granted
under the Director Plan on or after March 22, 2006, but options granted prior to
such date may extend beyond that date.

The Director Plan may be terminated at any time by the Board of Directors or
the committee (subject to the continued effectiveness of outstanding options).
The Board of Directors or the committee may also amend the Director Plan, except
that no amendment may, without the approval of stockholders of the Company, (i)
increase the total number of shares of Common Stock which may be acquired upon
exercise of options granted under the Director Plan, (ii) change the
requirements for eligibility for participation in the Director Plan or (iii)
effect any change that would require stockholder approval under Rule 16b-3 (or
any successor provision) promulgated under the Exchange Act.

The term of each option will be specified by the committee upon grant, but
may not exceed ten years from the date of grant. The exercise price of each
option granted under the Director Plan and the terms upon which each option
granted under the Director Plan will be exercisable will be determined by the
committee. Under the Director Plan, the exercisability of options may be
accelerated in certain events, including upon a change of control (as defined in
the Director Plan). Subject to certain rights to exercise after the death,
disability, retirement or termination of services (other than for cause) of the

51
<PAGE>
optionee or after a change of control, options granted under the Director Plan
may be exercised only if the optionee is eligible to participate in the Director
Plan on the date of exercise.

Upon the exercise of an option, the option holder must make payment of the
full exercise price, either in cash or, if permitted by the committee, in shares
of the Company's Common Stock, by delivery of the optionee's promissory note, in
a combination of cash, shares of the Company's Common Stock or the optionee's
promissory note, or on such other terms and conditions as may be acceptable to
the committee.

On March 22, 1996, each of Messrs. Alperin and Kabat were granted options to
purchase 5,000 shares of the Company's Common Stock at an exercise price of
$29.00 per share (which was the fair market value on the date of grant).

EMPLOYEE STOCK OWNERSHIP PLAN

The Company adopted the Henry Schein, Inc. Employee Stock Ownership Plan
effective as of January 1, 1994 to enable participants to have an interest in
the Common Stock of the Company and to provide participants an opportunity to
share in the growth and prosperity of the Company. The ESOP is intended to be a
tax-qualified plan under Section 401(a) of the Code and is intended to qualify
as an employee stock ownership plan under Section 4975(e)(7) of the Code.

Employees of the Company are eligible to participate in the ESOP after six
months of service for the Company or a participating affiliate, and receive
participation credit if they complete 1,000 hours of service in a twelve
consecutive month period.

With respect to each plan year, the Company and its participating affiliates
intend to make discretionary contributions, in cash or in Common Stock, to the
ESOP. Subject to legal limitations, contributions to the ESOP will only be
allocated to the accounts of participants who either (i) are employed by the
Company or a participating affiliate on the last day of the plan year and
completed 1,000 hours of service in such plan year, or (ii) retired after
attaining age 65, died or incurred a disability during the plan year.
Contributions are allocated based on a participant's compensation. The Company
and its participating affiliates made contributions of 128,257 shares of Common
Stock to the ESOP for the 1994 plan year equal to approximately $900,000 in the
aggregate, and intend to make contributions of shares of Common Stock having a
value equal to 3% of participants' aggregate compensation for the 1995 plan year
equal to approximately $1.0 million in the aggregate.

The ESOP may borrow money and purchase Common Stock by means of an
acquisition loan. Any Common Stock which is acquired with the proceeds of an
acquisition loan will be held in a suspense account and will not be allocated or
released until a contribution is made to the ESOP (which is used to repay the
acquisition loan).

Participants in the ESOP become vested in their accounts based on a graded
seven year vesting schedule (or upon a participant's retirement after attaining
age 65, death or disability, if earlier). In general, participants are entitled
to receive the vested amounts in their accounts in the ESOP on death,
disability, retirement or five years after termination of employment in either
(i) a single lump-sum payment, or (ii) installment payments over a period not to
exceed five years (subject to extension in certain cases).

PROFIT SHARING/401(K) PLAN

The Company maintains the Henry Schein, Inc. Profit Sharing/401(k) Savings
Plan (the "Profit Sharing/401(k) Plan") to provide retirement and other benefits
to employees of the Company and certain participating affiliates and to permit
employees a means to save for their retirement. Certain plans previously
maintained by the Company or its affiliates ("Prior Plans") were merged into
this

52
<PAGE>
Profit Sharing/401(k) Plan. The Profit Sharing/401(k) Plan is intended to be a
tax-qualified plan under Section 401(a) of the Code, and contains a Code Section
401(k) feature.

Eligible employees of the Company and its participating affiliates who work
for a specified period (as described below) are eligible to participate in the
Profit Sharing/401(k) Plan. Part-time employees are eligible to make profit
sharing contributions as of the January 1 of the twelve consecutive month period
during which they are first credited with 1,000 hours of service. Full-time
employees become eligible to have profit sharing contributions made on their
behalf after they work for six consecutive months during which they complete at
least 1,000 hours of service. All employees are eligible to make 401(k)
contributions (in accordance with administrative practices) following completion
of three consecutive months during which they complete at least 250 hours of
service.

Subject to legal limitations, participants may elect, by salary reduction,
to have 401(k) contributions of 1% to 10% of their compensation made to their
accounts under the Profit Sharing/401(k) Plan. Under the Profit Sharing/401(k)
Plan, the Company and its participating affiliates may make discretionary profit
sharing contributions on behalf of participants who have completed 1,000 hours
of service during the plan year and are employed on the last day of the plan
year (or have retired after attaining age 65, died or incurred a disability in a
plan year), based on compensation. The Company and its participating affiliates
intend to make profit sharing contributions for the 1995 plan year equal to 4%
(or, in the case of certain divisions or subsidiaries, 3.5%) of eligible
compensation or approximately $1.3 million in the aggregate.

Participants in the Profit Sharing/401(k) Plan always have a 100% vested and
nonforfeitable interest in the value of their 401(k) contributions. Participants
become vested in the Company's or participating affiliate's profit sharing
contributions based on a graded seven year vesting schedule (or upon a
participant's retirement after attaining age 65, death or disability, if
earlier). Participants are entitled to receive the vested amounts in their
accounts in a single lump-sum payment on death, disability, retirement or
termination of employment. The portion of a participant's account attributable
to a Prior Plan may be eligible for payment in a different form based on the
provisions of the Prior Plan. In certain circumstances, participants may receive
loans and hardship withdrawals from their accounts in the Profit Sharing/401(k)
Plan.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

The Company established the Henry Schein, Inc. Supplemental Executive
Retirement Plan effective as of January 1, 1994 in order to provide deferred
compensation to a select group of management and highly compensated employees of
the Company and its affiliates. The SERP is a non-qualified, unfunded deferred
compensation plan. The benefits under the SERP are intended to supplement the
benefits payable under the Profit Sharing/401(k) Plan and the ESOP by providing
benefits in excess of the limitation imposed by Section 401(a)(17) of the Code.
Code Section 401(a)(17) limits the amount of compensation that may be taken into
consideration under a tax-qualified benefit plan to $150,000, as adjusted for
cost of living increase set by the Secretary of Treasury.

An employee of the Company (or one of its affiliates which participate in
either the Profit Sharing/401(k) Plan or the ESOP) must be designated by the
administrative committee of the SERP in order to participate in the SERP.

A participant's benefits under the SERP becomes vested based on a graded
seven year vesting schedule. However, if a participant retires after attaining
age 65, dies or incurs a disability, or if there is a change in control of the
Company (as defined in the SERP), the participant will become fully vested in
his account under the SERP. Participants are entitled to receive their vested
benefits upon the occurrence of a change of control of the Company or upon
termination of employment for any reason including death, disability or
retirement in a single lump-sum payment.

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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Stanley M. Bergman, James P. Breslawski, Gerald A. Benjamin, Leonard A.
David, Mark E. Mlotek and Steven Paladino are executive officers of the Company
and members of the Board of Directors which approved incentive compensation for
the Named Executive Officers for fiscal 1995 based upon the recommendations of
the Compensation Committee. Mr. Bergman is also a member of the Compensation
Committee. Mr. Bergman did not participate in any deliberations of the
Compensation Committee or the Board of Directors with respect to his own
compensation for fiscal 1995, and none of the Named Executive Officers
participated in any deliberations of the Board of Directors with respect to
their own compensation for fiscal 1995.

CERTAIN TRANSACTIONS

REORGANIZATION

Certain of the directors, officers and stockholders of the Company entered
into a series of transactions with the Company, as described under
"Reorganization." The Company paid (i) certain of the legal and other
professional fees incurred by the executors of the Estate of Jacob M. Schein,
including Stanley M. Bergman and Pamela Joseph, in connection with such
transactions, in the amounts of approximately $552,000, $295,000 and $216,000
during 1994, 1993 and 1992, respectively, and (ii) the income taxes of $5.6
million incurred by Mr. Bergman in connection with the Company's issuance to him
of shares of Common Stock, and shares of common stock of Schein Pharmaceutical.
The Company also paid legal fees incurred by Marvin H. Schein in connection with
such transactions, in the amount of $75,000. The Company also paid a dividend in
1993 on behalf of the Estate of Esther Schein in the amount of $275,000. See
"Reorganization" and "Management--Executive Compensation."

In December 1992, Mr. Bergman was issued shares of Schein Pharmaceutical,
and on September 30, 1994, Mr. Bergman's shares in Schein Pharmaceutical and its
subsidiaries were exchanged for shares of common stock of Holdings, some of
which were sold by Mr. Bergman.

From time to time the Company has made loans to Stanley M. Bergman (for
income taxes payable by him in connection with Common Stock issued to Mr.
Bergman as part of the Reorganization), Pamela Joseph and Pamela Schein for
personal expenses. Interest on such loans accrued at the prime rate. The largest
aggregate principal amount of loans outstanding during 1994, 1993 and 1992 was
approximately $151,000, $143,000 and $0, respectively, for Stanley M. Bergman;
approximately $1.1 million, $929,000 and $668,000, respectively, for Pamela
Joseph; and approximately $187,000, $365,000 and $310,000, respectively, for
Pamela Schein. Mr. Bergman's, Ms. Joseph's and Ms. Schein's loans and all
interest accrued thereon were repaid on September 30, 1994. No loans have been
made to any of Mr. Bergman, Ms. Joseph or Ms. Schein since that date.

In connection with the Reorganization, the Company, Holdings and Marvin H.
Schein, a director and principal stockholder of the Company, agreed to terminate
a lifetime consulting agreement entered into in 1982 between the Company's
predecessor and Mr. Schein, and the Company and Mr. Schein agreed to continue
the consulting arrangement on the terms set forth in a new lifetime consulting
agreement (the "Consulting Agreement"). The current Consulting Agreement
modified certain of the terms of the 1982 agreement, including the elimination
of a provision limiting Mr. Schein's compensation to $100,000 per annum if the
Company's pre-tax income were less than $3.5 million for two consecutive years.
The 1982 agreement provided, and the current Consulting Agreement provides for
Mr. Schein's consulting services to the Company with respect to the marketing of
dental supplies and equipment, from time to time. The Consulting Agreement
currently provides for initial compensation of $258,000 per year, increasing
$25,000 every fifth year beginning in 1997. The Consulting Agreement also
provides that Mr. Schein will participate in all benefit, compensation, welfare
and perquisite plans, policies and programs generally available to either the
Company's employees or the Company's senior

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<PAGE>
executive officers, excluding the Company's Stock Option Plan, that Mr. Schein's
spouse, and his children until they attain the age of 21, will be covered by the
Company's health plan, and that the Company will provide Mr. Schein with the use
of an automobile and expenses related thereto. The Consulting Agreement was
originally entered into as part of a recapitalization of the Company's
predecessor in 1982 among Mr. Schein and its other shareholders, and to secure
for the Company the consulting services of Mr. Schein, who had served the
Company in various executive capacities for more than the prior twenty years.
From time to time Mr. Schein and his affiliates have purchased products from the
Company, in an aggregate amount of approximately $100,000 during 1993, 1994 and
1995.

ACQUISITION OF THE SCHEIN DENTAL EQUIPMENT CORP.

On September 1, 1995, the Company acquired Schein Dental Equipment, a
distributor and manufacturer of large dental equipment, which was owned 73.7% by
Marvin H. Schein. The purchase price for the acquisition as approved by the
Board of Directors of the Company (other than Marvin H. Schein), was paid
primarily by the issuance of 1,260,416 shares of Common Stock, including 928,727
shares of Common Stock issued to Marvin H. Schein, and the balance in cash. In
addition, Schein Dental Equipment repaid approximately $1.7 million in loans to
Marvin H. Schein with funds provided by the Company. Marvin H. Schein acquired
24.6% of Schein Dental Equipment in January 1995 for $1.5 million. During 1993,
1994 and 1995, the Company sold products to Schein Dental Equipment, in the
amount of approximately $34,000, $33,000 and $30,000, respectively, and the
Company purchased products from Schein Dental Equipment, in the amounts of
approximately $1.2 million, $1.7 million and $1.8 million, respectively.

TRANSACTIONS WITH DIRECTORS, OFFICERS AND STOCKHOLDERS

During fiscal 1995, in accordance with the Global Agreement, the Company
paid legal and advisory fees for certain of its stockholders in connection with
the initial public offering aggregating approximately $310,000.

During 1994 and 1993, the Company paid Pamela Joseph approximately $82,000
and $14,000, respectively, for design and artistic services rendered to the
Company.

Prior to September 30, 1994, the Company paid for certain benefits for
Marvin H. Schein, Pamela Joseph and Pamela Schein, such as health insurance and
lease payments for automobiles, including automobile allowances. For 1994, 1993
and 1992, such amounts were approximately $19,000, $19,000 and $18,000,
respectively, for Marvin H. Schein; approximately $6,000, $11,000 and $10,000,
respectively, for Pamela Joseph; and approximately $2,000, $3,000 and $3,000,
respectively, for Pamela Schein. The Company continues to pay for certain
benefits for Marvin H. Schein, his spouse and his children pursuant to the
Consulting Agreement.

