<PAGE>
REGISTRATION STATEMENT
NO. 33-64399
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
_________________________________________________
MICRO BIO-MEDICS, INC.
(Exact name of registrant as specified in charter)
_________________________________________________
New York 5080 13-2692560
- --------------- ------------------- ---------------
(State or other (Standard industrial (I.R.S. employer
jurisdiction of classification code) identification no.)
incorporation)
_________________________________________________
846 Pelham Parkway
Pelham Manor, NY 10803
(Address of principal executive offices and principal place of business)
Registrant's telephone number - (914) 738-8400
___________________________________________________
Bruce J. Haber, President
846 Pelham Parkway
Pelham Manor, NY 10803
(Name and address of agent for service)
Agent's telephone number - (914) 738-8400
___________________________________________________________
Copies of all communications, including all communications
sent to the agent for service, should be sent to:
Steven Morse Esq. David W. Sass, Esq.
Lester Morse P.C. McLaughlin & Stern, LLP
111 Great Neck Road 380 Lexington Avenue
Great Neck, NY 11021 New York, NY 10168
Tel: (516) 487-1446 Tel: (212) 867-2500
Fax: (516) 487-1452 Fax: (212) 697-2817
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box. /X/
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Proposed
Title of Each Maximum Proposed
Class of Amount to Offering Maximum Amount of
Securities to be Price Per Aggregate Registration
be Registered Registered Share (1) Offering Price Fee
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
Par Value $.03
Per Share 280,696 $ 13.50 $ 3,789,396 $1,306.69
- ------------------------------------------------------------------------------------------
</TABLE>
______________
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933, and solely for the
purpose of calculating the registration fee pursuant to Section 14(g)(1)(A)
of the Exchange Act. The proposed maximum aggregate offering price is
based upon (i) the maximum anticipated number of 280,756 shares of Micro
Bio-Medics, Inc. ("Micro") which it is estimated will be issued in
connection with the merger to the security holders of Stone Medical Supply
Corporation ("Stone") and (ii) not less than the average of the high bid
and low asked prices of such securities at 4:00 p.m. on a specified date
within five business days prior to the date of filing of the Registration
Statement.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a) may
determine.
ii
<PAGE>
MICRO BIO-MEDICS, INC.
CROSS REFERENCE SHEET PURSUANT TO RULE 404(a) OF REGULATION C SHOWING
THE LOCATIONS IN THE PROXY STATEMENT-PROSPECTUS OF THE INFORMATION
REQUIRED TO BE INCLUDED THEREIN IN RESPONSE TO PART I OF FORM S-4.
<TABLE>
<CAPTION>
Location or Heading in
S-4 Item Number and Caption Proxy Statement/Prospectus
--------------------------- --------------------------
<S> <C>
1. Forepart of the Registration Statement
Cover Page of Prospectus Facing Page of Registration Statement
Cross Reference Sheet; Outside Front
Cover Page of Prospectus.
2. Inside Front and Outside Back Cover Pages
of Prospectus Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Information Summary; Risk Factors
4. Terms of the Transaction Summary; The Merger; Introduction;
Stone Meeting; Material Terms of the
Merger; Operations After the Merger
5. Pro Forma Financial Information Summary; Risk Factors; Comparative
Market Price Data of Stone and MBM;
Selected Financial Data and Other
Information of Stone; Stone Manage-
ment's Discussion and Analysis of
Financial Condition and Results of
Operations; Comparative Per Share
Financial Information;
Pro-Forma Selected Financial Data
of Stone and MBM;
Pro-Forma Capitalization
6. Material Contacts with the Company Being Acquired The Merger
7. Additional Information Required for Reoffering *
by Persons and Parties Deemed to Be Underwriters
8. Interests of Named Experts and Counsel Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities Management
10. Information with Respect to S-3 Registrants *
11. Incorporation of Certain Information by Reference *
12. Information with Respect to S-2 or S-3 Registrants
Plan of Distribution *
13. Incorporation of Certain Information by Reference *
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants Business of MBM; Management;
MBM Management's Discussion and
Analysis of Financial Condition
and Results of Operations
15. Information with Respect to S-3 Companies *
16. Information with Respect to S-2 or S-3 Companies: *
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<PAGE>
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies Business of Stone; Stone's
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Introduction; Stone Meeting;
The Merger; Material Terms of the
Merger; Operations After the Merger
18. Information if Proxies, Consents or Authorizations
are to be Solicited Introduction; Stone Meeting; The
Merger; Material Terms of the Merger
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer *
</TABLE>
_______________
*Item is omitted because answer is negative or item is inapplicable.
iv
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
2487 North Jerusalem Road
East Meadow, New York 11554
NOTICE OF SPECIAL ANNUAL MEETING
OF SHAREHOLDERS
January 18, 1996
TO THE SHAREHOLDERS OF STONE MEDICAL SUPPLY CORPORATION:
Notice is hereby given that a Special Meeting of Shareholders of Stone
Medical Supply Corporation ("Stone") will be held at the offices of Stone, 2487
North Jerusalem Road, East Meadow, New York 11554, at 10:00 A.M. local time. The
following important matters will be presented for your consideration and action:
1. To consider and vote upon an Agreement for Merger and Reorganization dated
November 2, 1995 (the "Merger Agreement") among Micro Bio-Medics, Inc.
("MBM") Diagnostic Leasing Corp. ("DLC"), Stone and Andrew D. Stone
pursuant to which Stone will be merged with and into DLC, a wholly-owned
subsidiary of MBM and the issued and outstanding shares of Stone Common
Stock will be converted into an aggregate of up to 280,696 shares of MBM
Common Stock.
2. Any and all other matters as may properly come before the meeting or any
adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on December 18, 1995
as the record date for determining shareholders entitled to notice of and to
vote at the Special Meeting of Shareholders and any adjournment thereof, and
only shareholders of record at such date will be entitled to notice of and to
vote at the meeting.
As of the record date, Stone had issued and outstanding 3,431,500 shares of
Common Stock. Each holder of Common Stock is entitled to one vote per share. The
holders of 2,532,750 shares of Common Stock, representing approximately 73.8% of
the outstanding shares, and consisting of Officers, Directors, and certain other
shareholders have indicated to Stone that they intend to vote FOR the Merger
Agreement. These shareholders will own, after the Merger, approximately 5.0% of
the MBM Common Stock.
By Order of the Board of Directors
David W. Sass, Secretary
East Meadow, New York
December 18, 1995
IMPORTANT: You are cordially invited to attend the meeting, but, whether or
not you plan to attend, PLEASE VOTE, DATE, SIGN and MAIL the
enclosed Proxy promptly. If you attend the meeting, you may
either vote by your Proxy, or withdraw your Proxy and vote in
person.
<PAGE>
MICRO BIO-MEDICS, INC.
PROSPECTUS
--------------
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS OF
STONE MEDICAL SUPPLY CORPORATION
STONE MEDICAL SUPPLY CORPORATION
2487 North Jerusalem Road
East Meadow, New York 11554
(516) 783-6262
This Proxy Statement/Prospectus relates to the proposed merger of Stone
Medical Supply Corporation ("Stone") with and into Diagnostic Leasing Corp.
("DLC"), a wholly-owned subsidiary of Micro Bio-Medics, Inc. ("MBM") in exchange
for the issuance of an aggregate of up to 280,696 shares of common stock, par
value $.03 per share of MBM based upon a ratio of 1.0 share of Stone for each
0.0818 of a share of MBM (the "Conversion Ratio"). In connection with the merger
(the "Merger"), MBM has filed a registration statement on Form S-4 pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission (the "Commission") covering Common Stock
issuable to holders of shares of common stock of Stone.
This Prospectus/Proxy Statement constitutes the Proxy Statement of Stone
relating to the solicitation of proxies for use at the Special Meeting of
Shareholders of Stone (the "Stone Meeting") scheduled to be held on January 18,
1996 and the Prospectus of MBM filed as part of the Registration Statement
relating to the MBM Common Stock issuable in connection with the Merger. The
Prospectus/Proxy Statement does not contain all of the information set forth in
the Registration Statement. For further information pertaining to Stone and
MBM, reference should be made to the Registration Statement, which may be
obtained as described below. See "Available Information."
This Prospectus/Proxy Statement is being mailed to shareholders of Stone on
or about December 18, 1995. THE SECURITIES OF MBM INVOLVE A HIGH DEGREE OF
RISK. FOR A SUMMARY OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS".
At the Stone Meeting, shareholders of Stone as of the close of business on
December 18, 1995, will consider and vote upon the approval and adoption of the
Agreement for Merger and Reorganization (the "Merger Agreement") which provides
for, among other things, the merger of Stone with and into DLC, the Surviving
Corporation. DLC is currently a wholly-owned inactive subsidiary of MBM.
1
<PAGE>
Upon completion of the Merger, the shareholders of Stone (except those who
exercise and perfect their appraisal rights) will receive an aggregate of up to
280,696 shares of Common Stock of MBM registered under the Securities Act and
included in this Prospectus/Proxy Statement. The shareholders of Stone will own
approximately 6.8% of the outstanding shares of MBM and management of MBM will
assume control and direct management of Stone. Each one share of MBM Common
Stock outstanding immediately prior to the consummation of the Merger will
continue to represent one share of MBM Common Stock at and after the
consummation of the Merger.
No fractional shares of MBM Common Stock and no certificates or scrip
therefor will be issued in exchange for Stone Common Stock in the Merger. In
lieu thereof, each holder of shares of Stone Common Stock who otherwise would be
entitled to receive a fractional share of MBM Common Stock will, upon surrender
of his certificate for outstanding Stone Common Stock, be paid, without
interest, an amount in cash equal to the product of (i) $11.50 (which was agreed
to pursuant to the terms of the Merger Agreement) and (ii) the fraction of a
share of MBM Common Stock to which such holder would otherwise be entitled.
The Merger will be completed within the later of (i) on the date of receipt
of Stone shareholder approval, or (ii) the satisfaction or waiver of all other
conditions to the Merger. If any material changes in the transaction occur
prior to either condition, shareholder proxies will be resolicited.
The Board of Directors of Stone knows of no other business that will be
presented at the Meeting. If any other matters are presented, proxies will be
voted in accordance with the best judgment of the proxy holders. See "Material
Terms of the Merger Agreement".
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS/PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER, OR PROXY SOLICITATION IN
SUCH JURISDICTION.
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/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS DECEMBER , 1995.
2
<PAGE>
MBM's Common Stock is traded in the over-the-counter market in the NASDAQ
National Market under the symbol "MBMI." On November 10, 1995, the reported
last sales prices per share for the Common Stock as reported on NASDAQ was
$13.00. The above prices reflect inter-dealer prices without retailer markups,
markdowns or commissions. See "Market Information."
On November 1, 1995, representing the day immediately preceding the date
that the Merger Agreement was executed by MBM and Stone, the last sale price of
MBM Common Stock was 12-3/4. On November 1, 1995, the high and low bid price of
Stone's Common Stock on the NASD Electronic Bulletin Board under the symbol
"STSC" was 3/8 and 1/4, respectively. The above prices reflect inter-dealer
prices without retail mark-up, markdowns or commissions.
ALL INFORMATION CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT WITH RESPECT
TO MBM WAS SUPPLIED BY MBM FOR INCLUSION HEREIN, AND ALL INFORMATION CONTAINED
IN THIS PROSPECTUS/PROXY STATEMENT WITH RESPECT TO STONE WAS SUPPLIED BY STONE
FOR INCLUSION HEREIN.
AVAILABLE INFORMATION
As permitted by the rules and regulations of the Commission, this
Prospectus/Proxy Statement omits certain information contained in the
Registration Statement. For such information, reference is made to the
Registration Statement and the exhibits thereto. MBM and Stone have been and
are subject to certain of the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith have filed and will continue to file reports and other information
with the Commission until completion of the Merger and in MBM's case thereafter.
This Registration Statement on Form S-4 and the reports and other
information filed by MBM and Stone with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C.20549, and at the Commission's
Regional Offices at 500 West Madison, Chicago, Illinois 60601-2511 and 7 World
Trade Center, New York, New York 10048. Copies of such material also can be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 at prescribed rates. If the Merger is consummated, Stone will not be
required to file periodic reports and other information with the Commission
pursuant to the Exchange Act.
MBM distributes to its respective Stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
financial and other information as determined by the Board of Directors. MBM's
fiscal year ends on November 30 of each year.
3
<PAGE>
TABLE OF CONTENTS
Available Information
Summary
General
Risk Factors
Stone Shareholder Meeting
Rights of Appraisal
The Merger
General Effects of the Merger
Effective Time
Recommendation of the Board of Directors
Opinion of Financial Advisor
Interest of Certain Persons in the Merger
Accounting Treatment
Representations and Warranties
Conditions to the Merger; Termination
of the Merger Agreement
Conversion Ratio
Tax Matters
Risk Factors
Comparative Market Price Data of Stone and MBM
Selected Financial Data and Other Information of Stone
Stone Management's Discussion and Analysis of Financial
Condition and Results of Operations
Selected Financial Data and Other Information of MBM
MBM Management's Discussion and Analysis of Financial
Condition and Results of Operations
Description of Transaction
Pro Forma Financial Statements
Selected Pro Forma Combined Condensed Financial Data
Comparative Per Share Data
Introduction
General
Purpose of the Meeting
Stone Meeting
Date, Place and Time; Record Date
Quorum; Vote Required for Approval
Solicitation, Revocation and Use of Proxies
Appraisal Rights
The Merger
General Effects of the Merger
Background of the Merger
Recommendation of the Board of Directors; Reasons
for the Merger
Opinion of Financial Advisor
Interests of Certain Persons in the Merger
Certain Federal Income Tax Consequences
Restrictions on Sales by Affiliates
4
<PAGE>
Material Terms of the Merger
Closing; Effective Time
Exchange of Certificates
Representations, Warranties and Covenants
Closing Conditions
Termination
Accounting Treatment
Expenses
Operations After the Merger
Corporate Structure
Operations and Financial Conditions
Management and Compensation Arrangements
Business of MBM
Overview
Caligor Division
MBM Division
Healer Products Division
Acquisition of Mid County
Medical Supply Co., Inc.
Acquisition of Joseph Weintraub, Inc.
Acquisition of Clark Surgical Supply Corp.
Acquisition of Harrisburg Surgical Supply Inc.
Revolving Credit Agreement
Regulatory Requirements
Competition
Employees
Facilities
Legal Proceedings
Management of MBM
Directors and Executive Officers
Executive Compensation
Employment and Consulting Agreements
Stock Option Plans
Section 401(k) or Deferred Retirement Plan
Certain Transactions
Indemnification of Officers and Directors
Principal Shareholders
Business of Stone
General
Sales and Marketing
Source of Supplies
Product Storage and Delivery
Competition
Government Regulations
Employees
Patents, Trademarks and Licenses
Working Capital Practices and Backlog
Properties
Legal Proceedings
Executive Officers, Directors and Key Employees
Business Experience
Executive Compensation
Certain Transactions
Principal Shareholders
5
<PAGE>
Description of MBM Securities
Capital Stock
Common Stock
Preferred Stock
Series 1 Warrants
Dividend Policy
Transfer Agent
Underwriter's Warrants
Description of Debentures
Legal Matters
Experts
Financial Statements
Exhibits:
Exhibit "A" - Merger Agreement
Exhibit "B" - Section 623 of the New York Business Corporation Law
Exhibit "C" - Fairness Opinion - P.K. Hickey & Co.
6
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this Proxy
Statement/Prospectus and the exhibits hereto. Certain capitalized items used
and not otherwise defined in this summary have the meanings ascribed to them
elsewhere in this Proxy Statement/Prospectus. Shareholders of Stone are urged
to read this Proxy Statement/Prospectus, including exhibits, in its entirety.
GENERAL
MICRO BIO-MEDICS, INC. Micro Bio-Medics, Inc. ("MBM") is a New York
corporation, with its principal executive offices at 846 Pelham Parkway, Pelham
Manor, New York 10803, telephone (914) 738-8400. MBM owns all of the issued and
outstanding common stock of Diagnostic Leasing Corp. ("DLC"). Upon completion
of the Merger, shareholders of Stone will receive shares of MBM Common Stock in
exchange for their present holdings. MBM distributes medical supplies to
physicians and hospitals in the New York metropolitan area, as well as to health
care professionals in the sports medicine, emergency medicine, school health,
industrial safety, government and laboratory markets nationwide. MBM depends
upon the continued supply of the products it distributes; however, it does not
depend upon any single source. MBM has neither encountered nor does it
anticipate any difficulty in obtaining the necessary products. No one customer
has accounted for more than 10% of each of MBM's revenues during the nine months
ended August 31, 1995 and the fiscal years ended November 30, 1994, November 30,
1993 and November 30, 1992.
As of October 31, 1995, MBM has 3,872,616 shares of its Common Stock,
par value $.03 per share, and will have up to 4,153,312 shares outstanding
after the consummation of the Merger. The foregoing does not include the
possible exercise of outstanding warrants and options and the conversion of
Debentures covering an aggregate of 2,399,132 shares. MBM's Common Stock is
traded in the NASDAQ National Market under the symbol "MBMI."
DIAGNOSTIC LEASING CORP. DLC is a New York corporation organized on March
21, 1988 for the purpose of handling equipment leases for MBM. For more than
the past three years, DLC has been an inactive corporation without any assets.
DLC is a wholly-owned subsidiary of MBM and prior to the consummation of the
Merger, will not engage in any new business activity. After the completion of
the Merger, DLC's offices will be located at the offices of Stone.
STONE MEDICAL SUPPLY CORPORATION. Stone is a New York corporation with
executive offices located at 2487 North Jerusalem Road, East Meadow, New York
11554. Its phone number is 516-783-6262. Since inception, Stone has been
engaged in the distribution of a broad line of medical supplies and equipment
utilized by
7
<PAGE>
physicians and medical clinics, including disposable supplies, diagnostic and
surgical equipment, and medical office and laboratory apparatus. In 1982, Stone
initiated its Medical Office Design Equipment Services Program ("MODES")
pursuant to which Stone offers physicians the opportunity to fully supply, equip
and furnish medical offices entirely from Stone's sources. In December, 1991
Stone started a podiatry division to offer a line of podiatry products and
supplies. See "Business of Stone" and "Selected Financial Data and Other
Information of Stone".
RISK FACTORS
The securities of MBM and Stone involve, and subsequent to the Merger, the
securities of MBM will continue to involve, a high degree of risk. See "Risk
Factors."
STONE SHAREHOLDER MEETING
DATE, PLACE, TIME AND PURPOSE; RECORD DATE
The special meeting of Shareholders of Stone (the "Stone Meeting") is
scheduled to be held at 10:00 a.m. on January 18, 1996, at the offices of Stone
to consider and vote upon the approval and adoption of the Merger Agreement,
which provides for, among other things, the transfer of all of the assets of
Stone, subject to all of the liabilities of Stone, to DLC.
The Stone Board of Directors (the "Stone Board") has fixed the close of
business on December 18, 1995 as a record date for the Stone Meeting. Only
holders of Stone Common Stock on the close of business on the record date are
entitled to notice of and to vote at the Stone Meeting. As of the record date,
there were 3,431,500 shares of Stone Common Stock outstanding and entitled to
vote. The presence, in person or by proxy, of a majority of the outstanding
shares of Stone Common Stock is necessary to constitute a quorum at the Stone
Meeting. The holders of Stone Common Stock are entitled to one vote for each
share held. Shareholders of Stone (including management) owning approximately
73.8% of the outstanding shares have agreed to vote their shares in favor of the
Merger.
VOTES REQUIRED FOR APPROVAL
THE MERGER. The affirmative vote of sixty-six and two-thirds (66-2/3%)
percent of the outstanding shares of Stone Common Stock is required for approval
and to adopt the Merger Agreement. As described above, shareholders owning in
excess of that amount have agreed that they will vote for the Merger.
RIGHTS OF APPRAISAL
Shareholders who object to the Merger must file a written notice of
election to dissent and not vote in favor of the Merger and follow the detailed
provisions of the statute set forth under "Stone Meeting-Appraisal Rights".
8
<PAGE>
THE MERGER
GENERAL EFFECTS OF THE MERGER
The Merger Agreement provides that, subject to the satisfaction or waiver
(where permissible) of certain conditions, Stone will merge with and into DLC,
which will acquire all of Stone's assets, subject to all of its liabilities, in
exchange for up to 280,696 shares of MBM Common Stock. As a result of the
Merger, the holders of Stone Common Stock, will become holders of MBM Common
Stock and, accordingly, their rights will be governed by the MBM Certificate of
Incorporation and By-Laws.
Pursuant to the Merger, Stone's operations will be conducted through DLC, a
wholly-owned subsidiary of MBM. Holders of Stone Common Stock at the completion
of the Merger will own approximately 6.8% of the outstanding Common Stock of
MBM immediately after the Merger without giving effect to shares of Common Stock
issuable upon the exercise or conversion of options, warrants and debentures of
MBM.
The ownership percentage of the Stone shareholders subsequent to the Merger
was determined through negotiations between the respective managements of Stone
and MBM, based primarily on the more favorable financial condition of MBM, as
compared with the business prospects of Stone. See "The Merger -- Background of
the Merger" and "Recommendations of the Board of Directors; Reasons for the
Merger".
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of shareholders
of Stone and the other conditions to the Merger Agreement are satisfied or
waived in writing (where permissible), the Merger will become effective upon
the closing (the "Closing") of the Merger as provided in the Merger Agreement,
which closing shall occur following/upon (i) Stone shareholder approval and (ii)
the satisfaction or waiver of the conditions precedent. See "Material Terms of
the Merger - Closing; Effective Time".
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Stone Board believes that Stone will benefit from the Merger because it
will allow shareholders to maintain ownership in a larger consolidated
enterprise having more diversified and profitable operations.
The Stone Board has unanimously determined, among other things, that the
Merger is fair to and in the best interests of Stone and its shareholders and
recommends that the shareholders of Stone vote FOR approval. Of primary
importance to the Stone Board is that there is considerable uncertainty
presently in the health care industry in which Stone engages. The Stone Board is
concerned that such uncertainties could adversely affect Stone's business in the
future since many of the doctors, who are customers of Stone,
9
<PAGE>
may have their supply purchase decisions made by HMO's. Such HMO's could direct
doctors to purchase their needs from larger organizations who could provide
better pricing. The Stone Board believed that if Stone were affiliated with a
much larger organization it could better protect its business in the future as
well as expand its operations. Further the Stone Board believed that
shareholders would benefit from having an equity interest in a company whose
securities are significantly more marketable than Stone's securities. Over the
past few years there has been little market activity in Stone securities and the
current market value of Stone's securities, in the opinion of Stone's Board,
does not properly reflect Stone's value. Prior to the receipt of a fairness
opinion, the Stone Board determined that the Merger is fair to Stone
shareholders based on its own analysis of the foregoing factors. See "The
Merger - Recommendation of the Board of Directors; Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR
As a condition to the Closing of the Merger Agreement, Stone obtained an
opinion as to the fairness of the Merger to Stone and its shareholders from a
financial point of view, from an investment banker qualified to render such an
opinion, in order to verify its analysis of the Merger. In this regard, Stone
retained the services of P.K. Hickey & Co. ("Hickey") to perform a study and
analysis and to render an opinion as to the fairness of the Merger. In
connection therewith, Hickey has delivered to Stone its written opinion to the
effect that as of the date of such opinion and based upon and subject to certain
matters set forth therein, the Merger is fair to the Stone shareholders. See
"The Merger - Opinion of Financial Advisor".
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As part of the Merger, Mr. Andrew Stone ("Andrew"), the President of Stone,
has entered into a five year employment agreement with DLC pursuant to which he
is employed at an annual salary of $115,000 and will be elected a Vice-President
of MBM at MBM's next board meeting. His annual salary at Stone was
approximately $170,000. In addition, Andrew will be entitled to a bonus not to
exceed $25,000 in the event certain sales goals are achieved during the year
1996. He will be reimbursed for out-of-pocket expenses and will be provided a
company car. DLC will provide life insurance in the amount of $750,000, which
amount will be reduced by $150,000 on each anniversary date of the Agreement.
Andrew has entered into a fifteen year Non-Competition, Indemnification and
Release Agreement pursuant to which he has agreed not to engage in competition
with Stone, DLC and MBM for a period of fifteen years nor disclose any
confidential information, customer lists or other proprietary information of
DLC, MBM or Stone. Andrew has also agreed to indemnify MBM and DLC with respect
to representations relating to the sale of inventory and collection of
receivables contained on the November 10, 1995 balance sheet as well as the
representations and warranties of
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<PAGE>
Stone and Andrew contained on the November 10, 1995 Merger Agreement. In
consideration for the Non-Competition Agreement, Andrew has been or is to be
paid the sum of $1,250,000 as follows:
$583,333.33 on the date of the signing of the Merger Agreement.
$333,333.33 nine months from the date of the signing of the Merger
Agreement.
$333,333.33 on a date which shall be ten (10) business days after the final
determination of Andrew's liability under the indemnification provisions of
the Noncompetition Agreement relating to inventory and accounts receivable.
In addition, Andrew will deposit in escrow one-half of the shares of the MBM
Common Stock to be received by him at the Closing of the Merger, with such
stock, to be used to cover any liability to MBM or DLC which he may have with
respect to his Noncompetition Agreement. The payments under the Non-Competition
Agreement may also be offset against such liability. In the event the Merger is
not consummated by June 30, 1996 then the total payments under the
Noncompetition Agreement shall be reduced to $750,000 and the last two payments
reduced accordingly to $83,333.33.
Lyudmila Stone, the wife of Andrew, and a Vice President of Stone, has
entered into a fifteen year Non-Competition Agreement with DLC pursuant to which
she has agreed not to engage in competition with Stone, DLC and MBM for a period
of fifteen years nor disclose any confidential information, customer lists or
other proprietary information of MBM, Stone or DLC. As compensation for the
Non-Compete Agreement Lyudmila Stone shall receive the sum of $500,000.00
payable at the monthly rate of $8,333.33 until the fifth anniversary of the
date of the Agreement.
As part of the Merger, Andrew will at closing enter into a Put-and-Call
Agreement with a party satisfactory to Andrew, which party may be MBM (the
"Party"), pursuant to which Andrew will have the right for a period of three
months commencing one year after the Merger to Put one-half of his shares of
MBM Common Stock which he receives in the Merger at a price of $9.50 per
share, in the event the price of the MBM Common Stock falls below $9.00 for a
period of 30 consecutive trading days prior to the put notice. The Party
will have the right to Call such shares at $13.50 per share at any time
commencing six months after the Merger and for a period of 12 months
thereafter.
In the event the Merger is not consummated by June 30, 1996, Andrew and
certain other shareholders of Stone have agreed to sell their shares of stock in
Stone representing approximately 73.8% of the outstanding stock of Stone to MBM
in exchange for MBM Common Stock at the Conversion Ratio of one Stone share for
each 0.0818 of
11
<PAGE>
a share of MBM (0.069 of a share of MBM if holders of less than 2/3 of Stone's
outstanding shares vote to approve the Merger).
Affiliates of Stone (representing approximately 73.8% of the shares
entitled to vote) have indicated that they intend to vote for the Merger. See
"Stone Shareholders Meeting - Quorum; Vote Required for Approval."
Stone and MBM have entered into a Management Agreement effective as of
November 2, 1995, pursuant to which MBM will manage the business and affairs of
Stone until the Effective Date of the Merger for a fee of 5% of the net sales of
Stone during the management period.
ACCOUNTING TREATMENT
The Merger will be accounted for by MBM as a purchase by MBM in
accordance with the provisions of Accounting Principles Board Opinion No. 16
on Business Combinations. See "Material Terms of the Merger - Accounting
Treatment."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties of
Stone including, but not limited to, its corporate organization, authority,
capitalization, financial statements, litigation, disclosure of all material
information and other matters. The Merger Agreement also contains certain
representations and warranties of MBM, including, without limitation, its
corporate organization, authority, financial statements and disclosure of all
material information. See "Material Terms of the Merger - Representations,
Warranties and Covenants."
CONDITIONS TO THE MERGER;
TERMINATION OF THE MERGER AGREEMENT
The obligations of Stone and MBM to consummate the Merger are subject to
the satisfaction or waiver (where permissible) of certain conditions,
including, but not limited to, obtaining requisite Stone shareholder
approval, the receipt by MBM of certain closing certificates, obtaining a
declaration of effectiveness from the Commission with respect to the
Registration Statement, and the absence of any injunction prohibiting
consummation of the Merger. See "Material Terms of the Merger - Closing
Conditions."
The Merger Agreement may be terminated by either Stone or MBM at any
time prior to the consummation of the Merger, before approval by the
shareholders of Stone (i) upon mutual written consent; (ii) if any of certain
conditions are not satisfied or waived; or (iii) upon the issuance of an order,
judgment or decrees restraining or enjoining the Merger.
12
<PAGE>
CONVERSION RATIO
Each 1.0 outstanding share of Common Stock of Stone will be converted into
0.0818 of a share of MBM Common Stock upon completion of the Merger. No
fractional shares of MBM Common Stock and no certificates or scrip therefor will
be issued in exchange for Stone Common Stock in the Merger. In lieu thereof,
each holder of shares of Stone Common Stock who otherwise would be entitled to
receive a fractional share of MBM Common Stock will, upon surrender of his
certificate for outstanding Stone Common Stock, be paid, without interest, an
amount in cash equal to the product of (i) $11.50 (which was arbitrarily agreed
to pursuant to the terms of the Merger Agreement) and (ii) the fraction of a
share of MBM Common Stock to which such holder would otherwise be entitled.
TAX MATTERS
The Merger is intended to be a tax-free reorganization under the Internal
Revenue Code of 1986, as amended (the "Code"), so that no gain or loss would be
recognized by Stone, and no gain or loss would be recognized by Stone's
stockholders, except for stockholders who receive cash in lieu of fractional
shares or dissenting holders who receive cash payments. The Merger is not
conditioned upon receipt of an opinion of counsel to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a). However,
a tax opinion to that effect has been rendered by Stone's counsel. See "The
Merger - Certain Federal Income Tax Consequences."
RISK FACTORS
Holders of the Stone Common Stock should give careful consideration to the
following risks in making a decision concerning the securities offered hereby.
INVESTMENT CONSIDERATIONS FOR STONE.
1. FINANCIAL CONDITION. Stone experienced operating loss in its last
fiscal year of $28,728. The loss was attributable to increased costs and
provisions for loss on a contract. See "Stone Management's Discussion and
Analysis of Financial Condition and Results of Operations."
2. COMPETITION. Stone is subject to significant competition from other
companies engaged in the distribution of a broad line of medical supplies and
equipment. MBM is one of the major competitors with whom Stone competes. Most
of these companies have substantially greater financial, marketing and other
resources than Stone. See "Business of Stone - Competition."
3. REGULATION COMPLIANCE. The health care industry is subject to
extensive public interest and government regulation on
13
<PAGE>
the Federal and state levels. See "Business of Stone - Government Regulations."
MEDICARE AND MEDICAID. Many physicians and others who purchase goods
or services from Stone are paid by third parties such as Medicare or Medicaid.
Medicare is a Federally funded health insurance program which provides health
coverage for persons age 65 or older. Medicaid is a health insurance program
administered by State governments, or private carriers designated by the States,
and jointly funded by the Federal and State governments. This program provides
reimbursements for health care for certain financially or medically needy
persons regardless of age. For financially needy persons age 65 or older,
Medicaid benefits supplement Medicare benefits. Persons eligible for Medicaid
benefits may be required to make nominal contributions to Medicaid programs.
Medicaid reimbursements for health care vary on a state-by-state basis within
established Federal guidelines.
FDA REGULATION. Certain medical equipment and supplies distributed by
Stone are subject to regulation by the United States Food and Drug
Administration ("FDA"). All medical devices must be the subject of device
listings filed with the FDA, and medical device manufacturers must be
registered. Further, Stone must be able to trace such devices after their
initial sales in the event that the FDA should order a recall thereof.
Compliance with FDA regulations has not had a significant impact upon Stone's
business or profitability in the past and is not expected to have such an impact
in the future.
STATE REGULATION. States have the power to regulate and license
suppliers and distributors of medical supplies and equipment. Stone is
licensed by the New York State Board of Pharmacy. Any change in such regulation
or programs could have an adverse effect on Stone's business. It has not sought
qualification in any other State.
4. LIMITED PUBLIC MARKET; There is currently a very limited public market
for the securities of Stone. There can be no assurance that an active trading
market will develop or be sustained. See "Comparative Market Price Data of
Stone and MBM."
5. NO DIVIDENDS. Stone has not paid any dividends on its Common Stock to
date and does not anticipate declaring or paying any dividends in the
foreseeable future.
INVESTMENT CONSIDERATIONS FOR MBM.
1. SUBSTANTIAL INDEBTEDNESS. MBM's operating activities require MBM to
incur substantial indebtedness and MBM is, therefore, subject to the risks
associated with significant leverage, including the risks that interest rates
may fluctuate and cash flow may not be adequate to make required payments on
indebtedness. At October 31, 1995, MBM owed approximately $11,000,000 under
MBM's revolving loan agreement to its principal lender. The debt is
collateralized by accounts receivable and
14
<PAGE>
inventory (the "Assets"). In connection with the loan agreement, MBM has agreed
to certain restrictions relating to limitations on its indebtedness and liens,
and has agreed to maintain specified financial ratios and covenants. The loan
prohibits MBM from paying any cash dividends and restricts capital distributions
or redemptions and purchases or retirements of any of MBM's capital stock except
in limited circumstances. If for any reason, MBM were unable to meet such
obligations as they become due, such lender could terminate the credit facility,
demand payment of the loan and elect to foreclose on MBM's assets, which would
have a material adverse effect on MBM's operations. See "Business of MBM -
Revolving Credit Agreement."
2. DEPENDENCE UPON FINANCING. MBM is dependent on the financing of its
operations under a credit facility which expires in November, 1996 to meet
differences in timing of cash flow resulting from the extension of credit on
MBM's receivables and receipt of payments from customers. MBM's terms of sale
require payment of invoices within 30 days. Although in some cases discounts
are given for prompt payment, the average collection period on its accounts
receivable during the nine months ended August 31, 1995 and the fiscal years
ended November 30, 1994 and November 30, 1993 were approximately 72 days, 79
days and 78 days, respectively. In the event that MBM is unable to continue to
obtain financing from its principal lender or alternative sources of financing,
or if able to do so but not on favorable terms, MBM's ability to operate
profitably would be materially adversely affected. See "Business of MBM -
Revolving Credit Agreement."
3. REGULATORY REQUIREMENTS. The manufacturers of many products sold
by MBM are required to obtain U.S. Food and Drug Administration ("FDA")
approval for such products, failing such approval, sales of such products
cannot lawfully be made. MBM's assembly, warehousing and distribution
procedures are subject to the Good Manufacturing Practices regulation of the
FDA. MBM has registered itself with the FDA and has renewed said
registration annually. Said registration permits MBM to distribute supplies
and medical devices. The Caligor Division, among its various activities,
operates as a wholesaler and retailer of prescription drugs and medical
devices in the State of New York. The practice of pharmacy at the wholesale
and retail level is regulated by federal, state and local statutes, rules and
regulations. MBM is duly licensed to permit its Caligor Division to operate
as wholesalers and retailers in prescription drugs and medical devices in the
State of New York. No assurances can be given that MBM's activities will be
able in the future to comply with all applicable federal, state and local
regulations. In such event, MBM's operations may be materially affected
adversely by the failure to comply with such laws or the costs to comply with
such laws may impair MBM's profitability. See "Business of MBM - Regulatory
Requirements."
4. COMPETITION. MBM, in all phases of its activities, experiences
competition from other manufacturers and distributors
15
<PAGE>
of products in the same categories as those of MBM, as well as from wholesale
and retail pharmacies, selling to the same general markets as those of MBM.
Additionally, the Caligor Division's services are subject to competition from
similar service organizations. Many of MBM's competitors have far greater
resources than MBM and, in addition, many larger and better financed firms not
presently in MBM's lines of business may conceivably enter these lines of
business in the future. Moreover, most of MBM's markets are serviced by hospital
and surgical supply dealers, athletic retailers, pharmacies and equipment repair
firms. There can be no assurance that MBM will be able to compete successfully
in the future with its present or future competitors. See "Business of MBM -
Competition."
5. LACK OF DIVIDENDS. MBM has not paid any dividends since its inception
and intends to follow a policy of retaining all of its earnings, if any, to
finance the development and continued expansion of its business. There can be
no assurance that dividends will ever be paid by MBM. Additionally, under the
terms of its revolving loan agreement with its principal lender, MBM may not pay
dividends without such lender's consent. See "Description of MBM Securities."
6. RULE 144/145 SALES. Upon completion of the Merger there will be
4,153,372 issued and outstanding shares of MBM Common Stock (without giving
effect to the exercise of outstanding options and warrants and the conversion of
outstanding debentures covering 2,399,132 shares) of which substantially all
will be freely tradeable without restriction or further registration under the
Securities Act, except for any such shares subsequently purchased by an
affiliate of Stone or MBM. To the extent that any shares are subject to certain
restrictions on transfer, Rules 144 and 145 promulgated under the Securities Act
may be applicable to the resale of any such shares. Pursuant to these rules,
commencing 90 days from the effective date of the Merger, holders of any shares
of MBM Common Stock acquired pursuant to the Merger by an affiliate of Stone may
sell, within any three-month period, a number of shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock or the
average weekly trading volume of such shares during the four calendar weeks
prior to such sale. In addition, holders of restricted shares of MBM (including
shares held by affiliates of MBM) may, upon completion of a two year holding
period, sell such shares, within the above referenced volume limitation, and
upon completion of a three year holding period may sell such shares free of all
restrictions. The sale of such securities in the future, or even the possibility
that they may be sold, may have an adverse affect on the market price for the
Common Stock.
It should be noted that Stone Investment Consideration No. 3 is also a risk
factor which may be applicable to MBM's business.
16
<PAGE>
COMPARATIVE MARKET PRICE DATA OF STONE AND MBM
Stone's Common Stock is traded on the NASD Electronic Bulletin Board
established for securities that do not meet NASDAQ's listing requirements under
the symbol "STSC". MBM's Common Stock is traded under the symbol "MBMI" on the
NASDAQ National Market. The following table sets forth, for the periods
indicated, Stone's range of closing bid quotations for its Common Stock by
calendar quarter as reported by The National Quotation Bureau Inc. and the high
and low sales prices of MBM's Common Stock as reported by NASDAQ. These per
share quotations represent inter-dealer quotations without adjustment for retail
markups, markdowns or commissions, and, in the case of bid quotations, may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Sales Prices Bid Price per Share
of Common Stock of Common Stock
--------------- -------------------
MBM Stone
--- -----
High Low High Low
---- --- ---- ---
Year 1993:
- ---------
<S> <C> <C> <C> <C>
First Quarter 8-29/32 6-3/8 Not Quoted
Second Quarter 8-1/2 7-1/2 Not Quoted
Third Quarter 11-1/4 7-3/4 Not Quoted
Fourth Quarter 14-1/8 10-3/4 Not Quoted
Year 1994:
- ---------
First Quarter 13 8 3/8 5/16
Second Quarter 10-3/4 9-1/8 1/2 3/8
Third Quarter 10 9-1/2 1/2 3/8
Fourth Quarter 10 9-1/2 1/2 3/8
</TABLE>
On November 1, 1995, the last full trading date immediately preceding the
date that the Merger Agreement was executed, the high and low per share bid
prices for Stone Common Stock were 3/8 and 1/4, respectively, and the last sales
price for MBM Common Stock was 12-3/4.
On November 1, 1995, there were 234 record holders of Common Stock of Stone
and 589 record holders of MBM Common Stock.
Since August 20, 1992, MBM's Series 1 Common Stock Purchase Warrants
("Series 1 Warrants") may be quoted in the "pink sheets" published by National
Quotation Bureau, Inc. MBM does not intend to qualify the Series 1 Warrants for
trading on NASDAQ. During the period December 1, 1992 to August 31, 1995, MBM's
Series 1 Warrants were unpriced.
No cash dividends have been paid by MBM on its Common Stock and no such
payment is anticipated in the foreseeable future.
17
<PAGE>
The following table provides the market value of Stone Common Stock on a
historical and equivalent per share basis as compared to the market value of MBM
Common Stock on a historical basis as of November 1, 1995, based upon the
closing sales price on that date as reported by NASDAQ in the case of MBM and
the average of the high and low bid prices of Stone's Common Stock on November
1, 1995, as reported by The National Quotation Bureau in the case of Stone.
Market Value
------------
MBM - historical $12.75
Stone - historical .3125
equivalent per share (1) 1.04
-----------------
(1) Determined by taking MBM's last sales price at the close of business
on November 1, 1995 and multiplying such price by the conversion ratio
of 0.0818 and rounding the result to the nearest penny. If the Merger
is consummated, each holder of 1.0 share of Stone Common Stock will
exchange such stock for 0.0818 of a share of MBM Common Stock.
(2) The conversion ratio in the Merger Agreement was agreed upon by Stone,
DLC and MBM based upon an assumed market value of $11.50 per share of
MBM Common Stock and an equivalent per share value of $.94 to the
Stone stockholders.
18
<PAGE>
SELECTED FINANCIAL DATA AND OTHER INFORMATION OF STONE
The following selected financial data of Stone are derived from financial
statements of Stone. The financial statements as of December 31, 1994, 1993 and
1992 have been audited by Robbins, Greene, Horowitz, Lester & Co., LLP,
independent auditors whose report with respect thereto appears elsewhere
therein. The related financial data for the nine months ended September 30,
1995 and 1994 have been derived from the unaudited statements of Stone and, in
Stone's opinion, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the data. The results for the
nine month period ended September 30, 1995 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1995. The selected
financial data should be read in connection with the financial statements and
the notes thereto included elsewhere herein.
OPERATING DATA
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net Sales $10,180,713 $9,921,946 $9,051,225 $8,003,363 $6,896,255
Net Income (loss) ($ 28,728) $ 81,533 $ 74,480 $ 79,241 $ 52,315
Net Income
Per Share (loss) $ ($.01) $ .02 $ .02 $ .02 $ .02
Cash
Dividends
Per Share None None None None None
Weighted Average
shares
outstanding 3,391,500 3,361,747 3,331,500 3,331,500 3,158,166
<CAPTION>
BALANCE SHEET DATA
Years Ended December 31
-----------------------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Current
Assets $3,257,565 $3,547,472 $2,832,917 $2,574,105 $2,293,419
Current
Liabilities $2,223,293 $2,529,882 $1,874,920 $1,690,226 $1,455,961
Working
Capital $1,034,272 $1,017,590 $ 957,997 $ 883,879 $ 837,458
Total
Assets $3,860,767 $4,061,473 $3,349,805 $3,119,073 $2,810,027
Long-Term
Debt $ 324,454 $ 181,843 $ 207,570 $ 239,212 $ 338,304
Total
Stock-
holders'
Equity $1,295,020 $1,323,748 $1,241,615 $1,167,135 $1,087,894
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
OPERATING DATA
<S> <C> <C>
Net Sales $9,111,847 $7,175,248
Net Income (loss) 4,290 (57,465)
Net Income
Per Share (loss) -0- -0-
Cash
Dividends
Per Share -0- -0-
Weighted Average
shares
outstanding 3,391,500 3,391,500
<CAPTION>
BALANCE SHEET DATA
Nine Months
Ended Dec. 31,
Sept. 30,1995 1994
<S> <C> <C>
Current
Assets $3,888,845 $3,257,565
Current
Liabilities 2,890,517 2,223,293
Working
Capital 998,328 1,034,272
Total
Assets 4,559,552 3,860,767
Long-Term
Debt 351,725 324,454
Total
Stock-
holders'
Equity 1,299,310 1,295,020
</TABLE>
20
<PAGE>
STONE - MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Sales for the nine month period ended September 30, 1995 increased $1,936,599 or
approximately 27.0% to $9,111,847 from $7,175,248 in 1994. Commission income
decreased in 1995 to $7,895 from $14,698 as a result of decreased sales in 1995
subject to commissions as compared to 1994. Selling, general and administrative
expenses increased in 1995 by approximately 19.8% or $404,339 to $2,450,673 from
$2,046,334 in 1994. The increase in Stone's expenses was due, in part, to the
increased sales volume. Additionally, since the commencement in 1992 of sales
to podiatrists, the volume of podiatry sales generated in 1995 has not reached
the point where the return in regard to overhead cost associated with such sales
is similar to the sales to the other customers. Interest expense increased
approximately 33.8% in 1995 to $89,746 from $67,051 as a result of increased
borrowing.
Merchandise inventory for interim reporting purposes is computed by the gross
profit percentage method. For the nine months ended September 30, 1995 and
1994, Stone had a 27.9% gross profit.
REVIEW OF CALENDAR 1994 RESULTS
Sales for 1994 increased $258,767, or approximately 2.6% to $10,180,713
from $9,921,946 in 1993. Sales to governmental agencies decreased in 1994 to
approximately 12.6% of total sales from 13.0% in 1993. Cost of Sales for 1994
decreased to 71.9% from 72.2% in 1993, increasing from $7,167,408 in 1993 to
$7,315,884 as a result of increased margins. Commission income decreased in 1994
to $15,925 from $19,079 as a result of decreased sales volume in 1994 subject to
commissions as compared to 1993. Selling, general and administrative expenses
increased in 1994 by approximately 7.5% or $253,605 to $2,790,447 from
$2,536,842 in 1993. The increase in Stone's expenses was due, in part, to
Stone's increased sales efforts and the related costs associated with the
increased sales volume. Stone has not yet reached the point of significant
return on its increased investment in sales and support personnel. Additionally,
since the commencement in 1992 of sales to podiatrists, the volume of podiatry
sales generated has not reached the point where the return in regard to overhead
costs associated with such sales is similar to the sales to other customers.
Interest expense increased approximately 29.8% in 1994 to $93,590 from $72,124
as a result of increased borrowings and increased interest rates. In 1994 Stone
provided for a loss in the amount of $34,011 on a contract entered into with the
City of New York which Stone believes was improperly cancelled by the customer.
The increase in Stone's sales, gross profit, expenses and provision for loss on
contract resulted in a net loss for 1994 of ($28,728) as compared to a net
income of $81,533 in 1993.
21
<PAGE>
REVIEW OF CALENDAR 1993 RESULTS
Sales for 1993 increased $870,721, or approximately 10% to $9,921,946 from
$9,051,225 in 1992. Sales to governmental agencies increased in 1993 to
approximately 13% of total sales from 12% in 1992. Cost of Sales for 1993
remained consistent with that of 1992 at approximately 28%, increasing from
$6,531,054 in 1992 to $7,167,408. Commission income declined in 1993 to $19,079
from $30,836 as a result of less sales volume in 1993 subject to commissions as
compared to 1992. Selling, general and administrative expenses increased in 1993
by approximately 8% or $195,959 to $2,595,148 from $2,399,189 in 1992. The
increase in Stone's expenses was due, in part, to Stone's increased sales
efforts and the related costs associated with the increased sales volume. Stone
has not yet reached the point of significant return on its increased investment
in sales and support personnel. Additionally, since the commencement in 1992 of
sales to podiatrists, the volume of podiatry sales generated in 1993 has not
reached the point where the return in regard to overhead costs associated with
such sales is similar to the sales to other customers. Interest expense
increased approximately 21% in 1993 to $72,124 from $59,655 as a result of
increased borrowings. The increase in Stone's sales and gross profit exceeded
the increase in expenses resulting in an increase in net income for 1993 to
$81,533 from $74,480 in 1992.
REVIEW OF CALENDAR 1992 RESULTS
Sales for the twelve months ended December 31, 1992, increased $1,047,862
(or approximately 13%) to $9,051,225 as compared to $8,003,363 for the twelve
months ended December 31, 1991. Total cost of sales for the twelve months ended
December 31, 1992, increased $795,187 (or approximately 14%) to $6,531,054 as
compared to $5,735,867 for the twelve months ended December 31, 1991, and total
expenses for the twelve months ended December 31, 1992, increased $260,672
(approximately 12%) to $2,407,375 as compared to $2,146,703 for the twelve
months ended December 31, 1991. The increase in Stone's expenses was due, in
part, to Stone's increased sales efforts and the hiring of additional sales
personnel. At this time, the additional sales trainees, plus the backup staff,
required to handle the increased sales has not reached the break-even point.
Furthermore, Stone has initiated sales in the podiatry field. In order to sell
to podiatrist Stone had to create a catalogue and hire a salesman who
specialized in podiatry sales. At this time Stone has not recouped the costs
expended for podiatry. In addition, Stone's income from leasing commissions
decreased to $30,836 for the twelve months ended December 31, 1992, as compared
to $31,475 for the corresponding period of the prior year. The increase in
Stone's sales were more than offset by the increase in expense and, accordingly,
Stone realized net income after taxes of $74,480 for the twelve months ended
December 31, 1992, as compared to a gain of $79,241 for the twelve months ended
December 31, 1991.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED SEPTEMBER 30, 1995
For the nine month period ended September 30, 1995 cash used by operations
amounted to $494,958. While Stone's net income provided $4,290, an increase in
accounts receivable and an increase in inventory were only partially offset by
increases in accounts payable and accrued expenses resulting in the net cash
used by operations. Cash used in investing activities totaled $172,564. Most
of this was due to purchases of a new computer system and transportation
equipment. Net cash provided by Stone's financing activities totaled $447,154
during the nine months ended September 30, 1995, predominantly the result of
increased bank borrowings and long-term debt. Stone's line of credit with its
bank for $1,450,000 of which $200,000 was unused at September 30, 1995 should be
sufficient to provide the liquidity necessary for its operations. Stone has no
material commitments for capital expenditures at September 30, 1995.
On November 2, 1995, Stone entered into an agreement for merger and
reorganization with MBM and DLC pursuant to which Stone will be merged into DLC
in exchange for shares of Common Stock of MBM. Each share of Stone's Common
Stock will be converted into .0818 shares of MBM. The agreement is subject to
shareholder approval. In the event the merger is not consummated by June 30,
1996, the Chairman of the Board and President along with certain officers and
employees have agreed to exchange their shares of Common Stock with MBM. Each
share will be converted into .069 shares of MBM (possibly increasing to .0818
shares of MBM under certain circumstances). This group represents 73.8% of the
Company's outstanding Common Stock.
