<PAGE>
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MICRO BIO-MEDICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials:
$18,709.75
---------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
MICRO BIO-MEDICS, INC.
846 PELHAM PARKWAY
PELHAM MANOR, NEW YORK 10803
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Micro Bio-Medics, Inc. ("MBM"), which will be held at 9:00 a.m. on Friday,
August 1, 1997, at the Ramada Hotel, One Ramada Plaza, New Rochelle, New York.
At the Special Meeting, holders of MBM Common Stock will be asked to
consider a proposal to approve and adopt an Agreement and Plan of Merger
providing for a merger in which MBM would become a wholly owned subsidiary of
Henry Schein, Inc. ("Schein"). Pursuant to the merger, each share of MBM Common
Stock will be converted into the right to receive 0.62 shares of Common Stock of
Schein.
The proposed merger is described in the accompanying Proxy
Statement/Prospectus, the forepart of which includes a summary of the terms of
the merger and certain other information relating to it. I urge you to review
carefully the Proxy Statement/Prospectus and the Annexes thereto.
THE BOARD OF DIRECTORS OF MBM HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF MBM AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD UNANIMOUSLY
APPROVED THE AGREEMENT AND PLAN OF MERGER PROVIDING FOR THE MERGER AND
RECOMMENDS THAT THE HOLDERS OF MBM COMMON STOCK VOTE IN FAVOR OF THE AGREEMENT
AND PLAN OF MERGER AT THE SPECIAL MEETING.
I hope you will attend the Special Meeting. However, whether or not you plan
to attend, please complete, sign and date the accompanying proxy card promptly
and return it in the enclosed prepaid envelope. If you are present at the
meeting you may, if you wish, withdraw your proxy and vote in person.
MBM has retained D.F. King & Co., Inc. of New York, New York, a proxy
solicitation firm, to solicit proxies in connection with the Special Meeting.
For assistance with voting please call D.F. King & Co., Inc. at 1-800-431-9642.
Bruce J. Haber
President
Pelham Manor, New York
July 2, 1997
<PAGE>
MICRO BIO-MEDICS, INC.
846 PELHAM PARKWAY
PELHAM MANOR, NEW YORK 10803
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
AUGUST 1, 1997
------------------------
To the Shareholders of
Micro Bio-Medics, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Micro Bio-Medics, Inc., a New York corporation ("MBM"), will be
held on Friday, August 1, 1997, at the Ramada Hotel, One Ramada Plaza, New
Rochelle, New York 10801, commencing at 9:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger (the "Merger Agreement") dated as of March 7,
1997, as revised, among Henry Schein, Inc., a Delaware corporation
("Schein"), HSI Acquisition Corp., a New York corporation and a wholly owned
subsidiary of Schein ("Merger Sub"), and MBM, providing for the merger of
Merger Sub with and into MBM (the "Merger"). Pursuant to the Merger, MBM
will become a wholly owned subsidiary of Schein, and each outstanding share
of the Common Stock, par value $0.03, of MBM (the "MBM Common Stock") will
be converted into the right to receive 0.62 shares of the Common Stock, par
value $0.01, of Schein (the "Schein Common Stock"). A copy of the Merger
Agreement is attached as Annex I to the accompanying Proxy
Statement/Prospectus.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on Tuesday, June 24,
1997 as the record date for the determination of shareholders entitled to notice
of and to vote at the Special Meeting and any adjournment or postponement
thereof.
Whether or not you plan to attend the Special Meeting, please fill in, sign,
date and return the enclosed form of proxy card promptly. A return envelope is
enclosed for your convenience and requires no postage for mailing in the United
States.
By Order of the Board of Directors
Renee Steinberg, Secretary
Pelham Manor, New York
July 2, 1997
<PAGE>
IMPORTANT
Your vote is important. Please take a moment to sign, date and promptly
mail your proxy in the postage paid envelope provided.
If your shares are registered in the name of a broker, only your broker
can execute a proxy and vote your shares and only after receiving your
specific instructions. Please contact the person responsible for your
account and direct him or her to execute a proxy on your behalf today. Then
mail your proxy at once in the envelope provided. If you have any questions
or need further assistance in voting, please call:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(212) 269-5550 (Collect)
CALL TOLL-FREE -- 1-800-431-9642
<PAGE>
MICRO BIO-MEDICS, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 1, 1997
---------------------
HENRY SCHEIN, INC.