TRANSACTIONS WITH THIRD PARTIES

In the ordinary course of its business the Company buys products from and
sells products to Schein Pharmaceutical in arms' length transactions. Certain of
the Company's stockholders and directors, including Stanley M. Bergman, Marvin
H. Schein, Pamela Schein and Pamela Joseph, and persons related thereto, own
approximately 70% of the outstanding shares of Schein Pharmaceutical. In 1995,
1994 and 1993, the Company's purchases from Schein Pharmaceutical amounted to
$4.5 million, $5.9 million and $6.2 million, respectively.

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table presents certain information regarding beneficial
ownership of the Company's Common Stock as of May 1, 1996, by (i) each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each executive officer named in the Summary Compensation Table, (iv) all
directors and executive officers as a group, and (v) each selling Stockholder.
Unless otherwise indicated, each person in the table has sole voting and
investment power as to the shares shown.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED SHARES OF BENEFICIALLY OWNED
PRIOR TO OFFERING (2) COMMON STOCK AFTER THE OFFERING
--------------------- TO BE --------------------
NAME AND ADDRESS (1) NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------- ---------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Stanley M. Bergman (3)................. 11,263,972 60.9% 2,792,000 8,471,972 39.7%
Marvin H. Schein, Individually and as
Trustee (4)........................... 5,817,006 31.5% 1,900,000 3,917,006 18.3%
Leslie J. Levine, as Trustee (5)....... 3,680,647 19.9% 712,300 2,968,347 13.9%
Pamela Schein (6)...................... 2,357,504 12.8% 715,000 1,642,504 7.8%
Irving Shafran and Judith Shafran, as
Trustees (7).......................... 2,357,504 12.8% 715,000 1,642,504 7.8%
Marion Bergman and Leslie Bergman, as
Trustees (8).......................... 1,274,707 6.9% -- 1,274,707 6.0%
Barry J. Alperin....................... 1,000 * -- 1,000 *
Gerald A. Benjamin (9)................. 81,190 * -- 81,190 *
James P. Breslawski (10)............... 195,822 1.1% -- 195,822 *
Leonard A. David (11).................. 30,913 * -- 30,913 *
Pamela Joseph, as Trustee (12)......... 531,020 2.9% 140,000 391,020 1.8%
Donald J. Kabat........................ 200 * -- 200 *
Mark E. Mlotek (13).................... 41,450 * -- 41,450 *
Steven Paladino (14)................... 83,690 * -- 83,690 *
Ellen Sperber, as Trustee (15)......... 147,312 * 37,000 110,312 *
Randy Jones (16)....................... 37,360 * -- 37,360 *
Community Funds Inc. (17).............. 27,500 * 27,500 -- --
Directors and Executive Officers as a
Group (17 persons) (18)............... 11,279,468 61.0 2,792,000 8,487,468 39.7%
</TABLE>

- ------------

* Represents less than 1%.

(1) Unless otherwise indicated, the address for each person is c/o Henry
Schein, Inc., 135 Duryea Road, Melville, New York 11747.

(2) The 18,483,115 shares of Common Stock deemed outstanding prior to this
offering includes 18,306,994 shares of Common Stock outstanding on May 1,
1995 and 176,121 shares of Common Stock issuable pursuant to options held
by management which may be exercised within 60 days after the date of the
offering. The number of shares of Common Stock deemed outstanding after
this offering include an additional 2,880,500 shares of Common Stock being
offered for sale by the Company in this offering.

(3) Prior to this offering, includes (a) 164,758 shares which Mr. Bergman owns
directly and which he has the power to vote and the power to dispose of in
accordance with the Global Agreement, (b) 3,828,160 shares which Mr.
Bergman shares the power to vote pursuant to voting trust agreements, (c)
options to purchase 176,121 shares of Common Stock exercisable within 60
days by certain executives which will be subject to the Voting Trust upon
exercise and which Mr. Bergman will share the power to vote and (d) an
additional 7,094,933 shares held by certain stockholders of the Company
which must be voted for the eight nominees for director selected by Mr.
Bergman in

(Footnotes continued on following page)

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<PAGE>
(Footnotes continued from preceding page)
accordance with the Global Agreement. Excludes 27,500 shares transferred by
Mr. Bergman to Community Funds Inc., a public charity, in June 1996. The
shares described in (a) through (c) must also be voted for the nominees for
director selected in accordance with the Global Agreement. After the
offering, reflects the sale of 2,792,000 shares to be sold by the selling
stockholders pursuant to this offering. See "Reorganization--Reorganization
Agreements."

(4) Includes (a) 2,136,359 shares which Mr. Schein owns directly and (b)
3,680,647 shares owned in trusts for the benefit of Mr. Schein and his
family members and/or trusts for charities of which Mr. Schein and Leslie
J. Levine are co-trustees, all of which shares Mr. Schein has the power to
vote and the power to dispose of in accordance with the Global Agreement.
Mr. Schein has the right to nominate one director to the Board of Directors
in accordance with the Global Agreement. Certain stockholders of the
Company (including Mr. Schein) are required to vote for the nominees for
director selected in accordance with the Global Agreement. Shares of Common
Stock to be offered include 1,187,700 shares owned directly by Mr. Schein,
670,800 shares owned in trust for the benefit of Mr. Schein and his family
members and 41,500 shares owned in a trust for the benefit of charities.
See "Reorganization--Reorganization Agreements."

(5) Mr. Levine holds such shares as co-trustee of trusts for the benefit of
Marvin H. Schein and his family members and/or trusts for charities. All of
such shares must be voted for the nominees for directors selected in
accordance with the Global Agreement. Mr. Levine has the power to dispose
of such shares in accordance with the Global Agreement. Shares of Common
Stock to be offered include 670,800 shares owned in trust for the benefit
of Marvin H. Schein and his family members and 41,500 shares owned in a
trust for the benefit of charities. See "Reorganization--Reorganization
Agreements."

(6) The shares are owned by a revocable trust established by Ms. Schein of
which Irving and Judith Shafran are trustees. Ms. Schein has the power to
dispose of such shares if she revokes the trust, subject to the Global
Agreement. All of such shares are subject to the Voting Trust. Ms. Schein
has the right to nominate one director to the Board of Directors in
accordance with the Global Agreement. Certain stockholders of the Company
(including the trustees of the revocable trust) are required to vote for
the nominees for director selected in accordance with the Global Agreement.
See "Reorganization--Reorganization Agreements."

(7) Mr. Shafran and Ms. Shafran hold such shares as trustees of a revocable
trust established by Pamela Schein. Mr. Shafran and Ms. Shafran share the
power to dispose of such shares in accordance with the Global Agreement.
All of such shares are subject to the Voting Trust and must be voted for
the nominees for director selected in accordance with the Global Agreement.
See "Reorganization--Reorganization Agreements."

(8) Leslie Bergman and Marion Bergman hold such shares as co-trustees of trusts
established by Stanley M. Bergman for the benefit of Stanley M. Bergman and
his family members. Leslie Bergman and Marion Bergman share the power to
vote such shares and the power to dispose of such shares in accordance with
the Global Agreement; provided that the shares must be voted for the
nominees for director selected in accordance with the Global Agreement. See
"Reorganization--Reorganization Agreements."

(9) Includes (a) 1,000 shares owned directly, (b) 50,490 shares subject to the
Voting Trust and (c) options to purchase 29,700 shares of Common Stock
exercisable within 60 days which will be subject to the Voting Trust upon
exercise. See "Reorganization--Reorganization Agreements."

(10) Mr. Breslawski has the power to dispose of such shares in accordance with
the Global Agreement. The shares are subject to the Voting Trust and must
be voted for the nominees for the director selected in accordance with the
Global Agreement. See "Reorganization--Reorganization Agreements."

(11) Includes (a) 2,500 shares owned directly, (b) 14,850 shares subject to the
Voting Trust and (c) options to purchase 13,563 shares of Common Stock
exercisable within 60 days which will be subject to the Voting Trust upon
exercise. See "Reorganization--Reorganization Agreements."

(Footnotes continued on following page)

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<PAGE>
(Footnotes continued from preceding page)
(12) Ms. Joseph holds such shares as co-trustee of a trust established by Ms.
Joseph. Prior to the offering, it is anticipated that the trust will
distribute all its holdings of Common Stock to Ms. Joseph individually and
will be terminated. The shares to be offered would then be offered by Ms.
Joseph individually. Ms. Joseph shares the power to dispose of such shares
in accordance with the Global Agreement. All of such shares are subject to
the Voting Trust. Ms. Joseph has the right to nominate one director to the
Board of Directors. Certain stockholders of the Company (including Ms.
Joseph) are required to vote for the nominees for director selected in
accordance with the Global Agreement. See "Reorganization--Reorganization
Agreements."

(13) Includes (a) 2,000 shares owned directly, (b) 14,850 shares subject to the
Voting Trust, (c) options to purchase 19,800 shares of Common Stock
exercisable within 60 days which will be subject to the Voting Trust upon
exercise and (d) 4,800 shares which Mr. Mlotek has the power to vote as
trustee of trusts for certain third parties. See
"Reorganization--Reorganization Agreements."

(14) Includes (a) 3,500 shares owned directly, (b) 50,490 shares subject to the
Voting Trust and (c) options to purchase 29,700 shares of Common Stock
exercisable within 60 days which will be subject to the Voting Trust upon
exercise. All 83,690 shares must be voted for the nominees for director
selected in accordance with the Global Agreement. Mr. Paladino has the
power to dispose of such shares in accordance with the Global Agreement.
See "Reorganization--Reorganization Agreements."

(15) Ms. Sperber holds such shares as trustee of a trust for the benefit of Mr.
Sperber and his family group members. All of such shares must be voted for
the nominees for director selected in accordance with the Global Agreement.
Ms. Sperber has the power to dispose of such shares in accordance with the
Global Agreement. See "Reorganization--Reorganization Agreements."

(16) Includes (a) 400 shares owned directly, (b) 33,660 shares subject to the
Voting Trust and (c) options to purchase 3,300 shares of Common Stock
exercisable within 60 days which will be subject to the Voting Trust upon
exercise. See "Reorganization--Reorganization Agreements."

(17) These shares were transferred by Stanley M. Bergman to Community Funds
Inc., a public charity, in June 1996.

(18) Includes (a) all shares described in the preceding notes (2) through (15),
16(b) and 16(c), and (b) 4,000 shares held by other executive officers
which are not subject to the Voting Trust and 1,200 shares held by other
directors. See "Reorganization--Reorganization Agreements."

58
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The following summary does not purport to be complete and is subject to, and
qualified in its entirety by, the Amended and Restated Certificate of
Incorporation (the "Restated Charter") and Amended and Restated Bylaws (the
"Restated By-laws") of the Company which are included as exhibits to the
registration statement, and by the provisions of applicable law.

The authorized capital stock of the Company consists of 60,000,000 shares of
Common Stock having a par value of $.01 per share and 1,000,000 shares of
Preferred Stock having a par value of $.01 per share.

COMMON STOCK

As of March 30, 1996, there were 18,306,994 shares of Common Stock
outstanding, held by stockholders of record (including various trusts) and
51,679 shares of Common Stock held by the Company in treasury. An aggregate of
728,635 shares of Common Stock are reserved for issuance under the Company's
1994 Stock Option Plan and 1996 Non-Employee Director Stock Option Plan.

All outstanding shares of Common Stock are, and the shares offered hereby
will be, fully paid and nonassessable. The holders of Common Stock are entitled
to one vote for each share held of record on all matters voted upon by
stockholders and may not cumulate votes. Thus, the owners of a majority of the
Common Stock outstanding may elect all of the directors if they choose to do so,
and the owners of the balance of such shares would not be able to elect any
directors. Subject to the rights of holders of any future series of undesignated
Preferred Stock which may be designated, each share of outstanding Common Stock
is entitled to participate equally in any distribution of net assets made to the
stockholders in liquidation, dissolution or winding up of the Company and is
entitled to participate equally in dividends as and when declared by the Board
of Directors. There are no redemption, sinking fund, conversion or preemptive
rights with respect to the shares of Common Stock. All shares of Common Stock
have equal rights and preferences.

PREFERRED STOCK

The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 1,000,000 shares of Preferred Stock in one or more
series with such designations and such powers, preferences and rights, and such
qualifications, limitations or restrictions (which may differ with respect to
each series) as the Board may fix by resolution. Unless otherwise provided by
board resolution, the consent of the holders of any class or series of Preferred
Stock shall not be required for the issuance by the Board of Directors of any
other series of Preferred Stock. No dividend may be declared on any series of
Preferred Stock unless a dividend is declared on all shares of Preferred Stock
of each other series entitled to cumulative dividends, then outstanding, which
rank senior to or equally as to dividends with the series in question.

The rights, preferences and privileges of holders of Common Stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock which the Company may designate and
issue in the future. The Company has no present plans to issue any shares of
Preferred Stock.

At present, no shares of Preferred Stock are issued or have been authorized
by the Board of Directors for issuance. Under the Restated Charter, no action by
the Company's stockholders is necessary, and only action of the Board of
Directors is required, to authorize the issuance of any of the shares of
additional authorized Preferred Stock. The Board of Directors is empowered to
establish, and to designate the name of, each class or series of the shares of
Preferred Stock and to set the terms of

59
<PAGE>
such shares (including terms with respect to redemption, sinking fund, dividend,
liquidation, preemptive, conversion and voting rights and preferences).
Accordingly, the Board of Directors, without stockholder approval, may issue
shares of Preferred Stock with terms (including terms with respect to
redemption, sinking fund, dividend, liquidation, preemptive, conversion and
voting rights and preferences) that could adversely affect the voting power and
other rights of holders of the Common Stock.