NINE MONTHS ENDED SEPTEMBER 30, 1994
In the nine month period ended September 30, 1994 cash used by operations
amounted to $201,694. While Stone's net loss used $57,465, a decrease in
accounts receivable was more than offset by an increase in inventory and
decreases in accounts payable and accrued expenses resulting in the net cash
used by operations. Cash used in investing activities totaled $150,150. Cash
provided by Stone's financing activities of $342,031, predominantly the result
of increased bank borrowing almost offset the cash used by operations and
investing activities. Net working capital decreased in the nine months ended
September 30, 1994 to $1,010,392 from $1,017,590 at December 31, 1993. Stone's
line of credit with its bank of $1,450,000 of which $440,000 was unused at
September 30, 1994 should be sufficient to provide the liquidity necessary for
its operations. Stone has no further significant commitment for capital
expenditures at September 30, 1994.
FISCAL 1994/1993/1992
In 1994 cash provided by operations amounted to $123,318. While Stone's net
loss used $28,728 from operations, decreases in
23
<PAGE>
accounts receivable and inventory were not completely offset by a corresponding
decrease in accounts payable resulting in the net cash provided by operations.
In addition, the depreciation expense included in net loss contributed to the
cash provided by operations. In 1994, cash used in investing activities totaled
$175,467. This is principally a result of an upgrade in Stone's computer
facility. In 1994, cash provided by Stone's financing activities of $186,461,
predominantly the result of increased bank borrowings offset the cash used by
investing activities. Net working capital increased in 1994 to $1,034,272 from
$1,017,592 in 1993, with decreases on accounts receivable and inventory being
offset by a decrease in accounts payable. Stone's line of credit with its bank
of $1,450,000 of which $600,000 was unused at December 31, 1994 should be
sufficient to provide the liquidity necessary for its operations. Stone has no
significant commitment for capital expenditures at December 31, 1994.
In 1993 cash used by operations amounted to $161,260. While Stone's net
income provided $81,533 from operations, increases in accounts receivable and
inventory were not sufficiently offset by a corresponding increase in accounts
payable resulting in the net cash used by operations. Cash used in investing
activities totaled $56,998. This is a result of the initial phase of an upgrade
in Stone's computer facility. Cash provided by Stone's financing activities of
$194,474, predominantly the result of increased bank borrowings offset the cash
used by operations and investing activities. Net working capital increased in
1993 to $1,017,590 from $959,576 in 1992, with a $578,781 increase in accounts
receivable being the largest single factor. Stone's line of credit with its
bank of $1,250,000 of which $410,000 was unused at December 31, 1993 should be
sufficient to provide the liquidity necessary for its operations. Stone's
commitment for capital expenditures at December 31, 1993 consists of the
completion of the upgrade to its computer facility and telephone system. The
additional costs associated with this are estimated to be approximately $90,000
and $20,000 respectively, and are expected to be funded by Stone's line of
credit for equipment purchases with its bank of $125,000. Stone expected to
improve its cash flow from operations in 1994 by a reduction in its outstanding
accounts receivable, but there was no assurance of this.
24
<PAGE>
SELECTED FINANCIAL DATA AND OTHER INFORMATION OF MBM
The following selected financial data of MBM are derived from financial
statements of MBM. The financial statements as of November 30, 1994, 1993 and
1992 have been audited by Miller Ellin & Co., independent auditors whose report
with respect thereto appears elsewhere therein. The related financial data for
the nine months ended August 31, 1995 and 1994 have been derived from the
unaudited statements of MBM and, in MBM's opinion, include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the data. The results for the nine month period ended August 31,
1995 are not necessarily indicative of the results that may be expected for the
year ending November 30, 1995. The selected financial data should be read in
connection with the financial statements and the notes thereto included
elsewhere herein.
25
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
AUGUST 31, YEARS ENDED NOVEMBER 30,
--------------------------- -----------------------------
1995 1994 1994 1993
----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $89,585,410 $92,562,689 $121,604,461 $73,951,410
COST OF GOODS SOLD 70,558,869 72,701,905 94,923,689 56,347,353
----------- ----------- ------------ -----------
GROSS PROFIT 19,026,541 19,860,784 26,680,772 17,604,057
----------- ----------- ------------ -----------
EXPENSES:
Selling, shipping and warehouse 10,926,236 10,726,607 14,421,280 8,521,021
General and administrative 5,754,148 6,140,536 8,581,615 6,525,488
Interest and financing costs - net 975,685 718,945 1,044,257 502,329
Non-recurring items:
Provision for consolidation of facilities - - - -
Write-down of manufacturing equipment - - - -
----------- ----------- ------------ -----------
Total expenses 17,656,069 17,586,088 24,047,152 15,548,838
----------- ----------- ------------ -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,370,472 2,274,696 2,633,620 2,055,219
PROVISION FOR INCOME TAXES 575,600 955,000 952,000 853,000
----------- ----------- ------------ -----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 794,872 1,319,696 1,681,620 1,202,219
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR
INCOME TAXES PRIOR TO 1994 - (60,000) (60,000) -
----------- ----------- ------------ -----------
NET INCOME $ 794,872 $ 1,259,696 $ 1,621,620 $ 1,202,219
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ .19 $ .29 $ .37 $ .30
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR
INCOME TAXES PRIOR TO 1994 - (.01) (.01) -
----------- ----------- ------------ -----------
EARNINGS PER COMMON AND COMMON EQUIVLAENT SHARE $ .19 $ .28 $ .36 $ .30
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
AVERAGE NUMBER OF SHARES USED TO COMPUTE EARNINGS
PER COMMON AND COMMON EQIVALENT SHARE 5,086,857(*) 4,894,203(*) 4,896,518(*) 4,734,746(*)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
DIVIDENDS PAID None None None None
---- ---- ---- ----
---- ---- ---- ----
WORKING CAPITAL $28,933,274 $29,933,665 $ 30,141,450 $20,965,370
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
LONG-TERM DEBT (net of current maturities) $16,955,023 $19,535,717 $ 19,381,239 $ 9,584,684
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
TOTAL ASSETS $53,384,423 $53,306,557 $54,461,087 $32,784,324
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
STOCKHOLDERS' EQUITY $19,321,969 $17,511,282 $ 18,067,056 $16,193,524
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
STOCKHOLDERS' EQUITY PER SHARE $ 3.80(*) $ 3.58(*) $ 3.69(*) $ 3.42(*)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
TANGIBLE BOOK VALUE PER SHARE $ 2.95(*) $ 2.89(*) $ 2.92(*) $ 3.13(*)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------------------------
1992 1991 1990
----------- ----------- ------------
<S> <C> <C> <C>
NET SALES $61,629,435 $50,739,534 $43,392,482
COST OF GOODS SOLD 47,287,409 38,561,458 32,489,552
----------- ----------- ------------
GROSS PROFIT 14,342,026 12,178,076 10,902,930
----------- ----------- ------------
EXPENSES:
Selling, shipping and warehouse 6,852,670 5,760,276 5,256,493
General and administrative 5,015,128 4,303,953 3,844,170
Interest and financing costs - net 289,355 425,694 606,527
Non-recurring items:
Provision for consolidation of facilities - 483,000 -
Write-down of manufacturing equipment - - 245,829
----------- ----------- ------------
Total expenses 12,157,153 10,972,923 9,953,019
----------- ----------- ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,184,873 1,205,153 949,911
PROVISION FOR INCOME TAXES 962,000 537,000 430,000
----------- ----------- ------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 1,222,873 668,153 519,911
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR
INCOME TAXES PRIOR TO 1994 - - -
----------- ----------- ------------
NET INCOME $ 1,222,873 $ 668,153 $ 519,911
----------- ----------- ------------
----------- ----------- ------------
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ .41 $ .37 $ .30
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR
INCOME TAXES PRIOR TO 1994 - - -
----------- ----------- ------------
EARNINGS PER COMMON AND COMMON EQUIVLAENT SHARE $ .41 $ .37 $ .30
----------- ----------- ------------
----------- ----------- ------------
AVERAGE NUMBER OF SHARES USED TO COMPUTE EARNINGS
PER COMMON AND COMMON EQIVALENT SHARE 3,481,415(*) 1,784,986 1,761,315
----------- ----------- ------------
----------- ----------- ------------
DIVIDENDS PAID None None None
---- ---- ----
---- ---- ----
WORKING CAPITAL $15,819,417 $11,793,261 $10,099,758
----------- ----------- ------------
----------- ----------- ------------
LONG-TERM DEBT (net of current maturities) $ 9,410,079 $ 8,022,054 $ 6,956,503
----------- ----------- ------------
----------- ----------- ------------
TOTAL ASSETS $27,934,060 $19,488,491 $16,460,354
----------- ----------- ------------
----------- ----------- ------------
STOCKHOLDER'S EQUITY $10,461,736 $ 5,822,047 $5,116,593
----------- ----------- ------------
----------- ----------- ------------
STOCKHOLDER'S EQUITY PER SHARE $ 3.01(*) $ 3.26 $ 2.91
----------- ----------- ------------
----------- ----------- ------------
TANGIBLE BOOK VALUE PER SHARE $ 2.72(*) $ 2.69 $ 2.31
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
(*) Includes additional shares assuming conversion of stock options and warrants
utilizing the modified treasury stock method. For the other years,
outstanding stock options and warrants have not been included since their
effect would be antidilutive or immaterial.
All references to shares and per share data have been restated for all
periods presented due to a reverse stock split on June 28, 1991.
26
<PAGE>
MBM MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended August 31, 1995, net sales increased 7.5% as
compared with the prior year. For the nine months ended August 31, 1995 net
sales decreased 3.2%. The increase in net sales for the three months ended
August 31, 1995 resulted from MBM's continuing effort to increase market
penetration and sales volume to MBM's existing customer base and the addition of
new customers. The decrease in net sales for the nine months ended August 31,
1995 resulted in MBM's downsizing of unprofitable divisions acquired from Clark
Surgical Corp. ("Clark") during the prior year. During the three months and
nine months ended August 31, 1995 and 1994, the introduction of new products,
changing prices and inflation had no material impact on MBM's operations.
For fiscal 1994 net sales increased 64.4% as compared with the prior year.
This increase in sales resulted from MBM's acquisition of Clark and its
continuing effort to increase market penetration and sales volume on the
existing customer base and the addition of new customers. For fiscal 1993, net
sales increased 20% as compared with the prior year. This increase in sales
resulted from MBM's continuing effort to increase market penetration and sales
volume on the existing customer base and the addition of new customers. During
the aforesaid periods, the introduction of new products, changing prices and
inflation had no material impact on MBM's operations.
Net operating income for the three months ended August 31, 1995 was 2.8% of
net sales versus 2.5% of net sales in 1994. Net operating income, before the
cumulative effect of accounting change, for the nine months ended August 31,
1995 was .9% of net sales versus 1.4% of net sales in 1994.
Net income for fiscal 1994 was 1.3% of net sales versus 1.6% of sales in
fiscal 1993. Net income before the cumulative effect of accounting change was
1.4% of net sales versus 1.6 % of net sales in fiscal 1993. Net income for
fiscal 1993 was 1.6% of net sales versus 2% of net sales for fiscal 1992. The
decrease for fiscal 1994 vs. fiscal 1993 was due primarily to costs associated
with the acquisition of Clark, the expansion of MBM's hospital and physician
sales forces and increases in the interest rates charged by financial
institutions. The decrease for fiscal 1993 versus fiscal 1992 was due primarily
to increases in credit losses and costs associated with the expansion of MBM's
hospital sales force. Management believes that future credit losses will be in
line with MBM's prior experiences.
27
<PAGE>
GROSS PROFIT/OPERATING EXPENSES
Gross Profit expressed as a percent of net sales decreased from 21.5% to
21.2% for the nine month period ended August 31, 1995 and decreased from 22.7%
to 21.7% for the three month period ended August 31, 1995 due to changes in the
product mix and increased sales to hospitals. Selling, shipping and warehouse
and general and administrative expenses expressed as a percent of net sales
increased .4% for the nine months ended August 31, 1995 and decreased 1.6% for
the three months ended August 31, 1995.
Gross profit expressed as a percent of net sales was 21.9%, 23.8% and 23.3%
for fiscal 1994, 1993 and 1992, respectively. These variations in gross profit
percentage are a result of changes in MBM's product mix and increased sales to
hospitals. Selling, shipping and warehouse and general and administrative
expenses expressed as a percent of net sales decreased 1.4% for fiscal 1994 as
compared to fiscal 1993. Selling, shipping and warehouse and general and
administrative expenses expressed as a percent of net sales increased 1% for
fiscal 1993 as compared to fiscal 1992.
INTEREST AND FINANCING COSTS (NET OF INTEREST INCOME)
Interest expense net of interest income expressed as a percent of net sales
increased .3% for the nine months ended August 31, 1995 and remained constant
for the three months ended August 31, 1995, when compared to the prior year, as
a result of increases in accounts receivable and increases in the interest rates
charged by financial institutions.
Interest expense net of interest income expressed as a percent of net sales
increased .2% for fiscal 1994 when compared to the prior year as a result of
increases in accounts receivable and increases in the interest rates charged by
financial institutions. Interest expense net of interest income expressed as a
percent of net sales increased .2% for fiscal 1993 as compared to the comparable
period of the prior year, as a result of increases in accounts receivable,
inventory and capital expenditures needed to support the Company's continued
growth.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended August 31, 1995 and the past three fiscal
years, MBM continued to meet its cash needs via cash flow from operations and
borrowings. During the nine months ended August 31, 1995 and fiscal 1994, 1993
and 1992, MBM had an average of approximately $10,500,000, $11,000,000,
$4,000,000 and $3,200,000 respectively, of unused credit lines available each
month over its normal operating requirements.
Management believes that its working capital of approximately $28,900,000
at August 31, 1995 provides sufficient liquidity for its short and long-term
requirements and that MBM's long-term liquidity is not materially effected by
any restrictive covenants contained in MBM's Revolving Credit Agreement.
Further, Management
28
<PAGE>
believes that MBM should not experience a problem in connection with the
maintenance of such covenants and that its $25,000,000 line of credit provides
MBM with the resources it reasonably expects to require to meet its cash
commitments through fiscal 1995.
For the nine months ended August 31, 1995 MBM generated cash from operating
activities. An increase in accounts payable, a decrease in inventory, an
increase in accounts receivable and prepaid expenses and other current assets
contributed to MBM's generation of cash. For the nine months ended August 31,
1994, MBM generated cash from operating activities. An increase in accounts
payable, a decrease in inventory, an increase in accounts receivable and prepaid
expenses and other current assets contributed to MBM's generation of cash.
During the nine months ended August 31, 1995 and 1994, MBM's financing
activities used cash as a result of repayments of the bank loan under its long-
term credit agreement. For the nine months ended August 31, 1995 and 1994, MBM
used cash in investing activities to make capital expenditures.
For fiscal 1994, MBM generated cash flow from operating activities. An
increase in accounts payable over and above increases in inventory accounts
receivable and prepaid expenses contributed to MBM's generation of cash. During
fiscal 1994, MBM's financing activities used cash as a result of repayments of
the bank loan under its long-term credit agreement. For fiscal 1994 MBM used
cash in investing activities to make capital expenditures and payments of net
assets. During fiscal 1994, MBM acquired the business and certain assets of
Clark through an increase in MBM's line-of-credit and the use of same.
For fiscal 1993, MBM used cash for operating activities. An increase in
accounts receivable, inventory, prepaid expenses and a decrease in accrued
expenses and accounts payable contributed to MBM's use of cash. During fiscal
1993, MBM's financing activities generated cash flow as a result of the net
proceeds from the exercise of Series 1 Warrants and the sale of Debentures. For
fiscal 1993, MBM used cash in investing activities to make capital expenditures.
For fiscal 1992, MBM used cash for operating activities as a result of
increases in accounts receivable and inventory over and above an increase in
accounts payable and accrued expenses. During fiscal 1992, MBM generated cash
flow as a result of the net proceeds of approximately $3,300,000 received from
the completion of a public rights offering and increases in borrowings under its
long-term credit agreement.
Between August and September 1993, MBM received approximately $4,000,000 in
gross proceeds from the exercise of Warrants. In November 1993, MBM completed
the private sale and issuance of its 7% convertible subordinated Debentures due
October 30, 2003. Net proceeds from the issuance of the Debentures with a face
value of $3 million was approximately $2.7 million. These proceeds
29
<PAGE>
combined with borrowings under MBM's line of credit were used on December 1,
1993 to purchase the assets of Clark at a purchase price of approximately
$16,500,000. The Debentures are immediately convertible into shares of Common
Stock at the rate of $8.00 per share until October 28, 2003, subject to
adjustment in certain events. In September 1995, $1,500,000 of Debentures were
converted into 187,500 shares of MBM's Common Stock.
30
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
DESCRIPTION OF TRANSACTION
On November 2, 1995, MBM (the "Company") and Diagnostic Leasing Corporation
("DLC"), a wholly-owned subsidiary of MBM entered into an agreement for merger
and reorganization with Stone Medical Supply Corporation ("Stone") and Andrew D.
Stone ("Andrew"). DLC will acquire by merger 100% of Stone's $.01 par value
common stock outstanding of approximately 3,432,000 shares in exchange for the
issuance of up to 280,697 shares of the Company's $.03 par value common stock
(valued at $11.50 per share) at a conversion ratio of .0818 to 1.00. It is
contemplated that a tax-free merger will result and this transaction will be
accounted for as a purchase.
Stone is a distributor of physician and medical supplies, apparatus and
fixtures in the New York Metropolitan area. The Company has a November 30th
year end and Stone has a December 31st year end. The pro forma financial
statements presented reflect these year ends as well as the interim dates of
September 30, 1995 and August 31, 1995 which represents the nine months then
ended of Stone and the Company, respectively.
In addition, the Company entered into two non-competition agreements with
two former executives of Stone. The terms of the agreements are 15 years and
the total anticipated consideration is $1,750,000; $1,250,000 for one and
$500,000 for the other. One agreement stipulates that payments were and are to
be made of $583,333 at contract signing, $333,333 nine months later and the
remainder of $333,333 or less is due on the tenth day after the final
determination of the executive's liability to the Company in connection with
certain indemnification obligations. The other agreement requires payment of
$8,333 per month commencing December 1, 1995 until the fifth anniversary of the
closing date for a total of $500,000.
One of the officers and major shareholders (Andrew) has also agreed to
indemnify MBM and DLC with respect to representations including the cost of
inventory and receivables contained in the November 10, 1995 balance sheet. In
addition, this major shareholder is depositing in escrow one-half of the shares
of MBM common stock to be received at the closing of the merger to be used to
cover any liability under a certain indemnity agreement. The payments under
this particular non-competition agreement may also be offset against such
liability. In the event the merger is not consummated by June 30, 1996, then
the consideration under one of the non-competition agreements shall be reduced
to $750,000 from $1,250,000 and the payments reduced accordingly.
Stone and the Company have entered into a Management Agreement subject to
various terms and conditions, effective as of November 2, 1995, pursuant to
which the Company will manage the business and affairs of Stone until the
effective date of the merger for a fee of 5% of the net sales of Stone during
the management period.
In addition, if the merger is not effective on or before June 30, 1996, and
unless 66-2/3% of Stone's shareholders vote in favor of the merger, certain
Stone stockholders have agreed to sell their shares representing approximately
73.8% of Stone's outstanding stock in exchange for the Company's common stock at
a conversion ratio of .069 to 1.00.
Stone may terminate the merger agreement upon the payment of $1,000,000 to
the Company at any time until the closing date, but only in the event it
consummates a merger transaction with an unrelated third party.
31
<PAGE>
As part of the Merger, Andrew will enter into a Put-and-Call Agreement
pursuant to which Andrew will have the right for a period of three months
commencing one year after the Merger to put one-half of his shares of MBM Common
Stock which he receives in the Merger to a party satisfactory to Andrew (the
"Party") at a price of $9.50 per share, in the event the price of the MBM Common
Stock falls below $9.00 for a period of 30 consecutive trading days prior to the
put notice. The Party will have the right to call such shares at $13.50 per
share at any time commencing six months after the Merger and for a period of 12
months thereafter.
Andrew has entered into an employment agreement with the Company for a term
of five years at a base amount of $115,000 per annum with a bonus not to exceed
$25,000 per annum in the event certain sales goals are achieved.
The Company does not anticipate borrowing for payment of any acquisition
costs in connection with this purchase. Such costs are anticipated to be paid
from working capital.
In the opinion of management, all adjustments necessary to present fairly
this pro forma information have been made.
The pro forma information may not be indicative of the results that would
have occurred if the acquisition and offering had been effective on the dates
indicated or of the results that may be obtained in the future.
These pro forma condensed consolidated financial statements should be read
in conjunction with the Company's financial statements and notes thereto
included elsewhere in this document, as well as the financial statements of
Stone, and notes thereto.
32
<PAGE>
MICRO BIO-MEDICS AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AUGUST 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY,
AS PRO FORMA PRO FORMA
REPORTED STONE ADJUSTMENTS CONSOLIDATED
----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS $45,738,705 (1) $3,888,845 (1) $ 400 $48,759,617
(1) (100,000)
(2) (185,000)
(3) (583,333)
PROPERTY, PLANT AND EQUIPMENT 3,149,336 (1) 670,707 - 3,820,043
INTANGIBLE ASSETS 4,332,031 (1) 2,028,706 (3) 583,333 6,814,070
(3) (130,000)
OTHER ASSETS 164,351 - - 164,351
----------- ---------- ----------- -----------
$53,384,423 $6,488,258 $ (314,600) $59,558,081
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $16,805,431 (1) $2,890,517 (2) $ 165,000 $19,778,948
(2) 195,000
(4) (277,000)
LONG-TERM DEBT 16,955,023 (1) 351,725 (2) 100,000 15,906,748
(5) (1,500,000)
OTHER LONG-TERM LIABILITIES 302,000 (1) 18,000 - 320,000
STOCKHOLDERS' EQUITY 19,321,969 (1) 3,228,016 (1) 400 23,552,385
(2) (265,000)
(2) (195,000)
(2) (185,000)
(3) (130,000)
(4) 277,000
(5) 1,500,000
----------- ---------- ----------- -----------
$53,384,423 $6,488,258 $ (314,600) $59,558,081
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
See notes to pro forma condensed consolidated financial statements
33
<PAGE>
MICRO BIO-MEDICS AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED AUGUST 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY,
AS PRO FORMA PRO FORMA
REPORTED STONE ADJUSTMENTS CONSOLIDATED
----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
NET SALES $89,585,410 $9,111,847 $ - $98,697,257
COST OF GOODS SOLD 70,558,869 6,570,253 - 77,129,122
----------- ---------- ----------- -----------
GROSS PROFIT 19,026,541 2,541,594 - 21,568,135
----------- ---------- ----------- -----------
OPERATING EXPENSES 16,680,384 2,478,380 (1) 19,600 19,953,364
(2) 265,000
(2) 195,000
(2) 185,000
(3) 130,000
----------- ---------- ----------- -----------
16,680,384 2,478,380 794,600 19,953,364
----------- ---------- ----------- -----------
OPERATING INCOME 2,346,157 63,214 (794,600) 1,614,771
----------- ---------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense - net (975,685) (65,819) - (1,041,504)
Other income - 7,895 - 7,895
----------- ---------- ----------- -----------
(975,685) (57,924) - (1,033,609)
----------- ---------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,370,472 5,290 (794,600) 581,162
PROVISION FOR INCOME TAXES 575,600 1,000 (4) (277,000) 299,600
----------- ---------- ----------- -----------
NET INCOME $ 794,872 $ 4,290 $ (517,600) $ 281,562
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ .19 $ - (6) $ (.11) $ .08
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
AVERAGE NUMBER OF SHARES
USED TO COMPUTE EARNINGS PER
COMMON AND COMMON
EQUIVALENT SHARE 5,086,857 3,391,500 (6) (3,014,102) 5,464,255
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
See notes to pro forma condensed consolidated financial statements
34
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 1995
(1) To record the purchase price of the assets acquired.
Consideration to Stone shareholders:
Company's shares issued 280,697
Price per share $ 11.50
----------
3,228,016
----------
Liabilities assumed:
Current liabilities $2,890,517
Non-current liabilities 369,725
----------
3,260,242
----------
Direct costs of acquisition 100,000
----------
Total purchase price $6,588,258
----------
----------
The acquisition has been accounted for as a purchase. The purchase price
has been allocated as follows:
Accounts receivable - net $2,349,238 (a)
Inventory - net 1,378,520 (b)
Property and equipment - net 670,707
Goodwill 2,028,706
Other current assets 161,087
----------
Total purchase price $6,588,258
----------
----------
(a) collectibility warranted by Stone
(b) exclusive of defective or outdated products as defined
In addition, Stone has issued 40,000 shares since December 31, 1994
resulting in additions to the following:
Cash $ 400
Common stock 400
Paid-in capital 19,600
Compensation expense 19,600
(2) To record Stone's liability for
(a) buyout of the contracts of certain sales employees of $265,000 in the
aggregate of which approximately $100,000 is long-term.
(b) professional fees in connection with this acquisition, a consulting
agreement with an individual and proposed settlements with taxation
authorities of not less than $195,000 in the aggregate
(c) adjustments to inventory and accounts receivable of not less than
$185,000
35
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 1995
(3) To record the following:
(a) $583,333 paid to former executive of Stone for a fifteen year covenant
not to compete.
(b) amortization of the covenant not to compete in the
amount of $ 29,000
(c) amortization of goodwill over 15 years in the
amount of 101,000
--------
$130,000
--------
--------
(4) To record the income tax effect of the pro forma adjustments:
Expense adjustments:
Buyout of contracts of certain sales
employees $265,000
Professional and consulting fees and tax
settlements 195,000
Adjustments to inventory and accounts
receivable 185,000
Amortization of covenant not to compete 29,000
Compensation resulting from issuance of
shares 19,600
--------
Total adjustments 693,600
Effective tax rate, net of state effect 40%
--------
Tax benefit of expense adjustments $277,000
--------
--------
(5) To record the subsequent conversion of $1,500,000 of debentures into
187,500 of common shares in September 1995.
(6) To reflect consolidated earnings per common and common equivalent share for
acquisition treated as a purchase utilizing the modified treasury stock
method.
Net income $281,562 Weighted average
Incremental income 175,364 number of shares 4,108,439
-------- Incremental shares 1,355,816
---------
Total income $456,926 Total shares 5,464,255
-------- ---------
-------- ---------
Earnings per common and common equivalent share $.08
----
----
36
<PAGE>
MICRO BIO-MEDICS AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY,
AS PRO FORMA PRO FORMA
REPORTED STONE ADJUSTMENTS CONSOLIDATED
----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS $46,852,242 (1) $3,888,845 (1) $ 400 $49,873,154
(1) (100,000) (2) (185,000)
(3) (583,333)
PROPERTY, PLANT AND EQUIPMENT 3,453,607 (1) 670,707 4,124,314
INTANGIBLE ASSETS 3,793,654 (1) 2,028,706 (3) 583,333 6,231,693
(3) (174,000)
OTHER ASSETS 361,584 - - 361,584
----------- ---------- ----------- -----------
$54,461,087 $6,488,258 $ (358,600) $60,590,745
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $16,710,792 (1) $2,890,517 (2) $ 165,000 $19,679,309
(2) 195,000
(4) (282,000)
LONG-TERM DEBT 19,381,239 (1) 351,725 (2) 100,000 18,332,964
(5) (1,500,000)
OTHER LONG-TERM LIABILITIES 302,000 (1) 18,000 - 320,000
STOCKHOLDERS' EQUITY 18,067,056 (1) 3,228,016 (1) 400 22,258,472
(2) (265,000)
(2) (195,000)
(2) (185,000)
(3) (174,000)
(4) 282,000
(5) 1,500,000
----------- ---------- ----------- -----------
$54,461,087 $6,488,258 $ (358,600) $60,590,745
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
See notes to pro forma condensed consolidated financial statements
37
<PAGE>
MICRO BIO-MEDICS AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY,
AS PRO FORMA PRO FORMA
REPORTED STONE ADJUSTMENTS CONSOLIDATED
----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
NET SALES $121,604,461 $10,180,713 $ - $131,785,174
COST OF GOODS SOLD 94,923,689 7,315,884 - 102,239,573
------------ ----------- ---------- ------------
GROSS PROFIT 26,680,772 2,864,829 - 29,545,601
------------ ----------- ---------- ------------
OPERATING EXPENSES 23,002,895 2,835,782 (1) 19,600 26,677,277
(2) 265,000
(2) 195,000
(2) 185,000
(3) 174,000
------------ ----------- ---------- ------------
23,002,895 2,835,782 838,600 26,677,277
------------ ----------- ---------- ------------
OPERATING INCOME 3,677,877 29,047 (838,600) 2,868,324
------------ ----------- ---------- ------------
OTHER INCOME (EXPENSE):
Interest expense - net (1,044,257) (81,700) - (1,125,957)
Other income - 15,925 - 15,925
------------ ----------- ---------- ------------
(1,044,257) (65,775) - (1,110,032)
------------ ----------- ---------- ------------
INCOME (LOSS) BEFORE PROVISION
(CREDIT) FOR INCOME TAXES 2,633,620 (36,728) (838,600) 1,758,292
PROVISION (CREDIT)
FOR INCOME TAXES 952,000 (8,000) (4) (282,000) 662,000
------------ ----------- ---------- ------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ 1,681,620 $ (28,728) $ (556,600) $ 1,096,292
------------ ----------- ---------- ------------
------------ ----------- ---------- ------------
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ .37 $ (.01) (6) $ (.12) $ .24
------------ ----------- ---------- ------------
------------ ----------- ---------- ------------
AVERAGE NUMBER OF SHARES
USED TO COMPUTE EARNINGS PER
COMMON AND COMMON
EQUIVALENT SHARE BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 4,896,518 3,391,500 (6) (3,013,116) 5,274,902
------------ ----------- ---------- ------------
------------ ----------- ---------- ------------
</TABLE>
See notes to pro forma condensed consolidated financial statements
38
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
YEAR ENDED NOVEMBER 30, 1994
(1) To record the purchase price of the assets acquired.
Consideration to Stone shareholders:
Company's shares issued 280,697
Price per share $ 11.50
----------
3,228,016
----------
Liabilities assumed:
Current liabilities $2,890,517
Non-current liabilities 369,725
----------
3,260,242
----------
Direct costs of acquisition 100,000
----------
Total purchase price $6,588,258
----------
----------
The acquisition has been accounted for as a purchase. The purchase price
has been allocated as follows:
Accounts receivable - net $2,349,238 (a)
Inventory - net 1,378,520 (b)
Property and equipment - net 670,707
Goodwill 2,028,706
Other current assets 161,087
----------
Total purchase price $6,588,258
----------
----------
(a) collectibility warranted by Stone
(b) exclusive of defective or outdated products as defined
In addition, Stone has issued 40,000 shares since December 31, 1994
resulting in additions to the following:
Cash $ 400
Common stock 400
Paid-in capital 19,600
Compensation expense 19,600
(2) To record Stone's liability for
(a) buyout of the contracts of certain sales employees of $265,000 in the
aggregate of which approximately $100,000 is long-term.
(b) professional fees in connection with this acquisition, a consulting
agreement with an individual and proposed settlements with taxation
authorities of not less than $195,000 in the aggregate
(c) adjustments to inventory and accounts receivable of not less than
$185,000
39
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
YEAR ENDED NOVEMBER 30, 1994
(3) To record the following:
(a) $583,333 paid to former executive of Stone for a fifteen year covenant
not to compete.
(b) amortization of the covenant not to compete in the
amount of $ 39,000
(c) amortization of goodwill over 15 years in the
amount of 135,000
--------
$174,000
--------
--------
(4) To record the income tax effect of the pro forma adjustments:
Expense adjustments:
Buyout of contracts of certain sales
employees $265,000
Professional and consulting fees and tax
settlements 195,000
Adjustments to inventory and accounts
receivable 185,000
Amortization of covenant not to compete 39,000
Compensation resulting from issuance of
shares 19,600
--------
Total adjustments 703,600
Effective tax rate, net of state effect 40%
--------
Tax benefit of expense adjustments $282,000
--------
--------
(5) To record the subsequent conversion of $1,500,000 of debentures into
187,500 of common shares in September 1995.
(6) To reflect consolidated earnings per common and common equivalent share for
acquisition treated as a purchase utilizing the modified treasury stock
method.
Net income $1,096,292 Weighted average
Incremental income 169,444 number of shares 4,019,930
---------- Incremental shares 1,254,972
---------
Total income $1,265,736 Total shares 5,274,902
---------- ---------
---------- ---------
Earnings per common and common equivalent share $.24
----
----
40
<PAGE>
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following information is presented to reflect certain unaudited pro
forma condensed consolidated financial information for the Company after giving
effect to the merger accounted for as a purchase, as if it had been consummated,
with respect to the statement of operations at the beginning of the periods
presented, and with respect to the balance sheet, as of the dates presented.
The information presented is derived from the unaudited pro forma condensed
consolidated financial data and the notes thereto appearing in the prospectus.
The unaudited pro forma condensed consolidated financial data has been included
for comparative purposes only and does not purport to be indicative of the
results of operations or financial position which actually would have been
obtained if the merger had been effected at the beginning of the periods or as
of the date indicated or of the financial position or results of operations
which may be obtained in the future.
41
<PAGE>
SUMMARY FINANCIAL INFORMATION
PRO FORMA REFLECTING MICRO BIO-MEDICS, INC.
AFTER GIVING EFFECT TO THE MERGER
(UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATION DATA:
<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED NOVEMBER 30,
AUGUST 31, 1995 1994
----------------- --------------
<S> <C> <C>
Net revenues $98,697,257 $131,785,174
Income before cumulative effect
of accounting change $ 281,562 $ 1,096,292
Income per common share before
cumulative effect of accounting change $.08 $.24
Average number of shares used to
compute earnings per common and
common equivalent share before
cumulative effect of accounting change 5,464,255 5,274,902
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AUGUST 31, 1995 NOVEMBER 30, 1994
--------------- -----------------
<S> <C> <C>
Working capital $28,980,669 $30,193,845
Total assets $59,558,081 $60,590,745
Total long-term debt
(excluding current portion) $15,906,748 $18,332,964
Stockholders' Equity $23,552,385 $22,258,472
Number of common shares outstanding 4,150,981 4,063,606
Book Value Per Common Share outstanding $5.67 $5.48
Average number of common equivalent
shares* 5,464,255 5,274,902
Book value per common equivalent share $4.31 $4.22
</TABLE>
This calculation assumes the issuance of 280,697 shares of the Company's common
stock based on a conversion ratio of .0818 shares of the Company's common stock
for each share of Stone's common stock outstanding on Stone's record date
(assuming an average price of $11.50 per share).
*Includes additional shares assuming conversion of stock options and warrants
utilizing the modified treasury stock method.
42
<PAGE>
COMPARATIVE PER SHARE DATA
The following information summarizes unaudited selected financial
information on a pro forma and pro forma equivalent per share basis and is
derived from the pro forma condensed consolidated financial data included.
The information presented is for informational purposes only and is not
necessarily indicative of future consolidated earnings or financial position or
of consolidated earnings or financial position that would have been reported had
the merger been completed at the beginning of the respective periods or as of
the dates for which such unaudited pro forma data is presented.
43
<PAGE>
COMPARISON OF HISTORICAL AND EQUIVALENT STOCK VALUES
<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED NOVEMBER 30,
AUGUST 31, 1995 1994
----------------- --------------
<S> <C> <C>
Historical Earnings (Loss) Per Common
and Common Equivalent Share Before
Cumulative Effect of Accounting Change:
Company $.19 $.37
Stone - (.01)
Pro Forma Consolidated Earnings Per
Common and Common
Equivalent Share Before Cumulative
Effect of Accounting Change (1) $.08 $.24
Historical Book Value
Per Common and Common
Equivalent Share (2):
Company $3.80 $3.69
Stone .38 .38
Pro Forma Combined
Book Value Per Common and
Common Equivalent Share (2) $4.31 $4.22
</TABLE>
(1) This calculation assumes an additional 280,697 shares in the computation of
earnings per share based on a conversion ratio of .0818 shares of the
Company for each share of Stone's common stock outstanding. The actual
number of shares of the Company issuable in the merger may vary in
accordance with the terms of the merger agreement.
(2) Historical book value per common and common equivalent share was computed by
dividing the total stockholders' equity by the average number of shares used
to compute earnings per common and common equivalent share.
Pro forma consolidated book value per common share was computed by dividing
the consolidated stockholders' equity by the average number of shares used
to compute earnings per common and common equivalent share including the
280,697 shares issued in connection with the purchase.
44
<PAGE>
INTRODUCTION
GENERAL
This Proxy Statement/Prospectus is being furnished to shareholders of Stone
Medical Supply Corporation, a New York corporation ("Stone") in connection with
the solicitation of proxies by the Board of Directors of Stone (the "Stone
Board") for use at a Special Meeting of Shareholders of Stone (the "Stone
Meeting") to be held on January 18, 1996.
PURPOSE OF THE MEETING
The purpose of the Stone Meeting is to consider and vote upon the approval
and adoption of the Merger Agreement which is annexed to this Prospectus/Proxy
Statement as Exhibit "A", which provides for the merger of Stone with and into
Diagnostic Leasing Corp. ("DLC"), a New York corporation and a wholly-owned
subsidiary of Micro Bio-Medics, Inc.("MBM"), whereby DLC will acquire all of the
assets of Stone by way of merger and DLC will be the Surviving Corporation,
subject to all of the liabilities of Stone, and the issuance of MBM Common Stock
to shareholders of Stone on the basis of one share of Stone for each 0.0818 of a
share of MBM (the "Conversion Ratio").
The shares of MBM Common Stock to be received by the Stone stockholders
upon completion of the Merger will be (except for shares received by affiliates
of Stone) freely tradeable without restriction or further registration under the
Securities Act.
The Stone Board, MBM Board and DLC Board have separately unanimously
approved the Merger Agreement and MBM has approved the Merger Agreement as a
sole shareholder of DLC.
THE STONE BOARD UNANIMOUSLY RECOMMENDS THAT STONE SHAREHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
THE FAILURE TO VOTE OR AN ABSTENTION FROM VOTING WILL HAVE THE SAME EFFECT
AS A NEGATIVE VOTE.
THE STONE MEETING
DATE, PLACE AND TIME; RECORD DATE
The Stone Meeting is scheduled to be held at 10:00 o'clock a.m., January
18, 1996 at the offices of Stone, 2487 North Jerusalem Road, East Meadow, New
York 11554.
The Stone Board has fixed the close of business on December 18, 1995 as the
record date (the "Stone Record Date") for the determination of those holders of
shares of Stone Common Stock entitled to notice of and to vote at the Stone
Meeting. Accordingly, only holders of Stone Common Stock of record on the Stone
Record Date will be entitled to notice of and to vote at the Stone Meeting or
any adjournment or adjournments or postponement or
45
<PAGE>
postponements thereof. As of the Stone Record Date, there were 3,431,500 shares
of Stone Common Stock outstanding and entitled to vote and there were
approximately 234 record holders of such shares. Each share of Stone Common
Stock is entitled to one vote on the Merger Agreement and any other proposal
properly brought before the Stone Meeting.
QUORUM; VOTE REQUIRED FOR APPROVAL
The presence, in person or by proxy, of a majority of the outstanding
shares of Stone Common Stock is necessary to constitute a quorum at the Stone
Meeting.
THE MERGER AGREEMENT. The affirmative vote of sixty-six and two-thirds
(66-2/3%) percent of the outstanding shares of Stone Common Stock entitled to
vote thereon, is required to approve and adopt the Merger Agreement.
As of the Record Date, officers, directors and certain other shareholders
of Stone were the beneficial owners of approximately 73.8% of the outstanding
Stone Common Stock entitled to vote at the Stone Meeting. Each of the foregoing
shareholders has informed Stone that he intends to vote for the approval and
adoption of the Merger Agreement. ACCORDINGLY, THE MERGER OF STONE INTO DLC IS
ASSURED UNDER THE LAWS OF THE STATE OF NEW YORK.
SOLICITATION, REVOCATION AND USE OF PROXIES
All shares of Stone Common Stock which are entitled to vote and are
represented by properly executed proxies received by Stone prior to or at the
Stone Meeting and not revoked will be voted at the Stone Meeting in accordance
with the instructions indicated on such proxies. If no instructions are
specified in such proxies, shares of Stone Common Stock will be voted for
approval and adoption of the Merger Agreement. If any other matters are properly
presented at the Stone Meeting for consideration, including a motion to adjourn
the Stone Meeting (including, without limitation, for the purpose of soliciting
additional proxies), the persons named in the enclosed form of proxy will have
discretion to vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked (i) by notice
in writing to Stone at its principal executive office; (ii) by duly executing a
later dated proxy relating to the same shares and delivering it to the Secretary
of Stone before the taking of the vote at the Stone Meeting; or (iii) by
attending the Stone Meeting and voting in person.
In the event the Merger is completed, MBM will bear the entire cost of
preparing and mailing this Prospectus/Proxy Statement. In the event the Merger
is not completed, Stone will bear its cost incurred in the preparation and
mailing of this Prospectus/Proxy Statement. In addition to solicitation by use
of the mails, proxies may be solicited by directors, officers and employees of
46
<PAGE>
Stone in person or by telephone, telegram or other means of communication. Such
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Stone may retain Shareholder Communications Corp., a proxy
solicitor, at an aggregate cost of approximately $6,000, to assist in the
solicitation of proxies from brokers, nominees, institutions and individuals.
Arrangements may also be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and Stone shall
reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith.
APPRAISAL RIGHTS
Pursuant to Section 623 of the Business Corporation Law of the State of New
York ("BCL"), a copy of which is annexed to this Prospectus/Proxy Statement as
Exhibit "B," any dissenting shareholder seeking to receive payment for his
shares must file a written notice with Stone either before the Stone Meeting or
at the Stone Meeting but before the vote is taken. This objection must include
a notice of his election to dissent, his name and residence address, the number
and classes of shares as to which he dissents and a demand for payment of the
fair value of his shares if the Merger is consummated. Such objection is not
required from any shareholder who did not receive proper notice of the meeting.
Within ten days after the Shareholder's Authorization Date (the date on which
the shareholders vote authorizing the merger is taken), Stone must give written
notice of such authorization by registered mail to each shareholder who filed a
written objection or from whom written objection was not required, except any
shareholder who voted for or who consented in writing to the proposed merger and
who thereby is deemed to have elected not to enforce his right to receive
payment for his shares. Within 20 days after the giving of such notice, any
shareholder from whom written objection was not required and who elects to
dissent shall file with Stone a written notice of such election stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares.
A shareholder may not dissent as to less than all of the shares as to which
he has a right to dissent held by him of record that he owns beneficially. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all of the shares of such owner, as to which such nominee or fiduciary
has a right to dissent, held of record by such nominee or fiduciary.
Upon consummation of the Merger, the shareholder shall cease to have any of
the rights of a shareholder, except the right to be paid the fair market value
of his shares and any other rights under the BCL. A notice of election may be
withdrawn by the shareholder at any time prior to the acceptance in writing of
an offer made by Stone, but in no case later than 60 days from the date of the
47
<PAGE>
consummation of the Merger, except that if Stone fails to make a timely offer as
provided herein, the time for withdrawing a notice of election shall be extended
until 60 days from the date such offer is made. Upon expiration of such time,
withdrawal of a notice of election shall require the written consent of Stone.
In order to be effective, withdrawal of a notice of election must be
accompanied by the return to Stone of any advance payment made to the
shareholder as provided herein. If a notice of election is withdrawn or the
Merger is rescinded or a court shall determine that the shareholder is not
entitled to receive payment for his shares or the shareholder shall otherwise
lose his dissenter's rights, he shall not have the right to receive payment for
his shares and he shall be reinstated to all his rights as a shareholder as of
the consummation of the Merger, including any intervening preemptive rights and
the right to payment of any intervening dividend or other distribution or, if
any such rights have expired or any such dividend or distribution other than
cash has been completed, in lieu thereof, at the election of Stone, the fair
value thereof in cash as determined by the Board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim.
Dissenting shareholders must, either at the time of the filing of their
notice of election or within one month thereafter, submit their certificates
representing their shares in Stone to either Stone or its transfer agent, which
shall then place a legend thereon that a notice of election has been filed. The
certificates shall then be returned to either the shareholder or any other
person who submitted them on their behalf. Any shareholder who fails to submit
his certificates for such notation shall, at the option of Stone, exercised by
written notice to him within 45 days from the date of filing of the notice of
election to dissent, lose his dissenter's rights unless a court, for good cause
shown, shall otherwise direct. If any such legended shares are transferred, each
new certificate issued shall bear a similar legend together with the name of the
original dissenting shareholder and the transferee shall acquire no rights in
Stone except those which the original dissenting shareholder had at the time of
the transfer.
Stone must, within 15 days after the expiration of the period within which
shareholders may file their notices of election to dissent or within 15 days
after the proposed merger is consummated, whichever is later (but in no case
later than 90 days from the Shareholders' Authorization Date), make a written
offer by registered mail to each shareholder who has filed a notice of election
to pay for his shares at a specified price which Stone considers to be their
fair market value. This offer must be accompanied by a statement setting forth
the aggregate number of shares with respect to which notices of election to
dissent have been filed and the aggregate number of holders of such shares.
If the Merger has been consummated, such offer shall also be accompanied by
advance payment to each shareholder who has
48
<PAGE>
submitted the certificates representing his shares to Stone of an amount equal
to 80% of the amount of such offer or, as to each shareholder who has not yet
submitted his certificates, a statement that advance payment to him of an amount
equal to 80% of the amount of the offer will be made by Stone promptly upon
submission of his certificates.
If the Merger has not been consummated at the time of the making of the
offer, such advance payment or statement as to advance payment shall be sent to
each shareholder upon consummation of the merger. Acceptance of such payment by
the shareholder does not constitute a waiver of any dissenter's rights.
If Stone fails to make such offer within such period of 15 days or if it
makes the offer and any dissenting shareholder or shareholders fail to agree
with it within the period of 30 days thereafter, Stone must, within 20 days
after the expiration of the applicable period, institute a special proceeding in
the Supreme Court, Nassau County, to determine the rights of dissenting
shareholders and to fix the fair value of their shares. Should Stone fail to
institute such a proceeding within such period, any dissenting shareholder may
institute such proceeding for the same purpose not later than 30 days after the
expiration of such 20 day period. If such proceeding is not instituted within
this 30 day period, all dissenters' rights shall be lost unless the Supreme
Court, for good cause shown, shall otherwise direct. All dissenting
shareholders, excepting those who have agreed with Stone upon the price to be
paid for their shares, shall be made parties to such proceeding, which shall
have the effect of an action QUASI IN REM against their shares. Each dissenting
shareholder who is a resident of New York State shall be entitled to service of
a copy of the petition in the manner provided by law for the service of a
summons and each non-resident dissenting shareholder shall be entitled to
service either by registered mail and publication or in such other manner as
permitted by law. The jurisdiction of the court shall be plenary and exclusive.
The court shall then determine whether each dissenting shareholder as to
whom Stone requests the court to make such determination is entitled to receive
payment for his shares. If Stone does not request any such determination or if
a court finds that any dissenting shareholder is so entitled, the court shall
proceed to fix the value of the shares' fair market value, which is defined as
the fair value on the close of business on the day prior to the Shareholders'
Authorization Date. In fixing the fair value of the shares, the court shall
consider the nature of the transaction giving rise to the shareholders' right to
receive payment for the shares and its effect on Stone and its shareholders, the
concepts and methods then customary in the relevant securities and financial
markets for determining fair value of shares of a corporation engaging in
similar mergers under comparable conditions and all other relevant factors. The
court shall determine the fair market value of the shares without a jury and
without reference to an appraiser or referee. Such valuation could be more than,
less than or equal to the consideration
49
<PAGE>
provided by the Merger. Upon application, the court may in its discretion permit
pre-trial discovery, including, but not limited to, disclosure of any experts'
reports relating to the fair value of the shares, whether or not intended for
use at the trial in the proceeding and notwithstanding Section 3101(d) of the
Civil Practice Law and Rules of the State of New York.
The court's final order shall include an allowance for interest, at a rate
the court deems equitable, from the date the merger was consummated to the date
of payment. If the court finds that the refusal of any shareholder to accept
Stone's offer for payment of his shares was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him. Each party to the
proceeding shall bear its own costs and expenses, including counsel fees and
experts' fees; provided, however, that the court may, in its discretion,
apportion and assess all or any part of the costs and expenses and fees incurred
by Stone against any or all of the dissenting shareholders who are parties to
the proceeding, including any who have withdrawn their notices of election, if
the court finds that their refusal to accept Stone's offer was arbitrary,
vexatious or otherwise not in good faith. The court may similarly in its
discretion apportion and assess all or any part of the costs, expenses and fees
incurred by any or all of the dissenting shareholders who are parties to the
proceeding against Stone, if the court finds that the fair value of the shares
as determined materially exceeds the amount which Stone offered to pay; that no
offer or required advance payment was made by Stone; that Stone failed to
institute a special proceeding within the period specified or that the action of
Stone in complying with its obligations as provided in this section was
arbitrary, vexatious or otherwise not in good faith.
Stone must pay each dissenting shareholder the amount found to be due him
within 60 days after the final determination of the proceeding upon surrender of
the certificates for any shares represented by such certificates. Shares
acquired by Stone upon payment of the agreed value or the amount due under the
final order shall become treasury shares or shall be cancelled, except that in
the case of a merger, they may be held and disposed of as the plan of merger may
otherwise provide. The enforcement of any shareholder's dissenter's rights
shall exclude the enforcement by such shareholder of any other right to which he
might otherwise be entitled by virtue of his share ownership, except that such
shareholder may bring an appropriate action to obtain relief on the ground that
the merger will be or is fraudulent or unlawful as to him.
THE MERGER
GENERAL EFFECTS OF THE MERGER
Pursuant to the Merger Agreement, DLC, a New York corporation and a wholly-
owned subsidiary of MBM will acquire by merger with Stone all of the assets of
Stone, subject to all of its liabilities, in exchange for the issuance of up to
280,696 shares
50
<PAGE>
of MBM Common Stock. Each one share of Stone Common Stock outstanding
immediately prior to the Closing of the Merger will be exchanged for 0.0818 of a
share of MBM. DLC will continue to operate the Stone business. MBM will
continue to manage Stone. See "Interests of Certain Persons in the Merger."
The Merger is subject to certain conditions including, among other things,
the obtaining of an opinion by Stone as to the fairness of the Merger to Stone
and its shareholders. Such opinion has been obtained.
BACKGROUND OF THE MERGER
Stone, in evaluating the medical supply business in which it is engaged and
the uncertainties in the health care industry generally, determined that in
order to survive it would be necessary to expand its business internally as well
as by acquisition. As a result, in 1991 Stone started a podiatry division and
started to seek potential candidates for acquisition. Stone has been
unsuccessful in consummating any acquisitions. From time to time Stone
purchased certain of the products it sells from MBM and was aware that MBM had
made and was making acquisitions of companies similar to that of Stone.