PROSPECTUS
FOR UP TO
3,400,000 SHARES OF COMMON STOCK, $0.01 PAR VALUE
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Micro Bio-Medics, Inc., a New York corporation ("MBM"), with HSI
Acquisition Corp., a New York corporation ("Merger Sub") and a wholly owned
subsidiary of Henry Schein, Inc., a Delaware corporation ("Schein"), pursuant to
an Agreement and Plan of Merger dated as of March 7, 1997, as revised (the
"Merger Agreement"). As a result of the Merger, MBM will become a wholly owned
subsidiary of Schein. At the effective time of the Merger (the "Effective
Time"), each outstanding share of the Common Stock, par value $0.03 per share,
of MBM ("MBM Common Stock"), other than shares held by MBM shareholders who
perfect their appraisal rights under the New York Business Corporation Law, will
be converted into the right to receive 0.62 shares of the Common Stock, par
value $0.01, of Schein ("Schein Common Stock") and each outstanding option and
warrant to purchase MBM Common Stock will be automatically assumed by Schein and
converted into an option or a warrant, as the case may be, to purchase shares of
Schein Common Stock. This Proxy Statement/Prospectus also relates to the assumed
warrants and the issuance of shares of Schein Common Stock pursuant to the
exercise of such warrants (the shares issuable upon exercise of such options
will be separately registered).
Based upon the 0.62 share exchange ratio and the closing sales price of
shares of Schein Common Stock on July 1, 1997 reported on the Nasdaq National
Market ($32 7/16 per share), each such outstanding share of MBM Common Stock
would have been converted into Schein Common Stock with a then-current market
value of approximately $20.11 had the Merger been consummated on that date, and
the aggregate then-current market value of the shares of Schein Common Stock
issued in the Merger would have been approximately $103,831,119.
MBM is soliciting proxies from its shareholders for use at the Special
Meeting of Shareholders of MBM scheduled to be held on Friday, August 1, 1997
(the "Special Meeting") to consider the approval and adoption of the Merger
Agreement. The Merger is expected to be consummated immediately after approval
of the Merger Agreement by the shareholders of MBM.
This Proxy Statement/Prospectus constitutes both the proxy statement of MBM
relating to the solicitation of proxies by its Board of Directors for use at the
Special Meeting and the prospectus of Schein with respect to the Shares of
Schein Common Stock to be issued in the Merger upon the conversion of the
outstanding shares of MBM Common Stock. This Proxy Statement/Prospectus and the
enclosed forms of proxy are first being sent to holders of MBM Common Stock on
or about July 3, 1997.
SEE "RISK FACTORS" ON PAGE 22 FOR A DESCRIPTION OF CERTAIN FACTORS
CONCERNING SCHEIN AND ITS OPERATIONS FOLLOWING THE MERGER.
THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is July 2, 1997.
<PAGE>
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS,
IN CONNECTION WITH THE SOLICITATION AND THE OFFERING MADE BY THIS PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY
JURISDICTION IN WHICH SUCH SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION
OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF SCHEIN OR MBM SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
------------------------
AVAILABLE INFORMATION
Schein and MBM are subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"). In accordance with the
Exchange Act, Schein and MBM file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC").
Schein has filed, through the Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"), a Registration Statement on Form S-4 (the
"Registration Statement") with the SEC under the Securities Act of 1933 (the
"Securities Act") with respect to the shares of Schein Common Stock to be issued
upon consummation of the Merger and upon the exercise of the Converted Warrants
(as defined herein). This Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the SEC. Copies of the Registration Statement (including such
omitted portions) are available from the SEC upon payment of prescribed rates.
For further information, reference is made to the Registration Statement and the
exhibits filed therewith. Statements contained in this Proxy Statement/
Prospectus relating to the contents of any contract or other document referred
to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
This filed material can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the SEC:
Chicago Regional Office (Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661) and New York Regional Office (Seven World Trade Center,
New York, New York 10048). Copies of such material may be obtained by mail from
the Public Reference Section of the SEC, 450 Fifth Street, N.W, Washington, D.C.