The undesignated Preferred Stock may have the effect of discouraging an
attempt, through the acquisition of a substantial number of shares of Common
Stock, to acquire control of the Company with a view to effecting a merger, sale
or exchange of assets or a similar transaction. For example, the Board of
Directors could issue such shares as a dividend to holders of Common Stock or
place such shares privately with purchasers who may side with the Board of
Directors in opposing a takeover bid. The anti-takeover effects of the
undesignated Preferred Stock may deny stockholders the receipt of a premium on
their Common Stock and may also have a depressive effect on the market price of
the Common Stock.

CERTAIN PROVISIONS OF DELAWARE LAW

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the Board of Directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of the corporation's voting stock.

ANTI-TAKEOVER EFFECT OF PROVISIONS OF THE RESTATED CHARTER AND RESTATED BY-LAWS

Certain provisions of the Restated Charter and Restated By-Laws could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors and to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company, such as an unsolicited acquisition
proposal. Because these provisions could have the effect of discouraging a third
party from acquiring control of the Company, they may inhibit fluctuations in
the market price of shares of Common Stock that could otherwise result from
actual or rumored takeover attempts and, therefore could deprive stockholders of
an opportunity to realize a takeover premium. These provisions also may have the
effect of limiting the price that certain investors might be willing to pay in
the future for shares of the Company's Common Stock and of preventing changes in
the management of the Company.

The Company's Restated Charter provides that if stockholder approval is
required for the adoption of any agreement for the merger or consolidation of
the Company with another corporation or for the sale, lease, transfer or
exchange of all or substantially all of the assets of the Company, then the
affirmative vote of holders of 60% of the outstanding stock entitled to vote
shall be required to approve such action.

The Restated Charter and Restated By-Laws provide that the number of
directors will be fixed from time to time at no less than five and no more than
eleven through December 31, 1998. Thereafter, the number of directors shall be
nine. Any director may be removed with or without cause at any time by the
affirmative vote of at least 66 2/3% of the shares entitled to vote at a special
meeting of the stockholders called for that purpose and the vacancies thus
created may be filled at that same meeting

60
<PAGE>
by the affirmative vote of at least 66 2/3% of the shares entitled to vote at
such meeting. Ordinary vacancies in the Board of Directors shall also be filled
by the affirmative vote of stockholders holding at least 66 2/3% of the
outstanding share entitled to vote.

The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. The
Company's Restated Charter requires the affirmative vote of at least 80% of the
outstanding stock to amend or repeal certain of its provisions. A two-thirds
vote is required to amend or repeal the Company's Restated By-Laws. The Restated
By-Laws may also be amended or repealed by a two-thirds vote of the Board of
Directors. Such stockholder vote would be in addition to any separate class vote
that might in the future be required pursuant to the terms of any Preferred
Stock that might be outstanding at the time any such amendments are submitted to
stockholders.

AGREEMENTS RELATING TO CONTROL OF THE COMPANY

The Voting Trust gives Stanley M. Bergman (or his successor trustee) the
right to vote all of the shares of Common Stock owned by certain stockholders of
the Company. In addition, the Global Agreement provides that the Board of
Directors of the Company may consist of up to 11 members, and that until the
earlier of January 1, 1999 or the termination of the Voting Trust, Mr. Bergman
(or his successor trustee) has the right to nominate all but three of the
nominees to the Board of Directors. Marvin H. Schein, Pamela Joseph and Pamela
Schein have the right to serve as or nominate the remaining three directors. In
general, from the earlier of January 1, 1999 or the termination of the Voting
Trust until the earlier of January 1, 2004 or the first date on which Marvin H.
Schein and his family group no longer beneficially own at least 25% of the
outstanding Common Stock that they owned immediately after the Reorganization,
or the date of certain changes in the Company's management, Mr. Bergman (or his
successor trustee) has the right to nominate all of the nominees to the Board of
Directors, provided, that if Marvin H. Schein does not approve such nominations,
Mr. Bergman (or his successor trustee) and Mr. Schein will each nominate four
nominees (of which one will be an independent nominee) and the ninth nominee
will be selected by the two independent nominees. The Global Agreement also
requires the parties to the Voting Trust and Marvin H. Schein to vote in favor
of the individuals so nominated until the earlier of January 1, 1999 or the
termination of the Voting Trust, and to vote their shares in favor of the
nominees of Stanley M. Bergman until January 1, 2004. As a result of the
foregoing, until December 31, 1998, Mr. Bergman, as a practical matter, will be
able to significantly influence all matters requiring stockholder approval,
including the election of directors, and until January 1, 2004, Mr. Bergman will
have the ability to significantly influence the election of all or a substantial
number of the directors of the Company.

The Global Agreement also affords Marvin H. Schein or his designee the right
to serve on each committee of the Board of Directors to which the Board of
Directors has delegated decision-making authority and the right to call a
special meeting of the Board of Directors. The Global Agreement also limits the
Company's ability to adopt a shareholder rights plan or "fair price amendment,"
if such plan or amendment would affect Marvin H. Schein or Pamela Schein
(including their respective family members), as long as Marvin H. Schein or
Pamela Schein own certain specified percentages of the outstanding Common Stock.
See "Reorganization."

RESTRICTIONS ON TRANSFERS

61
<PAGE>
total votes that can be cast in any election of directors of the Company without
first offering Marvin H. Schein and Pamela Schein (including their respective
family members) the right to purchase such securities; (ii) issue securities in
connection with a business combination having more than 20%, or resulting in a
person owning more than 20%, of the total votes that can be cast in any election
of directors without the consent of Marvin H. Schein; or (iii) issue preferred
stock having the right to cast more than 20% of the total votes that can be cast
in any election of directors of the Company. In addition, certain members of
management have agreed not to transfer their shares until November 3, 1998,
subject to acceleration in Mr. Bergman's discretion. Restrictions on the ability
of stockholders to transfer their stock may make it more difficult for a third
party to acquire, or may discourage acquisition bids for, the Company, and could
limit the price that certain investors might be willing to pay in the future for
shares of Common Stock. See "Reorganization."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is the Trust Company
of New Jersey, Jersey City, New Jersey.

62
<PAGE>
UNDERWRITING

The Underwriters named below (the "Underwriters"), for which William Blair &
Company, L.L.C., Alex. Brown & Sons Incorporated, Montgomery Securities and
Smith Barney Inc. are acting as representatives (the "Representatives") have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement by and among the Company, the Selling Stockholders and
the Underwriters, to purchase from the Company and the Selling Stockholders, and
the Company and the Selling Stockholders have agreed to sell to the
Underwriters, the respective number of shares of Common Stock set forth opposite
each Underwriter's name below:

NUMBER OF
UNDERWRITERS SHARES
------------ ---------
William Blair & Company, L.L.C..................................... 1,000,000
Alex. Brown & Sons Incorporated.................................... 1,000,000
Montgomery Securities.............................................. 1,000,000
Smith Barney Inc................................................... 1,000,000
Bear, Stearns & Co. Inc............................................ 140,000
Dean Witter Reynolds Inc........................................... 140,000
Donaldson, Lufkin & Jenrette Securities Corporation................ 140,000
A.G. Edwards & Sons, Inc........................................... 140,000
Goldman, Sachs & Co................................................ 140,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................. 140,000
PaineWebber Incorporated........................................... 140,000
Robert W. Baird & Co. Incorporated................................. 60,000
Cleary Gull Reiland & McDevitt Inc................................. 60,000
Everen Securities, Inc............................................. 60,000
Jefferies & Company................................................ 60,000
McDonald & Company Securities, Inc................................. 60,000
Needham & Company, Inc............................................. 60,000
Piper Jaffray Inc.................................................. 60,000
Principal Financial Securities, Inc................................ 60,000
Roney & Co......................................................... 60,000
Volpe, Welty & Company............................................. 60,000
Wessels, Arnold & Henderson, L.L.C................................. 60,000
Wheat First Butcher Singer......................................... 60,000
---------
Total........................................................ 5,700,000
---------
---------

The nature of the Underwriters' obligations under the Underwriting Agreement
is such that all shares of the Common Stock offered hereby, excluding shares
covered by the over-allotment option granted to the Underwriters, must be
purchased if any are purchased.

The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the Common Stock to the public initially
at the public offering price set forth on the cover page of this Prospectus and
to select dealers at such price less a concession of not more than $.75 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $.10 per share to certain other dealers. The Underwriters may
also offer shares to employees of the Company at the public offering price set
forth on the cover page of this Prospectus. After the public offering
contemplated hereby, the public offering and other selling terms may be changed
by the Representatives.

The Company has granted to the Underwriters an option exercisable within 30
days after the date of this Prospectus, to purchase up to an additional 855,000
shares of Common Stock to cover over-

63
<PAGE>
allotments, at the same price per share to be paid by the Underwriters for the
other shares offered hereby. If the Underwriters purchase any such additional
shares pursuant to this option, each Underwriter will be committed to purchase
such additional shares in approximately the same proportion as set forth in the
table above. The Underwriters may exercise the option only for the purpose of
covering over-allotments, if any, made in connection with the distribution of
shares of Common Stock offered hereby.

The Company and its directors, executive officers and certain stockholders
have agreed not to offer, sell or otherwise dispose of any Common Stock or any
securities convertible into Common Stock or register for sale under the
Securities Act any Common Stock for a period of 120 days after the date of this
Prospectus without the prior written consent of the Representatives.

The rules of the Commission generally prohibit the Underwriters and other
members of the selling group, if any, from making a market in the Common Stock
during a "cooling-off" period immediately preceding the commencement of sales in
the offering. The Commission has, however, adopted exemptions from these rules
that permit passive market making under certain conditions. These rules permit
an Underwriter or other members of the selling group, if any, to continue to
make a market in the Common Stock subject to the condition, among others, that
its bid not exceed the highest bid by a market maker not connected with the
offering and that its net purchases on any one trading day not exceed prescribed
limits. Pursuant to these exemptions, certain Underwriters and other members of
the selling group, if any, may engage in passive market making in the Common
Stock during the cooling-off period.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.

LEGAL MATTERS

The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company and the Selling Stockholders by Proskauer Rose Goetz
& Mendelsohn LLP, New York, New York. Certain legal matters in connection with
this Offering will be passed upon for the Underwriters by Sidley & Austin,
Chicago, Illinois.

EXPERTS

The consolidated financial statements and schedule of Henry Schein, Inc. and
Subsidiaries, the financial statements of Veratex (a division of The Veratex
Corporation) and the consolidated financial statements of HS Pharmaceutical,
Inc. and Subsidiaries included in this Prospectus and in the Registration
Statement have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their reports
appearing elsewhere in this Prospectus and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of such firm
as experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any

64
<PAGE>
agreement or other document filed as an exhibit to the Registration Statement
are not necessarily complete, and in each instance reference is made to the copy
of such agreement filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. In addition, the
Company is subject to the informational requirements of the Exchange Act, and in
accordance therewith files reports and other information with the Commission.
The Registration Statement, including the exhibits and schedules thereto, as
well as the Company's periodic reports, proxy statements and other information,
may be inspected at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549;
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621;
and Seven World Trade Center, New York, New York 10048; and copies of all or any
part thereof may be obtained from such office upon payment of the prescribed
fees. The Company's Common Stock is traded on the Nasdaq National Market and
such reports, proxy statements and other information may be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006

65
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
HENRY SCHEIN, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants................................. F-2
Consolidated Financial Statements:
Balance Sheets as of December 31, 1994, December 30, 1995 and March 30, 1996
(unaudited)..................................................................... F-3
Statements of Operations for the years ended December 25, 1993, December 31, 1994
and December 30, 1995 and for the three months ended March 30, 1996 (unaudited)
and July 1, 1995 (unaudited).................................................... F-4
Statements of Stockholders' Equity for the years ended December 25, 1993,
December 31, 1994 and December 30, 1995 and the three months ended March 30,
1996 (unaudited)................................................................ F-5
Statements of Cash Flows for the years ended December 25, 1993, December 31, 1994
and December 30, 1995 and the three months ended March 30, 1996 (unaudited) and
July 1, 1995 (unaudited)........................................................ F-6
Notes to Consolidated Financial Statements....................................... F-7
VERATEX
Report of Independent Certified Public Accountants................................. F-28
Financial Statements:
Statements of Assets Purchased as of December 31, 1994 and June 30, 1995
(unaudited)..................................................................... F-29
Statements of Revenues and Direct Operating Expenses for the year ended December
31, 1994 and the six months ended June 30, 1994 (unaudited) and June 30, 1995
(unaudited)..................................................................... F-30
Notes to Financial Statements.................................................... F-31
HS PHARMACEUTICAL, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants................................. F-32
Consolidated Financial Statements:
Balance Sheets as of December 31, 1994 and December 30, 1995..................... F-33
Statements of Income and Retained Earnings for the years ended December 25, 1993,
December 31, 1994 and December 30, 1995......................................... F-34
Statements of Cash Flows for the years ended December 25, 1993, December 31, 1994
and December 30, 1995........................................................... F-35
Notes to Consolidated Financial Statements....................................... F-36
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Henry Schein, Inc.
Melville, New York

We have audited the accompanying consolidated balance sheets of Henry
Schein, Inc. and Subsidiaries as of December 31, 1994 and December 30, 1995 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Henry
Schein, Inc. and Subsidiaries at December 31, 1994 and December 30, 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended December 30, 1995, in conformity with generally accepted
accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.