Discussions were started which ultimately resulted in the Merger Agreement.
Management of Stone believes that the Merger with MBM was in the best
interests of the business of Stone as well as for the benefit of its
shareholders in that, among other reasons, the liquidity of the MBM Common Stock
was better than that of the Stone Common Stock.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
Stone Recommendation
The Stone Board has unanimously determined, among other things, that the
Merger is fair to and in the best interests of Stone and its shareholders and
recommends that the shareholders of Stone vote FOR approval. Of primary
importance to the Stone Board was that there is considerable uncertainty
presently in the health care industry in which Stone engages. The Stone Board is
concerned that such uncertainties could adversely affect Stone's business in the
future since many of the doctors, who are customers of Stone, may have their
supply purchase decisions made by HMO's. Such HMO's could direct doctors to
purchase their needs from larger organizations who could provide better pricing.
The Stone Board believes that if Stone were affiliated with a much larger
organization it could better protect its business in the future as well as
expand its operations. Further the Stone Board believes that shareholders would
benefit from having an equity interest in a company whose securities are
significantly more marketable than Stone's securities. Over the past few years
there has been little market activity in Stone securities and the current market
value of Stone's securities, in the opinion of Stone's Board, does not properly
reflect Stone's true value. The Stone Board determined
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that the Merger is fair to Stone shareholders prior to the receipt of a fairness
opinion based on its own analysis of the foregoing factors.
The Stone Board did not undertake a separate analysis of each of the
foregoing factors, but considered all factors in their totality (giving
significant weight to the respective business prospects of Stone and MBM) in
reaching its determination that the Merger is fair to Stone and its
shareholders. Based on the foregoing factors, the ownership percentages of the
Stone shareholders in MBM pursuant to the Merger was arbitrarily determined
through negotiation between the respective managements of Stone and MBM, without
reliance upon any quantitative formula. The Stone Board also required the
receipt of a fairness opinion as a condition to the Merger. The Merger
Agreement permitted the Board to terminate the Merger in the event an
independent third party did not support the fairness of the Merger to Stone and
its shareholders. See "Opinion of Financial Advisor."
The management of Stone believes that the Merger with MBM, a related
business to the business of Stone, would enable Stone to strengthen its
financial position through an improved ability to raise additional debt or
equity financing if necessary to achieve significant revenue and growth.
Further, such management believes that it would enable Stone shareholders to
participate in a larger financial enterprise having greater financial resources
and more diversified operations. Management of MBM believes that the
acquisition of Stone will benefit MBM through increased market penetration in
territories that are not strongly covered by MBM as well as increasing its
customer base in the New York Metropolitan Area where MBM is strongly covered
through its current operations. Management of MBM has concluded that the
customer overlap between Stone and MBM is not significant. Further, MBM will
seek to achieve economies of scale and to increase operating efficiency of the
combined operations. The affirmative vote of sixty-six and two-thirds (66 2/3%)
percent of the outstanding shares of Stone is required to approve and adopt the
Merger Agreement.
OPINION OF FINANCIAL ADVISOR
In connection with the Merger, Stone has retained P.K. Hickey & Co.
("Hickey"), an unaffiliated investment banking firm to render an opinion as to
the fairness of the proposed Merger as contemplated in the Merger Agreement to
the shareholders (other than the officers and directors of Stone) for a fee of
$15,000. In connection therewith, Hickey has delivered to Stone its written
opinion dated November 1, 1995 to the effect that, based upon and subject to
certain matters discussed therein, the Merger including the Conversion Ratio is
fair, to the shareholders of Stone. The Conversion Ratio and the terms of the
Merger were determined by Stone and MBM prior to the retention of Hickey and
without consultation with Hickey.
Hickey concluded that the terms of the Merger were fair to Stone and its
shareholders based upon the market capitalization of Stone before and after the
Merger. Prior to the Merger, Stone had
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an approximate market capitalization of approximately $1,100,000.
In formulating its opinion, Hickey met with certain officers, directors,
advisors and representatives of both Stone and MBM to discuss the business,
operations, financial condition and prospects. In arriving at its opinion,
Hickey considered, among other things the following, without however, placing
any specific weight to any of the items listed:
1. Discussions with the management and others from Stone and MBM
concerning each company and their respective prospects for the future;
2. The financial statements of each company including the most recent
audited financial statements and the unaudited statements for the period
subsequent to the last audit as well as other publicly available information,
such as all current SEC filings.
3. Its own examination of the medical supply and the health care
industries.
4. The terms of the Merger Agreement in relation to the market price,
historical financial information, potential operating results, tangible and
intangible book value of both Stone and MBM, as well as the trading activity
(i.e. volume and price range) of each company's stock.
Hickey assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it in reaching its
opinion. Hickey has not made or obtained independent valuations or appraisals
of the assets or liabilities of Stone or MBM and was not asked to, and did not,
solicit indications of interest from other parties relating to possible mergers
with either Stone or MBM or any acquisition of assets. Hickey was not involved
in the negotiations leading to the Merger Agreement or of the Merger Agreement
itself nor was it involved in the negotiations which ultimately determined the
Conversion Ratios to be used in the Merger. Hickey was not asked to consider
the relative merits of the Merger as compared to any other business strategy
which might exist for either Stone or MBM. The opinion did relate to the
relative values of Stone and MBM. No other limitations were imposed with
respect to the investigation made or procedures to be followed by Hickey in
rendering its opinion. Hickey has been engaged in the investment banking
business for more than 10 years, having evaluated and underwritten many initial
public offerings of securities, completed numerous private placements and merger
and acquisition transactions during that time. Hickey was introduced to Stone
by David W. Sass, an officer and director of Stone. There has been no
relationship between Hickey and either Stone or MBM during the past two years.
The full text of the opinion, which sets forth the assumptions made,
matters considered and limits on the review undertaken, is attached hereto as
Exhibit "C". Shareholders of Stone are urged to
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read the opinion carefully and in its entirety. The opinion is directed only to
the fairness of the Merger from a financial point of view, does not address any
other aspect of the Merger and does not constitute a recommendation to any
shareholder as to how such shareholder should vote at the meeting at which the
proposed Merger is to be voted upon. The summary of the opinion of Hickey set
forth in this joint proxy statement/prospectus is qualified in its entirety by
reference to the full text of such opinion. MBM has determined that a fairness
opinion is not required for itself.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As part of the Merger, Mr. Andrew Stone ("Andrew"), the President of Stone,
has entered into a five year employment agreement with DLC pursuant to which he
is employed at an annual salary of $115,000 and will be elected a Vice-President
of MBM at MBM's next board meeting. His annual salary at Stone was
approximately $170,000. In addition, Andrew will be entitled to a bonus not to
exceed $25,000 in the event certain sales goals are achieved during the year
1996. He will be reimbursed for out-of-pocket expenses and will be provided a
company car. DLC will provide life insurance in the amount of $750,000, which
amount will be reduced by $150,000 on each anniversary date of the Agreement.
Andrew has entered into a fifteen year Non-Competition, Indemnification and
Release Agreement pursuant to which he has agreed not to engage in competition
with Stone, DLC and MBM for a period of fifteen years nor disclose any
confidential information, customer lists or other proprietary information of
DLC, MBM or Stone. Andrew has also agreed to indemnify MBM and DLC with respect
to representations relating to the sale of inventory and collection of
receivables contained on the November 10, 1995 balance sheet as well as the
representations and warranties of Stone and Andrew contained on the November 10,
1955 Merger Agreement. In consideration for the Non-Competition Agreement,
Andrew has been or is to be paid the sum of $1,250,000 as follows:
$583,333.33 on the date of the signing of the Merger Agreement.
$333,333.33 nine months from the date of the signing of the Merger
Agreement.
$333,333.33 on a date which shall be ten (10) business days after the final
determination of Andrew's liability under the indemnification provisions of
the Noncompetition Agreement relating to inventory and accounts receivable.
In addition, Andrew will deposit in escrow one-half of the shares of the MBM
Common Stock to be received by him at the Closing of the Merger, with such
stock, to be used to cover any liability to MBM or DLC which he may have with
respect to his Noncompetition Agreement. The payments under the Non-Competition
Agreement may also be offset against such liability. In the event the Merger is
not consummated by June 30, 1996 then the total payments under the
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Noncompetition Agreement shall be reduced to $750,000 and the last two payments
reduced accordingly to $83,333.33.
Lyudmila Stone, the wife of Andrew, and a Vice President of Stone, has
entered into a fifteen year Non-Competition Agreement with DLC pursuant to which
she has agreed not to engage in competition with Stone, DLC and MBM for a period
of fifteen years nor disclose any confidential information, customer lists or
other proprietary information of MBM, Stone or DLC. As compensation for the
Non-Compete Agreement Lyudmila Stone shall receive the sum of $500,000.00
payable at the monthly rate of $8,333.33 until the fifth anniversary of the date
of the Agreement.
As part of the Merger, Andrew will at closing enter into a Put-and-Call
Agreement with a party satisfactory to Andrew, which party may be MBM (the
"Party"), pursuant to which Andrew will have the right for a period of three
months commencing one year after the Merger to Put one-half of his shares of
MBM Common Stock which he receives in the Merger at a price of $9.50 per
share, in the event the price of the MBM Common Stock falls below $9.00 for a
period of 30 consecutive trading days prior to the put notice. The Party
will have the right to Call such shares at $13.50 per share at any time
commencing six months after the Merger and for a period of 12 months
thereafter.
In the event the Merger is not consummated by June 30, 1996, Andrew and
certain other shareholders of Stone have agreed to sell their shares of stock in
Stone representing approximately 73.8% of the outstanding stock of Stone to MBM
in exchange for MBM Common Stock at the Conversion Ratio of one Stone share for
each 0.0818 of a share of MBM (0.069 of a share of MBM if holders of less than
2/3 of Stone's outstanding shares vote to approve the Merger).
Affiliates of Stone (representing approximately 73.8% of the shares
entitled to vote) have indicated that they intend to vote for the Merger. See
"Stone Shareholders Meeting - Quorum; Vote Required for Approval."
Stone and MBM have entered into a Management Agreement effective as of
November 2, 1995, pursuant to which MBM will manage the business and affairs of
Stone until the Effective Date of the Merger for a fee of 5% of the net sales of
Stone during the management period.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Neither MBM nor Stone has requested or will receive an advance ruling from
the Internal Revenue Service ("IRS") as to any of the federal income tax
consequences to holders of Stone Common Stock of the Merger or of any of the
federal income tax consequences to Stone or MBM of the Merger. Instead Stone
will rely upon the
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opinion of McLaughlin & Stern, LLP, as to the federal income tax consequences of
the Merger. A member of said firm is an officer and director of Stone. The
opinion of McLaughlin & Stern LLP is based entirely upon the Internal Revenue
Code of 1986 as amended (the "Code"), regulations now in effect thereunder,
current administrative rulings and practice, and judicial authority, all of
which are subject to change. Unlike a ruling from the IRS, an opinion is not
binding on the IRS and there can be no assurance, and none is hereby given, that
the IRS will not take a position contrary to one or more positions reflected
herein or that the opinion will be upheld by the courts if challenged by the
IRS.
In the opinion of McLaughlin & Stern LLP which opinion is based upon
various representations and subject to various assumptions and qualifications
the following federal income tax consequences will result from the Merger:
1. The Merger of Stone with and into DLC, with DLC surviving, should
qualify as a reorganization under Section 368(a) of the Code. MBM, Stone and
DLC should all be a party to a reorganization.
2. No gain or loss should be required to be recognized by the Stone
shareholders upon the exchange of their Stone Common Stock for MBM Common Stock.
3. The basis of all the MBM Common Stock (including any fractional shares
which they otherwise might be entitled to receive) received by the shareholders
of Stone in the exchange should be the same as the basis of the Stone stock
exchanged.
4. The holding period of the MBM Common Stock to be received by Stone
shareholders should include the holding period of the Stone shares surrendered
in the exchange, provided the Stone stock was held as a capital asset on the
date of the exchange.
5. Cash received by a shareholder of Stone in lieu of a fractional share of
MBM Common Stock should be treated as if the fractional shares were received in
exchange for such fractional shares and not as a dividend. Any gain or loss
recognized as a result of the receipt of such cash should be capital gain or
loss equal to the difference between the cash received and the portion of the
shareholder's basis in Stone Common Stock for such fractional share interest.
6. Stone should recognize no gain or loss as a result of the Merger.
The opinion of McLaughlin & Stern LLP is rendered solely with respect to
certain federal income tax consequences of the Merger under the Code, and does
not extend to the income or other tax consequences of the Merger under the laws
of any State or any political subdivision of any State nor does it extend to any
tax effects or consequences of the Merger to Stone, DLC or MBM other than those
expressly stated in the opinion. Furthermore, no
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opinion is expressed as to the federal or state tax treatment of the transaction
under any other provisions of the Code and regulations, or about the tax
treatment of any conditions existing at the time of, or effects resulting from,
the transaction that is not specifically covered by the opinion. No legal
opinion as to tax consequences of any nature has been rendered by legal counsel
to MBM. See "Legal Matters."
THE FOREGOING CONSTITUTES THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH
SHAREHOLDER OF EITHER STONE OR MBM. SHAREHOLDERS OF MBM AND STONE ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
RESTRICTIONS ON SALES BY AFFILIATES
The shares of MBM Common Stock to be issued in the Merger have been
registered under the Securities Act. Such shares will be freely transferable
under the Securities Act, except for shares issued to any person who may be
deemed to be an affiliate of Stone (as such term is defined in Rule 145 under
the Securities Act) immediately prior to the completion of the Merger.
Affiliates may not sell their shares of MBM Common Stock acquired in connection
with the Merger except pursuant to (i) an effective registration under the
Securities Act covering such shares; (ii) paragraph (d) of Rule 145; or (iii)
any other applicable exemption under the Securities Act.
MATERIAL TERMS OF THE MERGER AGREEMENT
Set forth below is a description of the material terms and conditions
contained in the Merger Agreement. Such summary is complete in all material
respects. The description of the terms and conditions contained in the Merger
Agreement set forth in this Proxy Statement/Prospectus are qualified in their
entirety by the complete text thereof as set forth in Exhibit "A" which is
hereby incorporated by reference.
CLOSING; EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of shareholders
of Stone at its meeting and the other conditions to the Merger Agreement are
satisfied or waived (where permissible), the Merger will become effective upon
the closing (the "Closing") of the Merger Agreement as agreed to between Stone
and MBM, which closing shall occur upon receipt of Stone shareholder approval,
and the completion of all conditions precedent.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Closing, MBM will cause to be mailed to
each holder of record of a certificate or certificates
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that immediately prior to the Closing represented outstanding securities of
Stone a letter of transmittal (which shall specify that delivery shall be
effected and risk of loss and title to the certificates shall pass, only upon
actual delivery of the certificates to the transfer agent) and instructions for
use in effecting the surrender of the certificates in exchange for certificates
representing securities of MBM Common Stock.
Security Holders of Stone should not submit their certificates for exchange
until such letter of transmittal and instructions are received. Upon surrender
of the certificates for cancellation to American Stock Transfer & Trust Company,
40 Wall Street, New York, NY 10005 (the "Exchange Agent") together with a duly
executed letter of transmittal and such other documents as the Exchange Agent
may require, the holder of such certificates will be entitled to receive in
exchange therefor a certificate representing an appropriate number of shares of
MBM Common Stock and the certificates of Stone so surrendered will be cancelled.
From and after the Closing, MBM will be entitled to treat the certificates
for securities of Stone which have not yet been surrendered for exchange as
evidencing the ownership of securities of MBM into which such securities have
been converted pursuant to the Merger Agreement, notwithstanding the failure to
surrender such certificates except as otherwise provided by applicable law. To
the extent any transfer taxes are imposed by law on the holders of the
certificates, such holders will be responsible for the payment thereof. In
addition, if any certificate for securities of Stone is to be issued in a name
other than that in which the certificate surrendered in exchange therefor is
registered, it will be a condition of such exchange that the person requesting
such exchange pay to the transfer agent any transfer or other taxes as may be
required by reason of the issuance of the certificates in a name other than that
of the registered holder of the certificate surrendered, or establish to the
satisfaction of the transfer agent that such tax has been paid or is not
applicable.
After the Closing, there will be no transfers on the stock transfer books
of Stone of securities which were outstanding prior to the Closing. If, after
the Closing, certificates representing such securities are presented for
transfer to North American Transfer Company, 147 West Merrick Road, Freeport, NY
11520, Stone's transfer agent, they shall be cancelled and exchanged for
certificates representing securities of MBM pursuant to the terms of the Merger
Agreement.
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Merger Agreement contains various representations and warranties of
each of Stone and MBM including representations as to (i) its organization,
good standing, power and authority (and by Stone as to its capitalizationa);
(ii) the authorization, execution and delivery of the Merger Agreement and
the authorization of the transactions contemplated therein; (iii) the absence
of the need (except as specified in the Merger Agreement) for governmental or
third party
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consents or approvals to the transactions contemplated by the Merger
Agreement; (iv) the accuracy of each party's respective financial statements
and filings with the Commission; (v) the absence of certain undisclosed
liabilities and material adverse changes; (vi) the good and marketable title
by Stone to all assets shown on the respective financial statements; (vii)
the complete and full disclosure of all material facts; (viii) the absence of
material litigation, violations of law and in the case of Stone, any
amendments to their respective certificates of incorporation and By-Laws;
(ix) Stone's insurance on tangible assets and business; (x) Stone's filing
filing of tax returns and payment of certain taxes and other tax matters;
(xi) Stone's obligations under existing employee benefit plans and compliance
with certain provisions of the Employee Retirement Income Security Act of
1974, as amended; (xii) Stone's absence of labor controversies; compliance
with labor and other similar laws; and (xiii) Stone's compliance with
environmental laws;
Pursuant to the Merger Agreement, Stone has generally agreed that,
except as specified or with the consent of MBM prior to the Closing it will,
among other things, (i) conduct its business in the ordinary course of
business consistent with past practice; (ii) not amend its certificate of
incorporation or by-laws; (iii) not pay or declare any dividend or other
distribution in respect of its capital stock, nor directly or indirectly
redeem, retire, purchase or otherwise acquire any of such stock.
Additionally, Stone has agreed that it will not (i) issue any additional
shares of common stock or options, warrants or rights to purchase shares of
capital stock of any class or securities convertible into shares of capital
stock of any class; (ii) not merge or consolidate with any other corporation,
acquire any other business, change the nature of its business (other than in
its ordinary course of business) and (iii) sell, assign, transfer or pledge
any of its tangible assets.
CLOSING CONDITIONS
The respective obligations of Stone and MBM to consummate the Merger are
subject to the satisfaction or waiver (where permissible) of, among others, the
following conditions: (i) Stone shall have obtained an opinion as to the
fairness of the Merger to the shareholders of Stone (ii) the Merger Agreement
shall have been approved and adopted by the requisite vote of the holders of
Stone Common Stock; (iii) the Registration Statement relating to the Merger
shall have become effective under the Securities Act; (iv) there shall be no
instituted or threatened legal proceeding relating to, or seeking to prohibit or
otherwise challenge the consummation of the transactions contemplated in the
Merger Agreement; (v) the obligations of each party contained in the Merger
Agreement required to be performed by such party at or prior to the Closing
shall have been performed in all material respects and the representations and
warranties of such party contained in the Merger Agreement shall be true and
correct in all material respects as of the Closing except as contemplated by the
Merger Agreement; (vi) all governmental and regulatory consents and approvals
necessary for consummation and reorganization shall have been obtained on terms
reasonably satisfactory to MBM;
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(vii) MBM shall have received certain legal opinions and closing
certificates; and (viii) there shall have been no material adverse change, or
discovery of a condition or occurrence or event which has resulted or can be
expected to result in a material adverse change in the financial condition,
business, results of operations or prospects of Stone.
TERMINATION
The Merger Agreement may be terminated by Stone or MBM at any time prior to
the consummation of the Merger, whether before or after approval by the
shareholders of Stone (i) upon mutual written consent; (ii) if any of certain
mutual conditions are not satisfied; (iii) if the other party fails to perform
in any material respect any of its obligations under the Merger Agreement; (iv)
upon the issuance of an order, judgment or decree restraining or enjoining the
Merger; or (v) the commencement by any Federal or state governmental authorities
of an investigation regarding any of the parties to the Merger Agreement, or
(vii) the Merger is approved by the shareholders of Stone and not completed by
June 30, 1996. In the event of termination neither party shall have any
liability to the other and each party shall be responsible for its own expenses
incurred in connection with the Merger.
Notwithstanding anything contained herein to the contrary, Stone may
terminate the Merger Agreement upon the payment of $1,000,000 to MBM at anytime
until the Closing Date, but only in the event it consummates a merger
transaction with an unrelated third party.
ACCOUNTING TREATMENT
The merger of Stone and DLC will be accounted for as a purchase by MBM in
accordance with the provisions of Accounting Principles Board Opinion No. 16 on
Business Combinations.
EXPENSES
In the event the Merger is completed, MBM will bear the entire cost of
preparing and mailing this Prospectus/Proxy Statement. In the event the Merger
is not completed, Stone and MBM will bear their respective costs incurred in the
preparation and mailing of this Prospectus/Proxy Statement. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of Stone in person or by telephone, telegram or other
means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Arrangements may also be made
with custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and Stone shall reimburse such custodians, nominees
and fiduciaries for reasonable expenses incurred in connection therewith.
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OPERATIONS AFTER THE MERGER
CORPORATE STRUCTURE
Upon the completion of the Merger, Stone will be wholly owned by MBM.
OPERATIONS AND FINANCIAL CONDITIONS
Subsequent to the Merger, DLC will continue to conduct the Stone business
as a wholly owned subsidiary of MBM.
Upon the completion of the Merger, MBM will assume control of the merged
company.
Initially, Management of MBM intends to continue the separate operations of
Stone as part of DLC to the extent possible but MBM will seek to achieve
economies of scale and to increase operating efficiency of the combined
operations.
MANAGEMENT AND COMPENSATION ARRANGEMENTS
Upon completion of the Merger, the officers and directors of MBM will
become the officers and directors of DLC, except that Andrew will become a Vice
President of MBM at the next meeting of the board of directors of MBM.
As part of the Merger, Andrew, the President of Stone will enter into a
five year employment agreement with DLC pursuant to which he will be employed
as a Vice President at an annual salary of $115,000. His current annual salary
is $170,308. In addition, Andrew will be entitled to a bonus not to exceed
$25,000 in the event certain sales goals are achieved during the year 1996. He
will be reimbursed for out-of-pocket expenses and will be provided a company
car. DLC will provide life insurance in the amount of $750,000, which amount
will be reduced by $150,000 on each anniversary date of the Agreement.
Stone and MBM have entered into a Management Agreement effective as of
November 2, 1995, pursuant to which MBM will manage the business and affairs of
Stone until the Effective Date of the Merger for a fee of 5% of the net sales of
Stone during the management period.
BUSINESS OF MBM
OVERVIEW
MBM is a New York corporation which was incorporated in 1971. MBM
distributes medical supplies to physicians and hospitals in the New York
metropolitan area, as well as to health care professionals in the sports
medicine, emergency medicine, school health, industrial safety, government and
laboratory markets nationwide. MBM depends upon the continued supply of the
products it distributes; however, it does not depend upon any single source.
MBM has neither encountered nor does it anticipate any difficulty
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in obtaining the necessary products. No one customer has accounted for more
than 10% of MBM's revenues during the nine months ended August 31, 1995 and each
of the fiscal years ended November 30, 1994, November 30, 1993 and November 30,
1992.
CALIGOR DIVISION
MBM's Caligor Division is a physician supplier in the New York metropolitan
area, serving over 12,000 physicians and laboratories. It also serves local
hospitals, nursing homes and industrial medical departments.
Caligor provides its physicians with a comprehensive selection of supplies
and related services. The division's estimated 50,000 supplies range from
bandages and pharmaceuticals to sophisticated diagnostic equipment, while the
services range from equipment repair to the complete design and installation of
new offices, waiting rooms, exam rooms and laboratories.
The Caligor division, through Caligor Physicians & Hospital Supply Corp., a
wholly owned subsidiary of MBM, also operates a pharmacy in Manhattan to serve
local physicians and their patients. In addition, the Caligor Division supplies
independent clinical labs, hospital labs, and physician in-office labs with
diagnostic equipment, test kits, reagents and disposables.
Over the past few years, the Caligor Division has been able to acquire a
number of smaller distributors, resulting in significant economies of scale and
improved operating efficiencies. Caligor has increased its market share in
these new territories with the same combination of sales force support, direct
mail, catalogs and telemarketing sales that it uses in existing territories.
Caligor is MBM's largest division in terms of annual sales. Revenues during
fiscal 1994 were approximately $101,000,000 or 83.1% of MBM's total revenues, as
compared to $55,100,000 or 74.6% of total revenues for the comparable period of
fiscal 1993, as compared to $44,200,000 or 71.8% of the total revenues for the
comparable period of fiscal 1992. The 1994 increase over the prior fiscal
periods resulted primarily from MBM's acquisition of the business and assets
from Clark Surgical as described under "Acquisition of Assets of Clark Surgical
Corp." as well as sales and marketing efforts aimed at the acquired and existing
customer base.
MBM DIVISION
The MBM Division distributes sports medicine supplies, school nurse
supplies, medical equipment and rehabilitation equipment to over 10,000 schools,
colleges, municipalities, emergency medical units and professional sports teams
around the country, including many of the major and minor league baseball,
basketball, football and hockey teams. Revenues derived from municipalities and
school districts are derived from competitive bidding.
Like the Caligor Division, MBM Division serves its customers
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with a comprehensive line of supplies and services, ranging from the delivery of
athletic tape to an NFL team on the road to the complete design, furnishing and
stocking of a training room, sports medicine clinic, or school nurse office.
MBM Division markets its product line primarily via three catalogs which it
distributes to customers and prospective customers each year. These catalogs
are supported by direct mail, telemarketing, professional journal advertising,
national and local trade show exhibitions, and an inside sales and customer
service staff.
The seasonal buying habits of MBM's school and athletic customers is
concentrated between the months of June and September of each year. Although
MBM's marketing expenses relating to such customers are incurred throughout the
year, MBM has experienced no problem in meeting its cash requirements as a
result of its working capital and extension of credit under its Revolving Credit
Agreement.
Revenues derived from the MBM Division during fiscal 1994 were
approximately $18,100,000 or 14.9% of MBM's total revenues as compared with
approximately $16,500,000 or 22.3% of total revenues for the same period for
fiscal 1993 and $15,100,000 or 24.5% total revenues for fiscal 1992. Revenues
increased as a result of the addition of a Southern Regional sales office,
increased market penetration and an increase in Company sales personnel.
HEALER PRODUCTS DIVISION
MBM's Healer Products Division is an assembler and wholesaler of first aid
kits and private label medical products. These products, in turn, are marketed
by MBM's other divisions, and sold to numerous outside markets through a network
of commissioned sales agents. The first aid and medical kits are produced in a
variety of forms and sizes, but are generally designed for use in government,
industry, schools, emergency medical organizations, hospitals, homes and
recreational facilities.
The Healer Products Division also produces specialized kits for volunteer
ambulance corps, emergency squads, corporate offices, construction operations,
restaurants, retail stores, boats, athletic activities, motor vehicles, and
sales promotion purposes as well as for specific medical problems such as
burns, poisoning, insect stings, traumatic accidents, obstetrical emergencies
and eye injuries.
Many of the products contained in the kits are generic and are marketed
under MBM's private label. The use of private-label generic products permits
attractive pricing for MBM and its customers and creates a consistent, positive
brand image among customers.
Revenues derived from the Healer Products Division during fiscal year 1994
were approximately $2,459,000 representing 2.0% of MBM's total revenues as
compared with $2,300,000 representing 3.1%
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<PAGE>
of total revenues for fiscal 1993 and as compared to $2,300,000 representing
3.7% of total revenues for fiscal 1992. Revenues for fiscal 1994 increased as a
result of increased market penetration and the addition of more independent
commission sales representatives.
ACQUISITION OF MID COUNTY MEDICAL SUPPLY CO., INC.
On March 27, 1995, MBM acquired certain assets and customer accounts of Mid
County Medical Supply Co., Inc., a distributor of physician and hospital
supplies, for approximately $500,000. The purchase price was allocated based
upon the fair market value of the assets at the date of acquisition. The
operations of Mid County Medical Supply Co., Inc., have been combined into the
Caligor Division.
ACQUISITION OF JOSEPH WEINTRAUB, INC.
On June 1, 1994, MBM acquired certain assets and customer accounts of
Joseph Weintraub, Inc., a distributor of physician and hospital supplies for
approximately $1,100,000. The purchase price was allocated based upon the fair
market value of the assets at the date of acquisition. The operations of Joseph
Weintraub Inc. have been combined into the Caligor Division.
ACQUISITION OF CLARK SURGICAL CORP.
On November 19, 1993, MBM Hospital Supply Corp., a wholly owned subsidiary
of MBM entered into an agreement with Clark Surgical Corp. ("Clark") to acquire
from Clark substantially all of the assets and customer accounts subject to
certain specific liabilities and obligations arising out of the contracts and
personal property leases acquired (the "Agreement"). This transaction closed on
December 1, 1993 and was accounted for as a purchase.
The purchase price for all the assets was approximately $16,500,000. The
purchase price was based upon the book value of the inventory, accounts
receivable and fixed assets purchased by MBM Hospital plus $1 million for
Clark's goodwill as described in the Agreement. MBM also issued to certain
persons warrants to purchase an aggregate of 40,000 shares of MBM's Common Stock
at a purchase price of $8.00 per share, subject to MBM's right to terminate the
unvested portion of the Warrants upon certain conditions at the sole discretion
of the Board of Directors. The Warrants vested 20% at closing and the balance
was scheduled to vest in four equal annual amounts on the anniversary date of
the Closing Date. However, the unvested portion of the Warrants to purchase
32,000 shares have been terminated.
The Agreement also provided for the execution of agreements not to compete
with Alfred S. Bretan and Burt Wexler, the sole shareholders of Clark
(hereinafter referred to as the "Shareholders"). The agreements not to compete
provide for the payment of $2.725 million in cash over a seven year period.
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<PAGE>
The operations of MBM Hospital Supply Corp. have been combined into the
various divisions of MBM.
ACQUISITION OF HARRISBURG SURGICAL SUPPLY, INC.
On March 29, 1993, MBM acquired Harrisburg Surgical Supply, Inc., a
distributor of physician and nursing home supplies servicing the eastern
Pennsylvania, Philadelphia and Baltimore metropolitan markets. The
consideration paid consisted of a combination of $600,000 in cash and 71,229
shares of MBM's Common Stock for an aggregate purchase price of approximately
$1,200,000. The operations of Harrisburg Surgical Supply, Inc. have been
combined into the Caligor Division.
REVOLVING CREDIT AGREEMENT
On November 19, 1993, MBM entered into a Credit Agreement with Chase
Manhattan Bank N.A. ("Chase") to act as agent of and as a participant in a $25
million secured revolving credit facility for MBM. Fleet Bank of New York
("Fleet") also acted as a participant in the Credit Agreement. Chase's and
Fleet's commitment under the Credit Agreement is limited to $15 million and $10
million, respectively. All references to MBM include MBM and its subsidiaries.
The Credit Agreement provides for a three year secured revolving credit in
an amount which shall not exceed the lesser of (a) $25,000,000 or (b) the
borrowing base as defined in the Credit Agreement.
The Credit Agreement provides for MBM to pay interest on loans made under
the facility at the rate of 1/4 of 1% over the Banks periodic base rate unless
MBM elects to pay based upon an alternative formula at the time of each
borrowing. MBM has been borrowing primarily by utilizing LIBOR, at the
prevailing rate plus 1.75%. The prevailing rate varies based upon the term of
the LIBOR. Upon request by MBM, the Banks may, at their option, create banker
acceptances under the facility. On June 7, 1995, MBM entered into a three year
interest rate swap agreement with Chase for $10,000,000. It is management's
intent to match the agreement's terms as to principal amounts and repricing
maturities in order to reduce MBM's interest rate risk on its revolving loans.
Effectively, the agreement serves to limit the net interest rate charged on
MBM's first $10,000,000 of revolving loans to 8.75%. However, MBM would receive
no further interest rate benefit once the applicable interest rate falls below
7.05%.
The Credit Agreement is subject to several conditions and financial
covenants such as the following:
- WORKING CAPITAL: MBM shall maintain a Consolidated Working Capital of
no less than $10,500,000 as of the end of each fiscal quarter.
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<PAGE>
- INTEREST COVERAGE RATIO: MBM shall maintain a ratio of Consolidated
EBIT (earnings before interest and taxes) to Consolidated Interest
Expense, measured at the end of each fiscal quarter for a period
comprised of such fiscal quarter and the three immediately preceding
fiscal quarters, of not less than (a) 3.00 to 1.0, as measured during
fiscal year December 1, 1992 - November 30, 1993; (b) 2.00 to 1.0, as
measured during fiscal year December 1, 1993 - November 30, 1994; and
(c) 3.00 to 1.00 thereafter.
- CURRENT RATIO: MBM shall maintain a ratio of Consolidated Current
Assets to Consolidated Current Liabilities of not less than 1.20 to
1.0, calculated at each fiscal quarter end.
- LEVERAGE RATIO: MBM shall maintain a ratio of (a)(i) total
liabilities of MBM and its Consolidated Subsidiaries less (ii)
Approved Subordinated Debt divided by (b)(i) net worth of MBM and its
Consolidated Subsidiaries plus (ii) Approved Subordinated Debt less
(iii) intangible assets of MBM and its Consolidated Subsidiaries, as
of the end of each fiscal quarter of MBM of not more than the number
set forth opposite such fiscal quarter:
each fiscal quarter in:
fiscal year 1993 2.50 to 1.0
fiscal year 1994 2.50 to 1.0
fiscal year 1995 2.25 to 1.0
fiscal year 1996 2.00 to 1.0
- TANGIBLE NET WORTH: MBM shall maintain a Consolidated Tangible Net
Worth, calculated at the end of each fiscal year, of no less than (a)
for the fiscal year ending 1993, $300,000 more than the Consolidated
Tangible Net Worth for the immediately preceding fiscal year and (b)
for the fiscal year ending 1994 and each fiscal year thereafter,
$400,000 more than the Consolidated Tangible Net Worth for the
respective immediately preceding fiscal year.
The Credit Agreement provides, among other things that, (1) MBM shall not
declare or pay any dividends or make any distribution of assets to stockholders,
except that MBM may declare dividends and make distributions solely in the
Common Stock of MBM, (2) MBM shall not purchase any of its capital stock now or
hereafter outstanding which purchase shall, when aggregated with all other such
purchases, exceed $250,000 (excluding certain purchases as set forth in the
Credit Agreement relating to MBM's shares that were issued in connection with
MBM's purchase of Harrisburg Health Care, Inc.), (3) MBM shall not lease,
assign, transfer or dispose of assets other than in the ordinary course of
business, (4) MBM shall not change its fiscal year, (5) MBM shall not incur any
debt other than the following: debt owed to the Banks under the facility;
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<PAGE>
existing debt disclosed to and approved by the Banks; approved subordinated
debt; debt between MBM and a subsidiary; accounts payable to trade creditors
incurred in the ordinary course of business; commercial letters of credit issued
for the account of MBM by other than the Banks in amount not to exceed in the
aggregate at any time the principal sum of $500,000; and such other debt as
provided for in the Credit Agreement. Accordingly, immediately upon closing,
$1.8 million of Stone bank debt must be repaid.
Pursuant to an agreement dated as of November 2, 1995, Chase approved the
Merger Agreement and ancillary documents.
REGULATORY REQUIREMENTS
The manufacturers of many products sold by MBM are required to obtain U.S.
Food and Drug Administration ("FDA") approval for such products, failing such
approval, sales of such products cannot lawfully be made. MBM's assembly,
warehousing and distribution procedures are subject to the Good Manufacturing
Practices regulation of the FDA. MBM has registered itself with the FDA and has
renewed said registration annually. Such registration permits MBM to distribute
supplies and medical devices.
The Caligor Division and MBM Hospital, among its various activities,
operates as a wholesaler and retailer of prescription drugs and medical devices
in the State of New York. The practice of pharmacy at the wholesale and retail
level is regulated by federal, state and local statutes, rules and regulations.
MBM is duly licensed to permit its Caligor Division to operate as wholesalers
and retailers in prescription drugs and medical devices in the State of New
York. In the future, should MBM expand such activities, it will have to comply
with all applicable federal, state and local rules.
COMPETITION
MBM, in all phases of its activities, experiences competition from other
manufacturers and distributors of products in the same categories as those of
MBM, as well as from wholesale and retail pharmacies, selling to the same
general markets as those of MBM. Additionally, the Caligor Division's services
are subject to competition from similar service organizations. Many of MBM's
competitors have far greater resources than MBM and, in addition, many larger
and better financed firms not presently in MBM's lines of business may
conceivably enter these lines of business in the future. However, most of MBM's
markets are serviced by hospital and surgical supply dealers, athletic
retailers, pharmacies and equipment repair firms. MBM believes that its
purchasing power, quick service including next day delivery where possible,
competitive pricing and marketing expertise enable it to compete favorably with
such firms although it continues to experience significant competition from
other firms which are better established and have substantially greater
financial resources than MBM.
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<PAGE>
EMPLOYEES
At October 31, 1995, MBM employed 271 full-time employees, including 102
sales and customer service persons, 81 warehouse and shipping workers, 61
clerical workers 7 delivery persons, 6 computer programmers, 2 pharmacists, 6
purchasing agents and 6 senior management officers. MBM usually employs
seasonal summer employees during peak sales volume periods. MBM's employees are
not covered under any collective bargaining agreements and there have been no
work stoppages. Management believes MBM has satisfactory employee relations at
all levels.
FACILITIES
In 1992, MBM consolidated its various Mount Vernon facilities described
below into one central location consisting of approximately 88,000 square feet
of assembly and storage space and 20,000 square feet of office space in a 31
year old industrial building at 846 Pelham Parkway, Pelham Manor, New York.
This location's facilities are leased from a non-affiliated entity and are in
good condition and sprinklered. MBM leased these premises pursuant to a lease
which expires on July 31, 2007. MBM pays an annual rent of approximately
$468,000, with certain additional sums based upon property tax costs.
The Pelham Manor, New York facilities are equipped to house the assembly
processing, customer service, warehousing and shipping requirements of all MBM's
divisions to the extent located at these facilities. It contains an order
picking conveyor system, fork lifts, large numbers of pallet racks and shelving,
manually operated material handling equipment, packaging equipment, assembly
equipment (tables, benches and conveyers), engraving machinery (for medical
equipment), and conventional office equipment, including an electronic data
processing system used to facilitate all areas of MBM's business.
MBM leases for its Caligor Division approximately 5,000 square feet of
space at 1226 Lexington Avenue, New York, New York, under a lease which expires
on April 30, 2000, for which it presently pays an annual rental of approximately
$49,000 per annum, together with additional sums for heat, utilities and
property tax costs. This location contains a store front facility fully
equipped to operate as a wholesale and retail pharmacy, and a basement storage
facility.
MBM leases for its MBM division approximately 4,290 square feet of space at
211 Harbor Way, South San Francisco, California under a lease which expires on
January 31, 1996 for which it pays an annual rental of approximately $30,000.
This location's facilities are in good condition with approximately 1,000 square
feet being devoted to office space and the balance to warehouse space.
MBM also leases approximately 3,100 square feet of space in Jacksonville,
Florida, under a lease which expires June 30, 1997.
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<PAGE>
The annual rental under the lease is approximately $16,800.
MBM leases for its Caligor Division approximately 120,000 square feet of
warehouse space including offices and warehouse dock at 300 Michael Drive,
Syosset, New York. The building is fully sprinklered and alarmed. MBM leases
these facilities pursuant to a lease which expires on March 31, 1996, with an
option to renew until April 29, 2001. MBM pays an annual rent of $240,000 with
certain additional sums based upon property tax costs, insurance and utilities.
All of MBM's facilities are adequate for MBM's present needs. In the event
that additional facilities are needed, Management believes that such facilities
can be obtained at a reasonable cost.
None of MBM's leases are with related parties. Additionally, MBM now owns
1 automobile and 3 trucks and leases 2 station wagons, 4 trucks, 3 delivery vans
and 10 automobiles, all of which are utilized for business purposes.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against MBM.
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<PAGE>
MANAGEMENT OF MBM
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of MBM are as follows:
Name Age Title
---- --- -----
Bruce J. Haber 43 President, Chief
Executive Officer
and Director
Louis Buther 42 Vice-President
Ernest W. Nelson 41 Vice President
Michael J. Levy 58 Vice-President
Stuart F. Fleischer 43 Vice President of Finance,
Principal Financial and Accounting
Officer
Andrew Stone (1) 39 Vice President
Gary L. Butler 53 Treasurer, Assistant
Secretary
Marvin Caligor 64 Consultant, Director
Renee Steinberg 73 Secretary and Director
K. Deane Reade, Jr. 54 Director
- --------------------------------------------------------------------------------
(1) Andrew Stone will become a Vice President of MBM at the next meeting of
MBM.
Bruce J. Haber is serving as President and a Director of MBM. Mr. Haber
was elected to the position of President in December, 1983; has served as a
Director of MBM since September, 1981; and, from that date, until his election
as President of MBM, served as Executive Vice-President of MBM. Prior to his
affiliation with MBM, Mr. Haber served from 1977 to August, 1981 as a Vice-
President of Commercial Credit Business Services, Inc., New York. Mr. Haber
holds a Bachelor of Science degree from the City College of New York and a
Master of Business Administration from Baruch College in New York. Mr. Haber is
a full-time employee of MBM.
Louis Buther has been a Vice-President of MBM since December, 1983. He has
served as Vice-President of MBM's wholly-owned subsidiary Caligor Physicians and
Hospital Supply Corp. since May, 1983 and from March 1, 1982 to April, 1983,
served as its Sales Manager. Mr. Buther also served as Sales Manager for the
Caligor business from 1980 until its acquisition and prior thereto served it in
the capacity of a licensed pharmacist and pharmacist intern. Mr. Buther holds
an Associate Arts Science degree in Chemistry from
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<PAGE>
Bronx Community College and a Bachelor of Science degree in Pharmacy from Long
Island University. Mr. Buther is a full-time employee of MBM.
Ernest W. Nelson has been a Vice-President of MBM since December, 1983.
From January, 1982 until his election as a Vice-President, he was employed by
MBM as a Sales Representative and then promoted to the position of National
Sales Manager for MBM's MBM division. Prior thereto, Mr. Nelson was employed
from June, 1981, to December, 1981, as a Sales Representative for United States
Lines and, from July, 1976, to June, 1981, as an Athletic Trainer and Associate
Professor at Columbia University, New York City. Mr. Nelson holds a Bachelor of
Science degree from Central Connecticut State University and a Master of Arts
degree from Columbia University. Mr. Nelson is a full-time employee of MBM.
Michael Levy joined MBM in 1990 as Vice President of the Healer Products
Division. Prior to joining MBM, Mr. Levy served as a Management Consultant in
the women's apparel industry from 1987 to 1990. He was Senior Vice President of
Rudco Industries, Inc., a financial forms manufacturer from 1975 to 1987 and
held two management positions in the hardware industry from 1960 to 1975. Mr.
Levy is a full-time employee of MBM.
Stuart F. Fleischer has been Vice President of Finance, Principal Financial
and Accounting Officer since April 1995. Stuart Fleischer joined the Company in
March 1995. From February 1986 through March 1995, Mr. Fleischer served as a
Senior Vice President and Chief Financial Officer of Communications Diversified,
a promotional marketing entity. From June 1974 through January 1986, he worked
on the audit staff at Price Waterhouse. Mr. Fleischer is a Certified Public
Accountant and holds a Bachelor of Science degree from Lehigh University. Mr.
Fleischer is a full-time employee of the Company.
Gary L. Butler has been Treasurer of MBM and has served at various times as
an executive officer in other capacities since December, 1983. From March 1,
1982 until December, 1983, Mr. Butler served as the Controller of MBM's wholly-
owned subsidiary, Caligor Physicians and Hospital Supply Corp., and, prior
thereto, served in such capacity with the Caligor business from May, 1975 until
its acquisition by MBM. From December, 1984 to the present, Mr. Butler has
served as Treasurer of Caligor Physicians & Hospital Supply Corp. Mr. Butler
holds a Bachelor of Science degree from New York University. Mr. Butler is a
full-time employee of MBM.
Marvin S. Caligor, a Director of MBM since March 1, 1982, when Caligor
Physicians and Hospital Supply division of Health-Chem Corporation was acquired
by MBM. Mr. Caligor also served as Senior Vice-President of MBM from March,
1982 until December, 1987. Since December, 1987, Mr. Caligor has been employed
by MBM as a consultant on a part-time basis. From 1969 until its acquisition by
MBM, Mr. Caligor was President of the division and an officer and director of
Health-Chem Corporation. Mr. Caligor is a licensed
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<PAGE>
pharmacist and holds a Bachelor of Science in Pharmacy from Columbia University.
Renee Steinberg has served as Secretary and a Director of MBM for more than
the past 5 years and has not been associated with any firm other than MBM and
its subsidiaries during such period. Mrs. Steinberg received a Bachelor of
Science degree from Cornell University and is a founder of MBM.
K. Deane Reade, Jr. has been a Director of MBM since July, 1987. Mr. Reade
is Managing Director of John Hancock Capital Growth Management, Inc. and a
General Partner of the John Hancock Capital Growth Partners, L.P. In addition,
Mr. Reade is a director of Bangert, Dawes, Reade, Davis & Thom, Inc., a private
investment banking firm with offices in New York and San Francisco. As a
founder of Bangert, Dawes, Reade, Davis & Thom, Inc., he served as president
since its establishment in 1975. Mr. Reade is a graduate of Rutgers University.
He is a director of John Hancock Capital Growth Management, Inc. (New York and
San Francisco, California); Everlock Fastening Systems, Inc. (Troy, Michigan);
American/Elgen, Inc. (Irvington, New Jersey); Myers Industries, Inc. (Lincoln,
Illinois); Wundies Industries Inc. (New York, New York), Zimpro Environmental,
Inc. (Rothchild, Wisconsin), U. S. Souvenir, Inc. (Honolulu, Hawaii) and Trail
Blazers Camps, Inc. (New York, N.Y.) a 100 year old social service organization
with a year round educational program for disadvantaged children from the
Metropolitan New York - New Jersey area.
For a description of Andrew Stone's biography see "Business of Stone-
Executive officers, directors and Key Employees."
Directors are elected at the annual meeting of stockholders and hold office
until the following annual meeting. The terms of all officers expire at the
annual meeting of directors following the annual stockholders meeting. Subject
to their contract rights to compensation, if any, officers may be removed,
either with or without cause, by the Board of Directors, and a successor elected
by a majority vote of the Board of Directors, at any time.
In October, 1987, MBM established an Executive Compensation Committee with
Renee Steinberg as Chairman and Bruce Haber and K. Deane Reade as members and an
Audit Committee with K. Deane Reade as Chairman and Bruce Haber and Marvin
Caligor as members.
The Compensation Committee has the power to review compensation of MBM's
executive officers, including salaries, the granting of stock options and other
forms of compensation for executive officers whose salaries are within the
purview of the Board of Directors. In some cases, the Compensation Committee may
make recommendations to the entire Board of Directors for its approval or,
itself exercise the powers and authority of the Board of Directors to designate
compensation.
The Audit Committee has the power to (i) select the independent certified
public accountant, (ii) satisfy itself on
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<PAGE>
behalf of the Board that the external and internal auditing procedures assure
reliable and informative accounting and financial reporting, (iii) have meetings
with management, or with the auditors, or with both management and auditors, to
review the scope of the auditor's examination, audit reports and the
Corporation's internal auditing procedures and reviews, (iv) monitor policies
established to prohibit unethical, questionable, or illegal activities by those
associated with the Corporation; and (v) review the compensation paid to the
auditors through annual audit and non-audit fees and the effect on the
independence of the auditors in relation thereto, and it may exercise the powers
and authority of the Board of Directors to implement changes in connection with
the foregoing or, at its option, may make recommendations to the entire Board of
Directors for its approval.
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<PAGE>
EXECUTIVE COMPENSATION
The following table provides a summary compensation table with respect to
the compensation of MBM's Chief Executive Officer (CEO) and the executive
officers other than the CEO who are serving as executive officers at the end of
fiscal 1994 whose total annual salary and bonus, if any, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
- -------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other All
Name Annual Restricted Other
and Compen- Stock LTIP Compen-
Principal sation Award(s) Number of Payouts sation
Position Year Salary ($) Bonus ($) ($) ($) options ($) ($)
(1) (2)
- -----------------------------------------------------------------------------------------------------------
Bruce J. Haber 1994 209,385 199,097 -0- -0- 70,000 -0- 16,848
-------------------------------------------------------------------------------------------
CEO, 1993 191,846 154,594 -0- -0- 35,000 -0- 9,799
-------------------------------------------------------------------------------------------
President 1992 176,961 168,977 -0- 100,000 510,000 -0- 9,656
- -----------------------------------------------------------------------------------------------------------
Louis Buther 1994 114,058 89,365 -0- -0- 17,500 -0- 1,766
-------------------------------------------------------------------------------------------
Vice President 1993 107,363 62,603 -0- -0- 15,000 -0- 1,581
-------------------------------------------------------------------------------------------
1992 102,654 68,101 -0- -0- 90,000 -0- 1,656
- -----------------------------------------------------------------------------------------------------------
Ernest Nelson 1994 85,346 46,445 -0- -0- 10,000 -0- 1,228
-------------------------------------------------------------------------------------------
Vice President 1993 82,056 39,000 -0- -0- 15,000 -0- 1,340
-------------------------------------------------------------------------------------------
1992 81,776 54,000 -0- -0- 50,000 -0- 1,656
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The restricted stock awards are based upon the dollar value of restricted
stock, calculated by multiplying the closing market price of the
Registrant's unrestricted stock on the date of grant by the number of
shares awarded on that date.
(2) Includes contributions to MBM's 401(K) Plan and in the case of Bruce Haber,
all other compensation includes insurance premiums paid for a whole life
policy which Mr. Haber is allowed to designate the beneficiary.
During the past three fiscal years, MBM has not granted stock appreciation
rights. In addition, MBM does not have a defined benefit or actuarial plan.
See Section 401(k) or deferred retirement plan regarding the cash or deferred
retirement plan pursuant to Section 401(k) of the Code. Outside directors
currently receive $16,000 annual compensation for their services as directors,
$4,000 for services on each Audit and Compensation Committee and are eligible to
receive stock options.