20549, at prescribed rates. In addition, such material can be inspected at the
offices of the National Association of Securities Dealers, Inc. (the "NASD"),
1735 K Street, N.W., Washington, DC 20006. Material filed electronically through
EDGAR may also be accessed through the SEC's home page on the World Wide Web at
http://www.sec.gov.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated by reference in this Proxy
Statement/Prospectus:
(a) Schein's Annual Report on Form 10-K for the year ended December 28, 1996
(File No. 0-27028);
(b) Schein's Amended Annual Report on Form 10-K/A for the year ended
December 28, 1996;
(c) Schein's Current Report on Form 8-K dated June 24, 1997;
(d) Schein's Quarterly Report on Form 10-Q for the period ended March 29,
1997;
(e) Schein's Registration Statement on Form 8-A dated October 27, 1995;
(f) MBM's Annual Report on Form 10-K for the year ended November 30, 1996
(File No. 0-12665);
(g) MBM's Amended Annual Report on Form 10-K/A for the year ended November
30, 1996; and
(h) MBM's Quarterly Report on Form 10-Q for the period ended February 28,
1997.
All reports and definitive proxy or information statements filed by Schein
or MBM pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement/ Prospectus and prior to the date
of the Special Meeting shall be deemed to be incorporated by reference into this
Proxy Statement/Prospectus from the dates of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated in
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus. All
information appearing in this Proxy Statement/Prospectus or in any document
incorporated herein by reference is not necessarily complete and is qualified in
its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated by reference herein and should
be read together with such information and documents.
All information contained in this Proxy Statement/Prospectus relating to
Schein or Merger Sub has been supplied by Schein, and all information relating
to MBM has been supplied by MBM.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS
(EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO THE INFORMATION INCORPORATED HEREIN) ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF MBM
COMMON STOCK TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON REQUEST.
WITH RESPECT TO SCHEIN'S DOCUMENTS, REQUESTS SHOULD BE DIRECTED TO SCHEIN AT 135
DURYEA ROAD, MELVILLE, NEW YORK 11747, ATTN: MARK E. MLOTEK (TELEPHONE: (516)
843-5500). WITH RESPECT TO MBM'S DOCUMENTS, REQUESTS SHOULD BE DIRECTED TO MBM
AT 846 PELHAM PARKWAY, PELHAM MANOR, NEW YORK 10803, ATTN: GARY BUTLER
(TELEPHONE: (914) 738-8400). IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY 17, 1997.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY.................................................................................................... 7
Special Meeting.......................................................................................... 7
Required Vote............................................................................................ 7
Proxies.................................................................................................. 8
Certain Significant Considerations....................................................................... 8
The Merger............................................................................................... 8
Option and Proxy Agreement............................................................................... 13
Regulatory Matters....................................................................................... 13
Certain Tax Consequences of the Merger................................................................... 13
Anticipated Accounting Treatment......................................................................... 14
Appraisal Rights......................................................................................... 14
Comparison of Stockholder Rights......................................................................... 14
Market Price Data........................................................................................ 14
Certain Significant Considerations....................................................................... 15
Summary Consolidated Historical Financial Information and Operating Data................................. 15
Schein Summary Consolidated Historical Financial Information and Operating Data.......................... 16
MBM Summary Consolidated Historical Financial Information................................................ 19
Summary Unaudited Pro Forma Combined Financial Information............................................... 20
Comparative Unaudited Per Share Data..................................................................... 21
RISK FACTORS............................................................................................... 22
Fixed Exchange Ratio..................................................................................... 22
Interests of Certain Persons in the Merger............................................................... 22
Option and Proxy Agreement............................................................................... 22
Difficulty of Integration of Operations Following the Merger............................................. 23
Competition.............................................................................................. 23
Expansion of Schein Through Acquisitions and Joint Ventures.............................................. 23
Minority Status of Former MBM Shareholders; Control by Insiders.......................................... 24
Fluctuations in Quarterly Earnings....................................................................... 24
Practice Management Software and Other Value Added Products.............................................. 24
Foreign Operations....................................................................................... 25
Dependence on Senior Management.......................................................................... 25
Changes in Healthcare Industry........................................................................... 25
Government Regulation.................................................................................... 25
Risk of Product Liability Claims and Insurance........................................................... 26
Cost of Shipping......................................................................................... 26
Reliance on Telephone and Computer Systems............................................................... 26
State Sales Tax Collection............................................................................... 26
Potential Volatility of Market Value of Schein Common Stock.............................................. 26
Anti-takeover Provisions; Possible Issuance of Preferred Stock........................................... 26
Shares Eligible for Future Sales......................................................................... 27
Reorganization........................................................................................... 28
THE SPECIAL MEETING........................................................................................ 29
Special Meeting.......................................................................................... 29
Record Date; Shares Entitled to Vote..................................................................... 29
Required Vote............................................................................................ 30
Proxies; Proxy Solicitation; Revocation of Proxies....................................................... 30
Miscellaneous............................................................................................ 31
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE MERGER................................................................................................. 31
Background of the Merger................................................................................. 31
Consideration and Recommendation of the Merger by the MBM Board.......................................... 34
Opinion of Houlihan Lokey................................................................................ 37
Schein's Reasons for the Merger.......................................................................... 41