BDO SEIDMAN, LLP

New York, New York
February 23, 1996

F-2
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, MARCH 30,
1994 1995 1996
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 4,450 $ 7,603 $ 7,500
Accounts receivable, less reserves of $4,319, $6,335 and
$5,891, respectively.................................. 57,464 91,248 104,859
Inventories............................................. 76,933 96,515 87,897
Deferred income taxes................................... 5,232 6,896 6,715
Other................................................... 14,077 19,492 18,579
------------ ------------ -----------
Total current assets.................................. 158,156 221,754 225,550
Property and equipment, net................................. 19,908 29,713 30,816
Goodwill and other intangibles, net......................... 5,044 24,389 26,186
Investments and other....................................... 6,912 21,011 21,181
------------ ------------ -----------
$190,020 $296,867 $ 303,733
------------ ------------ -----------
------------ ------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 45,158 $ 65,105 $ 56,184
Bank credit lines....................................... 6,646 9,325 8,085
Accruals:
Salaries and related expenses......................... 5,002 9,074 9,999
Premium coupon redemptions............................ 3,992 4,474 4,354
Other................................................. 17,995 26,534 19,012
Current maturities of long-term debt.................... 2,971 3,343 3,861
------------ ------------ -----------
Total current liabilities............................. 81,764 117,855 101,495
Long-term debt.............................................. 51,521 30,381 51,701
Other liabilities........................................... 600 1,233 1,236
------------ ------------ -----------
Total liabilities..................................... 133,885 149,469 154,432
------------ ------------ -----------
Redeemable stock, 2,084,398 shares.......................... 14,745 -- --
------------ ------------ -----------
Minority interest........................................... 1,823 4,547 4,361
------------ ------------ -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized 60,000,000;
issued: 9,923,859, 18,358,673 and 18,358,673,
respectively.......................................... 99 183 183
Additional paid-in capital.............................. 9,964 123,866 123,866
Retained earnings....................................... 29,962 19,746 22,210
Treasury stock, at cost, 51,679 shares in 1995 and
1996................................................... -- (769) (769)
Foreign currency translation adjustment................. (458) (175) (550)
------------ ------------ -----------
Total stockholders' equity............................ 39,567 142,851 144,940
------------ ------------ -----------
$190,020 $296,867 $ 303,733
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------------------ --------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................... $415,710 $486,610 $616,209 $136,040 $ 185,359
Cost of sales............................... 294,693 343,922 425,625 95,725 130,410
------------ ------------ ------------ -------- ---------
Gross profit............................. 121,017 142,688 190,584 40,315 54,949
Operating expenses:
Selling, general and administrative...... 109,574 128,560 170,823 37,329 50,245
Special management compensation.......... 617 21,596 20,797 -- --
Special contingent consideration......... 3,216 -- -- -- --
Special professional fees................ 2,224 2,007 -- -- --
------------ ------------ ------------ -------- ---------
Operating income (loss)................ 5,386 (9,475) (1,036) 2,986 4,704
Other income (expense):
Interest income.......................... 856 251 475 69 395
Interest expense......................... (3,216) (3,756) (5,833) (1,288) (961)
Other-net................................ (634) 541 276 97 (97)
------------ ------------ ------------ -------- ---------
Income (loss) before taxes on income
(recovery), minority interest and
equity in earnings of affiliates..... 2,392 (12,439) (6,118) 1,864 4,041
Taxes on income (recovery).................. 1,351 (1,630) 5,126 781 1,783
Minority interest in net income (loss) of
subsidiaries............................... 318 561 509 172 (70)
Equity in earnings of affiliates............ 1,296 494 1,537 25 136
------------ ------------ ------------ -------- ---------
Income (loss) before cumulative effect of
accounting change....................... 2,019 (10,876) (10,216) 936 2,464
Cumulative effect of accounting change...... 1,891 -- -- -- --
------------ ------------ ------------ -------- ---------
Net income (loss)........................... $ 3,910 $(10,876) $(10,216) $ 936 $ 2,464
------------ ------------ ------------ -------- ---------
------------ ------------ ------------ -------- ---------
Net income per common share................. $ .08 $ .13
-------- ---------
-------- ---------
Weighted average common and common
equivalent shares outstanding.............. 12,184 18,670
-------- ---------
-------- ---------
Pro forma:
Historical net loss...................... $(10,876) $(10,216)
Pro forma adjustments:
Special management compensation and
professional fees..................... 23,603 20,797
Tax effect of above.................... (5,749) (1,174)
------------ ------------
Pro forma net income..................... $ 6,978 $ 9,407
------------ ------------
------------ ------------
Pro forma net income per common share.... $ .58 $ .70
------------ ------------
------------ ------------
Pro forma weighted average common and
common equivalent shares outstanding.... 12,127 13,447
------------ ------------
------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Henry Schein,
Inc. and all of its wholly-owned and majority-owned subsidiaries (the
"Company"). Investments in unconsolidated affiliates which are 50% or less owned
are accounted for under the equity method. All material intercompany accounts
and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Fiscal Year

The Company reports its operations on a 52-53 week basis ending on the last
Saturday of December. Accordingly, fiscal years ended December 25, 1993 and
December 30, 1995 consisted of 52 weeks and the fiscal year ended December 31,
1994 consisted of 53 weeks.

Revenue Recognition

Sales are recorded when products are shipped or services are rendered,
except for the portion of revenues from sales of practice management software
which is attributable to noncontractual postcontract customer support, which is
deferred and recognized ratably over the period in which the support is expected
to be provided.

Inventories

Inventories consist substantially of finished goods and are valued at the
lower of cost or market. Cost is determined by the first-in, first-out ("FIFO")
method.

Property and Equipment and Depreciation and Amortization

Property and equipment are stated at cost. Depreciation is computed
primarily under the straight-line method over the following estimated useful
lives:

YEARS
-----
Buildings and improvements......................................... 40
Machinery and warehouse equipment.................................. 5-10
Furniture, fixtures and other...................................... 3-10
Computer equipment................................................. 5

F-7
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Amortization of leasehold improvements is computed using the straight-line
method over the lesser of the useful life of the assets or the lease term.

Taxes on Income

The Company filed a consolidated Federal income tax return with Schein
Holdings, Inc. for the period ended September 30, 1994 (see Note 2). For the
balance of 1994 the Company filed a consolidated Federal income tax return with
its 80% or greater owned subsidiaries and expects to continue to do so
thereafter. Income taxes for financial statement presentation were calculated
through the period ending September 30, 1994 as if the Company filed a separate
tax return.

Effective for 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109
provides that deferred income taxes are recognized for the tax consequences of
temporary differences between the financial reporting bases and the tax bases of
the Company's assets and liabilities.

Premium Coupon Program

The Company issues premium coupons to certain customers in conjunction with
sales of its products which are redeemable for gifts. Premium coupon redemptions
are accrued as issued based upon expected redemption rates.

Statement of Cash Flows

For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments and other short-term investments with an initial
maturity of three months or less to be cash equivalents. The Company has
determined that the effect of foreign exchange rate changes on cash flows is not
material.

Foreign Currency Translation and Transactions

The financial position and results of operations of the Company's foreign
subsidiaries are determined using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from the use of differing exchange rates from period to period are
included in the cumulative translation adjustment account in stockholders'
equity. Gains and losses resulting from foreign currency transactions are
included in earnings, except for certain hedging transactions (see below).

Financial Instruments

The Company uses forward exchange contracts to hedge certain firm
commitments denominated in foreign currencies. Gains and losses on these
positions are deferred and included in the basis of the transaction when it is
completed. In order to manage interest rate exposure, the Company has entered
into interest rate swap agreements to exchange variable rate debt based on LIBOR
into fixed rate debt

F-8
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
without the exchange of the underlying principal amounts. Net payments or
receipts under the agreements are recorded as adjustments to interest expense.

The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, accounts payable, and accrued
liabilities approximate fair value because of the immediate or short-term
maturity of these financial instruments. The carrying amount reported for
long-term debt approximates fair value because the underlying instruments are at
variable rates which are repriced frequently.

Acquisitions

The net assets of businesses purchased are recorded at their fair value at
the acquisition date and the consolidated financial statements include their
operations from that date. Any excess of acquisition costs over the fair value
of identifiable net assets acquired is included in goodwill and is amortized on
a straight-line basis over periods not exceeding 30 years.

Deferred Catalog Costs

Effective for 1993, the Company adopted AICPA Statement of Position 93-7
("SOP 93-7"), "Reporting on Advertising Costs." SOP 93-7 establishes accounting
standards for reporting the costs of advertising and direct response
advertising. The cumulative effect of this change was not material. In
accordance with this statement the net costs of direct mail catalogs used to
order merchandise are deferred and amortized ratably over the expected benefit
period of the specific catalog, which ranges from six to twelve months, and are
not material.

Long-Lived Assets

Long-lived assets, such as goodwill and property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to fair value. This
policy is in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which is effective for fiscal years beginning after
December 15, 1995. No impairment losses have been necessary through March 31,
1996.

Unaudited Interim Consolidated Financial Statements

In the opinion of the Company's management, the consolidated balance sheet
as of March 30, 1996, the consolidated statements of operations and cash flows
for the three months ended April 1, 1995 and March 30, 1996, and the
consolidated statement of stockholders' equity for the three months ended March
30, 1996 contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the information set forth therein. The results of
operations for the three months ended March 30, 1996 are not necessarily
indicative of the results for any other period.

F-9
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Stock-Based Compensation

The Company does not presently intend to adopt the fair value method of
accounting for stock options as permitted by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation".

Earnings Per Share
(a) Historical Net Income Per Share

Historical net income per share for the three months ended April 1, 1995 and
March 30, 1996 is computed using the weighted average number of common and
common equivalent shares outstanding, after reflecting a 99-for-1 stock split
effected immediately prior to the initial public offering.

The common equivalent shares relating to the stock options issued to
executive management in 1995 have been treated as if they were outstanding since
the beginning of 1995 and are calculated using the treasury stock method, using
the initial public offering price of $16.00 per share for assumed repurchase for
the three months ended April 1, 1995 and the average share price for the three
months ended March 30, 1996.

(b) Pro Forma Net Income Per Share

Historical per share information for the years ended December 31, 1994 and
December 30, 1995 is not considered relevant as it would differ materially from
pro forma per share data, given the significance of the pro forma adjustments.
Pro forma net income per share is computed using pro forma net income and the
pro forma weighted average number of common and common equivalent shares
outstanding, after reflecting a 99-for-1 stock split effected immediately prior
to the initial public offering.

The common equivalent shares relating to the stock options issued to
executive management in 1995, the shares issued to senior management in 1994 to
extinguish a previously accrued liability, and the shares contributed to the
ESOP trust in 1994 have been treated as if they were outstanding since the
beginning of 1994. Such ESOP shares and common equivalent shares relating to the
stock options are calculated using the treasury stock method, using the initial
public offering price of $16.00 per share for assumed repurchase for the period
prior to the initial public offering. For the period subsequent to the initial
public offering, application of the treasury stock method to the stock options
reflects the average share price.

As required by APB Opinion No. 15, supplementary pro forma income per share
for the year ended December 30, 1995 was $.67. For this calculation, the
weighted average number of common shares includes the shares assumed to provide
the proceeds, at the initial public offering price, needed to retire average
revolving credit borrowings and debt for the period from the beginning of the
year (or the date the debt was incurred) to the respective retirement date, and
the pro forma net income was adjusted to exclude the related financing and
interest expenses of the debt.

F-10
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 2--REORGANIZATION

On December 26, 1992, Henry Schein, Inc., a New York corporation ("Old
HSI"), reorganized its corporate structure to split into separate healthcare
distribution and pharmaceutical companies (the "Split"). The Split was
accomplished by transferring substantially all of Old HSI's assets and
liabilities relating to the distribution business to Henry Schein USA, Inc., a
newly formed corporation ("New HSI"). Subsequent to the Split, the name of Old
HSI was changed to Schein Holdings, Inc. and the name of New HSI was changed to
Henry Schein, Inc. ("HSI"). As a result of the Split, Schein Holdings, Inc.
("Holdings") became the parent of the Company and Schein Pharmaceutical, Inc.
(the pharmaceutical company, "SPINC").

The accompanying financial statements give retroactive effect to the Split
as described above, and reflect the historical cost bases of the assets and
liabilities of the distribution business.

On February 16, 1994, the shareholders of Holdings and HSI and certain HSI
management entered into an agreement (the "HSI Agreement") whereby certain
voting and non-voting shares of HSI stock were exchanged for new voting stock of
HSI, a 100-for-1 stock split was effectuated, and certain additional agreements
were entered into between HSI, the shareholders and management. The effect of
the stock exchanges was that Holdings distributed all of its shares in HSI to
certain shareholders of Holdings in exchange for its stock.

The HSI Agreement was subject to approval by the Westchester County
Surrogate Court, which approval was obtained on September 20, 1994. The HSI
Agreement was also subject to the closing of a transaction between the
shareholders of Holdings and Miles, Inc. ("Miles", an unrelated third party)
involving the sale by shareholders of Holdings of 28% of their shares to Miles.

In connection with the reorganization, during 1992 HSI issued 1,466,685
shares of common stock (valued at $6,173) to one of its executive officers and
147,312 shares of common stock (valued at $620) to an executive officer of
SPINC. In addition, SPINC issued shares to one of its executive officers and an
executive officer of HSI. Each company made cash payments to its respective
executive officer to cover the income taxes relating to the stock issuances. The
HSI shares issued to its executive officer originally were to vest after 10
years of employment. The other stock issuances were forfeitable if certain
events did not occur.