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<PAGE>
OPTION GRANTS TABLE
The information provided in the table below provides information with
respect to individual grants of stock options during fiscal 1994 of each of the
executive officers named in the summary compensation table above. MBM did not
grant any stock appreciation rights during 1994.
Option Grants in Last Fiscal Year
---------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Potential
Realizable Value at
Assumed Annual
Individual Grants Rates of Stock Price
Appreciation
for Option Term (2)
- ------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
<S> <C> <C> <C> <C> <C> <C>
% of
Total
Options/
Granted to
Options Employees Exercise Expira-
Granted in Fiscal Price tion
Name (#)(3) Year (1) ($/Sh) Date 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------
Bruce Haber 70,000 38.8 10.00 6/13/04 440,300 1,113,000
- ------------------------------------------------------------------------------------------
Louis Buther 17,500 9.7 9.88 7/06/04 108,675 275,100
- ------------------------------------------------------------------------------------------
Ernest Nelson 10,000 5.5 10.00 6/13/04 62,900 159,000
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
N/A - Not Applicable.
(1) The percentage of total options granted to employees in fiscal year is
based upon options granted to officers, directors and employees.
(2) The potential realizable value of each grant of options assumes that the
market price of MBM's Common Stock appreciates in value from the date of
grant to the end of the option term at annualized rates of 5% and 10%,
respectively, and after subtracting the exercise price from the potential
realizable value.
(3) All options are exercisable at any time until the expiration date.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The information provided in the table below provides information with
respect to each exercise of stock option during fiscal 1994 by each of the
executive officers named in the summary compensation table and the fiscal year
end value of unexercised options.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options
Shares Value FY-End (#) at Fy-End($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(1) Unexercisable Unexercisable(1)
- --------------------------------------------------------------------------------
Bruce Haber -0- -0- 658,334/6,666 3,167,417/48,333
- --------------------------------------------------------------------------------
Louis Buther 5,000 28,750 131,833/1,000 586,745/7,250
- --------------------------------------------------------------------------------
Ernest Nelson -0- -0- 86,999/1,667 386,076/12,083
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
- ----------------------
(1) The aggregate dollar values in column (c) and (e) are calculated by
determining the difference between the fair market value of the Common
Stock underlying the options and the exercise price of the options at
exercise or fiscal year end, respectively. In calculating the dollar value
realized upon exercise, the value of any payment of the exercise price is
not included.
EMPLOYMENT AND CONSULTING AGREEMENTS
MBM has an Employment Agreement with Bruce J. Haber expiring on March 31,
2000 subject to an automatic one year renewal, unless either party elects to
terminate after giving the other party at least 180 days prior written notice.
Pursuant to this agreement, Mr. Haber has agreed to devote his full time and
efforts to the business of MBM and to serve as MBM's President and Chief
Executive Officer. Mr. Haber is currently receiving a base salary of $225,000
per annum which compensation is increased annually by at least $5,000 per annum
until the termination of the agreement, subject to additional increases at the
discretion of the Board of Directors. Mr. Haber is also entitled to be paid
each year an annual bonus for the most recently completed fiscal year equal to
no less than 7% of MBM's income before income taxes and Mr. Haber's bonus. Mr.
Haber received a whole-life policy covering his life, presently in the sum of
$2,000,000 and the use of a Company motor vehicle. In the event Mr. Haber's
employment agreement is terminated for any reason other than his willful
misconduct, then Mr. Haber shall be entitled, as liquidated damages, to an
amount of
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money equal to the greater of $2,000,000 or the sum of five years compensation.
In the event there is a dispute as to the amount of liquidated damages payable
to Mr. Haber, then on the termination date MBM shall be required to pay into an
interest bearing escrow account, the sum of $4,000,000 less the amount of
liquidated damages paid to Mr. Haber which is not in dispute. Mr. Haber will
continue to receive his full compensation during the continuation of any
dispute.
If there is a substantial change in the management of MBM, wherein any
Board of Directors that may be elected becomes opposed to, or acts contrary to,
the policy of the Board of Directors now in control of MBM and, as a result
thereof, Mr. Haber, in his sole discretion, finds it difficult for him to work
harmoniously and effectively with any such Board of Directors of MBM, or the
Board of Directors of MBM shall determine that Mr. Haber shall not be the
President and Chief Executive Officer of MBM, or Mr. Haber shall not be elected
as a member of the Board of Directors of MBM, then, in any of such events, Mr.
Haber shall have the absolute right and option to resign upon giving MBM 60 days
written notice of his intention to do so. Upon such resignation, Mr. Haber
shall be entitled to the liquidated damages and expenses as set forth above in
consideration of Mr. Haber's agreement not to compete with MBM for a period of
one year following his resignation.
Pursuant to Mr. Haber's employment agreement, MBM is obligated to provide
to Mr. Haber indemnification for any claim or lawsuit which may be asserted
against him when acting in his capacity as an officer and director of MBM
provided said indemnification is not in violation of any federal or state law,
rule or regulations.
On January 1, 1988, Mr. Caligor commenced serving MBM as a part-time
consultant at an annual cash compensation of $100,000. Mr. Caligor's consulting
contract which originally provided for a termination date of December 31, 1990
was extended by MBM's Board of Directors and currently terminates on
December 31, 1996.
See "Interests of Certain Persons in the Merger" for a discussion of
certain agreements with Andrew Stone.
STOCK OPTION PLANS
An Incentive Stock Option Plan (the "1982 Incentive Plan") was adopted by
the Board of Directors on February 24, 1982 and terminated on February 24, 1992
as to the granting of new options. The 1982 Plan, which was approved by
stockholders in 1982, provided that an aggregate of 166,666 shares of MBM's
Common Stock were issuable, subject to adjustment in the event of changes in the
capital structure of MBM. Employees of MBM were eligible for selection as
participants.
Under the 1982 Plan, an option may be exercised only if the participant has
been continuously employed by MBM for a period of one year since the date of
grant of the option, and pursuant to a five year exercise schedule. The
purchase price of any shares on
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exercise of options so granted was generally 100% of the fair market value of
said shares on the date of the grant. An optionee who terminates his employment
with MBM other than by reason of his death may not exercise or transfer his
option. The lawful heirs and/or beneficiaries of a deceased optionee may
exercise such options for a period of six months after the optionee's death.
During the nine months ended August 31, 1995 and fiscal 1994, 1993 and
1992, 10,233 shares, 12,666 shares, 15,333 shares and 15,168 shares,
respectively, of MBM's Common Stock were issued at exercise prices ranging from
$2.25 per share to $4.00 per share. As of August 31, 1995, MBM has 94,434
options outstanding under the 1982 Plan at exercise prices ranging from $2.25
per share to $4.00 per share.
On April 14, 1989, the Board of Directors adopted and the shareholders
later approved a 1989 Non-qualified Stock Option Plan, (the "1989 Plan"), in
order to attract and retain qualified employees, officers and directors. Under
the 1989 Plan, options to purchase a maximum of 416,666 shares of Common Stock
may be granted to employees, officers and directors of MBM. If any options
granted under the 1989 Plan expire or terminate for any reason without having
been exercised in full, the unpurchased shares shall become available for
further options pursuant to the 1989 Plan. The 1989 Plan also provides that no
options may be granted after April 13, 1999.
The 1989 Plan is administered by the Board of Directors of MBM or by a
Stock Option Committee appointed by the Board which consists of not less than
three directors. The maximum term of any option under the Plan is ten years.
The Board of Directors or Committee appointed by the Board determines which
employee, officer or director shall have options under the 1989 Plan, the number
of shares of Common Stock that may be purchased under each option, the option
price and all other provisions of the respective option agreements (which need
not be identical), including but not limited to provisions concerning the time
or times when, and the extent to which, the options may be exercised and any
limitations upon the transferability of such shares.
As of August 31, 1995, MBM had outstanding options under the 1989 Plan to
purchase an aggregate of 400,567 shares of MBM's Common Stock at exercise prices
from $2.25 per share to $4.00 per share to various officers and members of the
Board of Directors. As of August 31, 1995, substantially all of these options
are exercisable. During the nine months ended August 31, 1995 and fiscal 1994,
1993 and 1992, 4,333 shares, 4,000 shares, 4,333 shares and 3,333 shares,
respectively, of MBM's Common Stock were issued at exercise prices ranging from
$2.25 to $4.00 per share. Each option granted under the 1989 Plan is non-
transferable, may be exercised only if the participant has been continuously a
director, consultant or employee of MBM. However, in the case of death, the
lawful heirs and/or beneficiaries of a deceased optionee may exercise such
options for a period of six months after the optionee's death.
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On January 28, 1992, the Board of Directors of MBM adopted a Stock Option
Plan (the "1992 Plan") which was approved by stockholders on September 17, 1992.
The 1992 Plan, as amended, covers 1,350,000 shares of Common Stock. The 1992
Plan authorizes the issuance of the options covered thereby as either "Incentive
Stock Options" within the meaning of the Internal Revenue Code of 1986, as
amended, or as "Non-Statutory Stock Options." Persons eligible to receive
options under the 1992 Plan includes employees, directors, officers, consultants
or advisors, provided that bona fide services shall be rendered by consultants
or advisors and such services must not be in connection with the offer or sale
of securities in a capital raising transaction; however, only employees are
eligible to receive an Incentive Option. The 1992 Plan also provides that no
options may be granted after January 27, 2002.
The 1992 Plan is administered by MBM's Board of Directors or a stock option
committee consisting of three members of the Board which has the authority to
determine the persons to whom options shall be granted, whether any particular
option shall be an Incentive Option or a Non-Statutory Option, the number of
shares to be covered by each option, the time or times at which options will be
granted or may be exercised and the other terms and provisions of the Options.
An Optionee of a Stock Option who terminates his employment with MBM, other than
by reason of his death or disability, may not exercise his Option. The lawful
heirs or beneficiaries of a deceased Optionee may exercise Stock Options for a
maximum period of six months after the Optionee's death, so long as the Option
has otherwise not expired. All Stock Options are non-transferable except by
will or the laws of descent and distribution.
The 1992 Plan also provides that: (i) the exercise price of options
granted thereunder is not less than 100% (or in the case of an Incentive Option,
110% if the optionee owns 10% or more of the outstanding voting securities of
MBM) of the fair market value of such shares on the date of grant, as determined
by the Board or Stock Option Committee, and (ii) no option by its terms may be
exercised more than ten years (five years in the case of an Incentive Option,
where the optionee owns 10% or more of the outstanding voting securities of MBM)
after the date of grant. Any options which are canceled or not exercised within
the option period become available for future grants.
The 1992 Plan will (a) upon the occurrence of an Acquisition Event (as
defined in the 1992 Plan), at the election of an optionee, permit each optionee
to exercise all or any portion of such optionee's exercisable Options by
borrowing from MBM, and MBM shall be obligated to loan such optionee an amount
equal to the aggregate exercise price of such Options intended to be exercised
by such optionee. Such optionee shall use the proceeds of such loan to exercise
such Options. Such optionee shall issue to MBM a promissory note made by such
optionee in a principal amount equal to the amount of such loan. The optionee
will pledge to MBM to secure the repayment of such loan all shares of Common
Stock issued
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to the optionee upon exercise of Options pursuant to this paragraph. At the
time of such loan, such loan shall have a rate of interest and such loan and
pledge shall have such additional terms and conditions all as determined by the
Board of a Committee thereof; (b) upon the occurrence of a Change of Control, as
defined in the 1992 Plan, which Change of Control is not approved by a vote of
at least eighty percent (80%) of the directors that constitute the Board
immediately prior to the occurrence of such Change of Control, terminate all
Options as of the time immediately prior to the occurrence of such Change of
Control and the respective optionees shall surrender all of their unexercised
Options for cancellation by MBM and, upon such surrender, the optionee shall
receive (1) the cash, securities or other consideration he would have received
had he been entitled to exercise, and had he exercised, such Option or Options
immediately prior to such Change of Control and had he disposed of his shares
issuable upon such exercise in connection with such Change of Control (subject
to required deductions and withholdings), minus (2) an amount of cash or fair
market value of securities or other such consideration equal to the exercise
price of such Option or Options surrendered. (i) The foregoing shall not apply
to all incentive stock options granted prior to the June 23, 1995, the date of
stockholder approval of such provisions, (ii) any non-statutory stock option
granted prior to June 23, 1995 where a written consent is required to be
obtained from the optionee whose rights have been adversely affected and such
consent is not obtained from the optionee, or (iii) any Option whatsoever where
an event of default would be created under MBM's then-existing institutional
loan(s) and such event of default is not waived prior to such occurrence or
cured pursuant to the terms of said loan agreements.
The 1992 Plan provides that in case of any consolidation or merger of MBM
with or into another corporation (other than a merger in which MBM is the
continuing corporation and which does not result in any reclassification or
change of outstanding shares of Common Stock of the class issuable upon exercise
of the Options) or in case of any sale or conveyance to another corporation of
the property of MBM as an entity or substantially as an entity where part or
all of the consideration received by MBM includes securities of the acquiring
corporation, MBM, or such successor or acquiring corporation, as the case may
be, shall provide that the holder of each Option then outstanding shall have the
right thereafter to receive an Option convertible into the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock of MBM into which such Option might have
been converted immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. This paragraph shall apply to all
incentive stock options granted on or after May 1, 1994 and to all non-statutory
stock options granted under the Plan.
As of August 31, 1995, MBM has under the 1992 Plan Incentive and Non-
Statutory Stock Options outstanding to purchase 946,300 shares of MBM's Common
Stock at exercise prices ranging from $4.00
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per share to $10.25 per share. During the nine months ended August 31, 1995,
21,800 shares of MBM's Common Stock were issued at exercise prices ranging from
$4.00 to $6.75 per share.
SECTION 401(K) OR DEFERRED RETIREMENT PLAN
Effective December 1, 1985, MBM initiated a cash or deferred retirement
plan pursuant to Section 401(k) of the Code (the "Plan"). All employees are
eligible to enroll and to receive benefits under the Plan, beginning February 1,
1986, the commencement date of the plan. Employees can elect to contribute up
to 20% of their compensation to the Plan and MBM will make matching
contributions in an amount equal to 20% of the amount of the Participant's
contribution that is not in excess of 5% of compensation. A Participant shall
at all times have a one hundred (100%) percent vested interest in his
contribution Account. Any distributions to be made under the Plan to a
Participant will begin not later than the 60th day after the latest of the close
of the Plan year in which (a) the Participant attains his normal retirement age
(i.e. 59-1/2), or (b) the date the Participant terminates his employment with
MBM, or (c) such later date pursuant to his written election. Prior to
retirement, Plan savings may be payable upon an employee's death (payable to his
or her designated beneficiary), disability (as defined in the Plan) or
termination by MBM. Plan savings are payable, at the Plan Administrator's
option, in either one lump sum or in installments. The Participant may be
consulted prior to making such determination. For the fiscal years ended
November 30, 1994, 1993 and 1992, MBM's matching contributions amounted to
$29,985, $24,687, and $24,942, respectively.
CERTAIN TRANSACTIONS
On January 28, 1992, MBM sold for services rendered 25,000 shares of its
Common Stock to Bruce Haber.
On March 31, 1993, MBM issued 72,376 shares, later adjusted to 71,229
shares, as part of the consideration to acquire Harrisburg Surgical Supply
Incorporated from an unaffiliated third party. Mr. Haber had the right to vote
these shares until the transfer of these shares to an unrelated third party
which took place on March 31, 1995.
In November 1993, MBM completed the sale in a private placement offering of
$3,000,000 of its 7% Convertible Subordinated Debentures Due October 30, 2003.
K. Deane Reade, Jr. purchased $130,000 of the Debentures and may be deemed to
have a beneficial ownership in an additional $70,000 purchased in the private
placement.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Business Corporation Law of the State of New York provides for
indemnification of officers and directors under certain circumstances against
reasonable expenses, including attorney fees,
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actually and necessarily incurred in connection with the defense of an action
brought against him by reason of his being a director or officer. Bruce Haber,
President of the Company, has an employment contract with the Company which
provides for indemnification for any claim or lawsuit which may be asserted
against him in acting in such capacity for the Company provided said
indemnification is not in violation of any federal or state law, rule or
regulation.
MBM's Certificate of Incorporation, as amended, also contains a provision
eliminating the liability of a director to the Company or its stockholders for
monetary damages for any breach of duty in such capacity, provided that this
provision shall not eliminate or limit liability of any director if a judgment
or other final adjudication adverse to him establishes that his acts or
omissions were made in bad faith or involved intentional misconduct or a knowing
violation of law or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled or that his acts violated
Section 719 of the New York Business Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, MBM has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by MBM of expenses incurred or paid by
a director, officer or controlling person of MBM in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of MBM's Common Stock by all persons known by MBM to be beneficial
owners of more than 5% of its Common Stock and all officers and directors, both
individually and as a group. For purposes of calculating the amount of
beneficial ownership and the respective percentages, the number of shares of
Common Stock which may be acquired by a person are considered outstanding
notwithstanding the vesting schedule, but shall not be deemed to be outstanding
for the purpose of computing the percentage of Common Stock owned by any other
person.
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<TABLE>
<CAPTION>
Approximate Percent
Amount of Class (2)
and Nature -------------------------
Name and Address of of Beneficial Before After
Beneficial Owner (1) Ownership (1) Merger Merger
- -------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Renee Steinberg (3)(12)
20080 Boca West Drive
Apt. 458
Boca Raton, FL 33434 175,701 4.5 4.2
Bruce J. Haber (4)(15) 853,834 18.5 17.5
Louis Buther (5) 166,667 4.1 3.9
Marvin S. Caligor (11) 101,083 2.6 2.4
Ernest W. Nelson (6) 111,834 2.8 2.6
Gary Butler (7) 17,500 * *
K. Deane Reade, Jr.(8)(10)
One Madison Ave. Suite 25A
Box 20
New York, NY 10010 174,519 4.3 4.1
Michael Levy (13) 3,000 * *
Stuart F. Fleischer 10,000 * *
All officers and
directors as a group
(nine persons) (9)(16) 1,659,138 32.3 30.9
</TABLE>
_______________________________________________
* Represents less than one percent of the outstanding Common Stock.
(1) Unless otherwise indicated, all shares are directly owned and investing
power is held by the persons named. All addresses, except as otherwise
noted, are c/o of Micro Bio-Medics, Inc., 846 Pelham Parkway, Pelham Manor,
NY 10803.
(2) Based upon 3,872,616 shares of Common Stock issued at October 31, 1995 and
4,153,372 shares outstanding after the Merger, not including the possible
issuance of shares in connection with the exercise or conversion of
outstanding warrants, options or debentures.
(3) May be deemed to be a "founder" or "parent" of MBM for purposes of the
Securities Act of 1933, as amended.
(4) Includes options to purchase 735,000 shares granted to Mr. Haber.
(5) Includes options to purchase 150,333 shares granted to Mr. Buther.
(6) Includes options to purchase 103,666 shares granted to Mr. Nelson.
(7) Includes options to purchase 11,166 shares granted to Mr. Butler.
(8) Includes shares owned under certain retirement trusts and profit sharing
plans.
(9) Includes options to purchase 1,226,499 shares granted to officers and
directors, 25,000 shares issuable upon exercise of Debentures and 20,021
shares issuable upon exercise of 19,122 Series 1 Warrants.
(10) Includes options to purchase 108,333 shares. Also includes 7,853 shares
issuable upon exercise of 7,500 Series 1 Warrants and 25,000 shares
issuable upon conversion of certain Debentures.
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(11) Includes options to purchase 69,667 shares granted to Mr. Caligor and
12,168 shares issuable upon exercise of 11,622 Series 1 Warrants.
(12) Includes options to purchase 35,334 shares granted to Renee Steinberg.
(13) Includes options to purchase 3,000 shares granted to Mr. Levy.
(14) Includes options to purchase 10,000 shares granted to Mr. Fleischer.
(15) Andrew Stone will receive upon the completion of the Merger receive 161,452
shares of MBM Common Stock representing 3.9% of the outstanding shares.
Andrew has agreed for a period of ten years from the closing of the merger,
unless such shares are transferred to an unrelated third party, to vote
such shares in accordance with the directions of Bruce J. Haber, or if Mr.
Haber dies, becomes disabled or is unable to give such directions, then in
accordance with the directions of the board of directors of MBM. The
amount of shares included in Mr.Haber's beneficial ownership does not
include Mr. Stone's shares. If Mr. Stone's shares are deemed beneficially
owned by Mr. Haber after the Merger, then Mr. Haber may be deemed to
beneficially own 1,015,286 shares (20.8%).
(16) The foregoing table does not reflect 161,452 shares of Common Stock
to be acquired by Andrew Stone, who will become a Vice President of MBM at
the next meeting of the Board of Directors of MBM. All officers and
directors as a group (ten persons including Andrew Stone) beneficially own
1,820,590 shares (33.6%) after the Merger.
MBM does not know of any arrangement or pledge of its securities by persons
now considered in control of MBM that might result in a change of control of
MBM.
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BUSINESS OF STONE
Since inception, Stone has been engaged in the distribution of a broad line
of medical supplies and equipment utilized by physicians and medical clinics,
including disposable supplies, diagnostic and surgical equipment, and medical
office and laboratory apparatus. In 1982, Stone initiated its Medical Office
Design Equipment Services Program ("MODES") pursuant to which Stone offers
physicians the opportunity to fully supply, equip and furnish medical offices
entirely from Stone's sources. In December, 1991 Stone started a podiatry
division to offer a line of podiatry products and supplies. Stone engages in
only one industry segment.
GENERAL
Stone distributes most of the products, apparatus and fixtures required in
a typical physician's and or podiatrist's offices as well as governmental
agencies of any specialty other than controlled drugs and substances.
Generally, these products include (i) disposable products, such as paper
products, injectibles, diagnostic items and surgical dressings; (ii) laboratory
equipment and reagents, such as various test apparatus and diagnostic equipment
and the reagents or supplies needed in the use of such apparatus and equipment;
(iii) medical equipment for medical, surgical and treatment rooms, such as
examination tables, sterilization equipment, and other equipment required in the
medical specialties; and (iv) furniture, such as desks, file cabinets, lighting
fixtures, seating and custom cabintry. Disposable products historically
represent more than 75% of Stone's sales.
The sales of products in the diagnostic equipment, examination room
equipment and furniture categories are usually one-time sales with little
reordering by customers of those or similar items. Sales of disposables tend
to be continuous with reorders occurring on a regular basis.
The business of Stone is not seasonal in nature.
SALES AND MARKETING
Stone markets its products through a staff of sixteen full-time salesmen,
including government and telemarketing people operating from Stone's offices.
Stone employs a sales manager who also solicits sales directly. To a
lesser extent, Andrew D. Stone, Stone's President, participates in sales
operations. Stone also does telemarketing to podiatrists.
Sales are conducted principally through direct solicitation of physicians'
and podiatrists' offices and clinics by Stone's salesmen and through advertising
by direct mailings. Stone usually does not advertise in newspapers, trade
journals or other media. Occasionally, Stone's sales are generated by sales
leads from its
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suppliers and by referrals from its customers. The capability to service its
customers responsively and quickly is believed to be the most significant factor
in generating sales. Stone follows a policy of offering next-day delivery from
the receipt of orders and makes available more rapid service on an emergency
basis during business hours.
The MODES program of Stone offers physicians the opportunity to fully
supply, equip and furnish all of the needs of medical offices entirely from
Stone. Solicitations are systematically made of senior medical residents who
are regarded as potential candidates for the purchase of a full line of
furnishings and equipment for new medical offices. Stone refers customers to a
number of leasing or finance companies and banks to finance purchases. Stone
also uses direct mail solicitations, as well as telephone campaigns by its
salesmen to promote the marketing of this program. In an effort to generate
additional sales of its MODES program, Stone establishes contacts with interior
designers, architects and financial advisors to medical doctors for referrals
and recommendations.
Stone has initiated a government sales program which consists of a
computer direct bid system with the U.S. Military as well as with various State
and local governments.
During the fiscal year ended December 31, 1994, no one customer accounted
for more than 5% of Stone's total sales for that year.
SOURCE OF SUPPLIES
Stone purchases its products directly from several hundred manufacturers
which market their products through dealer-distributors. Stone has been
designated a dealer-distributor by various manufacturers, and, in the course of
its business, seeks to establish itself as a dealer-distributor for all
manufacturers of products required by its customers. The Company distributes
several brands of, and has more than one source for, most of the items which it
distributes. Stone has no long-term contracts with any of its suppliers and
believes that there are adequate alternative sources of supply available for
substantially all products that it currently distributes. The terms of Stone's
distribution agreements are usually one year or less, are often subject to early
termination upon short notice and are generally non-exclusive. Stone does not
believe that any of these contracts are material to its business.
Stone is a member of CIDA, Central Independent Dealers Association, a
national association of the independent dealer-distributors in the medical
equipment and supply business. By virtue of arrangements with CIDA, CIDA
members are permitted to purchase equipment and supplies from approximately
fifty
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manufacturers at prices negotiated by CIDA, and which generally are more
favorable than Stone would enjoy if it purchased such products independently.
Stone is designated as the exclusive CIDA member in the New York State counties
of Nassau, Suffolk, Kings, Queens, Bronx, Richmond, Westchester and New York.
PRODUCT STORAGE AND DELIVERY
Stone generally purchases products for inventory to be stored on its
premises. When an order is taken, Stone delivers the desired products directly
from its premises to the customer's place of business. To be competitive, Stone
seeks to deliver ordered products within one day of the placement of the order.
COMPETITION
Stone competes against a variety of enterprises in its existing and
intended markets. Some of these companies are much larger than Stone and have
greater financial and marketing resources. These larger companies distribute
their products statewide, regionally, nationally and even internationally.
Stone also competes against many smaller local firms that have long-standing
special, personal, social and community contacts. These include local drug and
furniture stores. In various areas of its existing market, Stone competes with
several firms that are approximately the same size as Stone. Competition is
generally considered intense in both existing and intended markets and is
conducted with an emphasis on pricing, delivery schedule, completeness of
product lines and other relevant factors.
GOVERNMENT REGULATION
The health care industry is subject to extensive public interest and
government regulation on the Federal and state levels.
MEDICARE AND MEDICAID. Many physicians and others who purchase goods or
services from Stone are paid by third parties such as Medicare or Medicaid.
Medicare is a Federally funded health insurance program which provides health
coverage for persons age 65 or older. Medicaid is a health insurance program
administered by State governments, or private carriers designated by the States,
and jointly funded by the Federal and State governments. This program provides
reimbursements for health care for certain financially or medically needy
persons regardless of age. For financially needy persons age 65 or older,
Medicaid benefits supplement Medicare benefits. Persons eligible for Medicaid
benefits may be required to make nominal contributions to Medicaid programs.
Medicaid reimbursements for health care vary on a state-by-state basis within
established Federal guidelines.
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FDA REGULATION. Certain medical equipment and supplies distributed by
Stone are subject to regulation by the United States Food and Drug
Administration ("FDA"). All medical devices must be the subject of device
listings filed with the FDA, and medical device manufacturers must be
registered. Further, Stone must be able to trace such devices after their
initial sales in the event that the FDA should order a recall thereof.
Compliance with FDA regulations has not had a significant impact upon Stone's
business or profitability in the past and is not expected to have such an impact
in the future.
STATE REGULATION. States have the power to regulate and license suppliers
and distributors of medical supplies and equipment. Stone is licensed by the
New York State Board of Pharmacy. It has not sought qualification in any other
State.
Neither Federal nor State law has had any adverse impact on Stone's
business.
EMPLOYEES
Stone currently employs forty-three persons on a full-time basis,
including one of its executive officers. Mr. Jan B. Bengelsdorf, Treasurer of
Stone, serves as a financial consultant on a part-time basis. Excluding
executive officers, fifteen of Stone's employees are engaged in sales, seven in
customer service, six in office and administrative functions, four in
purchasing, four as deliverymen and six in warehousing functions. Mr. Andrew D.
Stone, President of Stone, is also engaged in sales activities.
Stone has no collective bargaining agreements and considers its
relationship with its employees to be satisfactory.
PATENTS, TRADEMARKS AND LICENSES
There are no material patents, trademarks, licenses, franchises or
concessions held by Stone.
WORKING CAPITAL PRACTICES AND BACKLOG
Stone engages in no unusual practices regarding inventories, or other items
of working capital. Since Stone is in the distribution business and generally
follows a policy of offering next-day delivery from the receipt of orders,
backlog is not a material aspect of Stone's business.
Stone's business activities are concentrated primarily in a geographical
area (the New York Metropolitan area), including the City of New York, Nassau,
Suffolk and Westchester Counties. Podiatry sales are conducted in the territory
east of the Mississippi and government sales are worldwide.
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PROPERTIES
Stone's executive and sales offices and its storage facilities are
presently located at 2487 North Jerusalem Road, East Meadow, New York 11550,
containing approximately 13,800 square feet.
Stone purchased the aforesaid premises on July 13, 1984, for the sum of
$200,000. A first mortgage was obtained from Citibank, N.A., in the principal
amount of $175,000, payable over twenty years at the monthly rate of $730, plus
interest on the unpaid balance. On March 15, 1985, the Job Development
Authority of the State of New York (the "JDA") made an additional loan on the
premises for alterations in the sum of $149,000, replacing temporary financing.
Management believes that its facility will be adequate and suitable for
its present needs.
LEGAL PROCEEDINGS
Stone is not involved in any legal proceeding which may be deemed to be
material to the financial condition of Stone.
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following individuals are the present executive officers and directors
of Stone. Each director will hold office until the next annual meeting of the
stockholders and until his successor is elected and qualified or until the
Merger. Officers are elected by, and serve at the pleasure of the Board of
Directors.
<TABLE>
<CAPTION>
Positions Has Served
and Offices as Director
Age With Company Continuously Since
--- ------------ ------------------
<S> <C> <C> <C>
Andrew D. Stone 39 President and Chairman 1979
of the Board of
Directors, and a Director
Jan D. Bengelsdorf 53 Treasurer and a Director 1983
David W. Sass 59 Secretary and a Director 1988
</TABLE>
There are no arrangements or understandings between any director and any
other person(s), pursuant to which a director was elected as a director. The
foregoing officers serve at the pleasure of the Board of Directors for a term
of one year, or until their successors are duly elected and qualified.
89
<PAGE>
BUSINESS EXPERIENCE
ANDREW D. STONE has been President and Chairman of the Board of Directors
of Stone since June 1979, having previously been employed by Stone as a salesman
since September 1978. Mr. Stone will become a Vice President of MBM at its next
board of directors meeting. Mr. Stone graduated from the University of
Wisconsin with a B.A. degree in 1978.
JAN D. BENGELSDORF became Treasurer and a director of Stone in March 1983,
having previously been Secretary-Treasurer of Stone from December 1979 until
August 1982. He is a certified public accountant and has been engaged in the
public accounting profession in his own firm since 1969, primarily in the New
York metropolitan area. Mr. Bengelsdorf was graduated from New York University
in 1963 with the degree of Bachelor of Science (Accounting).
DAVID W. SASS has been engaged in the practice of law in New York City
since 1960 and is a partner of McLaughlin & Stern, LLP, general counsel to
Stone. Mr. Sass is an officer and director of a number of public and private
business corporations.
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<PAGE>
EXECUTIVE COMPENSATION
(a) CASH COMPENSATION
The table below lists all officers of Stone as to whom the total cash
compensation required to be disclosed in column C below exceeded $100,000 for
the fiscal year ended December 31, 1994, 1993 and 1992 and cash compensation for
all officers as a group for such period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
All
Other Restricted Other
Name Annual Stock Compen-
and Compen- Award(s) Number LTIP sation
Principal Year Salary Bonus sation ($) of Payouts ($)
Position ($) ($) ($) (1) Options ($) (2)
- ------------------------------------------------------------------------------------------
Andrew
Stone
President 1994 170,308 -0- -0- -0- -0- -0- -0-
------------------------------------------------------------------------------
1993 157,030 -0- -0- -0- -0- -0- -0-
------------------------------------------------------------------------------
1992 138,223 -0- -0- -0- -0- -0- -0-
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
None of the directors of Stone receive any compensation for serving in such
capacity with Stone.
91
<PAGE>
CERTAIN TRANSACTIONS
Stone has entered into an employment agreement with Andrew D. Stone and a
financial consulting agreement with Jan D. Bengelsdorf, as described below.
Pursuant to the terms of Mr. Stone's employment agreement with Stone, which
expired on December 31, 1994, and was renewed by the Board of Directors for an
additional one-year term, Mr. Stone serves as President and Chief Executive
Officer of Stone. Mr. Stone's salary is divided equally between selling and
administrative expenses. In addition, Mr. Stone was given the use of an
automobile. During the remainder of the term of his agreement, Mr. Stone's
annual salary will be fixed by the Board of Directors, provided, however, his
annual salary shall not be reduced below $70,000 per annum without his prior
consent. Pursuant to the terms of the employment agreement, in the event Mr.
Stone becomes disabled and is unable to perform his regular duties to Stone for
an extended period of time, Stone will be obligated to pay Mr. Stone his full
salary for a period of twelve months. Mr. Stone's contract was renewed for
approximately $170,000 in January 1995 and was terminated upon the signing of
the Merger Agreement and his execution of an employment agreement with DLC.
Mr. Bengelsdorf entered into a one-year financial consulting agreement with
Stone, commencing as of January 1983, and renewed yearly thereafter, pursuant to
which Mr. Bengelsdorf renders financial consulting and advisory services to
Stone as requested from time to time by the Board of Directors. In
consideration of such consulting services, Mr. Bengelsdorf receives compensation
at the rate of $650 per day for each full day Mr. Bengelsdorf renders services
to Stone. His contract was renewed for $680 per day in January 1995. Upon the
completion of the merger, this agreement will be terminated and Mr. Bengelsdorf
will receive $35,000 in payment for such termination.
Mr. Stone and Mr. Bengelsdorf have each personally guaranteed payment of
amounts outstanding under Stone's line of credit, which are to be repaid.
The law firm of McLaughlin & Stern, LLP of which Mr. Sass is a principal,
received aggregate legal fees of $14,200 during 1994 for services rendered to
Stone.
PRINCIPAL SHAREHOLDERS
The following table sets forth as of December 18, 1995 the number of shares
of Common Stock of Stone and the percentage of that class owned beneficially,
within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended, and the percentage of Stone's voting power owned by (i) all
stockholders known by Stone to beneficially own more than five
92
<PAGE>
percent of Stone's Common Stock; (ii) each director of Stone; and (iii) all
directors and officers as a group. All shares set forth in the following table
are entitled to one vote per share and the named beneficial owners have sole
voting and investment power. Each percentage set forth in the following table
assumes the exercise of all stock options exercisable by the named individual or
group as of December 18, 1995 or within 60 days thereafter.
<TABLE>
<CAPTION>
Title of Number of Shares
Securities Name Owned Beneficially Percentage
- ---------- ---- ------------------ ----------
<S> <C> <C> <C>
Common
Stock Andrew D. Stone 1,973,750 58.2%
Common
Stock Jan D. Bengelsdorf 150,000((1)) 4.4%
Common
Stock David W. Sass -0- -0-
Common All officers and
Stock Directors as a
Group (3 persons) 2,123,750 62.6%
</TABLE>
- ----------------
(1) Less than 5%. Does not include 10,000 shares owned by Mr. Bengelsdorf's
wife, in which shares Mr. Bengelsdorf disclaims any
beneficial interest.
93
<PAGE>
DESCRIPTION OF MBM SECURITIES
CAPITAL STOCK
The authorized capital stock of MBM consists of 7,000,000 shares of Common
Stock, par value $.03 per share and 1,000,000 shares of Preferred Stock, $1.00
per share.
COMMON STOCK
Holders of shares of MBM's Common Stock are entitled to one vote per share
on all matters to be voted upon by the stockholders and are not entitled to
cumulative voting for the election of directors. As a result, holders of a
majority of shares are able to elect all of the directors standing for election
and to control MBM. Holders of shares of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor subject to the rights
of Preferred Stockholders, if any. However, it is the present intention of MBM
not to pay any cash dividends and to reinvest earnings, if any, of MBM. MBM
also has restrictions with its principal lender on the payment of dividends.
See "Dividend Policy" below. In the event of liquidation, dissolution or
winding up of MBM, the holders of shares of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the preferences
of Preferred Stockholders, if any. Shares of common Stock have no preemptive,
conversion or other subscription rights. There are no redemption or sinking
fund provisions applicable to the Common Stock.
PREFERRED STOCK
The Preferred Stock is issuable in one or more series and the Board is
authorized to fix the number of shares of Preferred Stock constituting each
series and, as to each series, the dividend rate, the time of payment and
relative priority of such dividends, whether such dividends are to be cumulative
or non-cumulative, the redemption rights and prices, the amount payable upon the
liquidation, dissolution or winding up of MBM, the conversion and voting rights,
the sinking fund requirements, and such other designations, preferences or
special rights or qualifications, limitations or restrictions as may be
permitted by law. The authority of the Board to issue Preferred Stock and to
determine the designations, preferences and certain rights of one or more series
of Preferred Stock of MBM could be used in a manner calculated to prevent the
removal of Management, and make more difficult or discourage a change in control
of MBM.
Shareholders of MBM do not have any preemptive rights with respect to any
Preferred Stock which might be issued. No Preferred Stock has been issued as of
the date of this Prospectus/Proxy Statement and MBM has no plans to issue such
Preferred Stock in the near future.
94
<PAGE>
SERIES 1 WARRANTS
Each Series 1 Warrant originally purchased one share of Common Stock at an
exercise price of $8.00 per share until lowered to $6.00 per share by the Board
of Directors in August 1993. As a result of the October/November 1993 issuance
of $3,000,000 of convertible debentures, which triggered the anti-dilution
provisions contained in the Series 1 Warrant, every Series 1 Warrant exercised
at a price of $6.00 will purchase 1.047 shares of MBM's Common Stock. The
Series 1 Warrants are exercisable at any time until June 18, 1996 and are
callable by MBM upon 30 days prior written notice, at any time during the
exercise period at $.05 per Warrant provided the high bid price for the shares
of MBM's Common Stock is at least $11.00 per share on each day during the thirty
(30) trading day period immediately preceding the date of the written notice.
No fractional shares of Common Stock will be issued on the exercise of
warrants. Fractional shares less than 1/2 of one share will be disregarded.
Fractional shares of 1/2 or greater will be rounded to the nearest whole share.
MBM reserves the right to pay cash in lieu of fractional shares based upon the
base current market price (i.e. high bid price) of the Common Stock on the last
business day prior to the day of exercise.
The holders of the Warrants do not have any of the rights, privileges or
liabilities of stockholders of MBM prior to the exercise of Warrants. The
exercise price of the Warrants and the number of shares issuable upon exercise
of the Warrants are subject to anti-dilution adjustment to protect against sales
of Common Stock below the higher of the exercise price or the then existing
market price, stock dividends, stock splits, mergers, recapitalizations, or any
similar events.
MBM has agreed to pay to Royce Investment Group, Inc., (Royce") a
commission of up to five (5%) percent of the exercise price of the Series 1
Warrants for each Series 1 Warrant exercised provided (i) at least one year has
elapsed from June 19, 1992, (ii) the market price for the Common Stock is
greater than the exercise price of the Series 1 Warrants and (iii) Royce had
solicited the holder to exercise such Series 1 Warrants with such solicitation
being confirmed in writing by each holder. The commission is further
conditioned upon the Series 1 Warrant Agent being furnished by Royce with a
certificate stating that:
(a) the Warrants exercised were not held in a discretionary account;
(b) Royce did not within the time period specified in Rule 10b-6 under the
Securities Exchange Act of 1934, as amended, immediately preceding the
solicitation of the exercise of the Warrant or the date of such
exercise, bid for or purchase the Common Stock of MBM or any
securities of MBM immediately convertible into or exchangeable for the
Common Stock (including the Warrants) or otherwise
95
<PAGE>
engage in any activity that would be prohibited by said Rule 10b-6,
with one engaged in a distribution of MBM's securities; and
(c) in connection with the solicitation, Royce disclosed compensation it
would receive upon exercise of the Warrants.
SEC Rule 10b-6 would prohibit Royce from acting as a market maker for MBM's
securities for the period beginning two or nine business days prior to any
solicitation of the exercise of the Warrants or distribution of the
Underwriter's Unit Warrants and/or underlying securities, until (a) the later of
the termination of such solicitation activity or the termination of any right
that Royce may have to receive a fee for the exercise of such Warrants following
such solicitation and (b) the completion of the distribution of the
Underwriter's Unit Warrants and/or underlying securities.
DIVIDEND POLICY
MBM has not paid any dividends since its inception and intends to follow a
policy of retaining all of its earnings, if any, to finance the development and
continued expansion of its business. There can be no assurance that dividends
will ever be paid by MBM. Additionally, under the terms of its revolving loan
agreement with its principal lender, MBM may not pay dividends without such
lender's consent.
TRANSFER AGENT
The Transfer Agent for the Common Stock, and Warrant Agent for MBM's Series
1 Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New York,
NY.
UNDERWRITER'S WARRANTS
On June 19, 1992, MBM sold to Royce for $.0001 per Warrant, Warrants to
purchase 46,046 Units (the "Underwriter's Unit Warrants"). The Underwriter's
Unit Warrants are exercisable at $11.25 per Unit until June 19, 1997. As a
result of the October/November 1993 issuance of $3,000,000 of convertible
debentures which triggered the anti-dilution provisions contained in the
Underwriter's Unit Warrants, the Units that may be purchased by the holder of
the Underwriter's Unit Warrants contain 2.094 shares of Common Stock and three
Warrants that are identical to the Series 1 Warrants (the "Underwriter's
Warrants") sold pursuant to the rights offering described above, except that the
Underwriter's Warrants that are issuable upon exercise of the Underwriter's Unit
Warrants are not callable, were not exercisable until June 19, 1993 and are
exercisable at $10.00 per 1.047 shares of MBM's Common Stock.
96
<PAGE>
DESCRIPTION OF DEBENTURES
7% DEBENTURES
GENERAL
In October and November 1993, MBM issued $3,000,000 of its unsecured and
unregistered 7% Debentures. Each 7% Debenture is a subordinated obligation of
MBM, payable on October 30, 2003 and bearing interest at the rate of 7% per
annum, payable in equal semi-annual amounts on the 30th day of April and October
commencing April 30, 1994, at which time interest accrued, if any, on all
Debentures from their respective dates of issuance will be paid. As of October
31, 1995, $1,500,000 of the Debentures were converted into 187,500 shares of
MBM's Common Stock.
CONVERSION
Each Debenture is convertible into shares of MBM's Common Stock, $.03 par
value, at the option of its holder at the rate of $8.00 per share, subject to
adjustment as provided below, until the earlier of October 28, 2003 or the date
which is at least 30 calendar days after the date of notification by MBM of its
election to redeem the Debentures.
The conversion price of the Debentures is subject to adjustment in certain
specific events such as subdivision or combinations of Common Stock, dividends
payable in Common Stock and, in some cases, issuances of Common Stock at a price
below the higher of the current market price or conversion price. Adjustment is
required to be made for interest accrued on Debentures submitted for conversion
but no adjustment is required to be made for cash dividends on Common Stock to
be issued upon such conversion. MBM shall not be required to issue fractions of
shares of Common Stock upon any conversion, but shall make adjustments therefor
in cash.
In case of any consolidation or merger of MBM with or into another
corporation (other than a merger in which MBM is the continuing corporation and
which does not result in any reclassification or change of outstanding shares of
Common Stock of the class issuable upon conversion of the Debentures) or in case
of any sale or conveyance to another corporation of the property of MBM as an
entity or substantially as an entity, MBM, or such successor or purchasing
corporation, as the case may be, shall provide that the holder of each Debenture
then outstanding shall have the right thereafter to convert such Debenture into
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock of MBM into which
such Debenture might have been converted immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance.
97
<PAGE>
REDEMPTION PROVISIONS
Commencing in November, 1995, the Debentures are redeemable at the option
of MBM, in whole and not in part, at the redemption prices set forth herein by
giving written notice to the holders to that effect at least 30 calendar days
prior to the redemption date. However, MBM has agreed not to redeem the
Debentures at any time unless MBM is current in filing all reports required
under the Federal Securities Laws.
The redemption prices of the Debentures for redemption at the option of MBM
(expressed in percentages of principal amount) are as follows for the indicated
12-month periods commencing two years from the date of issuance: Year three -
105%, year four - 104%, year five - 103%, year six - 102%, year seven - 101%,
and thereafter at 100% until the maturity date of the Debentures. Since the
final closing date was November 4, 1993 then between November 4, 1995 and
November 3, 1996, hereinabove referred to as year three, the redemption price is
105% of the principal amount of the Debentures decreasing to 104% on November 4,
1996, 103% on November 4, 1997, 102% on November 4, 1998, 101% on November 4,
1999 and 100% on and after November 4, 2000 until maturity on October 30, 2003.)
SUBORDINATION OF DEBENTURES
The payment of the principal of and interest on the Debentures is
subordinated, in the event of any distribution of assets of MBM upon any
dissolution, winding up, liquidation or reorganization of MBM (whether in
bankruptcy, insolvency, reorganization or receivership proceedings or upon any
assignment for benefit of creditors or any other marshalling of the assets or
liabilities of MBM or otherwise), in right of payment to the prior payment in
full of all Senior Indebtedness. The Debentures, however, in all respects,
shall rank equally with, or prior to (as the case may be), all existing and
future indebtedness of MBM that is not Senior Indebtedness. The term "Senior
Indebtedness" shall mean the principal of, and premium (if any) on, and interest
on all indebtedness of MBM (other than the Debentures), whether outstanding on
the date of this Debenture or hereafter created for money borrowed by MBM or
other monetary obligations of MBM (whether the same be evidenced by bonds, notes
or debentures - other than the Debentures - or evidenced by a letter of credit,
loan agreement or an indenture or similar instrument) from, owing to, or
guaranteed to, banks, trust companies, leasing companies, insurance companies or
other institutional lenders and any renewal, extension refunding, amendment or
modifications of any such Senior Indebtedness, including without limitation of
the foregoing, purchase money mortgages, mortgages made or given or guaranteed
by MBM as mortgagor or guarantor, and assumed or guaranteed mortgages, upon
property, but excluding any indebtedness to trade creditors or suppliers on open
account for work, labor, services and materials and excluding any indebtedness
which by the terms of the instrument creating or evidencing the same is stated
to be not superior in right of payment to the Debentures. During the
continuation of any default in the payment of principal or interest on any
Senior
98
<PAGE>
Indebtedness, no payment of principal or interest may be made by MBM on the
Debentures. The Debentures contain no limitation on the amount of Senior
Indebtedness or other indebtedness that may be issued or incurred. However, MBM
will not incur indebtedness that is senior to the Debentures other than Senior
Indebtedness. By reason of the described subordination, in the event of
insolvency, creditors of MBM, other than holders of Senior Indebtedness or of
the Debentures, may recover less, ratably, than the holders of Senior
Indebtedness, but may recover more, ratably, than the holders of the Debentures
upon any distribution of assets of MBM.
MODIFICATION OF DEBENTURES
Sixty-Five (65%) percent of the holders, by amount, of the Debentures may
consent to change any terms covering the Debentures, except those terms related
to:
- subordination
- interest rate
- payment dates
- maturity date
- conversion rate
which may be changed only by unanimous vote of the Debenture holders. The
Debentures and shares of Common Stock issuable upon conversion of the Debentures
are restricted securities and may be sold only in compliance with applicable
securities laws.
LEGAL MATTERS
McLaughlin & Stern LLP, 380 Lexington Avenue, New York, New York 10168 has
acted as counsel for Stone Medical Supply Corporation and has rendered an
opinion on the tax matters on the Merger. David W. Sass, a member of said firm,
is an officer and director of Stone. Legal matters with respect to the Merger
Agreement are being passed upon for Stone by Ruskin, Moscou, Evans & Faltischek,
P.C. , 170 Old Country Road, Mineola, New York 11501.
Otterbourg, Steindler, Houston & Rosen, P.C., 230 Park Avenue, New York,
New York 10169, has acted as counsel for MBM and DLC in connection with the
Merger Agreement and Lester Morse, P.C., 111 Great Neck Road, Suite 420, Great
Neck, New York 11021, has acted as counsel for MBM in connection with this
Prospectus/Proxy Statement. Members of Mr. Morse's family beneficially own less
than 1% of MBM's issued and outstanding shares.
99
<PAGE>
EXPERTS
Stone's audited consolidated balance sheets as of December 31, 1994 and
1993, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1994, which are included in this Proxy Statement/Prospectus, have been
included herein in reliance upon the reports of Robbins, Greene, Horowitz &
Lester, & Co., LLP, independent certified public accountants, given upon the
authority of said firms as experts in accounting and auditing.
MBM's audited consolidated balance sheets as of November 30, 1994 and
1993, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended November
30, 1994, which are included in this Proxy Statement/Prospectus, have been
included herein in reliance upon the reports of Miller Ellin & Co., independent
certified public accountants, given upon the authority of said firms as experts
in accounting and auditing.
100
<PAGE>
TABLE OF CONTENTS
Description Page
- ----------------------------------------- ----
Pro Forma Financial Statements P-1 - P-10
MBM's Unaudited Financial Statements
for August 31, 1995 Q-1 - Q-6
MBM's Audited Financial Statements
for the fiscal years ended
November 30, 1994, 1993 and 1992 F-1 - F-25
Stone's Audited Financial Statements
for the fiscal years ended
December 31, 1994, 1993 and 1992 F-26 - F-33
Stone's Unaudited Financial Statements
for September 30, 1995 S-1 - S-5
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
DESCRIPTION OF TRANSACTION
On November 2, 1995, MBM (the "Company") and Diagnostic Leasing Corporation
("DLC"), a wholly-owned subsidiary of MBM entered into an agreement for merger
and reorganization with Stone Medical Supply Corporation ("Stone") and Andrew D.
Stone ("Andrew"). DLC will acquire by merger 100% of Stone's $.01 par value
common stock outstanding of approximately 3,432,000 shares in exchange for the
issuance of up to 280,697 shares of the Company's $.03 par value common stock
(valued at $11.50 per share) at a conversion ratio of .0818 to 1.00. It is
contemplated that a tax-free merger will result and this transaction will be
accounted for as a purchase.
Stone is a distributor of physician and medical supplies, apparatus and
fixtures in the New York Metropolitan area. The Company has a November 30th
year end and Stone has a December 31st year end. The pro forma financial
statements presented reflect these year ends as well as the interim dates of
September 30, 1995 and August 31, 1995 which represents the nine months then
ended of Stone and the Company, respectively.