Effective Time........................................................................................... 42
Exchange Ratio........................................................................................... 42
Exchange Agent; Exchange Procedures; Distributions with Respect to Unexchanged Shares; No Further
Ownership Rights in MBM Common Stock; No Fractional Shares of Schein Common Stock...................... 42
Admission for Trading on Nasdaq National Market.......................................................... 43
Cessation of Nasdaq National Market Trading and Deregistration of MBM Common Stock After the Merger...... 44
Certain Significant Considerations....................................................................... 44
Certain Tax Consequences of the Merger................................................................... 44
Anticipated Accounting Treatment......................................................................... 45
Appraisal Rights......................................................................................... 45
Option and Proxy Agreement............................................................................... 47
Interests of Certain Persons in the Merger............................................................... 49
Operations After the Merger.............................................................................. 51
Dividends................................................................................................ 51
Treatment of MBM Stock Options and Warrants.............................................................. 51
Right of the MBM Board to Withdraw Recommendation........................................................ 52
Regulatory Filings and Approvals......................................................................... 52
Resale of Schein Common Stock Received in the Merger..................................................... 53
DESCRIPTION OF SCHEIN...................................................................................... 54
General.................................................................................................. 54
Reorganization........................................................................................... 55
Management of Schein..................................................................................... 57
DESCRIPTION OF MBM......................................................................................... 59
COMPARATIVE STOCK PRICES AND DIVIDENDS..................................................................... 61
Schein Common Stock...................................................................................... 61
MBM Common Stock......................................................................................... 62
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................................................ 62
SCHEIN CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION AND OPERATING DATA........................... 70
SCHEIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 73
Overview................................................................................................. 73
Recent Developments...................................................................................... 74
Results of Operations.................................................................................... 75
Inflation................................................................................................ 79
Risk Management.......................................................................................... 79
Liquidity and Capital Resources.......................................................................... 80
MBM CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION................................................. 82
MBM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 84
Results of Operations.................................................................................... 84
Gross Profit/Operating Expenses.......................................................................... 84
Interest and Financing Costs (Net of Interest Income).................................................... 85
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Liquidity and Capital Resources.......................................................................... 85
TERMS OF THE MERGER AGREEMENT.............................................................................. 86
The Merger; Exchange and Conversion of Shares............................................................ 86
Exchange of Share Certificates........................................................................... 87
Treatment of MBM Stock Options and Warrants.............................................................. 88
Effective Time........................................................................................... 88
Termination Rights....................................................................................... 88
Certain Fees and Expenses................................................................................ 90
Conditions to the Merger................................................................................. 90
Representations and Warranties........................................................................... 91
Indemnification; Officers' and Directors' Liability Insurance............................................ 92
Certain Covenants of MBM................................................................................. 92
Certain Covenants of Schein.............................................................................. 93
Certain Covenants of MBM and Schein...................................................................... 93
No Solicitation of Other Offers.......................................................................... 94
Amendments............................................................................................... 94
COMPARISON OF STOCKHOLDER RIGHTS........................................................................... 95
General.................................................................................................. 95
Authorized Capital Stock................................................................................. 95
Directors................................................................................................ 95
Annual and Special Meetings of Shareholders.............................................................. 96
Amendment of By-Laws..................................................................................... 97
Amendment of Certificate of Incorporation................................................................ 97
Mergers and Business Combinations; Sales of Assets....................................................... 98
Dividends, Redemptions, and Repurchases.................................................................. 99
Shareholders Lists; Inspections Rights................................................................... 99
Transactions with Interested Directors................................................................... 99
Indemnification; Limitation of Liability................................................................. 100
Appraisal Rights......................................................................................... 101
Issuance of Rights or Options to Purchase Shares to Directors, Officers and Employees.................... 102
Loans to Directors....................................................................................... 102
Anti-Greenmail........................................................................................... 102
EXPERTS.................................................................................................... 103
LEGAL MATTERS.............................................................................................. 103
ANNEX I--Agreement and Plan of Merger
ANNEX II--Opinion of Houlihan, Lokey, Howard & Zukin, Inc.
ANNEX III--Section 623 of the New York Business Corporation Law
</TABLE>
6
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT/PROSPECTUS, IN THE ATTACHED ANNEXES AND IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS
PROXY STATEMENT/PROSPECTUS AND THE ATTACHED ANNEXES IN THEIR ENTIRETY.