The stock issuances to HSI's executive officer were accounted for based on
the estimated fair value at the date of issuance, as deferred compensation,
which was classified as a reduction of stockholders' equity in the financial
statements of the applicable company whose executive officer received the
shares. Accordingly, the fair value of the shares of HSI issued to the executive
officer of SPINC was recorded as a distribution to Holdings. Conversely, the
fair value of the shares issued to HSI's executive officer by SPINC in the
amount of $2,641 was treated as a contribution to HSI's capital. The cash
payment to HSI's executive officer in the amount of $5,283 was charged to
operations in 1992 as a special management compensation charge. In 1994, an
additional cash payment of $258 was paid to HSI's executive officer to pay
certain additional income taxes attributable to the 1992 stock issuance and was
recorded as a special management compensation charge.

As part of the HSI Agreement, the vesting and events of forfeiture were
removed and the stock issued in 1992 became fully vested. Accordingly, the
estimated fair value of the stock issuances to HSI's executive officer were
revalued to reflect the fair values of HSI and SPINC at the time of vesting and

F-11
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 2--REORGANIZATION--(CONTINUED)
the related deferred compensation, net of amortization, of $17,301 was charged
to earnings as special management compensation in 1994.

Additionally, pursuant to previous commitments, certain senior management of
HSI were issued 489,456 shares including 91,377 shares issued subsequent to
December 31, 1994 and 83,259 shares issued prior to the closing of the initial
public offering in part to extinguish a previously accrued liability under a
pre-existing long-term incentive plan. In connection with the issuance of these
shares, a cash payment of approximately $2,472 was paid to cover the income
taxes relating to this stock issuance and was charged, along with the estimated
fair value of the related stock issued of $3,465, less the related obligations
extinguished of approximately $1,900, as special compensation and is included in
special compensation in 1994.

The shares issued to the executive officer and the senior management of HSI
were subject to repurchase by HSI at fair market value in the event employment
was terminated for any reason or an initial public offering of HSI's stock did
not occur by December 31, 1999. The repurchase feature was eliminated upon the
closing of the initial public offering. Special management compensation for the
year ended December 30, 1995 includes a $17,484 charge to operations to reflect
the appreciation in the fair market value of stock grants and issuances based on
the initial public offering price of $16.00 and a cash payment of approximately
$508 to cover income taxes related to those stock grants and issuances.

In addition, special management compensation for the year ended December 30,
1995 includes a charge of $2,805 to reflect the excess of the initial public
offering price over the exercise price of Class A options issued to certain
executive management in May 1995 (see Note 14(a)).

Special charges incurred in connection with this reorganization consist of
special management compensation expense of $617, $21,596, $20,797, and special
professional fees of $2,224, $2,007, $0, for the years ended 1993, 1994 and
1995, respectively.

During the years ended 1993, 1994 and 1995, the Company incurred special
professional fees related to the reorganization in the amounts of $570, $552 and
$0, respectively, on behalf of its stockholders. These amounts were deemed to be
dividends and deducted from retained earnings.

NOTE 3--OTHER CURRENT ASSETS

Other current assets consist of the following:

DECEMBER 31, DECEMBER 30, MARCH 30,
1994 1995 1996
------------ ------------ ---------
Prepaid expenses.................. $ 5,246 $ 3,941 $ 4,564
Vendor rebates receivable......... 3,052 5,744 5,948
Amounts due from affiliates....... 1,863 2,084 2,267
Refundable income taxes........... 551 2,645 897
Other............................. 3,365 5,078 4,903
------------ ------------ ---------
$ 14,077 $ 19,492 $18,579
------------ ------------ ---------
------------ ------------ ---------

F-12
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 4--PROPERTY AND EQUIPMENT--NET

Major classes of property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, MARCH 30,
1994 1995 1996
------------ ------------ ---------
<S> <C> <C> <C>
Land.................................... $ 1,189 $ 1,718 $ 1,699
Buildings and leasehold improvements.... 18,228 23,288 23,486
Machinery and warehouse equipment....... 5,921 10,509 10,142
Furniture, fixtures and other........... 10,421 12,165 13,379
Computer equipment...................... 12,098 15,937 17,230
------------ ------------ ---------
47,857 63,617 65,936
Less accumulated depreciation and
amortization........................... 27,949 33,904 35,120
------------ ------------ ---------
Net property and equipment.............. $ 19,908 $ 29,713 $30,816
------------ ------------ ---------
------------ ------------ ---------
</TABLE>

NOTE 5--GOODWILL AND OTHER INTANGIBLES--NET

Goodwill and other intangibles consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, MARCH 30,
1994 1995 1996
------------ ------------ ---------
<S> <C> <C> <C>
Goodwill................................ $4,799 $ 22,267 $24,861
Other................................... 1,333 3,917 3,469
------------ ------------ ---------
6,132 26,184 28,330
Less accumulated amortization........... 1,088 1,795 2,144
------------ ------------ ---------
$5,044 $ 24,389 $26,186
------------ ------------ ---------
------------ ------------ ---------
</TABLE>

Goodwill represents the excess of the purchase price of acquisitions over
the fair value of net assets acquired. During 1995, three acquisitions (the
distribution business of The Veratex Corporation, Schein Dental Equipment Corp.
and PRN Medical, Inc.) accounted for $15,282 of the $17,468 increase in
goodwill. Other intangibles include covenants not to compete, customer lists and
deferred acquisition costs. Goodwill and other intangibles are amortized on a
straight-line basis over periods not exceeding 30 years.

F-13
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 6--INVESTMENTS AND OTHER

Investments and other consist of:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, MARCH 30,
1994 1995 1996
------------ ------------ ---------
<S> <C> <C> <C>
Investments in unconsolidated affiliates................. $5,093 $ 9,865 $ 9,471
Long-term receivables (see Note 11(b))................... 761 8,399 7,933
Deferred borrowing costs and other, net of accumulated
amortization of $254, $1,664 and $1,879, respectively... 1,058 2,747 3,277
------------ ------------ ---------
$6,912 $ 21,011 $21,181
------------ ------------ ---------
------------ ------------ ---------
</TABLE>

The Company's investments are predominately 50% owned unconsolidated
affiliates consisting of various companies involved in the healthcare
distribution business and HS Pharmaceutical, Inc., which manufactures generic
pharmaceuticals. As of December 30, 1995, the Company's investments in
unconsolidated affiliates were $3,507 more than the Company's proportionate
share of the underlying equity of these affiliates. This amount, which has been
treated as goodwill, is being amortized over 30 years and charged to equity in
the operating results of these companies. Combined unaudited financial data for
these companies for periods subsequent to their acquisition follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
Current assets.................................... $ 15,338 $ 28,904
Total assets...................................... 20,170 35,220
Liabilities....................................... 13,463 22,995
Stockholders' equity.............................. 6,707 12,225
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED
------------------------------------------ --------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 41,623 $ 34,003 $ 55,090 $ 6,590 $20,303
Operating income.......................... 3,997 3,183 5,147 254 832
Net income................................ 1,670 1,428 2,920 30 415
</TABLE>

NOTE 7--BUSINESS ACQUISITIONS

The Company acquired 24 healthcare distribution businesses between 1993 and
March 30, 1996, including, on July 7, 1995, the distribution business of The
Veratex Corporation ("Veratex"), a national direct marketer of medical, dental
and veterinary products. The total amount of cash paid and promissory notes
issued for these acquisitions was approximately $6,910, $2,660 and $22,710 for
1993, 1994 and 1995, respectively. The Company also issued 1,260,416 shares of
common stock in connection with the acquisition of Schein Dental Equipment
Corp., of which approximately 928,700 shares were issued to a stockholder of the
Company. In addition, the Veratex acquisition agreement also provides for
contingent payments of up to $2,000 if certain financial targets are met.
Acquisitions completed during

F-14
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 7--BUSINESS ACQUISITIONS--(CONTINUED)
the three months ended March 30, 1996 were not material. These acquisitions have
been accounted for under the purchase method, except for the shares issued to a
stockholder as noted above which involves carryover of predecessor basis with
respect to the affiliate's proportionate share of net assets. Operations of
these businesses have been included in the consolidated financial statements
from their acquisition dates.

The summarized unaudited pro forma results of operations set forth below for
1994 and 1995 assume the acquisitions in 1994 and 1995 occurred as of the
beginning of each of these periods.

YEAR ENDED
----------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
Net sales...................................... $493,171 $669,016
Net loss....................................... (11,030) (11,107)
Pro forma net income, reflecting adjustment
for special management compensation and
professional fees............................ 6,824 8,516
Pro forma net income per common share.......... .56 .60

Pro forma net income per common share, including acquisitions, may not be
indicative of actual results, primarily because the pro forma earnings include
historical results of operations of acquired entities and do not reflect any
cost savings that may result from the Company's integration efforts.

During 1993, the Company incurred a charge of $2,528 resulting from the
buyout of an employee's rights to future income contained in his employment
agreement and paid contingent consideration of $688 to the prior owners of
another company acquired in 1993. These payments were charged to operating
expenses in 1993.

NOTE 8--BANK CREDIT LINES

At March 30, 1996, certain subsidiaries of the Company had available various
bank credit lines totaling approximately $13,876, expiring through March 1997.
Borrowings of $8,085 under these credit lines at interest rates ranging from
4.0% to 9.5% were collateralized by accounts receivable, inventory and property
and equipment of the subsidiaries with an aggregate net book value of $20,715 at
March 30, 1996.

F-15
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 9--LONG-TERM DEBT

Long-term debt consists of:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, MARCH 30,
1994 1995 1996
------------ ------------ ---------

<S> <C> <C> <C>
Borrowings under Revolving Credit Agreement (a).......... $ 35,800 $ 17,000 $39,000

Note payable for business acquisition (b)................ 4,836 4,383 4,383

Note payable for business acquisition (c)................ -- 2,400 2,400

Notes payable to banks, interest variable (8% at March
30, 1996), payable in quarterly installments ranging
from $15 to $31 through 2003, secured by inventory and
accounts receivable of $12,089 for 1994, $15,727 for
1995 and $16,003 for 1996.............................. 2,191 2,020 1,921

Note payable in monthly installments of $8 through July
2007, uncollateralized, interest increases 1% annually
to 5% in 2000, 6% from 2001 to 2007.................... -- 1,150 1,125

Mortgage payable to bank in quarterly installments of
$14, interest at 7.4% through November 2013,
collateralized by a building with a net book value of
$1,697................................................. 1,103 1,137 1,083

Note payable in semi-annual installments of $225 through
September 1998, uncollateralized, imputed interest at
8%...................................................... 1,422 972 747

Note payable in annual installments of $136 through March
2001, uncollateralized, interest at prime which
approximated 8% at March 30, 1996...................... 953 817 681

Term loan payable to bank in quarterly installments of
$63 with a balloon payment of $2,500 at maturity,
interest variable through December 2004, collateralized
by a building with a carrying value of $7,092--repaid
in November 1995....................................... 5,000 -- --

Various notes and loans payable with interest, in varying
installments through 1998, uncollateralized............. 3,187 3,845 4,222
------------ ------------ ---------

Total.................................................... 54,492 33,724 55,562

Less current maturities.................................. 2,971 3,343 3,861
------------ ------------ ---------

Total long-term debt..................................... $ 51,521 $ 30,381 $51,701
------------ ------------ ---------
------------ ------------ ---------
</TABLE>

(a) Revolving Credit Agreement

The Company's revolving credit agreement, as amended, provides for maximum
borrowings of $65 million through July 1999. The interest rate on any borrowings
under the agreement is based on prime or LIBOR as defined in the agreement,
which were 8.25% and 5.31%, respectively, at March 30, 1996. The borrowings
outstanding at March 30, 1996 were at interest rates ranging from 5.94% to
8.25%. The agreement provides for a 0.19% fee on any unused portion of the
commitment. The agreement also

F-16
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 9--LONG-TERM DEBT--(CONTINUED)
provides, among other things, that HSI will maintain, on a consolidated basis,
as defined, a minimum tangible net worth, current, cash flow, and interest
coverage ratios, a maximum leverage ratio, and contains restrictions relating to
annual dividends in excess of $500, guarantees of subsidiary debt, investments
in subsidiaries, mergers and acquisitions, liens, capital expenditures, certain
changes in ownership and employee and shareholder loans. As of March 30, 1996,
approximately $5,173 of the Company's retained earnings represented
undistributed earnings of affiliates.

(b) Note Payable for Business Acquisition

In November 1993, a subsidiary of the Company entered into a term loan
agreement for $5,290 with a bank. The proceeds of this loan were used to acquire
a dental supply distribution company. Principal is payable in semi-annual
installments of $227 through October 1997, with a final balloon payment of
$3,474 on October 31, 1997. Interest is payable quarterly at a rate of 6.7% per
year. The agreement also provides for the same financial covenants and
restrictions as the revolving credit agreement.

In October 1995, the Company entered into a term loan agreement for $2,400
with a third party. The proceeds of this loan were used to acquire a medical
distribution company. Principal is payable in quarterly installments of $120
through October 2000. Interest is payable quarterly at the prime rate less 1.0%
per year.

As of December 30, 1995, the aggregate amounts of long-term debt maturing in
each of the next five years are as follows: 1996--$3,343; 1997--$5,789;
1998--$1,750; 1999--$18,850; 2000--$1,105.

NOTE 10--TAXES ON INCOME (RECOVERY)

The Company adopted SFAS No. 109 as of the beginning of 1993. The cumulative
effect on prior years of this change in accounting principle increased 1993 net
income by $1,891. The difference between calculating the 1993 income tax
provision under SFAS No. 109 and APB No. 11 was not material.