In addition, the Company entered into two non-competition agreements with
two former executives of Stone. The terms of the agreements are 15 years and
the total anticipated consideration is $1,750,000; $1,250,000 for one and
$500,000 for the other. One agreement stipulates that payments were and are to
be made of $583,333 at contract signing, $333,333 nine months later and the
remainder of $333,333 or less is due on the tenth day after the final
determination of the executive's liability to the Company in connection with
certain indemnification obligations. The other agreement requires payment of
$8,333 per month commencing December 1, 1995 until the fifth anniversary of the
closing date for a total of $500,000.
One of the officers and major shareholders (Andrew) has also agreed to
indemnify MBM and DLC with respect to representations including the cost of
inventory and receivables contained in the November 10, 1995 balance sheet. In
addition, this major shareholder is depositing in escrow one-half of the shares
of MBM common stock to be received at the closing of the merger to be used to
cover any liability under a certain indemnity agreement. The payments under
this particular non-competition agreement may also be offset against such
liability. In the event the merger is not consummated by June 30, 1996, then
the consideration under one of the non-competition agreements shall be reduced
to $750,000 from $1,250,000 and the payments reduced accordingly.
Stone and the Company have entered into a Management Agreement subject to
various terms and conditions, effective as of November 2, 1995, pursuant to
which the Company will manage the business and affairs of Stone until the
effective date of the merger for a fee of 5% of the net sales of Stone during
the management period.
In addition, if the merger is not effective on or before June 30, 1996, and
unless 66-2/3% of Stone's shareholders vote in favor of the merger, certain
Stone stockholders have agreed to sell their shares representing approximately
73.8% of Stone's outstanding stock in exchange for the Company's common stock at
a conversion ratio of .069 to 1.00.
Stone may terminate the merger agreement upon the payment of $1,000,000 to
the Company at any time until the closing date, but only in the event it
consummates a merger transaction with an unrelated third party.
P-1
<PAGE>
As part of the Merger, Andrew will enter into a Put-and-Call Agreement
pursuant to which Andrew will have the right for a period of three months
commencing one year after the Merger to put one-half of his shares of MBM Common
Stock which he receives in the Merger to a party satisfactory to Andrew (the
"Party") at a price of $9.50 per share, in the event the price of the MBM Common
Stock falls below $9.00 for a period of 30 consecutive trading days prior to the
put notice. The Party will have the right to call such shares at $13.50 per
share at any time commencing six months after the Merger and for a period of 12
months thereafter.
Andrew has entered into an employment agreement with the Company for a term
of five years at a base amount of $115,000 per annum with a bonus not to exceed
$25,000 per annum in the event certain sales goals are achieved.
The Company does not anticipate borrowing for payment of any acquisition
costs in connection with this purchase. Such costs are anticipated to be paid
from working capital.
In the opinion of management, all adjustments necessary to present fairly
this pro forma information have been made.
The pro forma information may not be indicative of the results that would
have occurred if the acquisition and offering had been effective on the dates
indicated or of the results that may be obtained in the future.
These pro forma condensed consolidated financial statements should be read
in conjunction with the Company's financial statements and notes thereto
included elsewhere in this document, as well as the financial statements of
Stone, and notes thereto.
P-2
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AUGUST 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY, STONE,
AS AS PRO FORMA PRO FORMA
REPORTED REPORTED ADJUSTMENTS CONSOLIDATED
----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS $45,738,705 $3,888,845 (2) $ 400 $48,759,617
(2) (100,000)
(1) (185,000)
(3) (583,333)
PROPERTY, PLANT AND EQUIPMENT 3,149,336 670,707 - 3,820,043
INTANGIBLE ASSETS 4,332,031 - (2) 2,673,706 7,426,070
(3) 583,333
(3) (163,000)
OTHER ASSETS 164,351 - - 164,351
----------- ---------- ---------- -----------
$53,384,423 $4,559,552 $2,226,106 $60,170,081
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $16,805,431 $2,890,517 (1) $165,000 $19,809,948
(1) 195,000
(5) (246,000)
LONG-TERM DEBT 16,955,023 351,725 (1) 100,000 15,906,748
(4) (1,500,000)
OTHER LONG-TERM LIABILITIES 302,000 18,000 - 320,000
STOCKHOLDERS' EQUITY 19,321,969 1,299,310 (2) 2,573,706 24,133,385
(2) 400
(1) (265,000)
(1) (195,000)
(1) (185,000)
(3) (163,000)
(5) 246,000
(4) 1,500,000
----------- ---------- ---------- -----------
$53,384,423 $4,559,552 $2,226,106 $60,170,081
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
See notes to pro forma condensed consolidated financial statements
P-3
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED AUGUST 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY, STONE,
AS AS PRO FORMA PRO FORMA
REPORTED REPORTED ADJUSTMENTS CONSOLIDATED
----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
NET SALES $89,585,410 $9,111,847 $ - $98,697,257
COST OF GOODS SOLD 70,558,869 6,570,253 - 77,129,122
----------- ---------- ---------- -----------
GROSS PROFIT 19,026,541 2,541,594 - 21,568,135
----------- ---------- ---------- -----------
OPERATING EXPENSES 16,680,384 2,478,380 (4) (79,000) 19,907,364
(2) 19,600
(1) 265,000
(1) 195,000
(1) 185,000
(3) 163,000
----------- ---------- ---------- -----------
16,680,384 2,478,380 748,600 19,907,364
----------- ---------- ---------- -----------
OPERATING INCOME 2,346,157 63,214 (748,600) 1,660,771
----------- ---------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest expense - net (975,685) (65,819) - (1,041,504)
Other income - 7,895 - 7,895
----------- ---------- ---------- -----------
(975,685) (57,924) - (1,033,609)
----------- ---------- ---------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,370,472 5,290 (748,600) 627,162
PROVISION FOR INCOME TAXES 575,600 1,000 (5) (246,000) 330,600
----------- ---------- ---------- -----------
NET INCOME $ 794,872 $ 4,290 $ (502,600) $ 296,562
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ .19 $ - $ .08
----------- ---------- -----------
----------- ---------- -----------
AVERAGE NUMBER OF SHARES
USED TO COMPUTE EARNINGS PER
COMMON AND COMMON
EQUIVALENT SHARE 5,086,857 3,391,500 5,464,255
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
See notes to pro forma condensed consolidated financial statements
P-4
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 1995
(1) To record Stone's liability ($645,000) for
(a) buyout of the contracts of certain sales employees of $265,000 in the
aggregate of which approximately $100,000 is long-term.
(b) professional fees in connection with this acquisition, a consulting
agreement with an individual and proposed settlements with taxation
authorities of not less than $195,000 in the aggregate
(c) adjustments to inventory and accounts receivable of not less than
$185,000
(2) To record the purchase price of the net assets acquired.
Consideration to Stone shareholders:
Company's shares issued 280,697
Price per share $ 11.50
----------
3,228,016
----------
Net assets acquired as reported 1,299,310
Less: Additional liabilities as per
pro forma adjustment above 645,000
----------
Adjusted net assets acquired 654,310
----------
Purchase price less net assets acquired 2,573,706
Add: Direct costs of acquisition 100,000
----------
Goodwill $2,673,706
----------
----------
In addition, Stone has issued 40,000 shares since December 31, 1994
resulting in additions to the following:
Cash $ 400
Common stock 400
Paid-in capital 19,600
Compensation expense 19,600
P-5
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 1995
(3) To record the following:
(a) $583,333 paid to former executive of Stone for a fifteen year covenant
not to compete.
(b) amortization of the covenant not to compete in the
amount of $ 29,000
(c) amortization of goodwill over 15 years in the
amount of 134,000
--------
$163,000
--------
--------
(4) To record the subsequent conversion of $1,500,000 of debentures into
187,500 of common shares in September 1995 and interest savings of
$79,000.
(5) To record the income tax effect of the pro forma adjustments:
Expense (income) adjustments:
Buyout of contracts of certain sales
employees $265,000
Professional and consulting fees and tax
settlements 195,000
Adjustments to inventory and accounts
receivable 185,000
Amortization of covenant not to compete 29,000
Compensation resulting from issuance of shares 19,600
Interest savings on converted debentures (79,000)
--------
Total adjustments 614,600
Effective tax rate, net of state effect 40%
--------
Tax benefit of expense adjustments $246,000
--------
--------
(6) To reflect consolidated earnings per common and common equivalent share for
acquisition treated as a purchase utilizing the modified treasury stock
method.
Net income $296,562 Weighted average
Incremental income 129,364 number of shares 4,108,439
-------- Incremental shares 1,355,816
---------
Total income $425,926 Total shares 5,464,255
-------- ---------
-------- ---------
Earnings per common and common equivalent share $.08
----
----
P-6
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY, STONE,
AS AS PRO FORMA PRO FORMA
REPORTED REPORTED ADJUSTMENTS CONSOLIDATED
----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS $46,852,242 $3,257,565 (2) (100,000) $49,241,874
(2) 400
(1) (185,000)
(3) (583,333)
PROPERTY, PLANT AND EQUIPMENT 3,453,607 603,202 4,056,809
INTANGIBLE ASSETS 3,793,654 (2) 2,673,706 6,833,693
(3) 583,333
(3) (217,000)
OTHER ASSETS 361,584 - - 361,584
----------- ---------- ---------- -----------
$54,461,087 $3,860,767 $2,172,106 $60,493,960
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $16,710,792 $2,223,293 (1) $165,000 $19,055,085
(1) 195,000
(5) (239,000)
LONG-TERM DEBT 19,381,239 324,454 (1) 100,000 18,305,693
(4) (1,500,000)
OTHER LONG-TERM LIABILITIES 302,000 18,000 - 320,000
STOCKHOLDERS' EQUITY 18,067,056 1,295,020 (2) 2,573,706 22,813,182
(2) 400
(1) (265,000)
(1) (195,000)
(1) (185,000)
(3) (217,000)
(5) 239,000
(4) 1,500,000
----------- ---------- ---------- -----------
$54,461,087 $3,860,767 $2,172,106 $60,493,960
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
See notes to pro forma condensed consolidated financial statements
P-7
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY, STONE,
AS AS PRO FORMA PRO FORMA
REPORTED REPORTED ADJUSTMENTS CONSOLIDATED
----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
NET SALES $121,604,461 $10,180,713 $ - $131,785,174
COST OF GOODS SOLD 94,923,689 7,315,884 - 102,239,573
------------ ----------- ---------- ------------
GROSS PROFIT 26,680,772 2,864,829 - 29,545,601
------------ ----------- ---------- ------------
OPERATING EXPENSES 23,002,895 2,835,782 (4) (105,000) 26,615,277
(2) 19,600
(1) 265,000
(1) 195,000
(1) 185,000
(3) 217,000
------------ ----------- ---------- ------------
23,002,895 2,835,782 776,600 26,615,277
------------ ----------- ---------- ------------
OPERATING INCOME 3,677,877 29,047 (776,600) 2,930,324
------------ ----------- ---------- ------------
OTHER INCOME (EXPENSE):
Interest expense - net (1,044,257) (81,700) - (1,125,957)
Other income - 15,925 - 15,925
------------ ----------- ---------- ------------
(1,044,257) (65,775) - (1,110,032)
------------ ----------- ---------- ------------
INCOME (LOSS) BEFORE PROVISION
(CREDIT) FOR INCOME TAXES 2,633,620 (36,728) (776,600) 1,820,292
PROVISION (CREDIT)
FOR INCOME TAXES 952,000 (8,000) (5) (239,000) 705,000
------------ ----------- ---------- ------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ 1,681,620 $ (28,728) $ (537,600) $ 1,115,292
------------ ----------- ---------- ------------
------------ ----------- ---------- ------------
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ .37 $ (.01) $ .23
------------ ----------- ------------
------------ ----------- ------------
AVERAGE NUMBER OF SHARES
USED TO COMPUTE EARNINGS PER
COMMON AND COMMON
EQUIVALENT SHARE BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 4,896,518 3,391,500 5,274,902
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
See notes to pro forma condensed consolidated financial statements
P-8
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
YEAR ENDED NOVEMBER 30, 1994
(1) To record Stone's liability ($645,000) for
(a) buyout of the contracts of certain sales employees of $265,000 in the
aggregate of which approximately $100,000 is long-term.
(b) professional fees in connection with this acquisition, a consulting
agreement with an individual and proposed settlements with taxation
authorities of not less than $195,000 in the aggregate
(c) adjustments to inventory and accounts receivable of not less than
$185,000
(2) To record the purchase price of the net assets acquired.
Consideration to Stone shareholders:
Company's shares issued 280,697
Price per share $ 11.50
----------
3,228,016
----------
Net assets acquired as reported 1,299,310
Less: Additional liabilities as per
pro forma adjustment above 645,000
----------
Adjusted net assets acquired 654,310
----------
Purchase price less net assets acquired 2,573,706
Add: Direct costs of acquisition 100,000
----------
Goodwill $2,673,706
----------
----------
In addition, Stone has issued 40,000 shares since December 31, 1994
resulting in additions to the following:
Cash $ 400
Common stock 400
Paid-in capital 19,600
Compensation expense 19,600
P-9
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
YEAR ENDED NOVEMBER 30, 1994
(3) To record the following:
(a) $583,333 paid to former executive of Stone for a fifteen year covenant
not to compete.
(b) amortization of the covenant not to compete in the
amount of $ 39,000
(c) amortization of goodwill over 15 years in the
amount of 178,000
--------
$217,000
--------
--------
(4) To record the subsequent conversion of $1,500,000 of debentures into
187,500 of common shares in September 1995 and interest savings of
$105,000.
(5) To record the income tax effect of the pro forma adjustments:
Expense (income) adjustments:
Buyout of contracts of certain sales
employees $265,000
Professional and consulting fees and tax
settlements 195,000
Adjustments to inventory and accounts
receivable 185,000
Amortization of covenant not to compete 39,000
Compensation resulting from issuance of shares 19,600
Interest savings on converted debentures (105,000)
--------
Total adjustments 598,600
Effective tax rate, net of state effect 40%
--------
Tax benefit of expense adjustments $239,000
--------
--------
(6) To reflect consolidated earnings per common and common equivalent share for
acquisition treated as a purchase utilizing the modified treasury stock
method.
Net income $1,115,292 Weighted average
Incremental income 108,444 number of shares 4,019,930
---------- Incremental shares 1,254,972
---------
Total income $1,223,736 Total shares 5,274,902
---------- ---------
---------- ---------
Earnings per common and common equivalent share $.23
----
----
P-10
<PAGE>
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following information is presented to reflect certain unaudited pro
forma condensed consolidated financial information for the Company after giving
effect to the merger accounted for as a purchase, as if it had been consummated,
with respect to the statement of operations at the beginning of the periods
presented, and with respect to the balance sheet, as of the dates presented.
The information presented is derived from the unaudited pro forma condensed
consolidated financial data and the notes thereto appearing in the prospectus.
The unaudited pro forma condensed consolidated financial data has been included
for comparative purposes only and does not purport to be indicative of the
results of operations or financial position which actually would have been
obtained if the merger had been effected at the beginning of the periods or as
of the date indicated or of the financial position or results of operations
which may be obtained in the future.
P-11
<PAGE>
SUMMARY FINANCIAL INFORMATION
PRO FORMA REFLECTING MICRO BIO-MEDICS, INC.
AFTER GIVING EFFECT TO THE MERGER
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATION DATA:
<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED NOVEMBER 30,
AUGUST 31, 1995 1994
----------------- --------------
<S> <C> <C>
Net revenues $98,697,257 $131,785,174
Income before cumulative effect
of accounting change $ 296,562 $1,115,292
Income per common share before
cumulative effect of accounting change $.08 $.23
Average number of shares used to
compute earnings per common and
common equivalent share before
cumulative effect of accounting change 5,464,255 5,274,902
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AUGUST 31, 1995 NOVEMBER 30, 1994
--------------- -----------------
<S> <C> <C>
Working capital $28,949,669 $30,186,789
Total assets $60,170,081 $60,493,960
Total long-term debt
(excluding current portion) $15,906,748 $18,305,693
Stockholders' Equity $24,133,385 $22,813,182
Number of common shares outstanding 4,150,981 4,063,606
Book Value Per Common Share outstanding $5.81 $5.61
Average number of common equivalent
shares* 5,464,255 5,274,902
Book value per common equivalent share $4.42 $4.32
</TABLE>
This calculation assumes the issuance of 280,697 shares of the Company's common
stock based on a conversion ratio of .0818 shares of the Company's common stock
for each share of Stone's common stock outstanding on Stone's record date
(assuming an average price of $11.50 per share).
*Includes additional shares assuming conversion of stock options and warrants
and debentures utilizing the modified treasury stock method.
P-12
<PAGE>
COMPARATIVE PER SHARE DATA
The following information summarizes unaudited selected financial
information on a pro forma and pro forma equivalent per share basis and is
derived from the pro forma condensed consolidated financial data included.
The information presented is for informational purposes only and is not
necessarily indicative of future consolidated earnings or financial position or
of consolidated earnings or financial position that would have been reported had
the merger been completed at the beginning of the respective periods or as of
the dates for which such unaudited pro forma data is presented.
P-13
<PAGE>
COMPARISON OF HISTORICAL AND EQUIVALENT STOCK VALUES
<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED NOVEMBER 30,
AUGUST 31, 1995 1994
----------------- --------------
<S> <C> <C>
Historical Earnings (Loss) Per Common
and Common Equivalent Share Before
Cumulative Effect of Accounting Change:
Company $.19 $.37
Stone - (.01)
Pro Forma Consolidated Earnings Per
Common and Common
Equivalent Share Before Cumulative
Effect of Accounting Change (1) $.08 $.23
Historical Book Value
Per Common and Common
Equivalent Share (2):
Company $3.80 $3.69
Stone .38 .38
Pro Forma Combined
Book Value Per Common and
Common Equivalent Share (2) $4.42 $4.32
</TABLE>
(1) This calculation assumes an additional 280,697 shares in the computation of
earnings per share based on a conversion ratio of .0818 shares of the
Company for each share of Stone's common stock outstanding. The actual
number of shares of the Company issuable in the merger may vary in
accordance with the terms of the merger agreement.
(2) Historical book value per common and common equivalent share was computed
by dividing the total stockholders' equity by the average number of shares
used to compute earnings per common and common equivalent share.
Pro forma consolidated book value per common share was computed by dividing
the consolidated stockholders' equity by the average number of shares used
to compute earnings per common and common equivalent share including the
280,697 shares issued in connection with the purchase.
P-14
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
--------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
August 31, 1995 August 31, 1995
--------------------------------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $89,585,410 $92,562,689 $36,627,467 $34,072,420
COST OF GOODS SOLD 70,558,869 72,701,905 28,666,129 26,342,117
----------- ----------- ----------- -----------
GROSS PROFIT 19,026,541 19,860,784 7,961,338 7,730,303
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, shipping and warehouse 10,926,236 10,726,607 3,813,577 3,861,322
General and administrative 5,754,148 6,140,536 2,089,990 2,159,862
Interest and financing costs
(net of interest income of $ 124,828
in 1995, $ 156,481 in 1994) 975,685 718,945 305,387 259,430
----------- ----------- ----------- -----------
Total operating expenses 17,656,069 17,586,088 6,208,954 6,280,614
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,370,472 2,274,696 1,752,384 1,449,689
PROVISION FOR INCOME TAXES 575,600 955,000 736,000 609,000
----------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ 794,872 $ 1,319,696 $ 1,016,384 $ 840,689
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
FOR INCOME TAXES PRIOR TO 1994 -- (60,000) -- --
----------- ----------- ----------- -----------
NET INCOME $ 794,872 $ 1,259,696 $ 1,016,384 $ 840,689
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ .19 $ .29 $ .21 $ .18
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
FOR INCOME TAXES PRIOR TO 1994 (.01) --
----------- ----------- ----------- -----------
$ .19 $ .28 $ .21 $ .18
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NUMBER OF SHARES USED IN
COMPUTING EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE 5,086,857 4,894,203 5,111,638 4,990,703
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DIVIDENDS PER COMMON SHARE None None None None
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The notes to financial statements are made a part hereof.
Q-1
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------------------
ASSETS
--------
<TABLE>
<CAPTION>
August 31,
1995 November 30,
(UNAUDITED) 1994
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,548,081 $ 3,333,345
Accounts receivable, less allowance for
doubtful accounts, of $685,195 in August
1995 and $650,000 in November 1994 29,283,812 26,780,044
Inventory 13,590,160 15,449,465
Deferred income taxes 518,362 518,362
Prepaid expenses and other current assets 798,290 771,026
----------- -----------
Total current assets 45,738,705 46,852,242
PROPERTY, PLANT AND EQUIPMENT - at cost
net of accumulated depreciation and
amortization of $3,482,003 at August 1995
and $2,852,004 at November 1994 3,149,336 3,453,607
INTANGIBLE ASSETS - net of accumulated
amortization of $891,671 at August 1995
and $769,088 at November 1994 4,332,031 3,793,654
OTHER ASSETS 164,351 361,584
----------- -----------
$53,384,423 $54,461,087
----------- -----------
----------- -----------
</TABLE>
The notes to financial statements are made a part hereof.
Q-2
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
<TABLE>
<CAPTION>
August 31,
1995 November 30,
(UNAUDITED) 1994
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of
long term debt $ 316,742 $ 437,970
Accounts payable 14,050,919 13,760,015
Accrued expenses and
sundry liabilities 1,608,132 1,581,341
Due to seller 829,638 931,466
----------- -----------
Total current liabilities 16,805,431 16,710,792
LONG-TERM DEBT, net of
current maturities 16,955,023 19,381,239
DEFERRED INCOME TAXES 302,000 302,000
----------- -----------
Total Liabilities 34,062,454 36,394,031
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock $ 1.00 par value
Authorized-1,000,000 shares
no shares issued - -
Common stock $.03 par value
Authorized - 7,000,000 shares
Issued - 3,682,784 in August 1995
- 3,595,409 in November 1994 110,483 107,862
Capital in excess of par value 10,985,076 10,527,552
Retained earnings 8,227,574 7,432,806
Less: Cost of 1,167 shares of common
stock in treasury (1,164) (1,164)
----------- -----------
Total stockholders' equity 19,321,969 18,067,056
----------- -----------
$53,384,423 $54,461,087
----------- -----------
----------- -----------
</TABLE>
The notes to financial statements are made a part hereof.
Q-3
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
---------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
August 31,
-------------------------------
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 794,872 $ 1,259,696
----------- -----------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Expenses not requiring the use of cash:
Cumulative effect of accounting change
income taxes prior to 1994 60,000
Depreciation and amortization 752,582 590,607
Provision for losses on
accounts receivable 72,000 72,000
Changes in assets and liabilities,
net of effect of asset acquisitions
Due to seller (101,828) (26,866)
Accounts receivable (2,575,768) (4,033,857)
Inventory 1,859,305 1,163,415
Prepaid expenses and other current
assets (27,264) (810,772)
Other assets 197,233 45,605
Accounts payable 290,904 7,218,515
Accrued expenses and sundry
liabilities 26,791 474,461
Income taxes payable 146,866
----------- -----------
493,955 4,899,974
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,288,827 6,159,670
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants 280,815 2,538
Exercise of employee stock options 179,330 55,525
Net (repayments) under
revolving loan agreements (2,150,000) (3,874,694)
Proceeds from long term debt 202,658
Repayment of long-term debt (397,444) (252,477)
----------- -----------
NET CASH (USED IN)
FINANCING ACTIVITIES (2,087,299) (3,866,450)
----------- -----------
</TABLE>
The notes to financial statements are made a part hereof
Q-4
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
---------------------------------------
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business (661,977)
Capital expenditures (325,832) (275,569)
Purchase of intangibles (660,960) (868,655)
---------------- -----------
NET CASH (USED IN)
INVESTING ACTIVITIES (986,792) (1,806,201)
---------------- -----------
NET INCREASE (DECREASE) IN CASH (1,785,264) 487,019
CASH-beginning of year 3,333,345 2,484,015
---------------- -----------
CASH-end of year $1,548,081 $2,971,034
---------------- -----------
---------------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $1,100,513 $875,426
---------------- -----------
---------------- -----------
Income taxes $356,294 $743,021
---------------- -----------
---------------- -----------
BUSINESS ACQUIRED FOR ISSUANCE OF
LONG TERM DEBT which is not reflected
in the above statement
$16,924,760
---------------- -----------
---------------- -----------
</TABLE>
The notes to financial statements are made part hereof.
Q-5
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO FORM 10-Q
AUGUST 31, 1995
(UNAUDITED)
-----------------------------------------
NOTE A
The attached summarized financial information does not include all
disclosures required to be included in a complete set of financial
statements prepared in conformity with generally accepted accounting
principles. Such disclosures were included with the consolidated financial
statements of the Company at November 30, 1994, included in its annual report on
Form 10-K. Such statements should be read in conjuction with the data herein.
NOTE B
The financial information reflects all normal recurring adjustments
which, in the opinion of management, are deemed necessary for a fair
presentation of the results for the interim periods. The results for the interim
periods are not necessarily indicative of the results to be expected for the
year.
NOTE C - ACQUISITION
On March 27, 1995, the Company acquired certain assets and customer
accounts of Mid County Medical Supply Co., Inc., a distributor of physician and
hospital supplies for approximately $500,000. The purchase price was allocated
based upon the fair market value of the assets at the date of acquisition.
NOTE D - EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are based on the
weighted average number of common shares and common equivalent shares
outstanding during the period. The modified treasury stock method was utilized
to calculate the dilutive effect of the options and warrants upon the earnings
per share data.
Q-6
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
INDEX
FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report F-2
Consolidated Balance Sheets
November 30, 1994 and 1993 F-3 - F-4
Consolidated Statements of Income
Years Ended November 30, 1994, 1993 and 1992 F-5
Consolidated Statements of Cash Flows
Years Ended November 30, 1994, 1993 and 1992 F-6 - F-7
Consolidated Statements of Changes in
Stockholders' Equity
Years Ended November 30, 1994, 1993 and 1992 F-8
Notes to Consolidated Financial Statements F-9 - F-23
FINANCIAL STATEMENT SCHEDULES:
Schedule VIII - Valuation and Qualifying Accounts F-24
Exhibit 11 - Earnings Per Share Calculation F-25
Schedules other than those referred to above have
been omitted as the conditions requiring their
filing are not presented or the information has
been presented elsewhere in the financial statements
Separate financial statements and schedules of
Micro Bio-Medics, Inc. (Parent) have been omitted
since the conditions for omission have been met
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Micro Bio-Medics, Inc. and Subsidiaries
Pelham Manor, New York
We have audited the accompanying consolidated balance sheets of Micro
Bio-Medics, Inc. and Subsidiaries as at November 30, 1994 and 1993, and the
related consolidated statements of income, cash flows, and changes in
stockholders' equity for each of the three years in the period ended November
30, 1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 Micro
Bio-Medics, Inc. and Subsidiaries as at November 30, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years
in the period ended November 30, 1994, in conformity with generally accepted
accounting principles.
We have also audited Schedule VIII and Exhibit 11 for the years ended
November 30, 1994, 1993 and 1992 included in the 1994 annual report of Micro
Bio-Medics, Inc. and Subsidiaries on Form 10K. In our opinion, such schedules
present fairly the information required to be set forth therein.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for income taxes effective December 1,
1993.
/s/ Miller, Ellin & Company
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
February 10, 1995
F-2
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------------------
1994 1993
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,333,345 $ 2,484,015
Accounts receivable, less allowance for
doubtful accounts of $650,000 in 1994
and $600,000 in 1993 (Note 5) 26,780,044 15,592,555
Inventory (Note 5) 15,449,465 8,199,999
Note receivable (Note 2) - 1,000,000
Deferred income taxes (Note 6) 518,362 188,930
Prepaid expenses and other current assets 771,026 505,984
----------- -----------
Total current assets 46,852,242 27,971,483
PROPERTY, PLANT AND EQUIPMENT - at cost,
net of accumulated depreciation and
amortization of $2,852,004 in 1994 and
$2,134,646 in 1993 (Notes 2, 3 and 5) 3,453,607 3,086,307
INTANGIBLE ASSETS, net of accumulated amortization
of $769,088 in 1994 and $534,337 in 1993
(Notes 2 and 4) 3,793,654 1,380,554
OTHER ASSETS 361,584 345,980
----------- -----------
$54,461,087 $32,784,324
----------- -----------
----------- -----------
</TABLE>
The notes to financial statements are made a part hereof
F-3
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 5) $ 437,970 $ 362,631
Accounts payable 13,760,015 5,318,054
Accrued expenses and sundry liabilities (Note 7) 1,581,341 1,325,428
Due to seller (Note 2) 931,466 -
----------- -----------
Total current liabilities 16,710,792 7,006,113
LONG-TERM DEBT, net of current maturities (Note 5) 19,381,239 9,584,687
DEFERRED INCOME TAXES (Note 6) 302,000 -
----------- -----------
Total liabilities 36,394,031 16,590,800
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Notes 5 and 9):
Preferred stock $1.00 par value:
Authorized - 1,000,000 shares, -
no shares issued
Common stock $.03 par value:
Authorized - 7,000,000 shares
Issued - 3,595,409 shares in 1994
- 3,535,452 shares in 1993 107,862 106,063
Capital in excess of par value 10,527,552 10,277,439
Retained earnings 7,432,806 5,811,186
Less: Cost of 1,167 shares of common
stock in treasury (1,164) (1,164)
----------- -----------
Total stockholders' equity 18,067,056 16,193,524
----------- -----------
$54,461,087 $32,784,324
----------- -----------
----------- -----------
</TABLE>
The notes to financial statements are made a part hereof
F-4
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $121,604,461 $73,951,410 $61,629,435
COST OF GOODS SOLD 94,923,689 56,347,353 47,287,409
------------ ------------ ------------
GROSS PROFIT 26,680,772 17,604,057 14,342,026
------------ ------------ ------------
OPERATING EXPENSES:
Selling, shipping and warehouse 14,421,280 8,521,021 6,852,670
General and administrative 8,581,615 6,525,488 5,015,128
Interest and financing costs (net of
interest income of approximately
$173,000 in 1994, $198,500 in 1993
and $210,000 in 1992) 1,044,257 502,329 289,355
------------ ------------ ------------
Total operating expenses 24,047,152 15,548,838 12,157,153
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,633,620 2,055,219 2,184,873
PROVISION FOR INCOME TAXES (Note 6) 952,000 853,000 962,000
------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 1,681,620 1,202,219 1,222,873
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
FOR INCOME TAXES PRIOR TO 1994 (60,000) - -
------------ ------------ ------------
NET INCOME $ 1,621,620 $ 1,202,219 $ 1,222,873
------------ ------------ ------------
------------ ------------ ------------
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (Note 10) $.37 $.30 $.41
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
FOR INCOME TAXES PRIOR TO 1994 (.01) - -
---- ---- ----
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE $.36 $.30 $.41
---- ---- ----
---- ---- ----
NUMBER OF SHARES USED IN COMPUTING EARNINGS
PER COMMON AND COMMON EQUIVALENT SHARE
(Note 10) 4,896,518 4,734,746 3,481,415
--------- --------- ---------
--------- --------- ---------
DIVIDENDS PER COMMON SHARE NONE NONE NONE
--------- --------- ---------
--------- --------- ---------
</TABLE>
The notes to financial statements are made a part hereof
F-5
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,621,620 $1,202,219 $1,222,873
---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Expenses not requiring the use of cash:
Cumulative effect of accounting change 60,000 - -
Depreciation and amortization 952,109 666,589 390,357
Provision for losses on accounts receivable 268,551 321,526 87,245
Issuance of common stock as compensation - - 50,000
Deferred income taxes (96,000) (59,930) 112,000
Changes in assets and liabilities, net of
effect of asset acquisitions (Note 2):
Accounts receivable (1,055,450) (1,000,255) (4,252,199)
Inventory (2,506,516) (310,553) (2,511,330)
Prepaid expenses and other current assets (265,042) (75,031) 81,532
Other assets (15,604) 86,723 (10,959)
Prepaid and deferred income taxes - - 434
Accounts payable 8,441,961 (651,390) 2,016,939
Accrued expenses and sundry liabilities 255,913 (25,286) 123,174
Income taxes payable - (270,284) (47,716)
---------- ---------- ----------
6,039,922 (1,317,891) (3,960,523)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 7,661,542 (115,672) (2,737,650)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of warrants 126,409 3,831,104 -
Proceeds from public stock offering - - 3,298,002
Net borrowings (repayments) under revolving loan
agreements (3,224,695) (3,350,000) 1,001,000
Net proceeds from issuance of debentures - 2,725,000 -
Proceeds from long-term debt - - -
Repayments of long-term debt (380,085) (623,128) (289,870)
Exercise of employee stock options 125,503 107,975 68,454
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,352,868) 2,690,951 4,077,586
---------- ---------- ----------
</TABLE>
The notes to financial statements are made a part hereof
F-6
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
------------------------------------------
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for certain net assets of
businesses acquired $(2,718,009) $ (590,490) $ -
Capital expenditures (1,741,335) (440,878) (1,240,083)
Proceeds from sale and leaseback of
equipment - 425,736 -
Note receivable 1,000,000 (1,000,000) -
----------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (3,459,344) (1,605,632) (1,240,083)
----------- ---------- ----------
NET INCREASE IN CASH 849,330 969,647 99,853
CASH - beginning of year 2,484,015 1,514,368 1,414,515
----------- ---------- ----------
CASH - end of year $ 3,333,345 $2,484,015 $1,514,368
----------- ---------- ----------
----------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,217,000 $ 700,000 $ 500,000
----------- ---------- ----------
----------- ---------- ----------
Income taxes $ 1,214,000 $1,157,000 $ 898,000
----------- ---------- ----------
----------- ---------- ----------
ASSETS ACQUIRED FOR DEBT which are not
reflected in the above statement -
capital leases $ 202,658 $ 489,004 $1,017,713
----------- ---------- ----------
----------- ---------- ----------
NET ASSETS OF A BUSINESS ACQUIRED
FOR ISSUANCE OF COMMON STOCK which are
not reflected in the above statement $ - $ 590,490 $ -
----------- ---------- ----------
----------- ---------- ----------
BUSINESS ACQUIRED FOR ISSUANCE OF
LONG-TERM DEBT which is not
reflected in the above statement $14,217,981 $ - $ -
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The notes to financial statements are made a part hereof
F-7
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STOCK
$.03 PAR VALUE CAPITAL IN
--------------------- EXCESS OF RETAINED TREASURY
SHARES AMOUNT PAR VALUE EARNINGS STOCK
--------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
BALANCES AT NOVEMBER 30, 1991 1,794,185 $ 53,825 $2,383,652 $3,386,094 $ 1,164
Shares issued to officers
as compensation 25,000 750 49,250 - -
Shares issued for stock
options 23,844 715 67,739 - -
Shares issued through
public offering 920,930 27,628 3,270,374 - -
Net income - - - 1,222,873 -
--------- --------- ---------- ---------- -------
BALANCES AT NOVEMBER 30, 1992 2,763,959 82,918 5,771,015 4,608,967 1,164
Shares issued for stock
options 25,967 779 107,196 - -
Shares issued for exercise
of warrants 674,297 20,229 3,810,875 - -
Shares issued for purchase
of net assets (Note 2) 71,229 2,137 588,353 - -
Net income - - - 1,202,219 -
--------- --------- ---------- ---------- -------
BALANCES AT NOVEMBER 30, 1993 3,535,452 106,063 10,277,439 5,811,186 1,164
Shares issued for exercise
of warrants 29,057 872 125,537 - -
Shares issued for stock
options 30,900 927 124,576 - -
Net income - - - 1,621,620 -
--------- --------- ---------- ---------- -------
BALANCES AT NOVEMBER 30, 1994 3,595,409 $107,862 $10,527,552 $7,432,806 $ 1,164
--------- --------- ---------- ---------- -------
--------- --------- ---------- ---------- -------
</TABLE>
The notes to financial statements are made a part hereof
F-8
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONCENTRATION OF CREDIT RISK
Micro Bio-Medics, Inc. (the "Company") and its subsidiaries are
engaged in the distribution, at wholesale, of emergency medical service
products and the assembly and distribution of first-aid and medical kits and
school and athletic medical supplies. The Company distributes medical supplies
to physicians and hospitals in the New York metropolitan area, as well as to
health care professionals in sports medicine, industrial safety, and government
and laboratory markets nationwide. The foregoing operations are all considered
as one business segment. Historically, the Company has not experienced
significant losses related to receivables from any individual customers or
group of customers in any industry or geographic area.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries, which are all wholly-owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
CASH
The Company maintains various bank accounts and at times, balances may
be in excess of the FDIC insurance limit. At November 30, 1994 and 1993, the
amounts in excess of FDIC insurance limits were approximately $2,800,000 and
$2,000,000, respectively.
INVENTORY
Inventory is valued at the lower of cost (first-in, first-out method)
or market, and consists of finished goods.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are being depreciated primarily on the
straight-line basis over the estimated useful lives of the individual classes of
assets.
F-9
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES
Computer programming costs are being amortized over five years using
the straight-line method.
The excess of the purchase price paid over the net assets of
businesses acquired is being amortized over fifteen to forty years using the
straight-line method.
DEFERRED INCOME TAXES
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes,"
which requires the use of the liability method of accounting for income taxes.
The liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences between
the tax bases of assets and liabilities and their reported amounts in the
financial statements. The resulting deferred tax asset or liability is
adjusted to reflect changes in tax laws as they occur. The Company reported
the cumulative effect of the change in the method of accounting for income
taxes in the 1994 consolidated statement of income.
REVENUE RECOGNITION
The Company recognizes revenues when its products are shipped.
NOTE 2 - ACQUISITIONS
Prior to fiscal year ended November 30, 1992, the Company entered into
several acquisitions.
Effective March 29, 1993, the Company acquired Harrisburg Surgical
Supply, Inc., a distributor of physician and nursing home supplies. The
consideration paid consisted of a combination of approximately $600,000 in cash
and 71,229 shares of the Company's common stock for an aggregate purchase price
of $1,180,900. The purchase price was allocated based upon the fair market
value of the assets at the date of acquisition.
F-10
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 2 - ACQUISITIONS (CONTINUED)
On December 1, 1993, a subsidiary of the Company purchased certain net
assets and customer accounts of Clark Surgical Corp. ("Clark") subject to
certain specific liabilities and obligations under existing contracts and
leases. Clark is a major distributor of physician, hospital and veterinary
supplies in the New York Metropolitan area and Southern Florida. In September
1993, Clark borrowed $1,000,000 from the Company in connection with an asset
purchase agreement which was represented by an interest bearing collateralized
note, and personally guaranteed by the two stockholders of Clark. This note was
paid in full on December 1, 1993, including interest at the rate of 1% over
prime. The purchase price as adjusted was approximately $16,500,000 consisting
of inventory of approximately $5,000,000, accounts receivable of approximately
$10,200,000, property and equipment of approximately $300,000 and goodwill of
$1,000,000. The Company borrowed approximately $14,200,000 under its existing
bank line of credit to finance this acquisition and made payments during the
year of approximately $1,000,000. The remaining $930,000 is being held in
reserve pending final adjustments to be made in December 1995.
In addition, the agreement provides that the Company will pay the two
former stockholders of Clark an aggregate of $3,125,000 in cash, payable over a
seven year period ending December 31, 2000 for their agreement not to compete
for a period of twenty years. These two shareholders also entered into
employment agreements with the Company for a term of one year on mutually
acceptable terms. As part of the acquisition of Clark's assets, which is
included above, the Company issued 40,000 warrants at an exercise price of $8.00
to these two stockholders of which 20% are exercisable immediately and the
remainder are contingent upon certain conditions being met. Effective November
29, 1994, these warrants have been cancelled.
Effective June 1, 1994, the Company acquired certain assets and
customer accounts of Joseph Weintraub, Inc., a distributor of physician and
hospital supplies for approximately $1,100,000. The purchase price was
allocated based upon the fair market value of the assets at the date of
acquisition.
F-11
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Cost
-----------------------
November 30,
----------------------- Estimated
1994 1993 Useful Life
---------- ---------- -----------
(Years)
<S> <C> <C> <C>
Furniture, fixtures and
equipment (*) $5,015,883 $4,220,318 5 - 7
Transportation equipment 72,026 21,393 5
Leasehold improvements 1,217,701 979,242 Life of lease
---------- ----------
6,305,610 5,220,953
Less: Accumulated depreciation
and amortization 2,852,003 2,134,646
---------- ----------
$3,453,607 $3,086,307
---------- ----------
---------- ----------
</TABLE>
(*) Equipment held under capital leases as of November 30, 1994 and 1993
amounted to approximately $2,249,000 and $2,046,000, respectively.
Depreciation expense amounted to approximately $717,000, $584,000 and
$328,000 for the years ended November 30, 1994, 1993 and 1992, respectively.
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
November 30,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Excess cost of acquisitions over net tangible
assets acquired $3,743,840 $1,592,554
Agreement not to compete 467,857 -
Deferred computer programming costs 351,045 322,337
---------- ----------
4,562,742 1,914,891
Less: Accumulated amortization 769,088 534,337
---------- ----------
$3,793,654 $1,380,554
---------- ----------
---------- ----------
</TABLE>
Amortization expense amounted to approximately $235,000, $82,000 and
$62,000 for the years ended November 30, 1994, 1993 and 1992, respectively.
F-12
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
November 30,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
Capitalized leases (collateralized by equipment
with an aggregate cost of approximately
$2,249,000 and $2,046,000) payable in various
installments through fiscal 2001; interest
at 7.5% to 12.4% or varies with changes in
prime rate (*) $ 1,788,511 $1,947,318
Bank loans (i) 14,650,000 5,000,000
7% convertible subordinated debentures,
due October 30, 2003 (ii) 3,000,000 3,000,000
Obligation related to acquisition (Note 2):
Joseph Weintraub, Inc. - $26,343 payable
quarterly to June 1999; interest at 7% 380,698 -
----------- -----------
19,819,209 9,947,318
437,970 362,631
----------- -----------
Less: Current maturities $19,381,239 $9,584,687
----------- -----------
----------- -----------
</TABLE>
(*) Includes equipment loans payable of approximately $69,000 and $159,000 as
of November 30, 1994 and 1993, respectively.
The non-current portion of long-term debt at November 30, 1995
is payable as follows:
<TABLE>
<CAPTION>
Years Ending November 30,
-------------------------
<S> <C>
1996 $15,123,573
1997 472,152
1998 310,235
1999 253,521
2000 191,559
Subsequent 3,030,199
-----------
$19,381,239
-----------
-----------
</TABLE>
(i) On November 19, 1993, the Company refinanced its $12,500,000 revolving loan
agreement with Chase Manhattan Bank, N.A. and entered into a revolving loan
agreement with Chase Manhattan Bank, N.A. to act as agent of and as a
participant in a $25,000,000 secured credit facility. Fleet Bank of New
York also acted as a participant in the loan agreement. Chase's and
Fleet's commitment under the loan agreement
F-13
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 5 - LONG-TERM DEBT (CONTINUED)
is limited to $15,000,000 and $10,000,000, respectively. The loan
agreement expires on November 18, 1996. The loan bears interest at the
bank's prime rate plus 1/4%, except for Eurodollar loans. As of November
30, 1994, $12,750,000 of the $14,650,000 revolving loan outstanding was
utilized for Eurodollar loans at an average interest rate of 7%. The debt
is collateralized by accounts receivable and inventory. In connection with
the loan agreement, the Company has agreed to certain restrictions relating
to its indebtedness and liens, and has agreed to maintain specified
financial ratios and covenants. The loan agreement prohibits the Company
from paying any dividends and restricts capital distributions or
redemptions and purchases or retirements of any of the Company's capital
stock. There are also restrictions as to investments, acquisitions,
capital expenditures and payments to related parties. A commitment fee
equal to 1/8% per annum will be charged on the unused portion of the loan.
The loan may be repaid at any time.
(ii) In November 1993, the Company completed the private sale and issuance of
its 7% convertible subordinated Debentures due October 30, 2003 (the
"Debentures"). Net proceeds from the issuance of the Debentures with a
face value of $3,000,000 was approximately $2,700,000. The offering fees
are being amortized over a life of ten years.
The Debentures are immediately convertible into shares of common stock at
the rate of $8.00 per share until October 28, 2003, subject to adjustment
under certain circumstances. Interest is payable semi-annually on the 30th
day of April and October commencing April 30, 1994. Commencing in November
1995, the Debentures are redeemable at the option of the Company, in whole
and not in part, at the redemption prices set forth below, provided that
the Company is current in filing all required reports pursuant to Federal
Securities Laws. The Debentures are subordinated to all existing and
future indebtedness of the Company for money borrowed from institutional
lenders.
The redemption prices of the Debentures for redemption at the option of the
Company (expressed in percentages of principal amount) are as follows for
the indicated twelve month periods commencing two years from the closing
date: year three - 105%, year four - 104%, year five - 103%, year six -
102%, year seven - 101%, and thereafter at 100% until the maturity date of
the Debentures.
F-14
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 6 - INCOME TAXES
Provision for income taxes comprises the following:
<TABLE>
<CAPTION>
Years Ended November 30,
--------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Currently payable:
Federal $745,000 $654,000 $613,000
State and local 303,000 259,000 237,000
Deferred:
Federal (77,000) (36,000) 68,000
State and local (19,000) (24,000) 44,000
-------- -------- --------
$952,000 $853,000 $962,000
-------- -------- --------
-------- -------- --------
</TABLE>
The difference between the statutory United States federal income tax
rate and the effective income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended November 30,
------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0 34.0 34.0
Current year state and local taxes
(net of federal tax effect) 7.0 7.6 7.9
Other (4.9) (.1) 2.1
---- ---- ----
36.1% 41.5% 44.0%
---- ---- ----
---- ---- ----
</TABLE>
The net current and non-current components of deferred income taxes
recognized in the balance sheet at November 30, 1994 are as follows:
<TABLE>
<S> <C>
Net current assets $518,362
Net non-current liabilities 302,000
--------
Net asset $216,362
--------
--------
</TABLE>
F-15
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 6 - INCOME TAXES (CONTINUED)
The components of the net deferred tax asset as of November 30, 1994
are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable allowances $269,362
Inventory - uniform capitalization 232,000
Other 17,000
--------
518,362
Deferred tax liability:
Depreciation and amortization 302,000
--------
Net deferred tax asset $216,362
--------
--------
</TABLE>
NOTE 7 - ACCRUED EXPENSES
Accrued expenses and sundry liabilities consist of:
<TABLE>
<CAPTION>
November 30,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Compensation $ 816,875 $ 537,941
Freight-out 128,500 -
Interest 97,366 -
Underwriter fees - warrants - 200,000
Consolidation of facilities 7,336 127,535
Commissions 86,083 79,481
Insurance 31,069 48,121
Other 414,112 332,350
---------- ----------
$1,581,341 $1,325,428
---------- ----------
---------- ----------
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
RETIREMENT PLAN
The Company's 401(k) deferred retirement plan provides for matching
contributions by the Company equal to 20% of the amount of the participants'
contributions that are not in excess of 5% of compensation. For the years ended
November 30, 1994, 1993 and 1992, the Company's matching contributions were
approximately $30,000, $25,000 and $25,000, respectively.
In December 1990, the Financial Accounting Standards Board issued
Statement No. 106, "Employers' Accounting for Post Retirement Benefits Other
Than Pensions," which will require accrual accounting for
F-16
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
RETIREMENT PLAN (Continued)
post retirement health care and life benefits. In November 1992, the Financial
Accounting Standards Board issued Statement No. 112, "Employers' Accounting for
Post-Employment Benefits," which requires accrual accounting for post-employment
benefit obligations other than pensions or benefits covered by SFAS No. 106.
These standards were implemented effective December 1, 1993 and such adoption
had no impact on the Company's consolidated financial statements.
EMPLOYMENT/CONSULTING CONTRACTS
The Company entered into an employment agreement with its Chief
Executive Officer and a consulting agreement with a director, terminating on
February 11, 1998 and December 31, 1995, respectively. The current aggregate
annual compensation under these contracts is approximately $310,000. The Chief
Executive Officer's contract provides for annual increments of $5,000 and, if
terminated prior to expiration, payments equal to the greater of $2,000,000 or
the sum of five years' salary, based upon the rate of compensation then in
effect, plus five times the last annual bonus received.
For the years ended November 30, 1994, 1993 and 1992, bonuses of
$199,000, $155,000 and $219,000, respectively, were paid under the employment
contract.
SELF-INSURANCE
The Company acts as a self-insurer for its employees' health insurance
up to a maximum of $15,000 per covered individual. The Company is liable for a
maximum of $260,000 for the year based upon the number of employees covered.
Claims, including estimates for charges incurred but not reported, are charged
to operations during the year in which they occur. As of November 30, 1994,
1993 and 1992, the liability for self-insurance amounted to $75,000, $112,000
and $82,000, respectively.
F-17
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES
The approximate aggregate minimum annual rental commitments under
long-term operating leases in effect at November 30, 1994 are as follows:
<TABLE>
<CAPTION>
Year Ending Office, Warehouse Transportation
November 30, and Sales Equipment Total
------------ ----------------- -------------- -----------
<S> <C> <C> <C>
1995 $ 1,102,000 $ 94,000 $ 1,196,000
1996 986,000 77,000 1,063,000
1997 870,000 69,000 939,000
1998 823,000 42,000 865,000
1999 757,000 34,000 791,000
Thereafter 6,098,000 31,000 6,129,000
----------- -------- -----------
$10,636,000 $347,000 $10,983,000
----------- -------- -----------
----------- -------- -----------
</TABLE>
Certain leases contain escalation clauses which increase the rents for
various operating expenses and fluctuations in property taxes.
Rent expense comprises the following:
<TABLE>
<CAPTION>
Years Ended November 30,
----------------------------------
1994 1993 1992
---------- ---------- --------
<S> <C> <C> <C>
Office, warehouse and sales $1,392,046 $1,019,534 $678,130
Transportation equipment 85,555 102,241 125,165
---------- ---------- --------
$1,477,601 $1,121,775 $803,295
---------- ---------- --------
---------- ---------- --------
</TABLE>
The Company leases certain equipment under capital leases. The
following is a schedule by years of approximate future minimum lease payments
under the capitalized leases together with the present value of the net
minimum lease payments at November 30, 1994.
<TABLE>
<CAPTION>
Year ending November 30:
------------------------
<S> <C>
1995 $ 445,000
1996 445,000
1997 445,000
1998 254,000
1999 243,000
Subsequent 231,000
----------
Total minimum lease payments 2,063,000
Less: Amount representing interest at 6.5% to 9% 344,000
----------
$1,719,000
----------
----------
</TABLE>
F-18
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES (CONTINUED)
In December 1992, the Company entered into a sales and
leaseback agreement with regard to its computer equipment. The transaction
has been recorded as a sale of approximately $761,000 with approximately
$336,000 of the cash proceeds used to repay borrowings on this equipment and
approximately $425,000 used for working capital purposes. The Company
recorded a gain of approximately $15,000 which will be amortized over the
life of the capital lease of five years. The future minimum lease payments
are included above.