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Micro Bio-Medics, Inc., a New York corporation ("MBM"), with HSI
Acquisition Corp., a New York corporation ("Merger Sub") and a wholly owned
subsidiary of Henry Schein, Inc., a Delaware corporation ("Schein"), pursuant to
an Agreement and Plan of Merger dated as of March 7, 1997, as revised (the
"Merger Agreement"). As a result of the Merger, MBM will become a wholly owned
subsidiary of Schein. At the effective time of the Merger (the "Effective
Time"), each outstanding share of Common Stock, par value $.03, of MBM (the "MBM
Common Stock"), other than Shares held by MBM shareholders who perfect their
appraisal rights under the New York Business Corporation Law (the "NYBCL"), will
be converted into the right to receive 0.62 shares of Common Stock, par value
$0.01, of Schein (the "Schein Common Stock"). The exchange ratio of 0.62 shares
of Schein Common Stock for each share of MBM Common Stock, as set forth in the
Merger Agreement, is hereinafter referred to as the "Exchange Ratio".
Based upon the 0.62 Exchange Ratio and the closing sales price of shares of
Schein Common Stock on July 1, 1997 ($32 7/16), as reported on the Nasdaq
National Market, each such outstanding share of MBM Common Stock would have been
converted into Schein Common Stock with a then-current market value of
approximately $20.11 had the Merger been consummated on that date, and the
aggregate then-current market value of the shares of Schein Common Stock issued
in the Merger would have been approximately $103,831,119.
SPECIAL MEETING
A Special Meeting of the shareholders of MBM will be held at 9:00 a.m.,
local time, on Friday, August 1, 1997 (the "Special Meeting"), at the Ramada
Hotel, One Ramada Plaza, New Rochelle, New York 10801. Only holders of record of
MBM Common Stock at the close of business on Tuesday, June 24, 1997 (the "Record
Date"), will be entitled to notice of, and to vote at, the Special Meeting. At
the Special Meeting, the holders of MBM Common Stock will be asked to consider
and vote upon the approval of the Merger Agreement, a copy of which is attached
as Annex I to this Proxy Statement/Prospectus. MBM will be the surviving
corporation in the Merger (the "Surviving Corporation") and will become a wholly
owned subsidiary of Schein. The holders of MBM Common Stock will also transact
such other business as may properly come before the Special Meeting.
REQUIRED VOTE
The affirmative vote of the holders of two-thirds (66 2/3%) of the
outstanding shares of MBM Common Stock will be required for the approval of the
Merger Agreement. As an inducement for Schein to enter into the Merger
Agreement, the members of MBM's Board of Directors have entered into an Option
and Proxy Agreement with Schein pursuant to which such individuals have, among
other things, irrevocably appointed Schein their lawful agent, attorney and
proxy to vote substantially all of the shares of MBM Common Stock that they
beneficially own (approximately 10.0% of the outstanding shares) in favor of the
Merger Agreement and the Merger. See "THE MERGER--Option and Proxy Agreement"
and "THE SPECIAL MEETING--Required Vote".
The approval of Schein's stockholders is not required to effect the Merger.
7
<PAGE>
PROXIES
MBM shareholders are requested to complete, sign, date and return promptly
the enclosed proxy card in the postage-paid envelope provided for this purpose
to ensure that their shares are voted. A holder of shares of MBM Common Stock
may revoke a proxy by submitting a later dated proxy with respect to the same
shares at any time prior to the vote on the approval of the Merger Agreement, by
delivering written notice of revocation to American Stock Transfer & Trust
Company, the Transfer Agent for the MBM Common Stock, at 40 Wall Street, New
York, New York 10005, Attention: Proxy Department, at any time prior to such
vote or by attending the Special Meeting and voting in person. Mere attendance
at the Special Meeting will not in and of itself revoke a proxy. See "SPECIAL
MEETING".
CERTAIN SIGNIFICANT CONSIDERATIONS
In considering whether to approve the Merger, the shareholders of MBM should
carefully consider the factors described under "RISK FACTORS" as well as the
fact that (i) the Exchange Ratio is fixed and will not be adjusted based upon
changes in the market price of the shares of Schein Common Stock, which at the
Effective Time may vary significantly from the most recent market price set
forth in this Proxy Statement/Prospectus or the market price on the date of the
opinion of Houlihan Lokey referred to below or on the date of the Special
Meeting and (ii) certain members of MBM's management and financial advisors have
interests in the Merger in addition to their interests as shareholders of MBM.