F-17
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 10--TAXES ON INCOME (RECOVERY)--(CONTINUED)
Taxes on income (recovery) are based on income (loss) before taxes on income
(recovery), minority interest and equity in earnings of affiliates as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED
------------------------------------------ --------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 1,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Domestic.................................. $1,304 $(13,978) $ (7,435) $ 1,417 $3,710
Foreign................................... 1,088 1,539 1,317 447 331
------------ ------------ ------------ -------- --------
Total income (loss) before taxes on income
(recovery), minority interest and equity
in earnings of affiliates............... $2,392 $(12,439) $ (6,118) $ 1,864 $4,041
------------ ------------ ------------ -------- --------
------------ ------------ ------------ -------- --------
</TABLE>

The provision for (recovery of) income taxes on income (loss) before the
1993 cumulative effect of accounting change was as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
------------------------------------------ ---------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Current tax expense (recovery):
U.S. Federal........................... $2,304 $ 1,528 $ 4,677 $ 1,148 $ 1,072
State and local........................ 373 459 924 218 345
Foreign................................ 225 (64) 616 202 198
------------ ------------ ------------ -------- ---------
Total current............................ 2,902 1,923 6,217 1,568 1,615
------------ ------------ ------------ -------- ---------
Deferred tax expense (benefit):
U.S. Federal........................... (1,521) (3,563) (836) (591) 150
State and local........................ (30) (155) (285) (196) 28
Foreign................................ -- 165 30 -- (10)
------------ ------------ ------------ -------- ---------
Total deferred........................... (1,551) (3,553) (1,091) (787) 168
------------ ------------ ------------ -------- ---------
Total provision (recovery)............... $1,351 $ (1,630) $ 5,126 $ 781 $ 1,783
------------ ------------ ------------ -------- ---------
------------ ------------ ------------ -------- ---------
</TABLE>

F-18
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 10--TAXES ON INCOME (RECOVERY)--(CONTINUED)
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, MARCH 30,
1994 1995 1996
------------ ------------ ---------
<S> <C> <C> <C>
Current deferred tax assets:
Inventory, premium coupon redemptions
and accounts receivable valuation
allowances.......................... $2,914 $3,592 $ 3,534
Uniform capitalization adjustments to
inventories.......................... 1,156 1,472 1,407
Accrued special professional fees and
other accrued liabilities............ 1,162 1,832 1,774
------------ ------------ ---------
Total current deferred tax asset........ 5,232 6,896 6,715
------------ ------------ ---------
Non-current deferred tax assets
(liabilities):
Property and equipment................ (373) (428) (425)
Provision for long-term executive
incentive compensation and other
accrued liabilities................. 348 (110) (97)
Net operating losses of foreign
subsidiaries......................... 140 2,403 2,011
------------ ------------ ---------
Total non-current deferred tax asset.... 115 1,865 1,489
Valuation allowance for non-current
deferred tax assets.................. (140) (2,403) (2,011)
------------ ------------ ---------
Net non-current deferred tax
liabilities............................ (25) (538) (522)
------------ ------------ ---------
Net deferred tax asset.................. $5,207 $6,358 $ 6,193
------------ ------------ ---------
------------ ------------ ---------
</TABLE>

The net deferred tax asset is realizable as the Company has sufficient
taxable income in prior carryback years to realize the tax benefit for
deductible temporary differences. The non-current deferred liability is included
in Other liabilities on the Consolidated Balance Sheets.

F-19
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 10--TAXES ON INCOME (RECOVERY)--(CONTINUED)
The tax provisions (recovery) differ from the amount computed using the
Federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
-------------------------------------------- ---------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Provision (recovery) at Federal
statutory rate..................... $ 837 $ (4,354) $ (2,141) $ 652 $ 1,414
State income taxes, net of Federal
income tax effect.................. 501 53 582 145 176
Net foreign and domestic losses for
which no tax benefits are
available.......................... 186 23 574 125 242
Foreign income taxed at other than
the Federal statutory rate.......... 221 (214) (25) 10 2
Non-deductible appreciation in stock
issued as special management
compensation...................... -- 3,318 6,109 -- --
Deduction for charitable
contributions...................... -- (180) -- -- --
Write-off of related party debt
deducted for tax purposes only..... (320) -- -- -- --
Other............................... (74) (276) 27 (151) (51)
------------ ------------ ------------ -------- ---------
Income tax provision (recovery)..... $1,351 $ (1,630) $ 5,126 $ 781 $ 1,783
------------ ------------ ------------ -------- ---------
------------ ------------ ------------ -------- ---------
</TABLE>

Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries. Those earnings have been and
will continue to be reinvested. These earnings could become subject to
additional tax if they were remitted as dividends, if foreign earnings were
loaned to the Company or a U.S. affiliate, or if the Company should sell its
stock in the foreign subsidiaries. It is not practicable to determine the amount
of additional tax, if any, that might be payable on the foreign earnings;
however, the Company believes that foreign tax credits would substantially
offset any U.S. tax. At December 30, 1995, the cumulative amount of reinvested
earnings was approximately $1,560.

NOTE 11--FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS

(a) Financial Instruments

To reduce its exposure to fluctuations in foreign currencies and interest
rates, the Company is party to foreign currency forward contracts and interest
rate swaps with major financial institutions.

While the Company is exposed to credit loss in the event of nonperformance
by the counterparties of these contracts, the Company does not anticipate
nonperformance by the counterparties. The Company does not require collateral or
other security to support these financial instruments.

F-20
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 11-- FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS-- (CONTINUED)

As of March 30, 1996, the Company has outstanding foreign currency forward
contracts aggregating $13,768 related to debt and the purchase and sale of
merchandise. The contracts hedge against currency fluctuations of the Canadian
dollar ($4,195), British Pound ($756), Swiss Franc ($554), the Netherlands
Guilder ($6,815), Deutsche Mark ($648), and the Spanish Peseta ($800). The
contracts expire at various dates through October 1997. At March 30, 1996, the
Company had net deferred gains from foreign currency forward contracts of $15.

As of March 30, 1996, interest rate swaps totaling $13,000 were outstanding.
The swaps are used to convert floating rate debt to fixed rate debt to reduce
the Company's exposure to interest rate fluctuations. The net result was to
substitute a weighted average fixed interest rate of 7.81% for the variable
LIBOR rate on $13,000 of the Company's debt. The swaps expire in October and
November 2001. Under the interest rate environment during the three months ended
March 30, 1996, the net fair value of the Company's interest rate swap
agreements resulted in a realized loss of $7.

In October 1994, a subsidiary of the Company recorded a $509 foreign
currency gain relating to an intercompany loan intended to be repaid. This gain
is reflected in the Other-net section of the Consolidated Statements of
Operations.

(b) Concentrations of Credit Risk

Certain financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist primarily of
trade receivables and short-term cash investments.

The Company places its short-term cash investments with high credit quality
financial institutions and, by policy, limits the amount of credit exposure to
any one financial institution. Concentrations of credit risk with respect to
trade receivables are limited due to a large customer base and its dispersion
across different types of healthcare professionals and geographic areas. The
Company maintains an allowance for losses based on the expected collectability
of all receivables. Included in Accounts Receivable and Long-Term Receivables
(see Note 6) at March 30, 1996 is $16,096 and $7,604, respectively, related to
Easy Dental(R) Plus software sales with non-interest bearing extended payment
terms. Total unamortized discounts at March 30, 1996 amounted to $1,326 based on
an imputed interest rate of 8.5%.

NOTE 12--RELATED PARTY TRANSACTIONS

(a) In the ordinary course of business, the Company purchases pharmaceutical
products from certain unconsolidated affiliates. Net purchases from these
affiliates amounted to $9,645, $12,055 and $8,730 in 1993, 1994 and 1995,
respectively, and $909 and $3,179 for the three months ended April 1, 1995 and
March 30, 1996, respectively. Included in Accounts Payable at December 31, 1994
and December 30, 1995 were $2,075 and $1,591, respectively, and $488 at March
31, 1996, for amounts due to these affiliates for purchases made from them.

F-21
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 12--RELATED PARTY TRANSACTIONS--(CONTINUED)
(b) The Company also shares certain services with these and other
unconsolidated affiliates which are charged to the affiliates at cost. The
Company charged these affiliates $4,089, $1,691 and $891 during 1993, 1994 and
1995, respectively, for these services and $201 and $193 during the three months
ended April 1, 1995 and March 30, 1996, respectively. In addition, sales (at
cost) to unconsolidated affiliates were $3,043, $3,160 and $3,784 in 1993, 1994
and 1995, respectively, and $911 and $44 for the three months ended April 1,
1995 and March 30, 1996, respectively.

(c) The Company recorded interest income of $616, $87, $88, $23 and $30, and
interest expense of $610, $13, $26, $10 and $24, in 1993, 1994, 1995 and the
three months ended April 1, 1995 and March 30, 1996, respectively, attributable
to transactions with unconsolidated affiliates. Included in Other Current Assets
are amounts due from unconsolidated affiliates of $1,863, $2,051 and $2,267 at
December 31, 1994, December 30, 1995 and March 30, 1996, respectively.

(d) A subsidiary of the Company leases its primary operating facility from
an officer of the subsidiary. Rent expense attributed to this facility amounted
to $86, $209 and $52 for 1994, 1995 and the three months ended March 30, 1996,
respectively.

(e) During 1994, a subsidiary of the Company entered into a sales service
agreement with an entity ("Salesco") owned by an officer of the subsidiary.
Under the terms of this agreement the subsidiary is required to reimburse
Salesco for all reasonable expenses incurred in connection with the services it
provides to the subsidiary and pay a fee to Salesco based upon a formula applied
to its pre-tax profit. Amounts paid during 1994, 1995 and 1996 under this
agreement were not material.

(f) The Company purchases products from Schein Dental Equipment Corp.
("SDEC"), formerly owned by a stockholder. In September 1995, the Company
acquired SDEC. Net purchases from SDEC prior to the acquisition amounted to
$1,183, $1,738 and $1,803, in 1993, 1994 and 1995, respectively, and $490 for
the three months ended April 1, 1995.

NOTE 13--SEGMENT AND GEOGRAPHIC DATA

The Company is engaged principally in one line of business, the distribution
of healthcare products to healthcare practitioners and professionals. The
following table presents information about the

F-22
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 13--SEGMENT AND GEOGRAPHIC DATA--(CONTINUED)
Company by geographic area. There were no material amounts of sales or transfers
among geographic areas and there were no material amounts of United States
export sales.
<TABLE>
<CAPTION>
1993 UNITED STATES EUROPE CONSOLIDATED
- ---------------------------------------------------------- ------------- ------- ------------
<S> <C> <C> <C>
Net sales................................................. $ 361,199 $54,511 $415,710
Operating income.......................................... 3,580* 1,806 5,386
Pre-tax income............................................ 1,304* 1,088 2,392
Identifiable assets....................................... 130,355 30,438 160,793
Depreciation and amortization............................. 2,592 1,389 3,981
Capital expenditures...................................... 2,122 781 2,903

1994
- ----------------------------------------------------------
<S> <C> <C> <C>
Net sales................................................. $ 408,463 $78,147 $486,610
Operating income (loss)................................... (11,649)* 2,174 (9,475)
Pre-tax income (loss)..................................... (13,978)* 1,539 (12,439)
Identifiable assets....................................... 155,772 34,248 190,020
Depreciation and amortization............................. 2,524 1,287 3,811
Capital expenditures...................................... 4,425 1,494 5,919
<CAPTION>

1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Net sales................................................. $ 516,794 $99,415 $616,209
Operating income (loss)................................... (3,626)* 2,590 (1,036)
Pre-tax income (loss)..................................... (7,435)* 1,317 (6,118)
Identifiable assets....................................... 243,677 53,190 296,867
Depreciation and amortization............................. 4,704 1,333 6,037
Capital expenditures...................................... 5,523 3,696 9,219
</TABLE>

- ------------

* Includes special management compensation, special professional fees and
special contingent consideration expense of $6,057, $23,603 and $20,797, for
1993, 1994 and 1995, respectively.

NOTE 14--EMPLOYEE BENEFIT PLANS

(a) Stock Options

The Company maintains a 1994 Stock Option Plan for the benefit of certain
employees under which 679,635 shares of common stock may be issued. The Plan
provides for two classes of options: Class A options and Class B options. A
maximum of 237,897 shares of common stock may be covered by Class A options.
Both incentive and nonqualified stock options may be issued under the Plan.

In 1995, Class A options to acquire 237,897 common shares were issued to
certain executive management at an exercise price of $4.21 per share,
substantially all of which became exercisable upon the closing of the initial
public offering, at which time the $2,805 excess of the initial public offering
price of $16.00 over the exercise price was charged to special management
compensation expense.

F-23
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 14--EMPLOYEE BENEFIT PLANS--(CONTINUED)
On November 3, 1995, the Company issued Class B options to acquire 413,400
shares of common stock to certain employees at an exercise price of $16.00 per
share, substantially all of which become exercisable ratably over three years
from the date of issuance. The Class A and Class B options are exercisable up to
the tenth anniversary of the date of issuance, subject to acceleration upon
termination of employment. As of March 30, 1996, no options were exercised.

(b) Profit Sharing Plans

The Company has qualified noncontributory profit sharing plans for eligible
employees. Contributions to the plans as determined by the Board of Directors
and charged to operations during 1993, 1994, 1995 and the three months ended
April 1, 1995 and March 30, 1996 amounted to $1,936, $1,719, $2,178, $620 and
$803, respectively.

In 1994, the Company established an ESOP and a related trust as a benefit
for substantially all of its domestic employees. This plan supplements the
Company's Profit Sharing Plan. Under this plan, the Company issued 128,257
shares of HSI common stock to the trust in 1994 at an estimated fair value of
$900, which was charged to operations. For 1995, the Company will contribute 3%
of eligible compensation with shares of the Company's common stock.