TAX CONTINGENCIES
The Internal Revenue Service has completed an examination of the
Company's consolidated federal income tax returns for the years ended
November 30, 1990, 1991 and 1992 which resulted in a tax assessment of no
significant effect.
ISSUANCES
On January 23, 1992, the board of directors approved the issuance
of 25,000 shares of common stock to an officer of the corporation at $2.00 a
share as additional compensation.
On July 29, 1992, the Company completed a public offering of
non-transferrable Rights to purchase 460,465 Units at $9.00 per Unit. Each
Unit consisted of two shares of the Company's common stock and three
redeemable Common Stock Purchase Warrants which are exercisable at $8.00 per
share at any time until June 18, 1995. The Company received net proceeds of
$3,298,002 from this offering.
STOCK REPURCHASE AGREEMENT
In January 1984, the Company's board of directors granted certain
employees the right to purchase 56,333 shares of common stock at the
Company's purchase price. Each employee will be permitted to borrow from the
Company an amount equal to the purchase price pursuant to a five year
promissory note bearing interest at the rate of 9% per annum, with interest
due and payable annually. As security for such loans, the shares of the
borrowing employee will be endorsed and deposited with the Company. In the
event an employee leaves the Company, the Company may repurchase such shares
at the purchase price in amounts up to 100% of the stock if prior to the
third anniversary; 40% if prior to the fourth anniversary; and 20% if prior
to the fifth anniversary of the note.
F-19
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 9 - STOCK ISSUANCES, REPURCHASES, OPTIONS AND WARRANTS (CONTINUED)
OPTIONS
1982 PLAN
Pursuant to an incentive stock option plan adopted in February
1982, 166,667 shares of the Company's common stock have been reserved for
options to be granted to officers and employees of the Company. The option
price may not be less than the fair market value of the common stock at the
time the options are granted. No options may be granted which are exercisable
for a period in excess of ten years.
Option transactions are as follows:
<TABLE>
<CAPTION>
Years Ended November 30,
-----------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning of year
(exercisable at a price range
of $2.25 to $4.00 a share) 127,000 147,933 108,517
Add (deduct):
Granted -- -- 57,500
Terminated (3,000) (5,600) (2,916)
Exercised (12,666) (15,333) (15,168)
-------- -------- --------
Outstanding at end of year
(exercisable at a price range
of $2.25 to $4.00 a share) 111,334 127,000 147,933
------- ------- -------
------- ------- -------
Remaining shares reserved for
issuance 123,000 135,666 150,999
------- ------- -------
------- ------- -------
</TABLE>
NON-STATUTORY STOCK OPTIONS
On October 7, 1987, the Company's board of directors granted
non-qualified stock options to certain members of the board of directors to
purchase 72,000 shares of the Company's common stock at prices ranging from
$3.00 to $3.38 per share.
F-20
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 9 - STOCK ISSUANCES, REPURCHASES, OPTIONS AND WARRANTS (CONTINUED)
OPTIONS (Continued)
Option transactions are as follows:
<TABLE>
<CAPTION>
Years Ended November 30,
-----------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning of year
(exercisable at a price range
of $3.00 to $3.38 a share) 64,367 66,667 72,000
Deduct:
Exercised (3,333) (2,300) (5,333)
-------- -------- --------
Outstanding at end of year
(exercisable at a price range
of $3.00 to $3.38 a share) 61,034 64,367 66,667
------- ------- -------
------- ------- -------
Remaining shares reserved for
issuance -- -- --
------- ------- -------
------- ------- -------
</TABLE>
1989 PLAN
In April 1989, the board of directors of the Company adopted a
non-qualified stock option plan in order to attract and retain qualified
employees, officers and directors. Under the plan, options to purchase a
maximum of 416,666 shares of common stock at a price not less than fair
market value at the date of grant may be granted to April 1999. If any
options granted under the plan expire or terminate for any reason without
having been exercised in full, the unpurchased shares shall become available
for further options pursuant to the plan.
Option transactions are as follows:
<TABLE>
<CAPTION>
Years Ended November 30,
-----------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning of year
(exercisable at a price range
of $2.25 to $4.00 a share) 408,900 413,233 53,566
Add (deduct):
Granted -- -- 363,000
Exercised (4,000) (4,333) (3,333)
-------- -------- --------
Outstanding at end of year
(exercisable at a price range
of $2.25 to $4.00 a share) 404,900 408,900 413,233
------- ------- -------
------- ------- -------
Remaining shares reserved for
issuance 404,900 408,900 413,233
------- ------- -------
------- ------- -------
</TABLE>
F-21
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 9 - STOCK ISSUANCES, REPURCHASES, OPTIONS AND WARRANTS (CONTINUED)
OPTIONS (Continued)
1992 PLAN
In January 1992, the board of directors adopted an incentive and
non-statutory stock option plan. Under this plan, 850,000 of the Company's
authorized but unissued shares of common stock are reserved for issuance. The
board of directors granted options to purchase 399,000 shares of the
Company's common stock at an exercise price of $4.00 per share (stock options
covering 30,000 shares were granted to employees pursuant to a five-year
vesting schedule and the balance of options covering 369,000 shares were
granted to officers and directors which became exercisable on August 1,
1992).
Incentive stock option transactions are as follows:
<TABLE>
<CAPTION>
Years Ended November 30,
-----------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning of year
(exercisable at a price range
of $4.00 to $7.50 a share) 244,500 133,000 --
Add (deduct):
Granted 80,500 125,500 133,000
Terminated (19,000) (10,000) --
Exercised (10,900) (4,000) --
-------- ------- -------
Outstanding at end of year
(exercisable at a price range
of $4.00 to $10.25 a share) 295,100 244,500 133,000
------- ------- -------
------- ------- -------
</TABLE>
Non-statutory stock option transactions are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Outstanding at beginning of year
(exercisable at a price range
of $4.00 to $7.50 a share) 400,000 342,000 --
Add:
Granted 100,000 58,000 342,000
------- ------- -------
Outstanding at end of year
(exercisable at a price range
of $4.00 to $10.00 a share) 500,000 400,000 342,000
------- ------- -------
------- ------- -------
</TABLE>
F-22
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 9 - STOCK ISSUANCES, REPURCHASES, OPTIONS AND WARRANTS (CONTINUED)
WARRANTS
In August 1993, the Company permanently reduced the exercise price
of its 1,381,395 outstanding Series 1 Warrants as referred to above to $6.00
per share from $8.00 per share.
Subsequent to the lowering of the exercise price, 703,354 Series 1
Warrants were exercised. The net proceeds from the exercise of these
warrants were approximately $3,900,000.
NOTE 10 - EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
EQUIVALENT SHARE
Earnings per common and common equivalent share are based on the
weighted average number of common shares and common equivalent shares
outstanding during the period. The modified treasury stock method was
utilized to calculate the dilutive effect of the options and warrants upon
the earnings per share data. Fully diluted earnings per common and common
equivalent share were the same as for the primary calculation.
F-23
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ---------- ---------- ---------
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END OF
OF YEAR OPERATIONS DEDUCTIONS(*) YEAR
---------- ---------- ---------- ---------
Description
-----------
<S> <C> <C> <C> <C>
Allowance for Doubtful
Accounts
Year ended November 30,
1992 $212,755 $101,040 $ 13,795 $300,000
Year ended November 30,
1993 300,000 321,526 21,526 600,000
Year ended November 30,
1994 600,000 268,551 218,551 650,000
</TABLE>
(*) Deductions represent accounts written off, net of recoveries of accounts
written off in prior years.
F-24
<PAGE>
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE:
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
- ---------------------------
Earnings
- --------
Income before cumulative effect of
accounting change $1,681,620 $1,202,219 $1,222,873
Modified Treasury Stock Method
- ------------------------------
Incremental income after the
application of assumed proceeds
toward repurchase of 20% of the
outstanding common shares at the
average market price, the reduction
of debt and the balance of funds
invested in US government securities,
net of applicable income taxes 146,222 223,048 206,849
---------- ---------- ----------
Adjusted earnings $1,827,842 $1,425,267 $1,429,722
---------- ---------- ----------
---------- ---------- ----------
Shares
- ------
Weighted average number of common
shares outstanding 3,551,732 2,995,536 2,179,576
Additional shares assuming conversion of:
Stock options and warrants utilizing
the modified treasury stock method 1,344,786 1,739,210 1,301,839
---------- ---------- ----------
Number of common and common
equivalent shares 4,896,518 4,734,746 3,481,415
---------- ---------- ----------
---------- ---------- ----------
Earnings per common and common
equivalent share before cumulative
effect of accounting change $.37 $.30 $.41
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Fully diluted earnings per common and common equivalent share were the same.
F-25
<PAGE>
Board of Directors
Stone Medical Supply Corporation
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Stone Medical Supply
Corporation as at December 31, 1994 and 1993 and the related statements of
operations and retained earnings and cash flows for each of the three years in
the period ended December 31, 1994. 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 aforementioned financial statements present fairly, in
all material respects, the financial position of Stone Medical Supply
Corporation as at December 31, 1994 and 1993 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1994 in conformity with generally accepted accounting principles.
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
April 13, 1995
New York, New York
F-26
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
BALANCE SHEET
AS AT DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 301,157 $ 166,845
Accounts receivable 1,890,496 2,134,389
Merchandise inventory 953,130 1,159,887
Prepaid expenses and sundry receivables 112,782 86,351
---------- ----------
Total Current Assets 3,257,565 3,547,472
Property, plant and equipment, net 603,202 514,001
---------- ----------
TOTAL ASSETS $3,860,767 $4,061,473
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - bank $ 850,000 $ 840,000
Accounts payable 1,071,107 1,488,501
Long-term debt - current portion 55,391 21,541
Accrued expenses and sundry liabilities 246,795 179,840
---------- ----------
Total Current Liabilities 2,223,293 2,529,882
Deferred income taxes 18,000 26,000
Long-term debt - net of current
portion 324,454 181,843
---------- ----------
TOTAL LIABILITIES 2,565,747 2,737,725
---------- ----------
Stockholders' Equity:
Common stock, par value $.01,
authorized 10,000,000 shares, issued
and outstanding 3,391,500 shares 33,915 33,915
Paid in capital 625,693 625,693
Retained earnings 635,412 664,140
---------- ----------
Total Stockholders' Equity 1,295,020 1,323,748
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,860,767 $4,061,473
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Sales:
Regular $ 8,899,782 $8,630,971 $7,988,760
Government 1,280,931 1,290,975 1,062,465
----------- ---------- ----------
Total Sales 10,180,713 9,921,946 9,051,225
Cost of Sales 7,315,884 7,167,408 6,531,054
----------- ---------- ----------
Gross profit on sales 2,864,829 2,754,538 2,520,171
Commission income 15,925 19,079 30,836
Interest income 11,890 14,488 22,517
----------- ---------- ----------
Gross profit from operations 2,892,644 2,788,105 2,573,524
----------- ---------- ----------
Selling, general and
administrative expenses 2,790,447 2,536,842 2,347,720
Interest expense 93,590 72,124 59,655
Loss on disposal of assets 11,324
Provision for loss on
contract 34,011
----------- ---------- ----------
2,929,372 2,608,966 2,407,375
----------- ---------- ----------
Income (loss) before
taxes on income (36,728) 120,833 114,680
Provision (credit) for
income taxes (8,000) 39,300 40,200
----------- ---------- ----------
Net income (loss) (28,728) 81,533 74,480
Retained earnings -
beginning 664,040 582,607 508,127
----------- ---------- ----------
RETAINED EARNINGS - ENDING $ 635,412 $ 664,140 $ 582,607
----------- ---------- ----------
----------- ---------- ----------
Earnings (loss) per share $ (.01) $ .02 $ .02
Weighted average shares
outstanding 3,391,500 3,361,747 3,331,500
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income (loss) $ (28,728) $ 81,533 $ 74,480
Adjustments to reconcile
net income (loss) to net
cash provided (used) by
operating activities:
Depreciation 66,218 58,306 51,469
Basis of assets disposed of 20,048
Deferred income taxes (8,000) 300 3,200
Changes in assets and
liabilities:
Accounts receivable 243,893 (578,781) (240,078)
Inventory 206,757 (154,230) 155,141
Prepaid expenses and sundry
receivables (26,431) (3,594) (68,052)
Accounts payable (417,394) 393,072 196,857
Accrued expenses and
sundry liabilities 66,955 42,134 2,372
--------- --------- ---------
Net Cash Provided (Used)
by Operating Activities 123,318 (161,260) 175,389
--------- --------- ---------
Investing Activities:
Acquisition of property and
equipment (175,467) (56,998) (23,389)
--------- --------- ---------
Financing Activities:
Increase in bank note 10,000 215,000
Increase (repayment) -
long-term debt 176,461 (20,971) (46,177)
Sale of capital stock 600
--------- --------- ---------
Net Cash Provided (Used)
by Financing Activities 186,461 194,629 (46,177)
--------- --------- ---------
Net increase (decrease)
in cash 134,312 (23,629) 105,823
Cash - beginning 166,845 190,474 84,651
--------- --------- ---------
CASH - ENDING $ 301,157 $ 166,845 $ 190,474
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid $ 86,748 $ 68,351 $ 59,482
Income taxes paid 35,357 42,196 53,592
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE 1 - ORGANIZATION
Stone Medical Supply Corporation (the "Company") is a New York
corporation organized on June 1, 1964. The Company distributes
medical supplies and equipment to physicians and medical clinics.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
DEPRECIATION
Property and equipment are stated at cost less accumulated
depreciation, computed on the straight-line method over the estimated
useful lives of the related assets.
Furniture, fixtures and
equipment 5 - 10 years
Building 40 years
Improvements 10 - 40 years
Transportation equipment 5 years
Computers 5 - 12 years
INVENTORY
Merchandise inventory consists of finished goods and is stated at the
lower of cost or market determined on the first-in, first-out basis.
INCOME TAXES
Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" was implemented in 1993. There is no significant effect
on the financial statements as a result of such implementation.
Deferred income taxes result from timing differences in methods of
recording certain revenue and expenses (principally depreciation) for
financial and for income tax purposes.
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average
number of common shares outstanding during the year.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as at December 31, 1994 and 1993 consist
of the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Land $ 93,552 $ 93,552
Building and improvements 334,963 322,720
Furniture and fixtures 100,093 100,093
Transportation equipment 77,814 98,867
Computer and other equipment 302,510 168,783
-------- --------
908,932 784,015
Less: accumulated depreciation 305,730 270,014
-------- --------
TOTAL $603,202 $514,001
-------- --------
-------- --------
</TABLE>
F-30
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Mortgage for corporate offices
and warehouse. Monthly principal
payments of $730 plus interest at
a variable rate which is presently
8% per annum. Final payment due
June 2004. The mortgage is
personally guaranteed by the
president of the Company. $ 83,750 $ 92,510
Second mortgage for corporate
offices and warehouse. Monthly
payments of $1,192 including
principal and interest with a
final payment of $57,473 due
April 1, 2000. Interest rate
of 8.25%. The mortgage is
personally guaranteed by the
president of the Company. 98,796 104,036
Equipment loan for computer
system. Monthly payments of
$3,165 including principal
and interest. The interest
rate is 9.70% and is payable
over 60 months. Final payment
due September 15, 1999. 143,601
Loan for telephone system.
Monthly payments of $591
including principal and
interest. The interest rate
is 9.75% and is payable
over 60 months. Final payment
due April 25, 1999. 25,004
Notes payable - other 28,694 6,838
-------- --------
379,845 203,384
Less: current portion 55,391 21,541
-------- --------
TOTAL LONG-TERM DEBT $324,454 $181,843
-------- --------
-------- --------
</TABLE>
The telephone system and computer equipment with a book value of
$165,738 at December 31, 1994 secure the related debt.
The land and building with a book value of $346,500 at December 31,
1994 are pledged as collateral for the above mortgages.
Debt maturities for the subsequent five years and thereafter are 1995
- $55,391, 1996 - $57,851, 1997 - $59,396, 1998 - $57,141, 1999 -
$46,705 and thereafter $103,361.
The Company borrowed $150,000 for the purpose of purchasing a computer
system. As of December 31, 1994, approximately $36,000 of these funds
had not been remitted to the computer vendor.
F-31
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE 5 - INCOME TAXES
This table shows the principal reasons for the difference between the
effective income tax rate and the Federal statutory income tax rate:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal income tax at
statutory rates $(8,600) $30,400 $28,000
State and local income
taxes, net of federal
income tax effect 9,200 9,800
Other differences - net 600 (300) 2,400
------- ------- -------
Provision for income
taxes $(8,000) $39,300 $40,200
------- ------- -------
------- ------- -------
Effective income tax
rate 21.8% 32.5% 35.1%
</TABLE>
Provision for income taxes is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current $ $39,000 $37,000
Deferred (8,000) 300 3,200
------- ------- -------
$(8,000) $39,300 $40,200
------- ------- -------
------- ------- -------
</TABLE>
NOTE 6 - NOTES PAYABLE - BANK
The Company has a line of credit with a bank of $1,450,000 which
expires May 31, 1995. Advances under the line at December 31, 1994
were $850,000. Substantially all of the assets of the Company are
pledged under the line. Repayment of the loan is personally
guaranteed by both the President and Treasurer of the Company. The
loan agreement requires that the Company comply with certain financial
covenants. The maximum amount of short-term bank borrowings
outstanding at any month-end was $1,010,000 in 1994 and $840,000 in
1993, and averaged $903,000 and $768,000, respectively. The weighted
average interest rate was 7.8% and 7% for 1994 and 1993, respectively.
At December 31, 1994 the Company had unused lines of credit
aggregating approximately $600,000.
The agreement provides that the loan shall bear interest at either 1%
over the prime rate or 2% over the bank's 180 day Banker's Acceptance
rate. This election is to be made by the Company annually. Presently
the Company has elected the rate equal to 2% above the Banker's
Acceptance rate.
F-32
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993, AND 1992
NOTE 7 - STOCK OPTIONS
In 1983 the Company adopted an incentive stock option plan for
granting stock options to employees to purchase common stock at a
price equal to its fair market value at the date of grant. Under the
plan up to 100,000 options can be granted within ten years from
adoption of the plan. Options granted under the plan can be exercised
at any time within ten years from the date of grant. At December 31,
1994 there are no outstanding options under this plan. In 1993 the
Company granted options under an informal plan to a key sales person
to purchase 60,000 shares of common stock at $.01 per share. These
options were exercised during the year ended December 31, 1993.
NOTE 8 - ACCRUED EXPENSES AND SUNDRY LIABILITIES
Accrued expenses and sundry liabilities consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1994 1993
---- ----
<S> <C> <C>
Accrued payroll $ 91,835 $ 23,428
Sales taxes 44,167 50,399
Payroll taxes 2,547 4,530
Other 108,246 101,483
-------- --------
$246,795 $179,840
-------- --------
-------- --------
</TABLE>
NOTE 9 - LOSS ON CONTRACT
Included in accounts receivable is a receivable from the City of New
York in the amount of $80,800 representing the purchase by the City of
certain renaissance series sterilizers. The City of New York has
rejected the contract after delivery alleging that the equipment did
not meet the specifications of the contract. The Company protested
the rejection of the equipment in accordance with the terms of the
contract and the City defaulted in its response to the Company's
objections. As a result, the Company has appealed to the
Comptroller's office of the City of New York with respect to this
claim. The Company believes that the equipment does in fact meet the
specifications of the contract. The Company is indebted to the vendor
of the equipment in the amount of $66,789, which has not been paid and
the vendor has not been pressing for payment pending the outcome of
the Company's appeal of the City's rejection of the contract. The
Company has made a provision for an estimated loss on this contract in
the amount of $34,011.
F-33
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
BALANCE SHEETS
ASSETS
------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1995 1994
---------- ----------
<S> <C> <C>
Current Assets:
Cash $ 80,789 $ 301,157
Accounts receivable (Net of allowance for
bad debts of $75,011) 2,349,238 1,890,496
Merchandise inventory 1,378,520 953,130
Prepaid expenses 80,298 112,782
---------- ----------
Total Current Assets 3,888,845 3,257,565
Property, plant and equipment,
net of depreciation 670,707 603,202
---------- ----------
TOTAL ASSETS $4,559,552 $3,860,767
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loan payable - bank $1,250,000 $ 850,000
Accounts payable 1,314,425 1,071,107
Long-term debt - current portion 75,274 55,391
Accrued expenses and sundry liabilities 250,818 246,795
---------- ----------
Total Current Liabilities 2,890,517 2,223,293
Deferred income taxes 18,000 18,000
Long-term debt - net of current portion 351,725 324,454
---------- ----------
TOTAL LIABILITIES 3,260,242 2,565,747
---------- ----------
Stockholders' Equity
Common stock, par value $.01, authorized
10,000,000 shares, issued and
outstanding 3,391,500 shares 33,915 33,915
Paid in capital 625,693 625,693
Retained earnings 639,702 635,412
---------- ----------
Total Stockholders' Equity 1,299,310 1,295,020
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $4,559,552 $3,860,767
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
S-1
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Operating Activities
(Net loss) or gain $ 4,290 $( 57,465)
Adjustments to reconcile net income/
(loss) to net cash used by
operating activities:
Depreciation 105,059 52,000
Changes in assets and liabilities:
Accounts receivable (458,742) 114,013
Inventory (425,390) (83,635)
Prepaid expenses 32,484 (16,281)
Accounts payable 243,318 (133,931)
Accrued expenses and sundry
liabilities 4,023 (76,395)
---------- ----------
Net Cash Used by
Operating Activities (494,958) (201,694)
---------- ----------
Investing Activities:
Acquisition of property and equipment (172,564) (150,150)
---------- ----------
Financing Activities:
Increase in bank note 400,000 170,000
Increase in long-term debt 105,439 188,900
Repayments of long-term debt (58,285) (16,869)
---------- ----------
Net Cash Provided by
Financing Activities 447,154 342,031
---------- ----------
Net decrease in cash (220,368) (9,813)
Cash - beginning 301,157 166,845
---------- ----------
CASH - ENDING $ 80,789 $ 157,032
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid 89,746 30,386
Income taxes paid - 7,495
</TABLE>
See accompanying notes to financial statements.
S-2
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE AND NINE MONTHS ENDED SEPT. 30,
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30 Ended Sept. 30
------------------- --------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales
Regular $2,595,006 $2,275,642 $8,128,917 $6,338,950
Government 290,995 315,817 982,930 836,298
---------- ---------- ---------- ----------
Total Sales 2,886,001 2,591,459 9,111,847 7,175,248
Cost of Sales 2,081,360 1,875,446 6,570,253 5,169,846
---------- ---------- ---------- ----------
Gross profit on sales 804,641 716,013 2,541,594 2,005,402
Commission income 1,035 1,679 7,895 14,648
Interest income 11,925 1,140 23,927 11,870
---------- ---------- ---------- ----------
Gross profit from
operations 817,601 718,832 2,573,416 2,031,920
---------- ---------- ---------- ----------
Selling, general and
administrative
expenses 790,326 686,403 2,450,673 2,046,334
Interest expense 37,763 24,564 89,746 67,051
Write-off of fixed
assets -- -- 27,707 --
---------- ---------- ---------- ----------
828,089 710,967 2,568,126 2,113,385
Income (loss) before
taxes on income (10,488) 7,865 5,290 (81,465)
Provision (credit)
for income taxes (5,000) 3,000 1,000 (24,000)
---------- ---------- ---------- ----------
Net income (loss) (5,488) 4,865 4,290 (57,465)
Retained earnings -
beginning 645,190 601,810 635,412 664,140
---------- ---------- ---------- ----------
RETAINED EARNINGS -
ENDING $ 639,702 $ 606,675 $ 639,702 $ 606,675
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Loss per share $ -- $ -- $ -- $ (.02)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average
shares outstanding 3,391,500 3,391,500 3,391,500 3,391,500
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
S-3
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Stone Medical Supply Corporation (the "Company") is a New York
corporation organized on June 1, 1964. The Company distributes medical
supplies and equipment to physicians and medical clinics.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial information should be read in conjunction
with the financial statements, including the notes thereto, for the
year ended December 31, 1994.
The information furnished in this report reflects all adjustments
(consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the
results for the interim periods.
DEPRECIATION
Property and equipment are stated at cost less accumulated
depreciation, computed on the straight-line method over the estimated
useful lives of the related assets.
Furniture, fixtures and equipment 5-10 years
Building 40 years
Improvements 10-40 years
Transportation equipment 5 years
Computers 7-12 years
MERCHANDISE INVENTORY
Merchandise inventory for interim reporting purposes is computed as a
result of the utilization of the gross profit method. This
calculation includes a provision for obsolete inventory which as of
September 30, 1995 was $23,000.
LOSS PER SHARE
Loss per share is calculated on the basis of the weighted average
number of common shares outstanding during the period.
S-4
<PAGE>
STONE MEDICAL SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as at September 30, 1995 and December
31, 1994 consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Sept. 30, Dec. 31,
1995 1994
--------- ---------
Land $ 93,552 $ 93,552
Building and Improvements 343,448 334,963
Furniture, Fixtures & Equipment 114,785 100,093
Transportation Equipment 166,931 77,814
Computer Equipment 205,218 302,510
-------- --------
923,934 908,932
Less: accumulated depreciation 253,227 305,730
-------- --------
TOTAL $670,707 $603,202
-------- --------
-------- --------
</TABLE>
Includes depreciation on new computer system and write-off of old
computer system. This write-off amounted to $27,707 net of
depreciation.
NOTE 4 - LOAN PAYABLE - BANK
The Company has a line of credit with a bank for $1,450,000. Advances
under the line at September 30, 1995 and December 31, 1994 were
$1,250,000 and $850,000 respectively. Interest on advances are
charged monthly at 1% over prime. Substantially all of the assets of
the Company are pledged under the line.
NOTE 5 - MERGER & REORGANIZATION
On November 2, 1995 the Company entered into an agreement for merger
and reorganization with Micro Bio-Medics Inc. ("MBM") and Diagnostic
Leasing Corp. ("DLC") pursuant to which the Company will be merged
into DLC in exchange for shares of common stock of MBM. Each share
of the Company's common stock will be converted into .0818 shares of
MBM. The agreement is subject to shareholder approval. In the event
the merger is not consummated by June 30, 1996, the Chairman of the
Board and President along with certain officers and employees have
agreed to exchange their shares of common stock with MBM. Each share
will be converted into .069 shares of MBM. This group represents
70.9% of the Company's outstanding common stock.
S-5
<PAGE>
EXHIBIT "A"
AGREEMENT FOR MERGER AND REORGANIZATION
AMONG
MICRO BIO-MEDICS INC.
AND
DIAGNOSTIC LEASING CORP.
AND
STONE MEDICAL SUPPLY CORPORATION
AND
ANDREW D. STONE
November 2, 1995
1
-
<PAGE>
AGREEMENT FOR MERGER AND REORGANIZATION
AGREEMENT FOR MERGER AND REORGANIZATION dated as of November 2, 1995, among
MICRO BIO-MEDICS INC., A NEW YORK CORPORATION ("MBM"), DIAGNOSTIC LEASING CORP.,
a New York corporation which is a wholly-owned Subsidiary of MBM ("Newco"),
Stone Medical Supply Corporation, a New York corporation ("Stone") and Andrew D.
Stone ("Andrew"), MBM, Newco, Stone and Andrew are referred to collectively
herein as the "PARTIES."
RECITALS
WHEREAS, the Boards of Directors of Stone, MBM and Newco have each
determined that it is advisable and in the best interests of their respective
shareholders to consummate, and have approved, the business combination
transaction provided for herein pursuant to which Stone would merge with and
into Newco (the "MERGER") and Stone would become a wholly owned Subsidiary of
MBM;
WHEREAS, the Boards of Directors of MBM, Newco and Stone, respectively,
have approved this Agreement and the Merger;
WHEREAS, this Agreement contemplates a tax-free merger of Stone with and
into Newco in a reorganization pursuant to Code Section 368(a)(1)(A) and Section
368(a)(2)(D). Stone's Shareholders will
- 1 -
-----
<PAGE>
receive capital stock in MBM in exchange for their capital stock in Stone.
WHEREAS, to induce MBM and Newco to enter into this Agreement and the
Merger, Andrew has agreed to become a party hereto and to make the
representations, warranties, covenants and agreements set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"ANDREW" has the meaning set forth in the introduction above.
"ANDREW ESCROW AGREEMENT" has the meaning set forth in Section
7(b)(viii).
"BALANCE SHEET" shall have the meaning set forth in Section 5(j)
below.
"BREAK-UP FEE" shall have the meaning set forth in Section 5(h) below.
- 2 -
-----
<PAGE>
"CERTIFICATE OF MERGER" has the meaning set forth in Section 2(c)
below.
"CLOSING" has the meaning set forth in Section 2(b) below.
"CLOSING DATE" has the meaning set forth in Section 2(b) below.
"CODE" means the Internal Revenue Code of 1986, as
amended from time to time and the regulations promulgated
thereunder.
"CONVERSION RATIO" has the meaning set forth in Section 2(d)(v) below.
"CUSTOMER" shall have the meaning set forth in Section 3(y) below.
"DEFINITIVE STONE PROXY MATERIALS" means the definitive proxy
materials relating to the Special Stone Meeting (as defined below).
"DISCLOSURE SCHEDULE" shall have the meaning set forth in Section 3
below.
"DISSENTING SHARE" means any share of Stone Common Stock which any
shareholder who or which has exercised and perfected his or its appraisal rights
under the New York Business Corporation Law holds of record.
- 3 -
-----
<PAGE>
"EFFECTIVE TIME" has the meaning set forth in Section 2(d)(i) below.
"EXCHANGE AGENT" has the meaning set forth in Section 2(e) below.
"GAAP" means United States generally accepted
accounting principles as in effect from time to time.
"INDEPENDENT PUBLIC ACCOUNTANT" shall have the meaning set forth in
Section 5(j) below.
"INVENTORY" means Stone's inventory existing as of the date hereof
including inventory located at Stone's address as set forth in Section 9(g) and
merchandise in transit to Stone, at said address and owned by Stone.
"IRS" means the Internal Revenue Service.
"INTELLECTUAL PROPERTY" means any patent, trade name, trademark,
copyright, trade secret or other intangible asset.
"JOINT DISCLOSURE DOCUMENT" means the disclosure document combining
the Prospectus and the Definitive Stone Proxy Materials.
"KNOWLEDGE" means actual knowledge after reasonable investigation.
"LYUDMILLA" shall have the meaning set forth in Section 6(b) below.
- 4 -
-----
<PAGE>
"MANAGEMENT AGREEMENT" shall have the meaning set forth in Section
5(e) below.
"MBM SHARE" means any share of the common stock, $.03 par value per
share, of MBM.
"MBM PUBLIC REPORTS" shall have the meaning set forth in Section 4(g)
below.
"MERGER" shall have the meaning set forth in the Recitals above.
"MOST RECENT FISCAL QUARTER END" shall have the meaning set forth in
Section 3(f) below.
"MOST RECENT MBM FISCAL QUARTER END" shall have the meaning set forth
in Section 4(h) below.
"NEWCO" shall have the meaning set forth in the introduction above.
"NYBCL" means the Business Corporation Law of the State of New York,
as amended.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"OTHER SHAREHOLDERS" shall have the meaning set forth in Section 6(a)
below.
- 5 -
-----
<PAGE>
"PERSON" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PBGC" means the Pension Benefit Guaranty Corporation.
"PROSPECTUS" means the final prospectus relating to the registration
of the MBM Shares under the Securities Act.
"PUBLIC REPORTS" has the meaning set forth in Section 3(e) below.
"REGISTRATION STATEMENT" has the meaning set forth in Section 5(c)
below.
"REQUISITE STONE SHAREHOLDER APPROVAL" means the affirmative vote of
the holders (including Newco) of two-thirds of all outstanding Stone Common
Stock in favor of this Agreement and the Merger.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
- 6 -
-----
<PAGE>
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest whatsoever.
"SELLERS" shall have the meaning set forth in Section 8 below.
"SPECIAL STONE MEETING" shall have the meaning set forth in Section
5(c) below.
"STONE" has the meaning set forth in introduction above.
"STONE ACCOUNTS" has the meaning set forth in Section 3(k) below.
"STONE FAIRNESS OPINION" has the meaning set forth in Section 6(f)
below.
"STONE SHARE" means any share of the Common Stock, $.01 par value per
share, of Stone, outstanding at the Effective Time.
"STONE SHAREHOLDER" means any Person who or which holds any Stone
Share.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"SURVIVING CORPORATION" has the meaning set forth in Section 2(a)
below.
- 7 -
-----
<PAGE>
"THIRD PARTY TRANSACTION" has the meaning set forth in Section 5(h)
below.
2. MERGER.
(a) THE MERGER. On and subject to the terms and conditions of this
Agreement, Stone will merge with and into Newco at the Effective Time (as
defined below). Newco shall be the corporation surviving the Merger (the
"SURVIVING CORPORATION").
(b) THE CLOSING. The closing of the Merger contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Otterbourg,
Steindler, Houston & Rosen, P.C., 230 Park Avenue, New York, New York 10169, at
9:00 a.m. local time on the business day following the satisfaction or waiver of
all conditions to the obligations of the Parties to consummate the Merger
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as the
Parties may mutually determine (the "CLOSING DATE").
(c) ACTIONS AT THE CLOSING. At the Closing, (i) Stone will deliver
to MBM and Newco the various certificates, instruments, and documents referred
to in Section 7(b) below, Stone and Newco will file with the Secretary of State
of the State of New York a Certificate of Merger in form attached hereto as
Exhibit A (the "CERTIFICATE OF MERGER"), and (iii) MBM will deliver to the
- 8 -
-----
<PAGE>
Exchange Agent in the manner provided below in this Section 2 the certificate
evidencing MBM Shares issued in the Merger.
(d) EFFECT OF MERGER.
(i) GENERAL. The Merger shall become effective at the time (the
"EFFECTIVE TIME") Stone and Newco file the Certificate of Merger with
the Secretary of State of the State of New York. The Merger shall
have the effect set forth in the NYBCL. The Surviving Corporation
may, at any time after the Effective Time, take any action (including
executing and delivering any document) in the name and on behalf of
either Stone or Newco in order to carry out and effectuate the
transactions contemplated by this Agreement.
(ii) CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of Newco in effect at and as of the Effective Time will
remain the Certificate of Incorporation of the Surviving Corporation
without any modification or amendment in the Merger.
(iii) BYLAWS. The Bylaws of Newco in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation
without any modification or amendment in the Merger.
(iv) DIRECTORS AND OFFICERS. The directors and officers of Newco
in office at and as of the Effective Time will remain the directors
and officers of the
- 9 -
-----
<PAGE>
Surviving Corporation (retaining their respective positions and terms
of office).
(v) CONVERSION OF STONE SHARES. At and as of the Effective Time, (A)
each Stone Share (other than any Dissenting Share) shall be converted into
the right to receive 0.0818 MBM Shares based upon and calculated at, the
Conversion Ratio (the ratio of 0.0818 MBM Shares to one Stone Share is
referred to herein as the "Conversion Ratio" and the Conversion Ratio has
been determined based on a value for each MBM Share of $11.50 per share),
and (B) each Dissenting Share shall be converted into the right to receive
payment from the Surviving Corporation with respect thereto in accordance
with the provisions of the NYBCL; PROVIDED, HOWEVER, that the Conversion
Ratio shall be subject to equitable adjustment in the event of any stock
split, stock dividend, reverse stock split, or other change in the number
of Stone Shares or MBM Shares outstanding at the Effective Time. No Stone
Share shall be deemed to be outstanding or to have any rights other than
those set forth above in this Section 2(d)(v) after the Effective Time.
- 10 -
------
<PAGE>
(e) PROCEDURE FOR EXCHANGE.
(i) Immediately after the Effective Time, (A) MBM will furnish
to American Stock Transfer & Trust Company (the "EXCHANGE AGENT") a
share certificate (issued by MBM in the name of the Exchange Agent or
its nominee) representing that number of MBM Shares equal to the
product of (I) the Conversion Ratio TIMES (II) the number of
outstanding Stone Shares (other than any Dissenting Shares), (B) MBM
will cause the Exchange Agent to mail a letter of transmittal (with
instructions for its use) substantially in the form attached hereto as
Exhibit B to each record holder of outstanding Stone Shares for the
holder to use in surrendering the certificates which represented his
or its Stone Shares in exchange for a certificate representing the
number of MBM Shares to which he or it is entitled and (C) Stone will
cause its transfer agent to deliver all of Stone's records relating to
certificates evidencing the Stone Shares to the Exchange Agent.
(ii) MBM will not pay any dividend or make any distribution on
MBM Shares (with a record date at or after the Effective Time) to any
record holder of outstanding Stone Shares until the holder surrenders
to the Exchange Agent for exchange his or its certificates
- 11 -
------
<PAGE>
which represented Stone Shares. MBM instead will pay the dividend or
make the distribution to the Exchange Agent in trust for the benefit
of the holder pending surrender and exchange. MBM may cause the
Exchange Agent to invest any cash the Exchange Agent receives from MBM
as a dividend or distribution in one or more of the permitted
investments set forth on Exhibit C attached hereto; PROVIDED, HOWEVER,
that the terms and conditions of the investments shall be such as to
permit the Exchange Agent to make prompt payments of cash to the
holders of outstanding Stone Shares as necessary. MBM may cause the
Exchange Agent to pay over to MBM any net earnings with respect to the
investments, and MBM will replace promptly any cash which the Exchange
Agent loses through investments permitted hereunder. In no event,
however, will any holder of outstanding Stone Shares be entitled to
any interest or earnings on the dividend or distribution pending
receipt.
(iii) MBM may cause the Exchange Agent to return any MBM Shares
and dividends and distributions thereon remaining unclaimed 180 days
after the Effective Time, and thereafter each remaining record holder
of outstanding Stone Shares shall be entitled to look to MBM (subject
to abandoned property, escheat, and other similar laws) as a general
creditor thereof with
- 12 -
------
<PAGE>
respect to MBM Shares and dividends and distributions thereon to which
he or it is entitled upon surrender of his or its certificates.
(iv) MBM shall pay all charges and expenses of the Exchange
Agent.
(v) MBM may, or may cause the Exchange Agent to, pay cash,
computed by using the price of the MBM Shares used in determining the
Conversion Ratio, to any holder of Stone Shares in lieu of any
fractional shares of MBM Common Stock to be issued as payment for the
Merger contemplated by this Agreement.
(f) VOTING AGREEMENT AND INVESTMENT INTENT. Each of Andrew and the
Other Shareholders, in consideration of the provisions of Section 8 of this
Agreement agrees to vote, or cause his designated proxy to vote, all Stone
Shares owned by him in favor of the Merger. Andrew has no present plan,
intention, or arrangement to dispose of any of the MBM Shares received in
accordance with this Agreement in a manner that would cause the Merger to
violate the continuity of shareholder interest requirement set forth in IRS Reg.
Section 1,368-1. Andrew's MBM Shares received pursuant to this Agreement shall
include a legend stating, in part, that:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
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ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER
SAID ACT, AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
REGISTRATION IS NOT THEN REQUIRED UNDER SAID ACT, OR A SATISFACTORY NO
ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
[AS TO ANDREW ONLY] THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A NONCOMPETITION, INDEMNIFICATION AND RELEASE AGREEMENT, AN
ESCROW AGREEMENT AND A PUT AND CALL AGREEMENT. A COPY OF EACH
AGREEMENT CAN BE OBTAINED AT THE OFFICES OF THE CORPORATION.
(g) CLOSING OF TRANSFER RECORDS. After the close of business on the
Closing Date, transfers of Stone Shares outstanding prior to the Effective Time
shall not be made on the stock transfer books of the Surviving Corporation.
(h) Each holder of Stone Shares shall have no right, title or
interest in any MBM Shares to be delivered to such holder pursuant hereto,
including the right to vote any such MBM Shares, prior to the issuance by the
Exchange Agent of a certificate or certificates in the name of such holder
representing MBM Shares to be delivered hereunder.
3. REPRESENTATIONS AND WARRANTIES OF STONE AND ANDREW.
To induce MBM and Newco to enter into this Agreement and to consummate
the transactions contemplated herein, Stone and Andrew hereby jointly and
severally represent and warrant to MBM and Newco that the statements contained
in this Section 3 are correct and complete, except as set forth in the
disclosure schedule accompanying this Agreement and initialled by the parties
(the "DISCLOSURE SCHEDULE"), and shall survive the consummation of the
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transactions contemplated by this Agreement, the documents and agreements among
the parties referred to in this Agreement and the Merger. The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3.
(a) ORGANIZATION, QUALIFICATION, ETC. Stone is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
New York and has all requisite power and authority to own, lease, and operate
its properties and to carry on its business as now being conducted. Stone has
no Subsidiaries. Stone is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required.
(b) CAPITALIZATION. The entire authorized capital stock of Stone
consists of 10,000,000 shares of Stone common stock par value $.01, of which
3,431,500 shares of Stone Common Stock are issued and outstanding. All of the
issued and outstanding shares of Stone common stock have been duly authorized
and are validly issued, fully paid, and nonassessable, except to the extent
provided by Section 630 of the NYBCL. There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require Stone to
issue, sell, or otherwise cause to become outstanding any of its capital stock.
There are no outstanding or authorized stock
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appreciation, phantom stock, profit participation, or similar rights with
respect to Stone.
(c) AUTHORIZATION OF TRANSACTION. Stone has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder; PROVIDED, HOWEVER, that
Stone cannot consummate the Merger unless and until it receives the Requisite
Stone Shareholder Approval. This Agreement constitutes the valid and legally
binding obligation of Stone, enforceable in accordance with its terms and
conditions.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Stone is subject or any provision of
Stone's charter or bylaws or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which Stone is a party or by which it is bound or to which any of its assets
is subject (or result in the imposition of any Security Interest upon any of its
assets) other than in connection with the provisions of the NYBCL, the
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Securities Exchange Act, the Securities Act and state securities laws. Stone
does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the parties to consummate the transactions contemplated by this
Agreement.
(e) FILINGS WITH THE SEC. Stone has made all filings with the SEC
that it has been required to make under the Securities Act and the Securities
Exchange Act (collectively, the "PUBLIC REPORTS"). Each of the Public Reports
has complied with the Securities Act and the Securities Exchange Act in all
material respects. None of the Public Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Stone has delivered
to MBM a correct and complete copy of each Public Report (together with all
exhibits and schedules thereto and as amended to date) which has been filed
since January 1, 1991.
(f) FINANCIAL STATEMENTS AND NET WORTH.
(i) FINANCIAL STATEMENTS. Stone has filed a Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1995 (the "Most
Recent Fiscal Quarter End") and an Annual Report on Form 10-K for the
fiscal year ended December 31, 1994. The financial statements
included in or incorporated by reference into these
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Public Reports (including the related notes and schedules) have been
prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly Stone's
financial condition as of the indicated dates and the results of
Stone's operations for the indicated periods, are correct and complete
in all respects, and are consistent with Stone's books and records;
PROVIDED, HOWEVER, that the interim statements are subject to normal
year-end adjustments;
(ii) NET WORTH. On the date hereof, Stone has a net worth of
not less than $659,000. Net worth shall be determined in accordance
with the Balance Sheet prepared in accordance with Section 5(j)
hereof.
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL QUARTER END. Since the
Most Recent Fiscal Quarter End, there has not been any material adverse change
in Stone's business, financial condition, operations, results of operations, or
future prospects. Since the Most Recent Fiscal Quarter End there has not
occurred any damage, destruction or loss (whether or not covered by insurance)
having a material adverse effect on Stone's business or its assets. Since the
Most Recent Fiscal Quarter End Stone has not directly or indirectly;
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(i) Made any loan or advance to any person or entity which in
the aggregate exceed $5,000, except as documented in the Disclosure
Schedule;
(ii) Subjected any of its assets to any Security Interest;
(iii) Sold, leased or otherwise transferred any of its assets
other than in the Ordinary Course of Business;
(iv) Entered into any agreement either not in the Ordinary Course
of Business or involving consideration given or to be given by Stone
in amounts in excess of five thousand ($5,000) dollars;
(v) Modified, amended or terminated any contract, agreement,
license or other instrument to which Stone is a party or waived or
released any right, other than in the Ordinary Course of Business;
(vi) Incurred any obligations or liability for
borrowed money, or incurred any other obligation or liability except
in the Ordinary Course of Business and except that Stone has paid a
special fifteen thousand ($15,000) Dollars bonus to Andrew;
(vii) Agreed to any of the things described in the preceding
clauses (i) through (vi).
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(h) UNDISCLOSED LIABILITIES. Stone has no liability (whether known
or unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due), including any liability for taxes, except for (i)
liabilities set forth on the face of the balance sheet dated as of the Most
Recent Fiscal Quarter End (rather than in any notes thereto) and (ii)
liabilities which have arisen after the Most Recent Fiscal Quarter End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
(i) DISCLOSURE. The Definitive Stone Proxy Materials will comply
with the Securities Exchange Act in all material respects. The Definitive Stone
Proxy Materials will not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they will be made, not misleading;
PROVIDED, HOWEVER, that Stone makes no representation or warranty with respect
to any information that MBM will supply specifically for use in the Definitive
Stone Proxy Materials. None of the information that Stone will supply
specifically for use in the Registration Statement (as defined below) or in the
Prospectus will contain any untrue statement of a material fact or omit to state
a material fact necessary in
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order to make the statements made therein, in the light of the circumstances
under which they will be made, not misleading.
(j) INVENTORY. Stone has good and marketable title to all of its
Inventory free and clear of all Security Interests. The Inventory was acquired
in the Ordinary Course of Business and was acquired in ordinary and customary
quantities and at prevailing prices. All of the Inventory is of merchantable
quality and consists of items of a quality and quantity heretofore used or sold
in the Ordinary Course of Business. The Inventory is free from defects and is
fit to be used for its intended purpose.
(k) ACCOUNTS RECEIVABLE. Stone's accounts receivable existing as of
the date hereof ("Stone Accounts") were incurred in the Ordinary Course of
Business and are and will be valid, enforceable and collectable without any
offset or counterclaim or any reduction (directly or indirectly) for any
payment, credit or allowance made or given. None of the Stone Accounts are
contingent upon the performance by Stone of any obligations or contracts. No
person or entity has a Security Interest in the Stone Accounts or any part
thereof and at the time of the sale and delivery of the property which gave rise
to such accounts receivable, the property was owned by Stone free and clear of
any and all Security Interests.
(l) LITIGATION. There are no claims, actions, suits, proceedings or
investigations pending before any federal, state,
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municipal or other court, governmental body or arbitration tribunal, or
threatened against or affecting Stone's business or assets or the transactions
contemplated by this Agreement, any of the other documents or agreements among
the parties referred to in this Agreement or the Merger. There is no order,
decree or judgment of any kind in existence enjoining or restraining Stone or
its officers or employees or requiring any of them to take any action of any
kind in respect of Stone's business.
(m) GOVERNMENT REGULATION; COMPLIANCE WITH LAWS. The conduct of
Stone's business and the sale of Stone's Inventory does not require any license
or permit from any federal, state or local government agency. Stone's sale of
medical supplies directly to physicians and/or hospitals does not violate or
infringe any domestic (federal, state or local) or other law, statute, ordinance
or regulation, the enforcement of which would materially and adversely affect
Stone's business or the value of its assets. Stone has conducted its business
so that it has not violated any domestic (federal, state or local) law, statute,
ordinance or regulation.
(n) TITLE TO ASSETS. Stone is the sole owner of its assets and such
assets are free and clear of any Security Interests.
(o) CONTRACTS AND AGREEMENTS. Stone has no contracts or agreements
with suppliers, manufacturers, customers, licensors, licensees, or any other
material written contract,
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agreement or obligation involving a commitment of five thousand ($5,000) dollars
or more or that is not cancelable upon giving not more than thirty (30) days'
notice without incurring any liability, other than contracts which involve the
sale or purchase of merchandise in the Ordinary Course of Business. Each of the
contracts and agreements listed on the Disclosure Schedule is valid and
subsisting in full force and effect as of the date hereof. Copies of all
agreements and contracts are listed in the Disclosure Schedule and have been
provided to MBM to the extent that such contracts and agreements are written.
(p) REAL PROPERTY. The Disclosure Schedule contains a description of
all real property owned by Stone and all real property leased by Stone either as
a lessor or as a lessee. Correct and complete copies of all of the leases
referred to in the preceding sentence have been delivered to MBM, and each such
lease contains the entire agreement between the parties with respect to the
leased property or premises. The operations presently conducted in said owned
and leased property are (i) in material compliance with all applicable building,
fire, zoning, subdivision, health, safety and all other material applicable
statutes, laws, codes, ordinances, rules, orders, regulations and decrees of any
federal, state or local governmental agencies having jurisdiction over such
properties, and (ii) permitted as a matter of right without the need for a
variance or a special permit other than variances and permits which have been
issued and are in effect. Neither Stone nor Andrew has received any
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notice that the present use of the real property described in the Disclosure
Schedule is considered a non-conforming use under applicable zoning laws. Stone
has a good and valid leasehold interest in the leased real property described in
the Disclosure Schedule. There are no pending or, to Stone's or Andrew's
Knowledge, threatened, condemnation or eminent domain proceedings with respect
to any of such real property; to Stone's or Andrew's Knowledge, there are no
taxes or betterment assessments other than ordinary real estate taxes pending or
payable against the leased real property; to Stone's or Andrew's Knowledge there
are no contingencies existing under which any assessment for real estate taxes
may be retroactively filed against the same; and, to Stone's or Andrew's
Knowledge there are no taxes or levies, permit fees, assessments or the like
which must be paid by it respecting public improvements or services. There is
in effect with respect to each property a valid certificate of occupancy
permitting the use of such property for the purposes for which Stone is using
it.
(q) TANGIBLE PERSONAL PROPERTY. The Disclosure Schedule contains a
true, correct and complete list, in all material respects, of all items of
equipment owned by Stone or used in its business. With respect to any property
included in the Disclosure Schedule which is not owned by Stone, the Disclosure
Schedule names the owner thereof and describes or refers to any agreement
relating to Stone's use thereof; all such property not owned by Stone is in such
condition that upon the
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<PAGE>
return thereof to its owner, Stone will have discharged all of its obligations
to such owner, except as indicated in the Disclosure Schedule. All of said
tangible personal property of Stone presently owned by Stone or used in the
conduct of its business is in good repair.