(d) Supplemental Executive Retirement Plan

In 1994, the Company instituted a nonqualified supplemental executive
retirement plan for eligible employees. Contributions, as determined by the
Board of Directors and charged to operations, were $27 and $68 for 1994 and
1995, respectively, and $17 and $22 for the three months ended April 1, 1995 and
March 30, 1996.

NOTE 15--COMMITMENTS AND CONTINGENCIES

(a) Operating Leases

The Company leases facilities and equipment under noncancelable operating
leases expiring through 2009. Management expects that in the normal course of
business, leases will be renewed or replaced by other leases.

F-24
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 15--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Future minimum annual rental payments under the noncancelable leases at
December 30, 1995 are as follows:

1996............................................................. $ 7,696
1997............................................................. 7,304
1998............................................................. 6,308
1999............................................................. 4,751
2000............................................................. 4,028
Thereafter....................................................... 14,309
-------
Total minimum lease payments..................................... $44,396
-------
-------

Total rental expense for 1993, 1994 and 1995 was $4,878, $5,874 and $7,324,
respectively and $1,547 and $2,216 for the three months ended April 1, 1995, and
March 30, 1996, respectively.

(b) Litigation

Various claims, suits and complaints, such as those involving government
regulations and product liability, arise in the ordinary course of the Company's
business. In the opinion of the Company, all such pending matters are without
merit, covered by insurance or are of such kind, or involve such amounts, as
would not have a material adverse effect on the financial statements of the
Company if disposed of unfavorably.

The Company has employment, consulting and noncompete agreements expiring
through 2000 (except for a lifetime consulting agreement with a principal
stockholder which provides for initial compensation of $258 per year, increasing
$25 every fifth year beginning in 1997). The agreements provide for varying base
aggregate annual payments of approximately $2,996 per year which decrease
periodically to approximately $1,437 per year. In addition, some agreements have
provisions for incentive and additional compensation.

NOTE 16--SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and income taxes amounted to the following:

F-25
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 16--SUPPLEMENTAL CASH FLOW INFORMATION--(CONTINUED)
In conjunction with business acquisitions, the Company used cash as follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
------------------------------------------ --------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Fair value of assets acquired, excluding
cash.................................... $ 10,163 $ 3,525 $ 59,544 $ 1,210 $ 5,819
Less liabilities assumed and created upon
acquisition............................. (9,049) (3,525) (43,167) 930 3,894
------------ ------------ ------------ -------- ---------
Net cash paid............................ $ 1,114 $ -- $ 16,377 $ 280 $ 1,925
------------ ------------ ------------ -------- ---------
------------ ------------ ------------ -------- ---------
</TABLE>

In 1995, the Company entered into a note payable of $2,400 in connection
with one of its acquisitions.

In connection with the HSI Agreement, certain expenses incurred on behalf of
and advances to stockholders amounting to $275 are included in deemed dividends
for 1993.

NOTE 17--OTHER INCOME (EXPENSE)--NET

Other income (expense)-net consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
-------------------------------------------- ---------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Investment losses................... $ (463) -$- -$- $-- $--
Gain (loss) on sale of assets....... (70) 100 33 4 --
Net foreign exchange gain (loss).... (79) 415 43 (57) (120)
Other non-operating income
(expense).......................... (22) 26 200 150 23
------ ----- ----- -------- ---------
$ (634) $541 $276 $ 97 $ (97)
------ ----- ----- -------- ---------
------ ----- ----- -------- ---------
</TABLE>

NOTE 18--QUARTERLY INFORMATION (UNAUDITED)

The following table sets forth summary quarterly unaudited financial
information for 1994, 1995, and the first quarter of 1996 excluding
non-recurring special charges and the related tax effects:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 26, JUNE 25, SEPTEMBER 24, DECEMBER 31,
1994 1994 1994 1994
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales.................................... $ 108,356 $115,793 $ 122,695 $139,766
Gross profit................................. 31,695 33,708 34,998 42,287
Pro forma operating income................... 1,876 3,347 4,516 4,389
Pro forma net income......................... 881 1,520 1,577 3,000
Pro forma earnings per share................. 0.07 0.13 0.13 0.25
</TABLE>

F-26
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED
APRIL 1, 1995 AND SUBSEQUENT TO DECEMBER 30, 1995 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 18--QUARTERLY INFORMATION (UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
APRIL 1, JULY 1, SEPTEMBER 30, DECEMBER 30, MARCH 30,
1995 1995 1995 1995 1996
-------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $136,040 $139,753 $ 156,667 $183,749 $ 185,359
Gross profit....................... 40,315 42,107 48,090 60,072 54,949
Pro forma operating income......... 2,986(1) 4,689 5,188 6,898 4,704(1)
Pro forma net income............... 936(1) 2,066 2,093 4,312 2,464(1)
Pro forma earnings per share....... 0.08(1) 0.17 0.17 0.26 0.13(1)
</TABLE>

- ------------

(1) Historical.

The Company's business has been subject to seasonal and other quarterly
influences. Net sales and operating profits have been generally higher in the
fourth quarter due to timing of sales of software, year-end promotions and
purchasing patterns of office-based healthcare practitioners and have been
generally lower in the first quarter due primarily to the increased purchases in
the prior quarter. Quarterly results also may be materially affected by a
variety of other factors, including the timing of acquisitions and related
costs, the release of software enhancements, timing of purchases, special
promotional campaigns, fluctuations in exchange rates associated with
international operations and adverse weather conditions.

Earnings per share calculations for each quarter were based on the weighted
average number of shares outstanding for each period, and the sum of the
quarters may not necessarily be equal to the full year earnings per share
amount.

F-27
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Henry Schein, Inc.

We have audited the accompanying statement of assets purchased of Veratex (a
division of The Veratex Corporation) as of December 31, 1994, and the statement
of revenues and direct operating expenses for the year then ended. These
financial statements are the responsibility of Veratex's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement of assets purchased and statement of revenues and
direct operating expenses were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in the registration statement on Form S-1 of Henry Schein, Inc.), and is not
intended to be a complete presentation of the Company's financial position or
results of operations.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets purchased of Veratex (a division of The
Veratex Corporation) at December 31, 1994, and its revenues and direct operating
expenses for the year then ended in conformity with generally accepted
accounting principles.

BDO Seidman, LLP

New York, New York
July 24, 1995

F-28
<PAGE>
VERATEX
(A DIVISION OF THE VERATEX CORPORATION)
STATEMENTS OF ASSETS PURCHASED
DECEMBER 31, JUNE 31,
1994 1995
------------ -----------
(UNAUDITED)
ASSETS
Accounts receivable.............................. $3,100,000 $ 3,300,000
Inventories...................................... 5,591,000 4,989,000
Furniture and fixtures........................... 75,000 75,000
------------ -----------
Assets purchased................................. $8,766,000 $ 8,364,000
------------ -----------
------------ -----------

See accompanying notes to financial statements.

F-29
<PAGE>
VERATEX
(A DIVISION OF THE VERATEX CORPORATION)
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------------
1994 1994 1995
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net sales........................................... $ 39,538,000 $20,161,000 $19,853,000
Cost of sales....................................... 26,999,000 13,628,000 14,079,000
------------ ----------- -----------
Gross profit........................................ 12,539,000 6,533,000 5,774,000
Direct operating expenses........................... 10,369,000 5,084,000 5,015,000
------------ ----------- -----------
Revenues in excess of direct operating expenses..... $ 2,170,000 $ 1,449,000 $ 759,000
------------ ----------- -----------
------------ ----------- -----------
Pro forma income taxes (unaudited).................. $ 846,000 $ 565,000 $ 296,000
------------ ----------- -----------
------------ ----------- -----------
</TABLE>

See accompanying notes to financial statements.

F-30
<PAGE>
VERATEX
(A DIVISION OF THE VERATEX CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1994 AND 1995 IS UNAUDITED.)

NOTE 1--BASIS OF PRESENTATION

The statements of assets purchased and statements of revenues and direct
operating expenses relate to Veratex (the "Company"), the retail distribution
division of The Veratex Corporation. The Company is engaged in the business of
distributing a wide range of health care supplies and paper products via mail
order. Under an agreement dated June 14, 1995, inventories, certain furniture
and fixtures and the business of the division are to be sold to Henry Schein,
Inc.

The financial statements have been prepared to substantially comply with
rules and regulations of the Securities and Exchange Commission for businesses
acquired. Such financial statements, rather than complete financial statements,
are presented because the business was acquired from an unaffiliated third party
in a negotiated transaction and the seller would not allow management of Henry
Schein, Inc. access to records supporting net assets that will not be acquired
(such as certain property and equipment, accounts payable, accrued liabilities
and debt) and expenses not allocated by the group to the divisions, primarily
consisting of corporate compensation, data processing and management fees.
Accordingly, the statements present only the assets to be acquired and the
revenues and expenses directly attributable to the Company, consisting primarily
of selling expenses, freight and advertising. Pro forma income taxes are based
on applying the statutory Federal and state income tax rates to revenues in
excess of direct operating expenses. The Company's historical costs of finished
goods obtained from related entities do not reflect any markups that would
otherwise be charged to unrelated third parties by these entities. The
accompanying statements of revenues and direct operating expenses include
adjustments to cost of sales of $1,844,000, $931,000 and $915,000 for the year
ended December 31, 1994 and the six months ended June 30, 1994 and 1995,
respectively, for the estimated effect of these markups.

The financial statements presented are not representative of the actual
operations of the Company and, accordingly, statements of financial position and
cash flows are not applicable.

Interim Financial Information

The statement of assets purchased as of June 30, 1995 and the statements of
revenues and direct operating expenses for the six months ended June 30, 1994
and 1995, in the opinion of the Company's management, include all adjustments,
consisting of normal, recurring accruals necessary for a fair presentation. The
revenues and direct operating expenses for the six months ended June 30, 1995
are not necessarily indicative of the results for any other period.

NOTE 2--REVENUE RECOGNITION

Revenue is recognized when inventory is shipped to the customer.

NOTE 3--INVENTORIES

Inventories consist of merchandise purchased for resale and finished goods
acquired from related entities in the group. All inventories are valued at the
lower of cost or market. Cost is determined using the replacement cost method,
which approximates actual cost on a first-in, first-out basis.

F-31
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

HS Pharmaceutical, Inc.

We have audited the accompanying consolidated balance sheets of HS
Pharmaceutical, Inc. and Subsidiaries as of December 31, 1994 and December 30,
1995 and the related consolidated statements of income and retained earnings and
cash flows for each of the three years in the period ended December 30, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HS
Pharmaceutical, Inc. and Subsidiaries at December 31, 1994 and December 30, 1995
and the results of their operations and their cash flows for each of the three
years in the period ended December 30, 1995, in conformity with generally
accepted accounting principles.

BDO Seidman, LLP

New York, New York
February 16, 1996

F-32
<PAGE>
HS PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Current:
Accounts receivable, less allowance for doubtful accounts of
$105,400 and $95,703.......................................... $ 7,257,514 $ 7,062,447
Inventories.................................................... 3,059,126 4,258,660
Advances to affiliates......................................... 1,239,478 543,925
Prepaid expenses and other..................................... 377,286 565,845
------------ ------------
Total current assets....................................... 11,933,404 12,430,877
Property and equipment, net...................................... 3,576,613 3,539,376
Intangibles, less accumulated amortization of $182,833 and
$201,479........................................................ 184,085 165,439
Deposits and other............................................... 269,056 5,786
Advances and notes to affiliates................................. -- 1,076,723
------------ ------------
$ 15,963,158 $ 17,218,201
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft................................................. $ 900,722 $ 324,875
Revolving credit agreement..................................... 1,000,000 --
Accounts payable and accrued expenses.......................... 3,845,875 4,266,631
Income taxes payable........................................... 85,826 480,684
Current portion of long-term debt.............................. 1,093,268 834,700
------------ ------------
Total current liabilities.................................. 6,925,691 5,906,890
Long-term debt, less current portion............................. 2,770,718 2,195,980
Deferred income taxes............................................ 71,000 152,000
------------ ------------
Total liabilities.......................................... 9,767,409 8,254,870
------------ ------------
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock--no par value, shares authorized 200; issued and
outstanding 20............................................... 382,845 40,100
Additional paid-in capital..................................... -- 342,745
Retained earnings.............................................. 5,812,904 8,580,486
------------ ------------
Total stockholders' equity................................. 6,195,749 8,963,331
------------ ------------
$ 15,963,158 $ 17,218,201
------------ ------------
------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-33
<PAGE>
HS PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales........................................... $ 26,424,528 $ 24,500,962 $ 28,123,977
Cost of sales....................................... 16,580,174 15,925,685 17,467,680
------------ ------------ ------------
Gross profit...................................... 9,844,354 8,575,277 10,656,297
Operating expenses:
Selling, general and administrative............... 4,777,310 5,615,183 6,157,515
------------ ------------ ------------
Operating income................................ 5,067,044 2,960,094 4,498,782
Other income (expense):
Interest expense, net............................. (310,963) (395,159) (500,293)
Foreign exchange remeasurement gain............... 1,523 47,543 (10,163)
Contract settlement............................... 120,520 -- --
Other............................................. -- -- 147,387
------------ ------------ ------------
Income before taxes on income................... 4,878,124 2,612,478 4,135,713
Taxes on income..................................... 1,875,500 1,004,000 1,368,131
------------ ------------ ------------
Net income.......................................... 3,002,624 1,608,478 2,767,582
Retained earnings, beginning of year................ 1,201,802 4,204,426 5,812,904
------------ ------------ ------------
Retained earnings, end of year...................... $ 4,204,426 $ 5,812,904 $ 8,580,486
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-34
<PAGE>
HS PHARMACEUTICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $3,002,624 $1,608,478 $2,767,582
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 484,277 469,763 425,861
Provision for losses on accounts receivable........ 203,774 38,843 15,000
Provision for deferred income taxes................ 6,500 16,000 81,000
Other.............................................. -- 25,000 5,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable....... (1,590,054) (1,821,447) 180,067
(Increase) decrease in inventories............... 232,953 (33,420) (1,199,165)
(Increase) decrease in advances to affiliates.... (734,339) 156,123 (381,170)
(Increase) decrease in prepaid expenses and
other........................................... 134,956 (212,711) (138,634)
(Increase) decrease in deposits and other........ (1,800) (258,071) 263,270
Increase (decrease) in accounts payable and
accrued expenses................................ (2,207,023) 940,230 415,386
Increase (decrease) in income taxes payable...... 1,848,882 (1,763,056) 339,870
------------ ------------ ------------
Net cash provided by (used in) operating activities.... 1,380,750 (834,268) 2,774,067
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................. (928,508) (1,156,332) (369,978)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdraft................ 186,211 (309,837) (575,847)
Credit line borrowings, net.......................... -- 1,000,000 (1,000,000)
Proceeds from long-term debt......................... -- 1,792,020 --
Principal payments on long-term debt................. (638,453) (491,583) (828,242)
------------ ------------ ------------
Net cash provided by (used in) financing activities.... (452,242) 1,990,600 (2,404,089)
------------ ------------ ------------
Net increase (decrease) in cash........................ -- -- --
Cash, beginning of year................................ -- -- --
------------ ------------ ------------
Cash, end of year...................................... $ -- $ -- $ --
------------ ------------ ------------
------------ ------------ ------------
Supplemental cash flow information:
Interest paid........................................ $ 297,338 $ 387,101 $ 608,216
Taxes paid........................................... $ 20,542 $2,836,776 $ 996,520
</TABLE>

See accompanying notes to consolidated financial statements.