(r) INTELLECTUAL PROPERTY. The Disclosure Schedule contains a true,
correct and complete list of all of Stone's Intellectual Property. There are no
pending adverse claims or Security Interests upon or affecting the Intellectual
Property. Stone owns all right, title and interest in and to all the
Intellectual Property. Neither Stone nor Andrew has received written notice
that Stone heretofore infringed or is now infringing upon any Intellectual
Property belonging to any other entity, and Stone has not engaged in and is not
now engaging in any form of unlawful competition. Stone owns or holds adequate
licenses or other rights to use all Intellectual Property and tangible personal
property used in the conduct of its business (without the payment to others of
any royalties or other sums) and such use does not conflict with any rights of
others.
(s) TAX MATTERS. Stone has prepared and filed and will file on a
timely basis with the appropriate federal, state, local and foreign governmental
agencies all tax returns required to be filed; such returns as filed were true
and correct in all material respects, and Stone has paid or made provision for
the payment of all taxes shown on such returns to be payable or which
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have or may become due pursuant to any assessment heretofore received by it; and
the provisions for income taxes reserved on Stone's Most Recent Fiscal Quarter
End balance sheet are sufficient for all accrued and unpaid federal, state and
local taxes of Stone, whether or not disputed, for all periods prior to the date
of this Agreement. True and complete copies of all such tax returns filed by
Stone for the year ended December 31, 1994, are included in the Disclosure
Schedule. Stone has not executed or filed with the IRS or any other taxing
authority (whether domestic or foreign) any agreement extending the period for
assessments or collections of any income or other taxes. Stone is not a party
to a pending action or proceeding by any domestic or foreign governmental
authority for assessment or collection of taxes, nor has any written claim for
assessment or collection of taxes been asserted against it.
(t) INSURANCE. The Disclosure Schedule contains a list of all
policies of insurance in force with respect to Stone, setting forth the scope,
nature and amount of coverage, and the expiration dates thereof. All physical
properties and assets of Stone are covered by fire and other insurance against
casualty loss customarily covering properties and assets of comparable
businesses in the region in which such properties and assets of Stone are
located, in amounts which are reasonable in light of existing replacement costs.
Stone carries public liability, workmen's compensation and other usual types of
insurance of reasonable amounts and Stone will deliver to MBM and to Newco
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copies of such policies and certificates of insurers showing such insurance to
be in effect as of the date of this Agreement. Stone has not received notice
from any insurance carrier of intent to cancel any insurance policy listed on
the Disclosure Schedule and to Stone's and Andrew's Knowledge, all such policies
are currently in full force and effect. All premiums due and payable on such
policies have been paid and Stone is not a co-insurer under any term of any
insurance policy.
(u) LABOR DISPUTES. Neither Stone nor Andrew has received written
notice that Stone is not in compliance with all federal, state and local laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, or that it is engaged in any unfair labor
practice. There is no unfair labor practice complaint against Stone pending
before the National Labor Relations Board and no labor strike or other labor
trouble is actually pending nor, to the Knowledge of Stone or Andrew, is any
labor trouble threatened against Stone. There does not exist a representation
question with respect to Stone's employees; no grievance which might have a
material adverse effect on Stone or the conduct of its business nor any
arbitration proceeding arising out of or under collective bargaining agreements
is pending, and no claim therefor exists; and no collective bargaining agreement
which is binding upon Stone restricts it from relocating or closing any of its
operations.
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(v) EMPLOYMENT BENEFITS.
(i) Except as set forth in the Disclosure Schedule (A) Stone has
no union contract, profit sharing arrangement or retirement or pension
arrangement, group life insurance plan, group health insurance plan or
other "fringe benefit" plan; (B) all accrued obligations of Stone
whether arising by operation of law, by contract or by past custom,
for payments by it to trusts or other funds or to any governmental
agency with respect to unemployment compensation benefits, social
security benefits, or any other benefits for Stone's employees have
been paid as of the date of this Agreement; (C) all accrued benefits
payable directly to Stone's employees have been paid; (D) all of
Stone's reasonably anticipated material obligations, whether arising
by operation of law, by contract or by past custom, for vacation and
holiday pay, bonuses, and other forms of compensation which are or may
become payable to employees or any of them have been paid; (E) since
the Most Recent Fiscal Quarter End, Stone has not made any increase in
or commitment to increase any of the foregoing employee benefits nor
adopted or made any commitment to adopt any additional employee
benefit plan relating to its employees; and (F) since the Most Recent
Fiscal Quarter End there have been no increases in compensation or
bonuses paid or
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similar payments made or committed to be made to any officer or key
employee of Stone or any spouse, ancestor or lineal descendent of any
of the foregoing persons.
(ii) Stone's unemployment compensation ratings and contributions
are set forth in the Disclosure Schedule. Neither Stone nor Andrew
has received written notice of any proposed increases thereof or
knows of any conditions or circumstances applicable to Stone's
business which might result in such increases.
(iii) Neither Stone nor Andrew has received any written notice
that Stone has engaged in a transaction in connection with which Stone
could be subject to either civil penalty assessed pursuant to Section
502(i) of ERISA or a tax imposed by Section 4975 of the Code.
(iv) No liability to the PBGC has been incurred with respect to
any Plan (as hereinafter defined) by Stone. The PBGC has not
instituted proceedings to terminate any Plan. The Disclosure Schedule
contains a list of all notices of reportable events (within the
meaning of Section 4043(b) of ERISA) which Stone has filed with the
PBGC. The aforementioned list reflects all reportable events. Except
as and to the extent set forth in the Disclosure Schedule, no event
has
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occurred, and there exists no condition or set of circumstances as of
the day prior to the date of this Agreement, which presents a material
risk as of such date of the termination of any Plan which could result
in any liability on the part of Stone to the PBGC.
(v) Full payment has been made of all amounts which the Stone is
required under the terms of all Plans, to have paid as contributions
to such Plans as of the last day of the most recent fiscal year of
each such Plan ended prior to the date of this Agreement. There are
no "accumulated funding deficiencies" as defined in Section 302 of
ERISA and Section 412 of the Code, whether or not waived, as may exist
with respect to any Plans determined as of the last day of the most
recent fiscal year of each of such Plans ended on or prior to the date
of this Agreement.
(vi) Each Plan is in compliance with applicable Federal laws,
including, but not limited to, ERISA. With respect to Multiemployer
Plans to which Stone makes contributions, neither Stone nor Andrew has
Knowledge of any aspect of such Multiemployer Plans (as hereinafter
defined) which is not in material compliance with applicable Federal
laws.
(vii) Whenever any of the terms set forth below is used in this
Agreement, it shall have the following
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meaning: (A) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time; (B) "Plan" shall
mean an employee pension benefit plan (within the meaning of
section 2(2) of ERISA) which is or has been established or maintained,
or to which contributions are to have or have been made, by Stone; and
(iii) "Multiemployer Plan" shall mean an employee pension plan meeting
the definition of that term contained in section 3(37) of ERISA, to
which contributions are or have been made by Stone.
(w) OFFICERS AND KEY EMPLOYEES. The Disclosure Schedule contains a
true, correct and complete list of all of Stone's salaried employees. Except as
set forth in the Disclosure Schedule, to Stone's or Andrew's Knowledge, no such
employee has stated to Stone or Andrew that he will terminate or modify his
employment relationship with Stone, except if, and to the extent that, such
person becomes an employee of Newco from and after the date hereof.
Notwithstanding the foregoing, nothing contained herein shall in any way
obligate MBM or Newco to hire or otherwise compensate or otherwise assume any
liability to any employee of Stone, such hiring, compensation or assumption of
liability concerning each current employee of Stone being within MBM's or
Newco's sole and absolute discretion. The Disclosure Schedule also lists by
categories, job titles and wage rates, substantially all other employees of
Stone, including all union employees of Stone, in which case it sets forth the
union
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and local to which each employee belongs, the total number of employees in each
category, and the total wages or other compensation paid to each category of
employee, and the expiration date of any collective bargaining agreement
covering such employees in any amount whatsoever, other than for current
salaries for services rendered.
(x) ENVIRONMENTAL PROTECTION.
(i) Except as consistent with applicable Environmental Laws (as
hereinafter defined): (i) no Hazardous Substances (as hereinafter
defined) are present on or below the surface of any real property
where Stone conducts its business, and such real property has not
previously been used for the manufacture, refining, treatment,
storage, or disposal of any Hazardous Substances; (ii) none of the
soil, ground water, or surface water of such real property is
contaminated by any Hazardous Substance and neither Stone nor Andrew
has received written notice of contamination from neighboring
property; and (iii) there are no incinerators, cesspools or
underground storage tanks located on the real property occupied by
Stone, and neither Stone nor Andrew has received written notice that
any Hazardous Substances are emitted, discharged or released from such
real property, directly or indirectly, into the atmosphere
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or any body of water. Stone has not been identified as a potentially
responsible party for cleanup liability with respect to the emission,
discharge, or release of any Hazardous Substance or for any other
matter arising under the Environmental Laws in any litigation,
administrative proceeding, finding, order, citation, notice,
investigation or complaint, and neither Stone nor Andrew is aware of
any facts that could result in Stone's being so identified due to its
operation of such real property. No permits, licenses, or other
authorizations issued pursuant to the Environmental Laws are required
for the present use or occupancy of such real property.
(ii) As used herein, the term "Environmental Laws" means the
Resource Conservation and Recovery Act, the Comprehensive
Environmental Responsibility Compensation and Liability Act, the
Superfund Amendments and Reauthorization Act, the Toxic Substances
Control Act, the Hazardous Materials Transportation Act, the Clean Air
Act, the Clean Water Act, and other similar federal and state laws, as
amended, together with all regulations issued or promulgated
thereunder, relating to pollution, the protection of the environment
or the health and safety of workers or the general public. The term
"Hazardous Substances" means any hazardous substance, hazardous or
toxic waste, hazardous
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material, pollutant, or contaminant, as those or similar terms are
used in the Environmental Laws, and includes, without limitation,
asbestos and asbestos-related products, chlorofluorocarbons, oils or
petroleum-derived compounds, polychlorinated biphenyls, pesticides,
and radon.
(y) CUSTOMERS. The customer list to be delivered to MBM on the date
hereof and constituting a part of the Disclosure Schedule contains the names of
every customer ("CUSTOMER") of Stone's business. Neither Stone nor Andrew has
any Knowledge of any actual, pending or threatened termination, cancellation,
limitation, modification or change in Stone's business relationship with any
Customer who purchased Inventory with an aggregate sales price of at least
$1,000 during the year prior to the date hereof.
(z) SUPPLIERS. The Disclosure Schedule contains a list of Stone's
suppliers showing with respect to each such supplier the total purchases by
Stone during the previous fiscal year of Stone ended December 31, 1994 as well
as the six (6) months ended the Most Recent Fiscal Quarter End. Neither Stone
nor Andrew has any Knowledge of any actual, pending or threatened termination,
cancellation, limitation, modification or change in Stone's business
relationship with any supplier listed on the Disclosure Schedule.
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(aa) BROKER'S FEES. Neither Stone nor Andrew has any liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement, the documents
and agreements among the Parties referred to in this Agreement or the Merger.
(bb) INTERESTED TRANSACTIONS. Stone is not a party to any
contract, instrument, transaction or other arrangement with Andrew, or any
member of his immediate family, which continues on and after the date hereof and
which would have a material adverse effect on MBM's, Newco or Stone's, assets
and/or business.
4. REPRESENTATIONS AND WARRANTIES OF MBM AND NEWCO. Each of MBM and
Newco represents and warrants to Stone and Andrew that the statements
contained in this Section 4 are correct and complete, except as set forth in
the Disclosure Schedule, and shall survive the consummation of the
transactions contemplated by this Agreement, the other documents and
agreements among the Parties referred to in this Agreement and the Merger.
The Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 4, as follows:
(a) ORGANIZATION. Each of MBM and Newco is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
New York and has all
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requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
(b) AUTHORIZATION OF TRANSACTION. Each of MBM and Newco has full
power and authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of each of MBM
and Newco, enforceable in accordance with its terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which either MBM or Newco is subject or any
provision of the charter or bylaws of either MBM or Newco or (ii) except for
that Certain Credit Agreement dated November 18, 1993 between MBM and The Chase
Manhattan Bank, N.A. as agent, as amended (as to which a waiver is being
obtained at or prior to the date hereof) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which either MBM or Newco is a party or by which it is bound or to which any
of its assets is subject other than
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in connection with the provisions of the NYBCL, the Securities Exchange Act, the
Securities Act, and state securities laws, neither MBM nor Newco is required to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the parties to
consummate the transactions contemplated by this Agreement.
(d) BROKERS' FEES. Neither MBM nor Newco has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement, the other documents
and agreements among the Parties referred to in this Agreement or the Merger for
which Stone or Andrew could become liable or obligated.
(e) SECURITY INTERESTS. The MBM Common Stock to be issued in
accordance with the terms of this Agreement will be duly authorized, validly
issued, fully paid and non-assessable, with no personal liability attached to
the ownership thereof, and will be free and clear of any Security Interest
subject only, in the case of certain MBM Shares to be received by Andrew, to the
terms of the Andrew Escrow Agreement (as defined below).
(f) DISCLOSURE. The Registration Statement and the Prospectus will
comply with the Securities Act in all material respects. The Registration
Statement and the Prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made
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therein, in the light of the circumstances under which they will be made, not
misleading; PROVIDED, HOWEVER, that MBM and Newco make no representation or
warranty with respect to any information that Stone will supply specifically for
use in the Registration Statement and the Prospectus. None of the information
that MBM and Newco will supply specifically for use in the Definitive Stone
Proxy Materials will contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they will be made, not misleading.
(g) FILINGS WITH THE SEC. MBM has made all filings with the SEC that
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively, the "MBM PUBLIC REPORTS"). Each of the MBM Public
Reports has complied with the Securities Act and the Securities Exchange Act in
all material respects. None of the MBM Public Reports, as of their respective
dates, contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. MBM has
delivered to Stone and Andrew a correct and complete copy of each MBM Public
Report (together with all exhibits and schedules thereto and as amended to date)
which has been filed since November 30, 1993.
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(h) FINANCIAL STATEMENTS AND NET WORTH. MBM has filed a Quarterly
Report on Form 10-Q for the fiscal quarter ended August 31, 1995 (the "MOST
RECENT MBM FISCAL QUARTER END") and an Annual Report on Form 10-K for the fiscal
year ended November 30, 1994. The financial statements included in or
incorporated by reference into these MBM Public Reports (including the related
notes and schedules) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly MBM's
financial condition as of the indicated dates and the results of MBM's
operations for the indicated periods, are correct and complete in all respects,
and are consistent with MBM's books and records; PROVIDED, HOWEVER, that the
interim statements are subject to normal year-end adjustments.
(i) EVENTS SUBSEQUENT TO MOST RECENT MBM FISCAL QUARTER END. Since
the Most Recent MBM Fiscal Quarter End, there has not been any material adverse
change in MBM's business, financial condition, operations, results of
operations, or future prospects. Since the Most Recent MBM Fiscal Quarter End
there has not occurred any damage, destruction or loss (whether or not covered
by insurance) having a material adverse effect on MBM's business or its assets.
(j) UNDISCLOSED LIABILITIES. MBM has no liability (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued,
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whether liquidated or unliquidated, and whether due or to become due), including
any liability for taxes, except for (i) liabilities set forth on the face of the
balance sheet dated as of the Most Recent MBM Fiscal Quarter End and (ii)
liabilities which have arisen after the Most Recent MBM Fiscal Quarter End in
the Ordinary Course of Business.
(k) LITIGATION. There are no claims, actions, suits, proceedings or
investigations pending before any federal, state, municipal or other court,
governmental body or arbitration tribunal, or threatened against or affecting
the transactions contemplated by this Agreement or the Merger. There is no
order, decree or judgment of any kind in existence enjoining or restraining MBM
or its officers or employees or requiring any of them to take any action of any
kind in respect of MBM's business.
5. COVENANTS. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) GENERAL. Each of the Parties will use its best efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement,
the other documents and agreements among the Parties referred to in this
Agreement and the Merger.
(b) NOTICES AND CONSENTS. Stone will give any notices to third
parties, and will use its best efforts to obtain any
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third party consents, that MBM or Newco may request in connection with the
matters referred to in Section 3(d) above.
(c) REGULATORY MATTERS AND APPROVALS. Each of the Parties will give
any notices to, make any filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in Section 3(d) and Section 4(c)
above. Without limiting the generality of the foregoing:
(i) SECURITIES ACT, SECURITIES EXCHANGE ACT, AND STATE
SECURITIES LAWS. Stone will prepare and file with the SEC preliminary
proxy materials under the Securities Exchange Act relating to the
Special Stone Meeting. MBM will prepare and file with the SEC a
registration statement under the Securities Act relating to the
offering and issuance of MBM Shares pursuant to the Merger (the
"REGISTRATION STATEMENT"). The filing Party in each instance will use
its best efforts to respond to the comments of the SEC thereon and
will make any further filings (including amendments and supplements)
in connection therewith that may be necessary, proper, or advisable.
MBM will provide Stone, and Stone will provide MBM, with whatever
information and assistance in connection with the foregoing filings
that the filing Party may request. MBM will take all actions that may
be necessary,
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proper, or advisable under state securities laws in connection with
the offering and issuance of MBM Shares.
(ii) NEW YORK BUSINESS CORPORATION LAW. Stone will call a
special meeting of its shareholders (the "SPECIAL STONE MEETING") as
soon as practicable in order that the shareholders may consider and
vote upon the approval of the Merger in accordance with the NYBCL.
Stone will mail the Joint Disclosure Document to its shareholders as
soon as practicable. The Joint Disclosure Document will contain the
affirmative recommendations of the respective boards of directors of
the Parties in favor of the adoption of this Agreement and the
approval of the Merger.
(d) CONSENTS. Stone will deliver to MBM on or before the date the
Joint Disclosure Document is mailed to Stone's shareholders (i) a letter of
Robbins, Greene, Horowitz, Lester & Co., LLP containing the consent of Robbins,
Greene, Horowitz, Lester & Co., LLP to the use of its name as experts and to the
inclusion of any financial statements audited by it in any Public Filing to be
made by MBM and (ii) an opinion of McLaughlin & Stern, LLP as to the tax-free
nature of the reorganization transaction contemplated by the Merger and the
consent of McLaughlin & Stern, LLP to the use of its name as experts and to
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the inclusion of its opinion in any Public Filing to be made by MBM.
(e) OPERATION OF BUSINESS. Stone will in all respects comply with
the terms of that certain Management Agreement dated as of the date hereof
between Stone and Newco ("Management Agreement"); provided, however, that Stone
shall not be obligated to take any action that would create a breach of the
representations and warranties set forth in Section 3 of this Agreement.
Subject to the Management Agreement, Stone will not engage in any practice, take
any action, incur any liability or enter into any transaction outside the
Ordinary Course of Business. Without limiting the generality of the foregoing,
without the consent of MBM:
(i) Stone will not authorize or effect any change in its charter
or bylaws;
(ii) Stone will not grant any options, warrants, or other rights
to purchase or obtain any of its capital stock or issue, sell, or
otherwise dispose of any of its capital stock;
(iii) Stone will not declare, set aside, or pay any dividend or
distribution with respect to its capital stock (whether in cash or in
kind), or redeem, repurchase, or otherwise acquire any of its capital
stock;
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(iv) Stone will not issue any note, bond, or other debt security
or create, incur, assume, or guarantee any indebtedness for borrowed
money or capitalized lease obligation outside the Ordinary Course of
Business;
(v) Stone will not impose or allow any Security Interest upon
any of its assets outside the Ordinary Course of Business;
(vi) Stone will not make any capital investment in, make any loan
to, or acquire the securities or assets of any other person or entity
outside the Ordinary Course of Business;
(vii) Stone will not make any change in employment terms for any
of its directors, officers, and employees outside the Ordinary Course
of Business; and
(viii) Stone will not make any change in the authorized signatories
of any of its bank accounts (such signatories shall remain as set
forth in the resolutions adopted by Stone's Board of Directors on
November 1, 1995).
(ix) Stone will not commit to any of the foregoing.
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(x) Stone shall conduct its business so that the representations
and warranties set forth in Section 3 continue to be as accurate in
all material respects at all times between the date of this Agreement
and the filing of the Certificate of Merger as they are at the date of
this Agreement, except for changes in the Ordinary Course of Business,
changes contemplated by this Agreement or the other documents and
agreements between the Parties referred to in this Agreement,
including, without limitation, the Management Agreement.
Nothing contained herein however shall from and after the date of this Agreement
and until the filing of the Certificate of Merger, affect the right of MBM and
Newco to deal with Stone and its business and operations with the same force and
effect as if Stone were, from and after the date of this Agreement, an operating
division or subsidiary of MBM.
(f) FULL ACCESS. Stone will permit representatives of MBM to have
full access to all premises, properties, personnel, books, records (including
tax records), contracts, and documents of or pertaining to Stone. MBM will
treat and hold as such any confidential information it receives from Stone in
the course of the reviews contemplated by this Section 5(f), will not use any of
the confidential information except in connection with this Agreement, and, if
this Agreement is terminated for any reason
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whatsoever, agrees to return to Stone all tangible embodiments (and all copies)
thereof which are in its possession.
(g) NOTICE OF DEVELOPMENTS. Each Party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 and Section 4 above. No
disclosure by any Party pursuant to this Section 5(g), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(h) EXCLUSIVITY. Stone will not solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of all or substantially all of the capital stock or assets of Stone (including
any acquisition structured as a merger, consolidation, or share exchange)
(collectively "Third Party Transaction"); PROVIDED, HOWEVER, that Stone and its
directors and officers will remain free to participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing to the extent their fiduciary duties
may require. Stone shall notify MBM immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing. If
Stone consummates or agrees to consummate a Third Party Transaction, it shall
pay to MBM and Newco on the closing date of such Third Party Transaction, an
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aggregate fee ("Break-up Fee") equal to one million ($1,000,000) Dollars, in
addition to any other amounts which may be due and owing to MBM or Newco at such
time.
(i) EXISTING RELATIONSHIPS. Stone and Andrew shall use their best
efforts to preserve for MBM and Newco the existing relationships of suppliers,
customers and others having business relations with Stone.
(j) CLOSING BALANCE SHEET.
(i) As soon as practicable and in no event more than forty-five
(45) calendar days after the date hereof, Stone will deliver, or cause
Stone's designated representative to deliver, to MBM and Newco an
unaudited balance sheet of Stone as of November 10, 1995 ("Balance
Sheet"). The Balance Sheet shall be prepared by Stone's chief
financial officer in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby and shall present fairly
the financial position of Stone as of the date hereof.
Representatives of MBM shall be present to observe the taking of
Stone's inventory in connection with the preparation of the Balance
Sheet.
(ii) The Balance Sheet shall include, without limitation,
reserves against assets or liabilities recorded reflecting the
following items: (x) against inventory and accounts receivable of not
less than
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$185,000 in the aggregate (y) a recorded liability for buyout of the
contracts of Norman Shore, Jan Bangelsdorf and George Michaels of
$265,000 in the aggregate and (z) a recorded liability for unpaid
professional fees concerning legal, accounting, tax opinion, fairness
opinion and proxy solicitation services, proposed settlement with the
IRS of any claims arising from audits conducted by the IRS and costs
associated with Stone's consulting contract with Betty Stone of not
less than $195,000 in the aggregate.
(iii) The Balance sheet shall be subject to review by MBM and
Newco and by Andrew. If within ten (10) days after the Balance Sheet
is delivered to MBM and Newco, Newco or Andrew notifies the other that
it does not accept the Balance Sheet as an accurate reflection of
Stone's business at the date hereof, and unless the other party
disagrees with such initial objection as provided for below, the
Balance Sheet shall be so modified to reflect any changes proposed.
If within ten (10) days after receipt of such notice of non-acceptance
the other party notifies the initial objecting party of a disagreement
with respect to any of the proposed modifications, resolution of the
proposed modifications subject to such disagreement shall be
determined by Anchin, Bloch & Anchin, a certified independent public
accounting firm (the
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<PAGE>
"Independent Public Accountant") in accordance with the terms of this
Agreement, on the basis of such procedures as the Independent Public
Accountant in its sole judgment, deems applicable and appropriate,
taking into account the nature of the issues, the amounts in dispute
and the respective positions asserted by the parties. If there are no
objections to the Balance Sheet within such ten (10) day period, the
Balance Sheet shall be deemed accepted. The acceptance of such
Balance Sheet by Newco and MBM shall not modify or alter Stone's or
Andrew's representations or warranties contained in this Agreement.
All charges of the Independent Public Accountant incurred in making
such determination such be borne equally by Newco and Andrew.
(k) INSURANCE. Until the Closing, Stone agrees to insure its assets
against all risks normally and usually insured against by comparable businesses,
with normal and usual coverage limits and in accordance with its past practices.
Stone agrees that the risk of loss for its assets shall remain with Stone until
the Closing.
6. SIMULTANEOUS DELIVERIES. Simultaneously with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby the parties contemplate the following:
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(a) STONE SHARE CERTIFICATES. Andrew shall have delivered to Stone's
attorneys, McLaughlin & Stern, LLP, possession of a certificate or certificates
evidencing the Stone Shares which he holds, together with stock powers endorsed
in blank concerning such Stone Shares. At any time prior to the Effective Time
when McLaughlin & Stern, LLP is no longer in possession of all such
certificates, this Agreement shall be deemed terminated with consequences as set
forth in Section 8 hereof. In the event that McLaughlin & Stern, LLP ceases to
be in possession of all such certificate or certificates, it shall immediately
provide notice thereof to MBM under the notice provisions of this Agreement.
(b) SALES REPRESENTATIVES. The Sales Representatives Agreement set
forth in Section 3(w) of the Disclosure Schedule between Stone and each person
listed on Exhibit E annexed hereto shall continue to be in full force and effect
at the date hereof.
(c) NONCOMPETITION AND EMPLOYMENT AGREEMENTS.
(i) Andrew and Newco shall have executed and delivered a
Noncompetition, Indemnification and Release Agreement in the form
annexed hereto as Exhibit F;
(ii) Lyudmilla Stone ("Lyudmilla") and Newco shall have executed
and delivered a Noncompetition and Release Agreement in the form
annexed hereto as Exhibit G; and
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(iii) Newco and Andrew shall have executed and delivered an
Employment Agreement in the form annexed hereto as Exhibit H.
(d) MANAGEMENT AGREEMENT. Stone and Newco shall have entered into a
Management Agreement in the form attached hereto as Exhibit I.
(e) OPINIONS. Robbins, Greene, Horowitz, Lester & Co., LLP and
McLaughlin & Stern, LLP shall have consented in writing to the use of their
respective names as experts and to the inclusion of any financial statements of
Stone audited by it, in the case of Robbins, Greene, Horowitz, Lester & Co.,
LLP, and to the opinion as to the tax-free nature of the reorganization
contemplated by this Agreement, in the case of McLaughlin & Stern, LLP, in any
Public Filing to be made by MBM.
(f) FAIRNESS OPINION. P.K. Hickey & Co., Inc. shall have delivered
an opinion in the form attached hereto as Exhibit J (the "Stone Fairness
Opinion") and shall have consented in writing to the use of the Stone Fairness
Opinion in any Public Filing to be made by MBM.
(g) CERTIFIED RESOLUTIONS. Stone shall have delivered certified
resolutions of its Board of Directors approving this Agreement and recommending
that Stone's shareholders vote in favor of the Merger.
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7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) OF STONE AND ANDREW. The obligation of Stone and Andrew to
consummate the transactions to be performed in connection with the Closing is
subject to satisfaction of the following conditions:
(i) The Merger shall have received the Requisite Stone
Shareholder Approval;
(ii) no action, suit, or proceeding shall be pending before any
court or quasijudicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated
by this Agreement or (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iii) the Registration Statement shall have become effective
under the Securities Act;
(iv) a Phase I Environmental Report shall have been prepared by
an environmental auditing firm satisfactory to Newco (at Newco's
expense) and
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delivered to MBM concerning Stone's real property commonly known as
2487 North Jerusalem Avenue, East Meadow, New York, and stating that
no remediation is indicated as being required so that said premises
are in compliance with all Environmental Laws, or if it does not so
indicate, then a Phase II Environmental Report (prepared at Newco's
expense) shall indicate that the cost of remediation is less than
$250,000.
(b) OF MBM. The obligation of MBM and Newco to consummate the
transactions to be performed in connection with the Closing is subject to
satisfaction of the following conditions:
(i) The Merger shall have received the Requisite Stone
Shareholder Approval;
(ii) a Phase I Environmental Report shall have been prepared by
an environmental auditing firm satisfactory to Newco (at Newco's
expense) and delivered to MBM concerning Stone's real property
commonly known as 2487 North Jerusalem Avenue, East Meadow, New York,
and stating that no remediation is indicated as being required so that
said premises are in compliance with all Environmental Laws, or if it
does not so indicate, then a Phase II Environmental Report (prepared
at Newco's expense) shall indicate
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that the cost of remediation is less than $250,000. If the cost is
greater, MBM and Newco may nonetheless choose to waive this condition
to consummation of the transactions to be performed in connection with
the Closing. Stone and Andrew's liability in respect of the
representation made in Section 3(x) of this Agreement shall in all
events remain unaffected by this Section 7(b)(ii).
(iii) Stone shall have performed and complied with all of its
covenants hereunder, including, without limitation, its obligations to
implement MBM's recommendations under the Management Agreement
referred to in Section 6(d), in all material respects through the
Closing;
(iv) no action, suit, or proceeding shall be pending before any
court or quasijudicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated
by this Agreement, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation or (C) affect
adversely the right of the Surviving Corporation to own Stone's former
assets or to operate its former
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business, (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(v) Stone shall have delivered to MBM a certificate to the
effect that each of the conditions specified above in Section 7(a)(i)-
(v) is satisfied in all respects;
(vi) Andrew, MBM, Newco and Andrew Escrow Agent shall
have executed and delivered the Andrew Escrow Agreement in the form
annexed hereto as Exhibit K ("Andrew Escrow Agreement").
(vii) Another person or entity and Andrew shall have entered
into a Put and Call Agreement in the form attached hereto as Exhibit
L. The identity of such other person shall be satisfactory to Andrew,
it being agreed that MBM and Royce Investment Group, Inc. are
satisfactory to Andrew.
(viii) the Registration Statement shall have become effective
under the Securities Act;
(ix) the Parties shall have received all other authorizations,
consents, and approvals of governments and governmental agencies
referred to in Section 3(d) and Section 4(c) above;
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(x) all actions to be taken by Stone in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in
form and substance to MBM.
MBM may waive any condition specified in this Section 7 if it executes
a writing so stating at or prior to the Closing. Stone may waive any condition
in this Section 7 which MBM has, by any action or inaction, prevented Stone from
fulfilling.
8. STOCK PURCHASE AGREEMENT.
Unless the holders of more than 66 2/3% of the Stone Shares vote in
favor of the Merger on or before June 30, 1996 (unless such failure to so vote
occurs on account of fraud on the part of Stone or Andrew), Andrew agrees to
sell and Newco agrees to purchase an aggregate of 1,973,750 Stone Shares from
Andrew on the following terms and conditions:
(a) CONVERSION RATIO. The Conversion Ratio shall be 0.069 MBM Shares
for each Stone Share, or at MBM's sole, absolute and exclusive option, MBM may
pay for the Stone Shares by bank or certified check in an amount equal to the
amount determined by valuing the MBM Shares that would otherwise be delivered in
accordance with the Conversion Ratio set forth in this 8(a) at $11.50 per share.
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(b) CONDITIONS. The conditions set forth in Section 7(b), except for
the conditions set forth in Section 7(b)(i) and 7(b)(x) shall have been complied
with.
(c) CLOSING DATE. The closing date of the transaction shall be July
31, 1996 or such earlier date, but not prior to June 30, 1996, as MBM shall
determine. Andrew shall deliver on the Closing Date a certificate(s) evidencing
his Stone Shares together with a stock power duly endorsed for transfer with
signature guaranteed by a national bank or a member firm of the New York Stock
Exchange.
(d) REPRESENTATIONS AND WARRANTIES. Andrew hereby represents and
warrants to MBM and Newco that:
(i) Such Stone Shares are the only shares of Stone common stock
which he has the right, power and authority to sell and he has no
right to acquire any other Stone Shares.
(ii) He has the right, power and authority to execute and deliver
this Agreement and to sell such Stone Shares in accordance with the
terms of this Agreement.
(iii) Such execution, delivery and sale will not violate or
require any consent, approval or notice under any provision of law or
the terms of any
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governing instrument or result in the breach of any outstanding
agreement or instrument to which he is a party or is subject and this
Agreement has been duly executed and delivered by him and constitutes
his legal, valid and binding Agreement enforceable in accordance with
its terms.
(iv) The Stone Shares to be delivered by him hereunder are free
and clear of all Security Interests, with respect to the ownership or
voting of such shares or otherwise and there are no outstanding
options, warrants or rights to purchase or acquire or agreements
relating to any of such shares.
(v) Upon purchase of such Stone Shares in accordance with the
terms hereof, Newco will be vested with good title to such shares free
and clear of all encumbrances.
(vi) He has no present plan, intention, or arrangement to dispose
of any of the MBM Shares received in accordance with this Agreement in
a manner that would cause the transaction to violate the continuity of
shareholder interest requirement set forth in IRS Reg. Section 1,3681.
He is acquiring the shares for investment and not with a view to
the disposition thereof. He is sophisticated in business and
financial
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matters and has the capacity to protect his own interests in
connection with the transaction and is able to bear the economic risk
of investing in MBM. He is an "Accredited Investor" within the
meaning of Regulation D of the Securities Exchange Act. He
understands that the certificates representing the MBM Shares issued
to him will contain legends to the effect that:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER SAID
ACT, AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
REGISTRATION IS NOT THEN REQUIRED UNDER SAID ACT, OR A
SATISFACTORY NO ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
NONCOMPETITION, INDEMNIFICATION AND RELEASE AGREEMENT, AN ESCROW
AGREEMENT AND A PUT AND CALL AGREEMENT. A COPY OF EACH AGREEMENT CAN
BE OBTAINED AT THE OFFICES OF THE CORPORATION.
(e) REMEDIES. If the Sellers breach the provisions of Section 2(f)
or of this Section 8, in addition to such other remedies as they may be entitled
to under law or equity, MBM and Newco shall be entitled to receive the Break-Up
Fee.
9. MISCELLANEOUS.
(1) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No party shall issue
any press release or make any public announcement
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relating to the subject matter of this Agreement without the prior written
approval of the other parties; PROVIDED, HOWEVER, that any party may make any
public disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing party will use its best efforts to advise the other parties
prior to making the disclosure).
(b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any person or entity other than the parties and
their respective successors and permitted assigns; assigns; PROVIDED, HOWEVER,
that (i) the provisions in Section 2 above concerning payment of the
consideration for the Merger are intended for the benefit of the Stone
Shareholders.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the parties and
supersedes any prior understandings, agreements, or representations by or among
the parties, written or oral, to the extent they relate in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties named herein and their respective
successors and permitted assigns. No party may assign either this Agreement or
any of its rights,
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interests, or obligations hereunder without the prior written approval of the
other parties.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to Stone or Andrew: Copies to:
---------------------- ----------
Stone Medical Supply Corp. Ruskin, Moscou, Evans &
2487 North Jerusalem Road Faltischek, P.C.
East Meadow, N.Y. 11554 170 Old Country Road
Attn: Andrew D. Stone, Mineola, N.Y. 11501
President Attn: Norman M. Friedland, Esq.
and
McLaughlin & Stern, LLP
380 Lexington Avenue
New York, New York 10168
Attn.: David W. Sass, Esq.
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<PAGE>
If to MBM or Newco: Copies to:
------------------- ----------
Micro Bio-Medics Inc. Otterbourg, Steindler,
846 Pelham Parkway Houston & Rosen, P.C.
Pelham Manor, N.Y. 10803 230 Park Avenue
Attn: Bruce J. Haber, New York, N.Y. 10169
President Attn: Donald N. Gellert, Esq.
and
Steven Morse, Esq.
c/o Lester Morse, P.C.
111 Great Neck Road
Suite 420
Great Neck, N.Y. 11021
Any party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other parties notice in the manner herein set forth.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
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<PAGE>
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the parties. No waiver by any party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) EXPENSES. Each of the parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise
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<PAGE>
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean "including without limitation". Pronouns shall be
deemed to include masculine, feminine and neuter genders and singular or plural
numbers as appropriate.
(m) CONSENT TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE OF
PROCESS. The parties hereto irrevocably consent and submit to the non-exclusive
jurisdiction of the Supreme Court of the State of New York in New York County
and the United States District Court for the Southern District of New York in
connection with any action, proceeding or claim arising out of or relating to
this Agreement. Andrew hereby irrevocably appoints and designates the law firm
of Ruskin, Moscou, Evans, Faltischek, P.C. (or its successors in business) as
his agents for service of process in New York and agrees to consider any legal
process or any demand or notice made or served on the said agents as being made
on him. Andrew hereby agrees that separate confirmation by such agent of the
foregoing irrevocable appointment as agent for service of process is not
required.
(n) INJUNCTIVE RELIEF. The parties acknowledge that if any of them
should breach a material covenant contained herein or fail or refuse to perform
their obligations under this
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<PAGE>
Agreement, irreparable damages will result to the other party and its business
and properties and the other party's remedy at law may be inadequate.
Therefore, in addition to any remedy and damages otherwise available to the
injured party (none of which remedies and damages are hereby waived), the
parties agree that they shall be entitled to injunctive relief, and may be
specifically compelled to perform their obligations under this Agreement.
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<PAGE>
(o) WAIVER OF JURY TRIAL. ALL OF THE PARTIES HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OF ANY KIND WITH RESPECT TO, IN CONNECTION WITH
OR ARISING OUT OF THIS AGREEMENT, ANY INSTRUMENT, DOCUMENT OR GUARANTY DELIVERED
PURSUANT HERETO, OR THE VALIDITY, PROTECTION, INTERPRETATION, ADMINISTRATION,
COLLECTION OR ENFORCEMENT HEREOF OR THEREOF.
MICRO BIO-MEDICS INC.
By: s/ Bruce Haber
Title: President
DIAGNOSTIC LEASING CORP.
By: /s/ Bruce Haber
-----------------------------
Title: President
STONE MEDICAL SUPPLY CORPORATION
By: /s/ Andrew Stone
-----------------------------
Title: President
/s/Andrew Stone
----------------------------------
ANDREW D. STONE
SECTION 6(a) hereby consented to:
MCLAUGHLIN & STERN, LLP
By: /s/ David W. Sass
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<PAGE>
EXHIBIT "B"
SECTION 623 OF THE NEW YORK BUSINESS CORPORATION LAW
623 PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR SHARES
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election to
dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all
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<PAGE>
of the shares of such owner, as to which such nominee or fiduciary has a right
to dissent, held of record by such nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of
election must be accompanied by the return to the corporation of any advance
payment made to the shareholder as provided in paragraph (g). If a notice of
election is withdrawn, or the corporate action is rescinded, or a court shall
determine that the shareholder is not entitled to receive payment for his
shares, or the shareholder shall otherwise lose his dissenter's rights, he shall
not have the right to receive payment for his shares and he shall be reinstated
to all his rights as a shareholder as of the consummation of the corporate
action, including any intervening preemptive rights and the right to payment of
any intervening dividend or other distribution or, if any such rights have
expired or any such dividend or distribution other than in cash has been
completed, in lieu thereof, at the election of the corporation, the fair value
thereof in cash as determined by the board as of the time of such expiration or
completion, but without prejudice otherwise to any corporate proceedings that
may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate
bearing such notation, each new certificate issued therefore shall bear a
similar notation together with the name of the original dissenting holder of the
shares and a transferee shall acquire no rights in the corporation except those
which the original dissenting shareholder had at the time of the transfer.
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<PAGE>
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such balance
sheet or profit and loss statement or statements were previously furnished, nor
if in connection with obtaining the shareholders' authorization for or consent
to the proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefore shall be made within sixty
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<PAGE>
days after the making of such offer or the consummation of the proposed
corporate action, whichever is later, upon the surrender of the certificates for
any such shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a special
proceeding in the supreme court in the judicial district in which the office of
the corporation is located to determine the rights of dissenting shareholders
and to fix the fair value of their shares. If, in the case of merger or
consolidation, the surviving or new corporation is a foreign corporation without
an office in this state, such proceeding shall be brought in the county where
the office of the domestic corporation, whose shares are to be valued, was
located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such proceeding
for the same purpose not later than thirty days after the expiration of such
twenty day period. If such proceeding is not instituted within such thirty day
period, all dissenter's rights shall be lost unless the supreme court, for good
cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting shareholder
who is a resident of this state in the manner provided by law for the service of
a summons, and upon each nonresident dissenting shareholder either by registered
mail and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as
to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not request
any such determination or if the court finds that any dissenting shareholder is
so entitled, it shall proceed to fix the value of the shares which, for the
purposes of this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the fair value
of the shares, the court shall consider the nature of the transaction giving
rise to the shareholder's right to receive payment for shares and its effects on
the corporation and its shareholders, the concepts and methods then customary in
the
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<PAGE>
relevant securities and financial markets for determining fair value of shares
of a corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the
fair value of the shares without a jury and without referral to an appraiser or
referee. Upon application by the corporation or by any shareholder who is a
party to the proceeding, the court may, in its discretion, permit pretrial
disclosure, including, but not limited to, disclosure of any expert's reports
relating to the fair value of the shares whether or not intended for use at the
trial in the proceeding and notwithstanding subdivision (d) of section 3101 of
the civil practice law and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such
rate as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept
the corporate offer of payment for his shares was arbitrary, vexatious or
otherwise not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its
discretion, apportion and assess all or any part of the costs, expenses and fees
incurred by the corporation against any or all of the dissenting shareholders
who are parties to the proceeding, including any who have withdrawn their
notices of election as provided in paragraph (e), if the court finds that their
refusal to accept the corporate offer was arbitrary, vexatious or otherwise not
in good faith. The court may, in its discretion, apportion and assess all or
any part of the costs, expenses and fees incurred by any or all of the
dissenting shareholders who are parties to the proceeding against the
corporation if the court finds any of the following: (A) that the fair value of
the shares as determined materially exceeds the amount which the corporation
offered to pay; (B) that no offer or required advance payment was made by the
corporation; (C) that the corporation failed to institute the special proceeding
within the period specified therefore; or (D) that the action of the corporation
in complying with its obligations as provided in this section was arbitrary,
vexatious or otherwise not in good faith. In making any determination as
provided in clause (A), the court may consider the dollar amount or the
percentage, or both, by which the fair value of the shares as determined exceeds
the corporate offer.
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<PAGE>
(8) Within sixty days after final determination of the proceeding,
the corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificate for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefore or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment would
make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such event be
deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if
it is liquidated, be subordinated to the rights of creditors of the corporation,
but have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this paragraph
do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment for
his shares cannot be made because of the restrictions of this paragraph. If the
dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for
his shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to
be given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
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<PAGE>
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or consolidation of
domestic and foreign corporations). (Last amended by Ch. 117, L. '86, eff. 9-1-
86)
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<PAGE>
EXHIBIT "C"
FAIRNESS OPINION
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[P.K. HICKEY & CO. INC. LETTERHEAD]
November 1, 1995
The Board of Directors
STONE MEDICAL SUPPLY CORPORATION
2487 North Jerusalem Road
East Meadow, NY 11554
Gentlemen:
You have asked our opinion with respect to the fairness, from a financial point
of view, to the minority shareholders of Stone Medical Supply Corporation
("Stone Medical") of the merger consideration as defined below and other
financial terms of the proposed Agreement for Merger and Reorganization (the
"Agreement") by and among Stone Medical, Andrew D. Stone ("Andrew"), Micro
BioMedics Inc. ("MBM"), and Diagnostic Leasing Corp., a wholly-owned Subsidiary
of MBM ("Newco").
Under the terms and conditions of the Agreement, Newco is purchasing 3,431,500
shares of Common Stock of Stone Medical, par value $.01 per share, from all of
the Stone Medical shareholders at a valuation of $0.94 per share in exchange for
280,756 shares of Common Stock of MBM, par value $.03 per share, at a valuation
of $11.50 per share. The last sale on October 31, 1995 of the Common Stock of
MBM, traded on the NASDAQ National Market System, was 13 1/8. Of the Stone
Medical shares of Common Stock to be acquired by Newco, 1,973,750 shares are
owned by Andrew and 1,457,750 shares are owned by the public and others.
The Board of Directors of Stone Medical, MBM and Newco have approved a
business combination whereby, upon the consummation of the transactions
described in paragraph two (2) above, Stone Medical will merge with and into
Newco and become a wholly owned Subsidiary of MBM.
Simultaneously with the execution of the Agreement, Newco and Andrew will
have executed an Employment Agreement and a Non-Competition, Indemnification
and Release Agreement ("Non-Competition Agreement"). In addition, another
officer of Stone Medical will also enter into a Non-Competition Agreement
with Newco. Andrew will also enter into a Put and Call Agreement with an
unnamed party (the "Party") whereby he will have to right for three months to
"put" one half of his shares to the Party at $9.50 per share commencing one
year from the date of the merger and the Party will have the right for one
year to repurchase one half of his shares of MBM at $13.50. The other
one-half shares of MBM to be owned by Andrew will be subject to a two-year
"lock-up" as security for Andrew's indemnification obligations under the
Non-Competition Agreement.
<PAGE>
P.K. Hickey & Co., Inc., as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, secondary distribution of securities,
negotiated underwritings, private placements and valuations for corporate and
other purposes.
P.K. Hickey & Co., Inc. has acted as financial advisor to Stone Medical in
connection with its review of the fairness to the minority public shareholders
of Stone Medical from a financial point of view of the Agreement together with
the accompanying agreements and documents. For purposes of this opinion, the
Undersigned (i) reviewed various financial information furnished by Stone
Medical and MBM, including annual reports, 10K and 10Q reports and other
financial documents; (ii) held discussions in person with the Chief Executive
Officers of Stone Medical and MBM concerning their companies, including their
business, operations, competition, management, industry aspects and prospects
now and upon consummation of the transaction; (iii) reviewed the various
proposed Agreements including the Agreement by and among Stone Medical, Andrew,
MBM and Newco; the Employment Agreement between Newco and Andrew; the Non-
Competition Agreement between Newco and Andrew; the Non-Competition Agreement
between Newco and Lyudmila Stone; the Put and Call Agreement; and the Andrew
Escrow Agreement; (iv) reviewed the trading of the Common Stock of Stone Medical
and MBM; (v) reviewed the valuations of publicly traded companies deemed
comparable to Stone Medical and MBM; (vi) reviewed comparative acquired company
transactions related to the medical supply industry and relative investment
analyses; (vii) reviewed the future business and financial viability of Stone
Medical in the event the proposed Agreement is not completed; (viii) reviewed
such other studies and material deemed relevant; and (ix) held discussions
concerning the various agreements and documents relative to the transaction with
Stone Medical's attorneys.
In connection with its opinion, the Undersigned has not independently verified
any of the foregoing information publicly available or furnished to it and has
relied on all such information being complete and accurate in all material
aspects.
Based on and subject to the foregoing considerations, it is the opinion of the
Undersigned that the consideration to be paid the minority stockholders of Stone
Medical pursuant to the Agreement is fair from a financial point of view to the
minority shareholders of Stone Medical. In arriving at this opinion, the
Undersigned relied upon the following specific factors:
- The medical supply distribution and service industry in which Newco
and Stone Medical are involved is comprised of national and regional
distributors supplying medical products and equipment to health care
providers such as hospitals (acute care) and alternate site customers
such as physicians, nursing homes, clinics, etc. (primary care).
- Over the past number of years, manufacturers of medical products and
equipment have increasingly relied on distributors to distribute their
products to acute care facilities as the cost and complexity of
accumulating inventories, managing receivables, etc. has risen and
customers have increasingly demanded specialized services to assist
them in managing such costs. Medical supply distributors service
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orders more efficiently than manufacturers and customers benefit
thereby by having a single source of supply for a bulk line of medical
products as well as accompanying cost containment measures (lower
inventory carrying costs, more timely delivery, etc.).
- The medical supply industry has grown to over $18 billion in sales
estimated for 1995 due to the increased consumption of medical
supplies and increased reliance on the part of manufacturers and
customers on national and regional distributors.
- The growth in consumption of medical supplies is a direct effect of
the aging of the population (by the year 2000, 35.2 million people
will be over the age of 65) and the growth in the use of extended care
facilities that has resulted in the increase in distribution of
medical supplies due to the following: legislative health care
coverage through federal Medicare and Medicaid Acts; the development
of new health care procedures (transplants, coronary bypass)
increasing the number of medical supplies consumed; the increase of
disposable products out of concern for infection control and labor
costs; and the proliferation of households in which both adults work..
- Several factors have contributed to the tendency of manufacturers and
health care providers to place greater reliance on the use of medical
supply distributors, including ongoing efforts by federal and state
governments as well as private payers to reduce health care costs that
has created intense cost containment pressures for hospitals and other
providers of health care services.
- As a result of changes initiated by the federal government in hospital
reimbursement under the Medicare program, which changed hospital
reimbursement from a cost-based system to a fixed-payment system,
hospitals have received lower reimbursement rates for services
performed by them. In early 1992, the federal government adopted
similar regulations with respect to reimbursements to physicians for
services to Medicare recipients. In response to these cost
containment pressures and regulations, hospitals and physicians have
sought to reduce their costs and maximize their operating efficiencies
by using, among other things, medical supply distributors to
implement, or to assist them in implementing their own, asset
management programs.
- With respect to physicians, industry sources believe that these
decreases in reimbursement, combined with the increasing costs for
support personnel and other expenses in the physician's practice, have
caused the development of larger multi-specialty group practices and
managed care, while decreasing the number of sole practitioners and
small clinics. These multi-specialty group practices often employ
administrators who have significant experience with national
distribution. Moreover, hospitals are increasingly offering
sophisticated programs to physicians to "bond" them to a particular
hospital system, including making available to physicians the products
and the services of a hospitals medical supply distributor.
- The Republican controlled Congress recently passed budget reduction
bills that will
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eliminate upwards of $452 billion over the next seven years out of
projected Medicare and Medicaid payments. Details relating to the
planned budget cuts still need to be reconciled between the Senate and
the House and the threat of a White House veto. But a strong version
of the proposed cuts is more than likely and their impact will affect
the entire health care industry that is expected to lead to further
aggressive streamlining of the delivery process, the introduction of
new technologies and the consolidation of excess facilities and
capacity.