F-35
<PAGE>
HS PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF ACCOUNTING POLICIES

Description of Business

HS Pharmaceutical, Inc. and Subsidiaries (the "Company") manufactures and
distributes pharmaceutical products and sells other accessory products to
dental, medical and veterinary distributors worldwide.

Principles of Consolidation

The consolidated financial statements include the accounts of HS
Pharmaceutical, Inc. and all of its wholly-owned subsidiaries. All material
intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

Fiscal Year

The Company reports its operations on a 52-53 week basis ending on the last
Saturday of December. Accordingly, fiscal years ended December 30, 1995 and
December 25, 1993 consisted of 52 weeks and the fiscal year ended December 31,
1994 consisted of 53 weeks.

Inventories

Inventories are valued at the lower of cost or market value. Manufactured
inventories of raw materials, work-in-progress and finished goods are valued
using standard costing methods, which approximate the first-in, first-out (FIFO)
method. The cost of inventory purchased for resale is determined by the FIFO
method.

Property and Equipment and Depreciation and Amortization

Property and equipment are stated at cost. Depreciation is computed
primarily under the straight-line method over the following estimated useful
lives:

YEARS
-----
Buildings and improvements......................................... 40
Machinery and warehouse............................................ 5-10
Computer hardware.................................................. 5
Capital lease equipment............................................ 5-10

F-36
<PAGE>
HS PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
Amortization of leasehold improvements is computed using the straight-line
method over the lesser of the useful lives of the assets or the lease term.

Intangibles

Intangibles consist of costs incurred in connection with obtaining
abbreviated new drug applications, investigational new drug exemptions and
licenses, permits and approvals relating to the manufacture and sale of
pharmaceutical products. These costs are being amortized using the straight-line
method over their estimated useful lives which is expected to be 20 years.

Taxes on Income

Statement of Cash Flows

Foreign Currency Remeasurement

Monetary assets and liabilities denominated in foreign currency have been
remeasured into the functional currency (the U.S. dollar) at the year-end rate
of exchange (U.S. $1 = Canadian $1.35, $1.40 and $1.31 at December 30, 1995,
December 31, 1994 and December 25, 1993, respectively). Non-monetary items are
remeasured at historical rates. Revenue and expenses are remeasured based on the
average monthly rate. Foreign exchange remeasurement gains and losses are
included in the determination of net income for the year.

Long-Lived Assets

F-37
<PAGE>
HS PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2--INVENTORIES

Inventories consist of the following:

DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
Raw materials................................. $ 711,394 $ 962,845
Work-in-progress.............................. 53,464 136,062
Finished goods................................ 468,489 418,780
Parts......................................... 156,286 148,012
------------ ------------
Total manufactured inventories................ 1,389,633 1,665,699
Inventory purchased for resale................ 1,669,493 2,592,961
------------ ------------
$3,059,126 $4,258,660
------------ ------------
------------ ------------

NOTE 3--PROPERTY AND EQUIPMENT, NET

Major classes of property and equipment consist of the following:

DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
Land............................................ $ 23,474 $ 23,474
Building........................................ 1,314,486 1,331,400
Machinery and equipment......................... 5,256,967 5,552,819
Computer hardware............................... 238,188 281,645
Capital lease equipment......................... 359,658 359,658
Leasehold improvements.......................... 185,765 199,519
------------ ------------
7,378,538 7,748,515
Less accumulated depreciation and amortization.. 3,801,925 4,209,139
Net property and equipment...................... $3,576,613 $3,539,376
------------ ------------
------------ ------------

NOTE 4--BANK OVERDRAFT

Bank overdraft bears interest at the U.S. and Canadian prime rates, as well
as LIBOR plus 3/4%, which were 8.5% and 9.0% for prime, respectively, and 6.63%
for LIBOR at the time the Company entered into such overdraft agreement, and is
due on demand. The bank overdraft and bank loans payable (see Note 6) are
secured by a general assignment of accounts receivable, a general security
agreement on all machinery and equipment, and a $2,500,000 demand debenture on
land and building.

F-38
<PAGE>
HS PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5--REVOLVING CREDIT AGREEMENT

During 1995, the Company entered into a $2,000,000 revolving credit
agreement with its bank, expiring September 30, 1996. Borrowings are due on
demand, collateralized by accounts receivable and inventories and bear interest
at Canadian prime plus 1/8%.

NOTE 6--LONG-TERM DEBT

Long-term debt consists of the following:

DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
Term loans payable in monthly installments
maturing at varying dates from August 1997
through December 1999, with interest at Canadian
prime plus 0.5%................................. $2,492,643 $1,877,901
Notes payable bearing interest at prime, payable
in annual installments of $191,885 principal,
plus interest, due March 31, 2001............... 1,343,194 1,151,308
Capital lease obligations, payable in monthly
installments of $2,227, including interest, due
January 1996.................................... 28,149 1,471
------------ ------------
3,863,986 3,030,680
Less: Current portion............................. 1,093,268 834,700
------------ ------------
$2,770,718 $2,195,980
------------ ------------
------------ ------------

Principal payments on long-term debt mature as follows:

YEAR AMOUNT
- ---- ----------
1996........................................................... $ 834,700
1997........................................................... 741,656
1998........................................................... 571,246
1999........................................................... 460,062
2000........................................................... 312,411
----------
$2,920,075
----------
----------

F-39
<PAGE>
HS PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 7--RELATED PARTY TRANSACTIONS

(a) Certain services of a 50% shareholder are provided to the Company at the
shareholder's cost. Total charges from this shareholder were approximately
$83,000, $109,000 and $105,000 for 1995 , 1994 and 1993, respectively. In
addition, the Company has made advances to this shareholder during 1995, 1994
and 1993. At December 30, 1995 and December 31, 1994, "Advances to affiliates"
includes amounts due from this shareholder of approximately $390,000 and
$256,000, respectively, and "Accounts payable and accrued expenses" includes
amounts due to this shareholder of approximately $927,000 and $906,000,
respectively.

In March 1991, the Company entered into an agreement with this same
shareholder to supply products at prices and quantities as defined in the
agreement. Sales to this same shareholder (including sales under this agreement)
accounted for approximately 22%, 24% and 27% of the Company's sales for 1995,
1994 and 1993, respectively. Included in "Accounts receivable" at December 30,
1995 and December 31, 1994 were approximately $1,356,000 and $1,276,000,
respectively, for amounts due from this shareholder.

(b) In March 1991, the other 50% shareholder of the Company granted the
Company a ten-year license to use certain of their trademarks. Royalties of
$75,000 annually are required under the terms of the agreement and were paid in
1995, 1994 and 1993.

In the ordinary course of business, the Company sells products to this same
shareholder. Net sales to this shareholder amounted to approximately $608,000,
$1,167,000 and $606,000 for 1995, 1994 and 1993, respectively. Included in
"Accounts receivable" at December 30, 1995 and December 31, 1994 were
approximately $88,000 and $653,000, respectively, for amounts due from this
shareholder.

In addition, the Company also purchases pharmaceutical products from this
shareholder. Net purchases from this shareholder amounted to approximately
$4,434,000, $3,773,000 and $4,775,000 for 1995, 1994 and 1993, respectively.
Included in "Accounts payable and accrued expenses" at December 30, 1995 were
approximately $974,000 and $1,001,000, respectively, for amounts due to this
shareholder.

(c) Interest expense related to accounts payable and accrued expenses owing
to the above shareholders amounted to approximately $51,000, $65,000 and $77,000
for 1995, 1994 and 1993, respectively.

(d) An affiliated company supplies a new product line to the Company.
Included in "Advances to affiliates" are net amounts due from this affiliate of
approximately $974,000 and $983,000 at December 30, 1995 and December 31, 1994,
respectively.

NOTE 8--COMMITMENTS AND CONTINGENCIES

The Company leases facilities and equipment under noncancelable operating
leases expiring through 1998. Total rental expense for 1995, 1994 and 1993 was
approximately $163,000, $153,000 and

F-40
<PAGE>
HS PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
$108,000, respectively. At December 30, 1995, future minimum annual rental
payments under these leases are as follows:

YEAR AMOUNT
- ---- --------
1996............................................................ $153,000
1997............................................................ 148,000
1998............................................................ 148,000
1999............................................................ 105,000
2000............................................................ 1,000
--------
$555,000
--------
--------

NOTE 9--TAXES ON INCOME

The Company adopted SFAS No. 109 as of the beginning of 1993. The cumulative
effect of this change was not material.

Taxes on income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Domestic.............................. $2,763,533 $1,193,905 $2,500,916
Foreign............................... 2,114,591 1,418,573 1,634,797
------------ ------------ ------------
Total income before taxes on income... $4,878,124 $2,612,478 $4,135,713
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current tax expense:
Current tax expense:
U.S. Federal........................ $ 859,000 $ 382,000 $ 764,670
State and local..................... 265,000 124,000 26,801
Foreign............................. 745,000 482,000 495,660
------------ ------------ ------------
Total current......................... 1,869,000 988,000 1,287,131
Deferred tax expense:
Foreign............................. 6,500 16,000 81,000
------------ ------------ ------------
Total provision....................... $1,875,500 $1,004,000 $1,368,131
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The deferred tax liability arises from temporary differences relating to
depreciation and amortization.

The Company's effective tax rate approximates the U.S. Federal statutory
rate.

F-41
<PAGE>
HS PHARMACEUTICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10--MAJOR CUSTOMERS AND EXPORT SALES

Sales to one unaffiliated customer accounted for approximately 13% of net
sales in 1993. Sales to this customer and another unaffiliated customer
accounted for approximately 25% of net sales in 1995 and 1994.

The Company had export sales amounting to 14%, 16% and 12% of net sales for
1995, 1994 and 1993, respectively.

NOTE 11--EMPLOYEE BENEFIT PLAN

Effective January 1, 1992, the Company adopted a 401(k) profit sharing plan
to provide retirement benefits for eligible employees. Matching contributions by
the Company, which were determined by the board of directors, were approximately
$39,000, $36,000 and $29,000 for 1995, 1994 and 1993, respectively.

In addition, the Company maintains a defined contribution plan for eligible
employees. Contributions to this plan, which were determined by the board of
directors, were approximately $92,000, $97,000 and $50,000 for 1995, 1994 and
1993, respectively.

NOTE 12--FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS

Certain financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist primarily of
trade receivables and temporary cash investments. The carrying value of
financial instruments approximated fair value as of December 30, 1995 because of
the short maturity of these instruments.

Concentrations of credit risk with respect to trade receivables are limited
due to a large customer base and its dispersion across different geographic
areas. The Company maintains an allowance for losses based on the expected
collectability of all receivables.

F-42
<PAGE>
============================================== ===============================
- ---------------------------------------------- -------------------------------

NO DEALER, SALESPERSON, OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, 5,700,000
AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS [LOGO] HENRY SCHEIN(R)
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. THIS PROSPECTUS DOES NOT COMMON STOCK
CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

------------------- ----------------
PROSPECTUS
TABLE OF CONTENTS JUNE 21, 1996
----------------
PAGE
----
Prospectus Summary.................... 3
The Company........................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 12
Dividend Policy....................... 12
Price Range of Common Stock........... 12
Capitalization........................ 13
Selected Consolidated Financial
Information and Operating Data...... 14
Pro Forma Condensed Consolidated
Financial Information............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 30
Reorganization........................ 41
Management............................ 43
Certain Transactions.................. 54
Principal and Selling Stockholders.... 56 WILLIAM BLAIR & COMPANY
Description of Capital Stock.......... 59
Underwriting.......................... 63 ALEX, BROWN & SONS
Legal Matters......................... 64 INCORPORATED
Experts............................... 64
Additional Information................ 64 MONTGOMERY SECURITIES
Index to Financial Statements......... F-1
SMITH BARNEY INC.
============================================== ===============================
- ---------------------------------------------- -------------------------------