- MBM is a $130 million in sales medical products distributor that
offers over 56,000 types of medical and office supplies to physicians
in the Northeast and over 40,000 kinds of medical and surgical
supplies to hospitals in the New York Metropolitan area. In addition,
it distributes a broad variety of medical and health care products to
professionals in the areas of sports medicine, school health care and
emergency medical services. MBM's net sales have more than doubled in
the past four years, making it one of the fastest-growing distributors
of medical and health care products in the country.
- Due to the changes in the medical products distribution business
brought about by managed care and new technology among other factors,
MBM has positioned itself as a consolidator in the marketplace. In
this regard, over the past several years, MBM has completed the
acquisitions of four medical supply companies, the largest of which
was Clark Surgical Corp., with sales at the time of acquisition of
approximately $30 million. MBM's acquisition policy is to consolidate
acquired companies into its existing infrastructure to take advantage
of economies of scale and consolidated marketing opportunities.
- MBM has been a leader in the industry in the development of
technological advancements. In 1994, it completed the development of
a new purchasing system for customer inventory management providing
MBM and its customers with overhead savings and increased profit
margins. In 1995, MBM implemented a new computerized warehouse
management system allowing it to separate its facilities on a
paper-less real time basis, thus vastly improving efficiency and
accuracy while allowing more sophisticated services to customers.
For the past several years, MBM's integrated health care network and
seamless (complete supply fulfillment with one order) distribution of
medical supplies to all its customers' facilities has allowed it to
develop opportunities among hospitals and other managed care providers
as these entities accelerate their acquisition of primary care
providers.
- MBM is currently finalizing a contract with the St. Lukes-Roosevelt
Hospital Center in Manhattan to operate that hospital's warehouse
facilities and stockless distribution service. This contract is
estimated to increase MBM's sales over the next several years by $100
million and will lead to offering the service to other major New York
City hospitals commencing in 1996.
- As of August 31, 1995, MBM was in very strong financial condition.
Net working
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capital as of that date totaled $29.5 million with a current ratio of
3.4 to 1. Long term debt, principally a credit line from Chase Bank
(total line: $25 million) and $3.0 million in subordinate convertible
debentures, amounted to $18.5 million with tangible net worth (after
goodwill of $4.2 million) of $14 million. Management of MBM believes
that it has sufficient liquidity for its short and long term
requirements.
- MBM reported its net income for the August 31, 1995 third quarter rose
21% from the same period 1994 to a record $1.0 million on a net
revenue increase of 7% to $36.6 million. MBM's management has stated
that, based on structural improvements and continual expansion of the
business, it expects to report continued financial improvement for the
balance of 1995 and into 1996.
- MBM's Common Stock is traded on the NASDAQ National Market System.
Over the past year, the price range of the Common Stock has been low,
9-5/16 and high, 14. As of October 31, 1995, the last sale price was
13 1/8. Over the past number of months, the shares of Common Stock
have traded on an average volume of 250,000 shares per month. There
are currently twelve market makers in the Common Stock, including such
firms as Royce Investment Group, Inc., Herzog, Heine, Geduld, Inc.,
Fahnestock & Co., Inc., Josephthal Lyon & Ross Incorporated and
Americorp Securities, Inc.
- The current valuation of MBM, based on the fully diluted shares of
Common Stock outstanding, is $63.7 million or 16x projected net income
for 1996 and 3.5x net worth. This compares favorably with the two
major public "pure play" medical distributors, General Medical
Corporation and Owens Minor, Inc.
- Stone Medical is a $12 million in sales distributor of medical
supplies and equipment, including disposable supplies, diagnostic and
surgical equipment and medical office equipment to physicians and
medical clinics (70% of sales), podiatrists (15% of sales) and
government (15% of sales), mainly military bases. Sales are made
throughout the Metropolitan New York area from facilities located in
Long Island. Stone Medical's sales between 1992 and 1994 grew at the
rate of between 3% and 10% annually, but in 1995 are estimated to be
approximately $12 million or 18% ahead of 1994.
- A preponderance of Stone Medical's sales are made to typical
physicians or podiatrists offices including disposable products,
laboratory equipment, medical equipment and basic furniture necessary
to outfit a physician's office. With the thrust to cost containment
in the health care industry, many physicians have joined professional
corporations which, in turn, are being purchased by hospitals or
managed care organizations.
- Stone Medical competes against large national and regional medical
distributors and many smaller local firms that have long-standing
relationships with its customers. Competition is considered to be
intense with emphasis on pricing, on time delivery schedules, breadth
of product lines and various other services offered. Stone
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Medical's customer base, however, does not currently overlap with that
of MBM's, an important factor in determining MBM's interest in the
acquisition of Stone Medical.
- Stone Medical as of 6/30/95 had limited resources. As of that date,
net working capital totaled just over $1.0 million with a current
ration of 1.4 to 1. Long term debt, principally mortgage debt and
equipment loans, totaled $380,000. Stone Medical has a 3 year line of
credit with a bank totaling $1.45 million of which $1 million was
outstanding as at the above date. The credit line is secured by all
the assets of the company ($4.4 million) and the personal guarantees
of Stone Medical's President and Treasurer. Stone Medical's net worth
as at the above date totaled $1.3 million. While Stone Medical has
made relatively small profits over the years, it has maintained a
gross profit margin in the range of 28%, substantially higher than the
industry average.
- According to Andrew, Stone Medical has an exceptional sales force
staffed by a sales manager and approximately sixteen full-time
salesmen compensated on a commission basis. Sales are conducted
through a direct solicitation of physicians' and podiatrists' offices,
direct mailings and a computer direct bid system with local and state
governments as well as the military.
- Andrew, age 39, the Chairman and President of Stone Medical, has been
with Stone Medical for approximately seventeen years and is mainly
responsible for the growth of Stone Medical to its present level of
sales. With his many years in the business, Andrew has developed
substantial expertise in all facets relating to the distribution of
medical products. MBM is entering into the Employment Agreement, Non-
Competition Agreement and Put and Call Agreement with Andrew as an
inducement for Andrew to make the representation, warranties and
covenants set forth in the Agreement.
- Stone Medical's shares of Common Stock are currently traded in over-
the-counter market through only two market makers that submit bid and
asked quotations in the "pink sheets". The recent "inside" market for
the shares was $0.25 bid, offered at $0.50. The shares are traded
sporadically and, therefore, their market is basically illiquid.
- The shares of MBM Common Stock to be received by all the Stone Medical
shareholders, including the public, are valued at the current market
price of approximately $3.7 million or approximately 2.9x Stone
Medical's book value and 74x its estimated 1995 net income. The price
being paid to the Stone Medical shareholders reflected by the current
market price of MBM shares is substantially in excess of the current
illiquid market bid price of Stone Medical's shares.
To summarize, MBM is entering into the Agreement with Stone Medical in order to
gain critical mass
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<PAGE>
(additional $12 million sales) that it can assimilate into its operations
thereby reducing Stone Medical's overhead and generating enhanced profitability;
eliminate a potential competitor; add an outstanding young executive to its
management team; add Stone Medical's sales force to its marketing and sales
efforts and provide them with MBM's broader product line to offer their
customers; and acquire a customer base that does not overlap with its own.
Stone Medical is entering into the Agreement with MBM based on the uncertainty
of the future course of its business due to its limited capital resources and
the ongoing changes in the health care industry and medical supply business;
that, with the trend of physicians groups to be acquired by hospitals, Stone
Medical may have difficulty as an independent company in achieving a higher
level of sales and profits; and, because of these factors, its shares of Common
Stock will most likely remain illiquid with limited potential for increased
value. The merger with MBM will enable the public shareholders of Stone Medical
to receive highly liquid securities in a much larger company with significant
financial resources, thereby providing these shareholders with the potential to
achieve a far more satisfactory return on their investment than if Stone Medical
remained an independent company.
Respectfully submitted,
P.K. HICKEY & CO., INC.
By: /s/ Paul K. Hickey
---------------------
President
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PART II
Information not required in Prospectus
Item 20. Indemnification of Directors and Officers.
The Business Corporation Law of the State of New York provides for
indemnification of officers and directors under certain circumstances against
reasonable expenses, including attorney fees, actually and necessarily incurred
in connection with the defense of an action brought against him by reason of his
being a director or officer. Bruce Haber, President of the Company, has an
employment contract with the Company which provides for indemnification for any
claim or lawsuit which may be asserted against him in acting in such capacity
for the Company provided said indemnification is not in violation of any federal
or state law, rule or regulation.
The Certificate of Incorporation, as amended, also contains a provision
eliminating the liability of a director to the Company or its stockholders for
monetary damages for any breach of duty in such capacity, provided that this
provision shall not eliminate or limit liability of any director if a judgment
or other final adjudication adverse to him establishes that his acts or
omissions were made in bad faith or involved intentional misconduct or a knowing
violation of law or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled or that his acts violated
Section 719 of the New York Business Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits:
3 Articles of Incorporation, as amended (incorporated by reference to
the Registrant's Form S-2 Registration Statement File No. 33-46319,
Exhibit 3)
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3(A) By-Laws (incorporated by reference to the Registrant's Form S-2
Registration Statement File No. 33-46319, Exhibit 3(A))
4 Specimen of Common Stock (incorporated by reference to the
Registrant's Form S-2 Registration Statement File No. 33-46319,
Exhibit 4)
5 Opinion re: legality**
8 Tax Opinion of McLaughlin & Stern LLP including Consent**
10 Employment Agreement of Bruce Haber dated February 11,
1992 (incorporated by reference to Exhibit 10(C) included
in the Company's Form 10-K for the fiscal year ended
November 30, 1991)
10(A) Contract with Marvin Caligor (incorporated by reference to Exhibit
10.2 included in the Company's Form S-18 Registration Statement, File
No. 2-89795-NY)
10(B) Amendments to Caligor's Agreement (incorporated by reference to
Exhibit 10(D) included in the Company's Form 10-K for the fiscal year
ended November 30, 1991)
10(C) New lease for Pelham Manor, New York (incorporated by reference to
Exhibit 10(B) included in the Company's Form 10-K for the fiscal year
ended November 30, 1991)
10(D) Credit Agreement dated November 18, 1993 among Micro Bio-Medics,
Inc., the Bank's signatory thereto, and the Chase Manhattan, N.A. as
agent (incorporated by reference to Exhibit 10.1 included in the
Company's Form 8-K dated November 19, 1993)
10(E) First Amendment to Credit Agreement dated August 1,
1994 (incorporated by reference to Exhibit 10(a)(1) included in the
Company's Form 10-K for the fiscal year ended November 30, 1994)
10(F) Second Amendment to Credit Agreement dated December 1, 1994
(incorporated by reference to Exhibit 10(a)(2) included in the
Company's Form 10-K for the fiscal year ended November 30, 1994)
10(G) Asset Purchase Agreement dated November 19, 1993 by and between MBM
Hospital supply Corp. and Clark Surgical Corp. (incorporated by
reference to Exhibit 10.2 included in the Company's Form 8-K dated
November 19, 1993)
10(H) Amendments 1-4 to Asset Purchase Agreement dated November 19, 1993 by
and between MBM Hospital Supply Corp. and Clark Surgical Corp.
(incorporated by reference to Exhibit 10(b)(1) included in the
Company's Form 10-K for the fiscal year ended November 30, 1993)
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<PAGE>
10(I) Lease for the Company's facilities located in Syosset, New York by and
between the Company and Lin Pac, Inc. dated December 8, 1994
(incorporated by reference to Exhibit 10(c)(2) included in the
Company's Form 10-K for the fiscal year ended November 30, 1994)
10(J) Amendment dated December 23, 1993 to Bruce Haber's Employment
Contract (incorporated by reference to Exhibit 10(e) included in the
Company's Form 10-K for the fiscal year ended November 30, 1993)
10(K) 1982 Incentive Stock Option Plan of Registrant (incorporated by
reference to Exhibit 10.4 included in the Company's Form S-18
Registration Statement, File No. 2-89795-NY)
10(L) 1989 Non-Qualified Stock Option Plan (incorporated by reference to
Exhibit 28 included in the Company's Form 10-K for the fiscal year
ended November 30, 1989)
10(M) 1992 Incentive and Non-Statutory Stock Option Plan (incorporated by
reference to Exhibit 28(A) included in the Company's Form 10-K for the
fiscal year ended November 30, 1991)
10(M)(i) Subscription Agent Agreement (incorporated by reference to Exhibit
10(m) included in the Registrant's Form S-2 Registration Statement
File No. 33-463191, Exhibit M)
10(N) Agreement for Merger and Reorganization dated as of November 2, 1995
(included in Prospectus)**
10(O) Noncompetition, Indemnification and Release Agreement of Andrew D.
Stone dated as of November 2, 1995 **
10(P) Noncompetition Agreement of Lyudmila Stone dated as of November 2,
1995 *
10(Q) Form of Escrow Agreement *
10(R) Employment Agreement of Andrew D. Stone dated as of November 2,
1995 **
10(S) Form of Put and Call Agreement **
10(T) Management Agreement dated as of November 2, 1995 **
10(U) Amendment to Bruce Haber Employment Agreement dated as of December 23,
1993 **
10(V) Amendment to Bruce Haber Employment Agreement dated as of April 1,
1995 **
10(W) Amendments to 1992 Incentive and Non-Statutory Stock Option Plan **
10(X) Consent of Chase Manhattan Bank dated as of November 2, 1995 **
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<PAGE>
11 Statements re: computation of per share earnings (included in Note 10
of Notes to Consolidated Financial Statements and Exhibit 11 on page
F-25 in the Company's Form 10-K for the fiscal year ended November 30,
1994 and Exhibit 11 included in the Company's Form 10-Q for the
quarter ended August 31, 1995)
21 Subsidiaries of Registrant**
23 Consent of Counsel (contained in Exhibit 5) **
23(A) Consent of Miller, Ellin & Co.*
23(B) Consent of Robbins, Greene, Horowitz &
Lester & Co. LLP*
23(C) Consent of McLaughlin & Stern, LLP (included in
Exhibit 8)**
23(D) Consent of P.K. Hickey & Co.*
27 Financial Data Schedule**
99 Fairness Opinion of P.K. Hickey & Co. (included in Prospectus)**
99.1 Form of Proxy Card*
__________________
* Filed herewith.
(b) Financial Statements and Schedules:
(1) Included in the Prospectus are the Independent Auditors' Report and the
following Financial Statements:
(I) Balance Sheets of Registrants as of November 30, 1994 and November 30,
1993.
(II) Statements of Operations of Registrants for the years ended November
30, 1994, November 30, 1993 and November 30, 1992.
(III) Statements of Stockholders' Equity of Registrants for the years ended
November 30, 1994, November 30, 1993 and November 30, 1992.
(IV) Statements of Cash Flows of Registrants for the years ended November
30, 1994, November 30, 1993 and November 30, 1992.
(V) Notes to Consolidated Financial Statements.
II-4
<PAGE>
(2) Included in the Prospectus are the Independent Auditors' Report on
schedules and the following Financial Statement Schedules:
Schedule VIII - Valuation and Qualifying Accounts
Exhibit 11 - Earnings Per Share Calculation
Schedules other than those referred to above have
been omitted as the conditions requiring their
filing are not presented or the information has
been presented elsewhere in the financial statements.
Separate financial statements and schedules of
Micro Bio-Medics, Inc. (Parent) have been omitted
since the conditions for omission have been met.
All other Schedules have been omitted because they are not applicable or
not required under the instructions contained in Regulation S-X, or because the
information is included elsewhere in the Financial Statements or notes thereto.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
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<PAGE>
(4) For purposes of determining any liability under the Securities Act of
1933, each filing of the Company's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) To supply by means of a Post-Effective Amendment all information
concerning a transaction and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pelham Manor, State of
New York on the 11th day of December, 1995.
MICRO BIO-MEDICS, INC.
BY: /s/ Bruce J. Haber
-----------------------
Bruce Haber, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capabilities and on the dates indicated.
Signatures Titles Date
---------- ------ -----
President,
/s/ Bruce J. Haber Principal Executive
- --------------------- Officer and Director* December 11, 1995
Bruce J. Haber
/s/ Marvin S. Caligor
- ---------------------- Director* December 11, 1995
Marvin S. Caligor
Vice President,
/s/ Stuart Fleischer Principal Financial and
- ---------------------- Accounting Officer December 11, 1995
Stuart Fleischer
/s/ Renee Steinberg Secretary and
- ---------------------- Director* December 11, 1995
Renee Steinberg
/s/ K. Deane Reade, Jr.
- ---------------------- Director* December 11, 1995
K. Deane Reade, Jr.
* Bruce J. Haber, Marvin S. Caligor, Renee Steinberg and K. Deane Reade, Jr.
constitute all of the members of the Board of Directors of the Registrant.
II-7
<PAGE>
PART II EXHIBITS - TABLE OF CONTENTS
Exhibit No.
- -----------
10(P) Noncompetition Agreement of Lyudmila Stone dated as of November 2,
1995
10(Q) Form of Escrow Agreement
23(A) Consent of Miller, Ellin & Co.
23(B) Consent of Robbins, Greene, Horowitz &
Lester & Co. LLP
23(D) Consent of P.K. Hickey & Co.
99.1 Form of Proxy Card
<PAGE>
EXHIBIT 10(P)
NONCOMPETITION AND RELEASE AGREEMENT
AGREEMENT made and entered into as of the 2nd day of November, 1995,
between Diagnostic Leasing Corp., a New York corporation ("Corporation") having
its principal place of business at 846 Pelham Parkway, Pelham Manor, New York
10803 and Lyudmilla Stone ("Executive") residing at 243 Hamlet Drive, Jericho,
new York 11753.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Agreement for Merger and Reorganization
dated as of the date hereof among MBM, Stone, Andrew (each as defined below) and
the Corporation (the "Merger Agreement") the Corporation is acquiring all of the
outstanding shares of capital stock of Stone Medical Supply Corporation
("Stone") owned by her husband, Andrew D. Stone ("Andrew"); and
WHEREAS, Stone is engaged in the business of selling and distributing
health care related products directly to physicians and medical clinics (the
"Business"); and
WHEREAS, in order to induce the Corporation to enter into and consummate
such acquisition and in order to protect the goodwill associated with the
Business, Executive has agreed to enter into this Agreement with the Corporation
restricting her activities relating to the business being conducted by the
Corporation as set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the Corporation and Executive hereby agree as
follows:
1. COVENANTS NOT TO COMPETE.
(a) Except in the regular course of her duties as an employee of
Stone between the date hereof and the date of the Merger (as defined in the
Merger Agreement) or termination of the Merger Agreement, Executive will not
perform any or all of the following activities:
(i) engage, directly or indirectly, within the states of New
York, New Jersey or Connecticut in any business involving the sale and
distribution of health care related products directly or indirectly to
physicians, podiatrists, medical clinics, hospitals, veterinarians, home care
dealers and other health care providers, which is competitive with the business
now conducted by the Corporation, its parent or any subsidiary or affiliate of
the Corporation. The foregoing shall not preclude Executive
1
<PAGE>
from engaging in the business of Physicians Laboratory Management Co.
("PLM"), to the extent that it involves a transaction with Dr. Michael Abott
pursuant to a commission arrangement with Abe Lobell (with a right to
substitute the doctor on the same terms and conditions after notice to MBM).
Executive's participation in any other transactions requires the
Corporation's prior written consent following presentation of the proposed terms
of each such proposed transaction. The above transactions must provide, and the
terms of any additional proposed transactions must include, without limitation,
that PLM must purchase all supplies and equipment for such transaction(s), which
Micro Bio-Medics, Inc. ("MBM") sells or distributes, from or through MBM, with
such purchase to be on terms that provide MBM with a mutually agreeable profit
margin.
(ii) directly or indirectly solicit, induce (or attempt to
induce), or have any part in, the diversion of employees, or former employees
within six (6) months after the termination of their employment, of Stone or of
the Corporation, its parent or any subsidiary or affiliate of the Corporation or
suppliers from their relationships with Stone or the Corporation, its parent or
any subsidiary or affiliate of the Corporation;
(iii) engage, directly or indirectly, in solicitation from any
of the customers or any parent, subsidiary or affiliate thereof of any business
which is competitive with the Business now or then conducted by Stone or the
Corporation, its parent or any subsidiary or affiliate of the Corporation;
(iv) take any action which is intended, or would reasonably be
expected, to harm Stone or the Corporation or its parent or any subsidiary or
affiliate or any director, officer, employer or agent thereof or the reputation
of any of the foregoing or which would reasonably be expected to lead to
unwanted or unfavorable publicity to Stone or the Corporation or its parent or
any subsidiary or affiliate of the Corporation or materially adversely impact
their relationships with their employees, customers or suppliers; or
(v) engage in any business which uses as its name, in whole or
in part, Stone, MBM, Micro Bio-Medics, Clark, Caligor or any other name used by
Stone or the Corporation, its parent or any subsidiary or affiliate of the
Corporation.
(b) For the purposes of this Paragraph 1, Executive will be deemed
directly or indirectly engaged in a business if she participates in such
business as proprietor, partner, joint venturer, stockholder, director, officer,
lender, manager, executive, consultant, advisor or agent or if she controls such
business. Executive shall not for purposes of this paragraph be deemed a
stockholder or lender if she holds less than two (2%) percent of the outstanding
equity or debt of any publicly owned corporation engaged in the same or similar
business to that of Stone or the Corporation, provided that she shall not be in
a control position with regard to such corporation or if she holds outstanding
equity of PLM. Nothing contained herein shall preclude Executive from
continuing in her employment by Stone from the date hereof
2
<PAGE>
through the date of the Merger (as defined in the Merger Agreement).
2. DISCLOSURE. Executive will not at any time, directly or indirectly,
disclose or furnish to any other person, firm or corporation:
(a) any information concerning the methods of conducting or obtaining
business, of manufacturing or advertising products, or of obtaining customers of
the Corporation or Stone, the parent or any subsidiary or affiliate of the
Corporation or Stone;
(b) any information acquired by her from the Corporation or Stone,
the parent or any subsidiary or affiliate of the Corporation or Stone,
including, without limiting the generality of the foregoing, the names of any
customers or prospective customers of, or any person or entity, who or which
have or shall have traded or dealt with the Corporation or Stone (whether such
customers have been obtained by Executive or otherwise);
(c) any information regarding the "mix" of products sold to customers
of the Corporation or Stone, the parent or any subsidiary and affiliate of the
Corporation or Stone, or the price at which Products are sold to customers of
the Corporation or Stone, the parent or any subsidiary and affiliate of the
Corporation or Stone; and/or
(d) any information relating to the products, designs, styles,
processes, discoveries, materials, ideas, creations, inventions or properties of
the Corporation or Stone, the parent or any subsidiary and affiliate of the
Corporation or Stone.
3. TERM AND INJUNCTIVE RELIEF. The covenants contained in Paragraphs 1
and 2 hereof will continue for a period of fifteen (15) years from and after the
date hereof. The Executive acknowledges and agrees that irreparable damage may
result to the Corporation and its Business and properties if she fails or
refuses to perform her obligations under this Agreement, that a violation of
this Agreement would be a proper subject of injunctive relief and would be
necessary to protect the Corporation's legitimate business interests and that
the remedy at law for any such failure or refusal will be inadequate.
Accordingly, it is understood that the Corporation shall be entitled to
provisional remedies (including, without limitation, injunctive relief) and
damages.
4. CONSIDERATION
(a) In consideration of Executive's covenants and agreements
contained herein, the Corporation hereby agrees:
(i) to pay to Executive, subject to adjustment as provided for
in Paragraph 4(b) hereof, an amount equal to Five Hundred Thousand ($500,000)
Dollars to be paid as follows: Eight Thousand Three Hundred Thirty Three and
33/100 ($8,333.33) Dollars on December 1, 1995 and on the first day of each of
the next
3
<PAGE>
succeeding fifty nine (59) months provided, however, that if in the absence
of any right of offset or indemnification in favor of the Corporation the
Corporation fails to make any payment within any applicable cure period then
the entire unpaid balance of the amount due hereunder shall become
immediately due and payable. If the due date of any such payment is not a
business day, the due date of such payment shall be the next succeeding
business day.
(ii) to maintain, from and after a date, no earlier than thirty
(30) days after the date hereof, that Executive takes the requisite insurance
examination and establishes that she is insurable at customary rates, an
insurance policy owned by the Corporation insuring Executive's life in a face
amount of Five Hundred Thousand ($500,000) Dollars and naming such person or
persons as Executive may, from time to time and in a manner acceptable to the
applicable insurance carrier, designate as beneficiary. The amount of such
insurance required to be maintained by Corporation shall decline on the date of
each payment provided for in subparagraph 4(a)(i) above by the amounts of each
such payment with no such insurance required to be maintained by the Corporation
from and after the earlier of (x) payment to Executive of all amounts hereunder
and (y) the fifth (5th) anniversary of the date of this Agreement.
(ii) in the event of Executive's death, the Corporation's
obligation to pay Executive any amounts due hereunder, other than the insurance
proceeds hereunder, shall immediately terminate.
(b) Notwithstanding the provisions of this Paragraph 4, the
Corporation shall have the right to set off against its obligations under this
Agreement, in direct order of maturity, any amounts which Andrew has not paid in
discharge of his indemnification obligations pursuant to that certain
Noncompetition, Indemnification and Release Agreement, dated the date hereof,
between Andrew and the Corporation.
(c) Notwithstanding anything to the contrary contained herein, if
Andrew terminates his employment with the Corporation, its parent or any
subsidiary or affiliate of the Corporation, as the case may be, except if the
Corporation is in breach of the employment agreement between the Andrew and the
Corporation, prior to the first anniversary of the date of the Merger, then the
Corporation will no longer have any obligation to pay the Executive the
consideration set forth in Paragraph 4(a) hereof, but the restrictive covenants
contained in Paragraph 1 hereof shall continue in full force and effect.
(d) In the event of any dispute between the parties concerning
Executive's performance of obligations to the Corporation, which gives, or may
give, rise to the Corporation's right of offset or indemnification under this
Agreement or the Merger Agreement, as a result of which the Corporation decides
to withhold payments hereunder, the Corporation shall, as a condition to
Executive's refraining from accelerating the remaining payments, make timely
deposit of such disputed payments with the Corporation's attorneys, Otterbourg,
Steindler, Houston & Rosen, P.C., who
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<PAGE>
shall hold such payments, together with any interest earned thereon, as
escrow agent ("Escrow Agent") pending resolution of such dispute by mutual
agreement between the parties or by final determination by a court of
competent jurisdiction. In connection with any escrow of the disputed
payments with Otterbourg, Steindler, Houston & Rosen, P.C., as Escrow Agent,
the following shall prevail:
(i) The funds held by the Escrow Agent shall be invested at
interest in substantially the same manner as the Escrow Agent invests other
moneys in its attorney escrow account. Interest, if any, earned on any payment
shall be remitted to the party who is ultimately determined to be entitled to
such payment.
(ii) The Escrow Agent shall have the right to continue to
represent MBM, the Corporation and their respective affiliates and related
persons.
(iii) The Escrow Agent shall have the right to act in reliance
upon any document, instrument, or signature believed by it to be genuine and to
assume that any person purporting to give any notice or instructions in
accordance with provisions hereof has been duly authorized to do so.
(iv) If the Escrow Agent shall be uncertain as to its duties or
rights hereunder or shall receive instructions, claims or demands from any of
the parties hereto or from third parties with respect to the funds held
hereunder, which, in its opinion, are in conflict with any provision hereof, it
shall be entitled to refrain from taking any action other than to keep safely
the escrow funds until it shall be directed otherwise in writing by all the
parties hereto and said third person, if any, or by a final order or judgment of
a court of competent jurisdiction.
(v) The Escrow Agent shall not be bound by any modification,
cancellation or recision hereof unless in writing and signed by the other
parties hereto. In no event, however, shall any modification hereof which shall
affect the rights or duties of the Escrow Agent be binding on the Escrow Agent
unless it shall have given its prior written consent.
(vi) The Escrow Agent shall not be liable for any action taken or
omitted hereunder except in the case of its willful misconduct.
(vii) The Escrow Agent may at any time resign by giving written
notice of its resignation to the other parties hereto and at least ten (10) days
prior to the date specified for such resignation to take effect and upon the
effective date of such resignation all funds then held by the Escrow Agent
hereunder shall be delivered by it to such person or persons as may be
designated in writing by all of the other parties hereto, whereupon all
obligations of the Escrow Agent hereunder shall cease and terminate. If no such
person or persons shall have been designated by such date, all obligations of
the Escrow Agent hereunder shall nonetheless cease and terminate. Its sole
responsibility thereafter shall be to keep safely all funds then held by it and
to deliver the same to a person designated by all parties hereto or in
accordance with the directions of the final order or judgment of a Court of
competent jurisdiction. The
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parties hereto agree that McLaughlin & Stern, LLP is acceptable as
replacement Escrow Agent when and if Otterbourg, Steindler, Houston & Rosen,
P.C. resigns as Escrow Agent, provided that said substitute Escrow Agent
consents in writing, at the time of substituting, to accept the obligations
as Escrow Agent in accordance with the terms hereof.
(viii) No notice, demand, requests or other communication to
the Escrow Agent in connection herewith shall be binding on the Escrow Agent
unless it is in writing, refers specifically to this Agreement, is addressed to
it at 230 Park Avenue, New York, New York 10169, or such other address as the
Escrow Agent may at any time or from time to time designate and is actually
received by the Escrow Agent at that address.
(ix) The Corporation shall provide Executive with notice of any
payment to the Escrow Agent. The Escrow Agent shall have no duty to notify any
party that a payment was or was not received.
(e) In consideration of the covenants and agreements of the
Corporation herein, Executive hereby releases and discharges Stone and its
successors and assigns from all actions, causes of action, suits, debts, sums of
money, accounts, claims and demands of any kind or nature whatsoever, in law or
in equity, other than those obligations of the Corporation expressly provided
for under this Agreement subject to the terms and conditions of this Agreement.
5. CONSENT TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE OF
PROCESS. The parties hereto irrevocably consent and submit to the non-exclusive
jurisdiction of the Supreme Court of the State of New York in New York County
and the United States District Court for the Southern District of New York in
connection with any action, proceeding or claim arising out of or relating to
this Agreement. Executive hereby irrevocably appoints and designates the law
firm of Ruskin, Moscou, Evans & Faltischek, P.C. (or its successor in business)
as her agent for service of process in New York and agrees to consider any legal
process or any demand or notice made or served on the said agent as being made
on her. Executive hereby agrees that separate confirmation by such agent of the
foregoing irrevocable appointment as agent for service of process is not
required.
6. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY
IN ANY ACTION OR PROCEEDING OF ANY KIND WITH RESPECT TO, IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT, ANY INSTRUMENT, DOCUMENT OR GUARANTY DELIVERED
PURSUANT HERETO, OR THE VALIDITY, PROTECTION, INTERPRETATION, ADMINISTRATION,
COLLECTION OR ENFORCEMENT HEREOF.
7. ABSENCE OF RESTRICTIONS. Executive represents and warrants that she
is not a party to any agreement or contract pursuant to which there is any
restriction or limitation upon her entering into this Agreement.
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8. FURTHER INSTRUMENTS. Executive will execute and deliver all such
other further instruments and documents as may be necessary, in the opinion of
the Corporation, to carry out the purposes of this Agreement.
9. INVALIDITY AND SEVERABILITY. If any provisions of this Agreement are
held invalid or unenforceable, such invalidity or unenforceability shall not
affect the other provisions of this Agreement, and, to that extent, the
provisions of this Agreement are intended to be and shall be deemed severable.
In particular and without limiting the foregoing sentence, if any provision of
Paragraph 1 of this Agreement shall be held to be invalid or unenforceable by
reason of geographic or business scope or the duration thereof, such invalidity
or unenforceability shall attach only to such provision and shall not affect or
render invalid or unenforceable any other provision of this Agreement, and this
Agreement and any such provision shall be construed as if the geographic or
business scope or the duration of such provision had been more narrowly drawn so
as to be valid and enforceable.
10. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if delivered by hand or by
Federal Express or other nationally recognized overnight delivery services or if
sent by registered or certified mail, as follows:
As to Executive: Lyudmilla Stone
243 Hamlet Drive
Jericho, New York 11753
As to the Corporation: Diagnostic Leasing Corp.
846 Pelham Parkway
Pelham Manor, New York 10803
Attention: Bruce J. Haber, President
or to such other address as either party hereto may designate by notice given in
accordance with this Agreement.
11. ASSIGNMENT. A party hereto may not assign this Agreement or any
rights or obligations hereunder without the consent of the other party hereto;
PROVIDED, HOWEVER, that upon the sale or transfer of all or substantially all of
the assets of the Corporation, or upon the merger by the Corporation into, or
the combination with, another corporation, this Agreement will inure to the
benefit of and be binding upon the person or entity purchasing such assets, or
the corporation surviving such merger or consolidation, as the case may be. The
Corporation may also, at any time or from time to time, assign this Agreement to
any of its parent, subsidiaries or affiliates. The provisions of this Agreement
where applicable are binding upon Executive's heirs and legal representatives
and upon the successors and assigns of the parties hereto.
12. WAIVER OF BREACH. Waiver by either party of a breach of any provision
of this Agreement by the other shall not operate or be construed as a waiver of
any subsequent breach by such other party.
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13. ENTIRE AGREEMENT. This instrument contains the entire Agreement of
the parties as to the subject matter hereof. It may not be changed orally, but
only by an Agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension or discharge is sought.
14. APPLICABLE LAW. This Agreement shall be construed in accordance with
the laws of the State of New York.
15. NEGOTIATIONS. This Agreement is the product of full and complete
negotiations at arm's length by the parties hereto. In view of the negotiations
which have culminated in the execution of this Agreement, no prior drafts,
letters or memoranda prepared by either party hereto shall be used to construe
or interpret any provision hereof, nor shall either party hereto be considered
the "drafter" of this Agreement for the purpose of construing the terms,
conditions and obligations set forth herein.
16. ATTORNEYS' FEES AND EXPENSES.
(a) If the Corporation brings legal proceedings to enforce its rights
under this Agreement and is successful in doing so, it shall be entitled, in
addition to all other remedies, to reimbursement by the Executive for its costs
and expenses, including reasonable attorneys' fees. If the Corporation brings
such proceedings and is unsuccessful, the Corporation shall reimburse the
Executive for her costs and expenses, including reasonable attorneys fees.
(b) If the Executive brings legal proceedings to enforce her rights
under this Agreement and is successful in doing so, she shall be entitled, in
addition to all other remedies, to reimbursement by the Corporation for her
costs and expenses, including reasonable attorneys' fees. If the Executive
bring such proceedings and is unsuccessful, she shall reimburse the Corporation
for its costs and expenses, including reasonable attorneys' fees.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf and Executive has signed this Agreement as of the date
first above written.
DIAGNOSTIC LEASING CORP.
By:/s/ Bruce J. Haber
-------------------
Title: President
/s/ Lyudmila Stone
----------------------
Lyudmila Stone
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<PAGE>
The undersigned hereby guarantees payment by the Corporation of its obligations
under this Agreement.
MICRO BIO-MEDICS, INC.
By:/s/ Bruce J. Haber
-------------------
Title: President
SUBSECTION 4(d) OF THE ABOVE
AGREEMENT IS HEREBY CONSENTED TO:
OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C.
By:/s/ Donald N. Gellert
----------------------
Donald N. Gellert
Member of the Firm
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<PAGE>
EXHIBIT 10Q
[TO BE TYPED ON O.S.H.& R. LETTERHEAD]
______________, 1995
Andrew D. Stone
243 Hamlet Drive
Jericho, New York 11753
Micro Bio-Medics Inc.
846 Pelham Parkway
Pelham Manor, New York 10803
Re: Escrow Agreement for [1/2 of number of shares to be received
by Andrew pursuant to Merger Agreement]
Shares ("Escrow Shares") of Common Stock of
Micro Bio-Medics Inc. ("MBM")
--------------------------------------------
Gentlemen:
Reference is made to a certain Agreement for Merger and Reorganization (the
"Merger Agreement") dated as of November 2, 1995 among MBM, Diagnostic Leasing
Corp. ("Newco"), Stone Medical Supply Corporation ("Stone") and Andrew D. Stone
("Andrew"), concerning, INTER ALIA, the delivery to Andrew of shares ("Shares")
of MBM's common stock, par value $.03 per share and to that certain
Noncompetition, Indemnification and Release Agreement dated as of the date
hereof between Newco and Andrew ("Noncompetition Agreement"). In accordance
with the Merger Agreement, Andrew has directed the Exchange Agent (as defined in
the Merger Agreement"), or, in the case of a stock purchase pursuant to Section
8 of the Merger Agreement has directed MBM's transfer agent, to deliver the
certificate (the "Stock Certificate") evidencing the Escrow Shares to
Otterbourg, Steindler, Houston & Rosen, P.C. ("Escrow Agent") to hold in escrow
in accordance with the terms and provisions of this letter agreement.
This letter agreement sets forth the terms upon which the Escrow Agent
shall hold the Escrow Shares, together with a stock power duly endorsed in blank
by Andrew ("Stock Power") in escrow. This letter also effects a 'lock-up' of
the Escrow Shares, and Andrew shall not sell, transfer or otherwise dispose of
any or all of the
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<PAGE>
Escrow Shares in any manner whatsoever during the term of this letter
agreement. All references herein to "MBM" shall include MBM and Newco, as
the case may be. All initially capitalized terms used herein and not
otherwise defined herein shall have the meaning ascribed to such term in the
Merger Agreement.
1. The Escrow Agent acknowledges receipt of the Stock Certificate
and Stock Power.
2. The Escrow Shares and Stock Power shall be held in escrow by the
Escrow Agent pursuant to the terms of this letter agreement.
3. The Escrow Shares are to be held by the Escrow Agent as security
for any indemnification claims by MBM or Newco against Andrew ("Indemnification
Claims") pursuant to the Noncompetition Agreement. Such Indemnification Claims
shall not be limited in amount by the value or amount of Escrow Shares held by
Escrow Agent hereunder.
4. MBM shall notify Andrew and the Escrow Agent in writing of any
Indemnification Claim. Such notice to the Escrow Agent shall include, without
limitation, a statement that a copy thereof has been delivered to Andrew not
less than five (5) business days prior to the date of delivery to the Escrow
Agent, a description of the claim and the amount of damages for which
compensation is sought from the Escrow Shares.
5. If Andrew does not respond in writing to the Escrow Agent and MBM
within twenty (20) days of his receipt of notice of an Indemnification Claim, or
if he responds within such period acknowledging as correct the amount of
compensation sought by MBM on account of such Indemnification Claim, the Escrow
Agent shall deliver to MBM within twenty (20) days thereafter Escrow Shares in
the amount of the Indemnification Claim. For the purposes hereof, the Escrow
Shares shall be valued at the price per share at which MBM Shares are valued for
the purpose of determining the Conversion Ratio in accordance with Section 2 of
the Merger Agreement.
6. If Andrew disputes the validity or amount of an Indemnification
Claim, unless he has provided written notice of such dispute to the Escrow Agent
and MBM hereof within twenty (20) days following his receipt of the notice from
the Escrow Agent of such Indemnification Claim, the Escrow Agent shall deliver
Escrow Shares in accordance with paragraph 5 as if no such dispute notices had
been given. Notwithstanding anything else contained in this Agreement, Andrew
may dispute an Indemnification Claim under this Agreement on the basis that he
has paid and discharged the Indemnification Claim with assets other than the
Escrow Shares.
7. If Andrew states in a writing delivered to the Escrow Agent that
he disputes part, but not all, of an Indemnification Claim, the Escrow Agent
shall deliver to MBM Escrow Shares equivalent to the amount of the
Indemnification Claim acknowledged by Andrew as correct. The disputed portion
of any such partially
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<PAGE>
accepted Indemnification Claim shall be treated as otherwise provided herein.
8. In the event of a dispute which becomes the subject of a lawsuit
or other legal action or proceeding before a court of competent jurisdiction,
the Escrow Agent shall continue to hold the Escrow Shares and Stock Power for as
long as such lawsuit, action or proceeding continues and any appeal from an
order therefrom remains pending and shall dispose of the Escrow Shares and Stock
Power in accordance with the award made in such proceeding or the order of any
confirming or vacating court, as the case may be.
9. During the term of the escrow:
(1) Andrew shall have the right to vote the Escrow Shares (to
the extent the same have voting rights) at meetings of the
shareholders of MBM subject to the covenant contained in subparagraph
1(c) of the Noncompetition Agreement;
(2) Notwithstanding anything to the contrary contained in the
Noncompetition Agreement, cash and/or stock dividends paid on the
Escrow Shares shall be paid to the Escrow Agent who shall hold same on
the same terms and conditions as the Escrow Shares held in escrow
pursuant to the terms hereof. When the Escrow Shares are released,
dividends shall be released in accordance with the release of the
Escrow Shares to which they relate. Notwithstanding the foregoing
provisions of this subparagraph 9(2), if, prior to the release of all
of the Escrow Shares by the Escrow Agent in accordance with the terms
and provisions of this letter agreement, MBM effects a merger,
consolidation or sale of assets by virtue of which MBM's shareholders
receive consideration in a transaction which does not constitute a
tax-free reorganization under the Internal Revenue Code of 1986, as
amended, the Escrow Agent shall release to Andrew fifty (50%) percent
of the consideration received in such transaction as relates to the
Escrow Shares so as to enable Andrew to discharge his income tax
obligations relating to such transaction.
10. After the date two years from the date hereof and so long as no
Indemnification Claim has been asserted which is then unresolved, Escrow Agent
shall deliver to Andrew all Escrow Shares then in the Escrow Agent's custody.
If any Indemnification Claim or Claims is asserted and unresolved at such date,
this Agreement shall continue in effect concerning such Indemnification Claim or
Claims and the Escrow Shares until resolution of such Indemnification Claim or
Claims in accordance with paragraph 8 hereof.
11. The Escrow Agent shall not be responsible for the genuineness of
any certificate or signature when acting upon any notice, affidavit, request,
consent, instruction, check or other instrument believed by it in good faith to
be genuine or to be signed or presented by the proper person, or duly
authorized, or properly made. The Escrow Agent shall have no responsibility
except for the performance of its
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<PAGE>
express duties hereunder and no additional duties shall be inferred herefrom
or implied hereby. The Escrow Agent shall have the right to continue to
represent MBM, Newco and their respective affiliates and related persons.
12. In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions, claims or demands from
any of the parties hereto or from third persons with respect to the property
held hereunder, which, in its opinion, are in conflict with any provision of
this letter, it shall be entitled to refrain from taking any action (other than
to keep safely said property) until it shall be directed otherwise in writing by
all the parties hereto and said third persons, if any, or by a final order or
judgment of a court of competent jurisdiction.
13. No amendment or modification of this letter agreement or waiver
of its terms shall affect the right and duties of the Escrow Agent unless its
written consent thereto shall have been obtained.
14. The Escrow Agent shall not be responsible or liable for any act
or omission on its part in the performance of its duties as Escrow Agent under
this letter agreement except as such act or omission constitutes wilful
misconduct, gross negligence or fraud. The Escrow Agent shall not be liable for
the default or misconduct of any employee, agent or attorney appointed by it who
shall have been selected with reasonable care.
15. The Escrow Agent shall serve without separate fee therefor, but
shall be reimbursed for all of its out-of-pocket disbursements in connection
with its serving as Escrow Agent under this Agreement. The Escrow Agent shall
not be required to institute or defend any action involving any matters referred
to herein or which affects it or its duties or liabilities hereunder unless or
until requested to do so by any party to this letter agreement and then only
upon receiving full indemnity, in character satisfactory to the Escrow Agent,
against any and all claims, liabilities and expenses in relation thereto
including attorneys' fees. In the event of any dispute among the parties hereto
with relation to the Escrow Agent or its duties (i) the Escrow Agent may act or
refrain from acting in respect of any matter referred to herein in full reliance
upon and by and with the advice of counsel selected by it (which may be members
of its own law firm) and shall be fully protected in so acting or in refraining
from acting upon the advice of such counsel, or (ii) the Escrow Agent may
refrain from acting until required to do so by an order of a court of competent
jurisdiction.
16. The Escrow Agent may at any time resign hereunder by giving
written notice of its resignation to the other parties hereto at least ten (10)
days prior to the date specified for such resignation to take effect, and upon
the effective date of such resignation, all securities, cash, instruments,
documents and all other property then held by the Escrow Agent hereunder shall
be delivered by it to such person as may be designated in writing by the other
parties hereto whereupon all obligations of the Escrow Agent hereunder shall
cease and terminate. If no such person shall have been designated by such date,
all obligations of the Escrow Agent hereunder shall nevertheless cease and
terminate. Its sole responsibility thereafter shall be to keep
4
<PAGE>
safely all property then held by it hereunder and to deliver the same to a
person designated by all other parties hereto or in accordance with the
directions of a final order or judgment of a Court of competent jurisdiction.
17. The parties hereto irrevocably consent and submit to the non-
exclusive jurisdiction of the Supreme Court of the State of New York in New York
County and the United States District Court for the Southern District of New
York in connection with any action, proceeding or claim arising out of or
relating to this Agreement. Andrew hereby irrevocably appoints and designates
the law firm of Ruskin, Moscou, Evans & Faltischek, P.C. (or its successor in
business) as his agent for service of process in New York and agrees to consider
any legal process or any demand or notice made or served on the said agent as
being made on him. Andrew hereby agrees that separate confirmation by such
agent of the foregoing irrevocable appointment as agent for service of process
is not required.
18. This letter agreement contains the entire agreement of the
parties concerning the subject matter hereof, and may not be amended, modified,
or terminated except by a writing signed by all parties hereto.
19. Any and all notices, requests, demands or other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or sent by certified or registered mail, postage prepaid, to the parties at the
addresses indicated on the first page hereof or to such addresses as may from
time to time be designated by any of them in writing by notice similarly given
to all parties in accordance with this paragraph 19. Notices under this letter
agreement shall be deemed delivered on the date delivered personally to the
recipient or on the date postmarked by the United States Post Office, as the
case may be.
20. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OF ANY KIND WITH RESPECT TO, IN CONNECTION WITH
OR ARISING OUT OF THIS AGREEMENT, ANY INSTRUMENT, DOCUMENT OR GUARANTY DELIVERED
PURSUANT HERETO, OR THE VALIDITY, PROTECTION, INTERPRETATION, ADMINISTRATION,
COLLECTION OR ENFORCEMENT HEREOF.
21. This letter agreement shall be governed by and construed
according to the laws of the State of New York.
5
<PAGE>
If the foregoing correctly states your understanding of our agreement,
kindly indicate your assent by signing below where indicated.
Very truly yours,
OTTERBOURG, STEINDLER, HOUSTON
& ROSEN, P.C.
By:________________________
Donald N. Gellert,
A Member of the Firm
READ AND AGREED TO:
___________________________________
Andrew D. Stone
MICRO BIO-MEDICS INC.
By:______________________
Title:___________________
DIAGNOSTIC LEASING CORP.
By:______________________
Title:___________________
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<PAGE>
EXHIBIT 23(A)
CONSENT OF MILLER, ELLIN & CO.
CONSENT OF INDEPENDENT AUITORS
We hereby consent to the reference to our firm under the caption "Experts"
in this Registration Statement on Form S-4 of Micro Bio-Medics, Inc. and to use
of our report dated February 10, 1995 relating to our audit of the 1994, 1993
and 1992 financial statements, which have been incorporated by reference in this
Registration Statement.
/s/ Miller, Ellen & Co.
MILLER, ELLIN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
December 11, 1995
1
<PAGE>
EXHIBIT 23(B)
CONSENT OF ROBBINS, GREENE, HOROWITZ,
LESTER & CO., LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference of our Firm under the caption
"Experts" and to the use of our report dated April 13, 1995 relating to the
financial statements of Stone Medical Supply Corporation included in the
Registration Statement (Form S-4) and related Prospectus of Micro Bio-Medics,
Inc.
/s/ ROBBINS, GREENE, HOROWITZ & LESTER & CO., LLP
-------------------------------------------------
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
New York, New York
December 11, 1995
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<PAGE>
EXHIBIT 23(D)
CONSENT OF P.K. HICKEY & CO.
P.K. HICKEY & CO. INC.
Investment Bankers
888 7th Avenue
New York, New York 10106
---------
(212) 956-5422
Fax: (212) 977-8123
December 11, 1995
SECURITIES & EXCHANGE COMMISSION
450 Fifth Avenue, N.W.
Washington, DC 20549
RE: Registration Statement on
Form S-4 of Micro Bio-Medics, Inc.
Gentlemen:
This is to confirm that we hereby consent to the inclusion of our Fairness
Opinion dated November 1, 1995 as an exhibit to the Proxy Statement/Prospectus
and we do further consent to the use of our name under caption "Opinion of
Financial Adviser" and elsewhere in such Proxy Statement/Prospectus.
Very truly yours,
P.K. HICKEY & CO., INC.
By: /s/ Paul K. Hickey
---------------------
Paul K. Hickey, President
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EXHIBIT 99.1
FORM OF PROXY CARD
P R O X Y
STONE MEDICAL SUPPLY CORPORATION
(Solicited by the Board of Directors)
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a shareholder in
Stone Medical Supply Corporation, a New York corporation ("Stone"), does hereby
constitute and appoint Andrew D. Stone and David W. Sass, and each of them
acting jointly, if more than one be present, to be the true and lawful attorneys
and proxies for the undersigned, to vote all shares of Stone which the
undersigned is entitled to vote, with all powers the undersigned would possess
if personally present, at the Special Meeting of Shareholders of Stone to be
held on January 18, 1996, and at any adjournment or adjournments thereof, on the
following matters as designated below and, in other discretion, on such other
matters as may properly come before the meeting. THIS PROXY WILL BE VOTED IN
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL NO. 1.
1. THE APPROVAL AND ADOPTION OF THE PLAN OF MERGER by and among Stone Medical
Supply Corporation ("Stone"); Micro Bio-Medics, Inc. ("MBM"), Diagnostic
Leasing Corp. ("DLC") and Andrew D. Stone pursuant to which Stone will be
merged with and into DLC, a wholly owned subsidiary of MBM, in exchange for
shares of Common Stock of MBM.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
OTHER MATTERS: Granting the proxies discretionary authority to vote upon any
other unforeseen matters which are properly brought before the meeting as
management may recommend.
The undersigned hereby revokes any and all other proxies heretofore given by the
undersigned and hereby ratifies all that the above named proxies or their
substitutes may do at such meetings, or at any adjournments thereof, by virtue
hereof.
Dated: , 199__ -----------------------------------------------
-----------------------------------------------
NOTE: This proxy expires eleven (11) months from this
date unless otherwise stated herein. If you are
signing as a trustee, executor, guardian,
fiduciary, attorney-in-fact, etc., please also
give your full title and also state the name of
the stockholder of record for whom you act.
IMPORTANT: Please SIGN, DATE and RETURN this proxy in the enclosed envelope as
soon as possible.
2