For certain information about these factors and the consideration given to them
by the Board of Directors of MBM, see "--Consideration and Recommendation of the
Merger by the Board of Directors of MBM" and "--Interests of Certain Persons in
the Merger" in this Summary, "RISK FACTORS--Potential Volatility of Market Value
of Schein Common Stock Prices" and "THE MERGER--Background of the Merger",
"--Consideration and Recommendation of the Merger by the MBM Board", "--Opinion
of Houlihan Lokey" and "--Interests of Certain Persons in the Merger."
THE MERGER
THE PARTIES. Schein is the largest direct marketer of healthcare products
and services to office-based healthcare practitioners in the combined North
American and European markets. Schein has operations in the United States,
Canada, the United Kingdom, The Netherlands, Belgium, Germany, France, the
Republic of Ireland and Spain. Schein sells products and services to over
230,000 customers, primarily dental practices and dental laboratories, as well
as physician practices, veterinary clinics and institutions. In 1996, Schein
sold products to over 65% of the estimated 100,000 dental practices in the
United States. Schein's principal executive offices are located at 135 Duryea
Road, Melville, New York 11747, telephone number (516) 843-5500. As used in this
Proxy Statement/Prospectus, "Schein" refers to Henry Schein, Inc., its
subsidiaries and 50% owned companies, and its predecessor, unless otherwise
indicated.
Merger Sub, a New York corporation, is a wholly owned subsidiary of Schein
formed solely for the purpose of effecting the Merger.
MBM distributes medical supplies to physicians and hospitals in the New York
metropolitan area, as well as to healthcare professionals in the sports
medicine, emergency medicine, school health, industrial safety, government and
laboratory markets nationwide. MBM's principal executive offices are located at
846 Pelham Parkway, Pelham Manor, New York 10803, telephone number (914)
738-8400. As used in this Proxy Statement/Prospectus, "MBM" refers to MBM and
its subsidiaries, unless otherwise indicated.
EXCHANGE RATIO. At the Effective Time, each outstanding share of MBM Common
Stock, other than shares as to which the holders have perfected their appraisal
rights under the NYBCL, will be converted into the right to receive 0.62 shares
of Schein Common Stock. No fractional shares of Schein Common Stock will be
issued in the Merger and the holders of shares of MBM Common Stock will be
entitled to a cash payment in lieu of any such fractional shares of Schein
Common Stock that would otherwise be issued in the Merger.
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CONSIDERATION AND RECOMMENDATION OF THE MERGER BY THE BOARD OF DIRECTORS OF
MBM. THE BOARD OF DIRECTORS OF MBM (THE "MBM BOARD") HAS UNANIMOUSLY ADOPTED
THE MERGER AGREEMENT, DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF MBM
AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE SHAREHOLDERS OF MBM VOTE FOR THE
APPROVAL OF THE MERGER AGREEMENT. In reaching its decision to adopt the Merger
Agreement and recommend the Merger, the MBM Board considered a number of
factors. The favorable factors considered were the Exchange Ratio, the treatment
under the Merger Agreement of options and warrants to purchase MBM Common Stock,
the anticipated qualification of the Merger as a tax free reorganization for
Federal income tax purposes and for "pooling-of-interests" accounting, the
growth prospects for the business of MBM that could result from the Merger, the
trend toward consolidation in the industry in which MBM operates, the similar
business strategies of Schein and MBM, Schein's complementary product lines, the
potential benefits of being part of a larger and more diversified company and
the strategic alternatives to the potential Merger. The MBM Board also
recognized that the Merger could present certain disadvantages for MBM and its
shareholders and, in connection therewith, considered the potential volatility
of the market values of the Schein Common Stock, the management challenges
presented by the tasks of combining the operations of Schein and MBM and
achieving any synergistic benefits, the inability of former shareholders of MBM,
as a group, to control the management of Schein as a result of their minority
interest in Schein upon completion of the Merger and the potential business
risks associated with Schein's operations outside of the United States,
including currency exchange rate fluctuations and regulations. The MBM Board
concluded that, as a result of the Merger, the shareholders of MBM should have
increased investment liquidity, the combined companies may have greater growth
opportunities, the Merger may be an effective response to the industry trend
toward consolidation, the similar business strategies of the management of
Schein and MBM and Schein's acquisition experience may facilitate integration of
MBM and Schein and becoming part of a larger and more diversified company may
hold certain benefits for MBM. Based on the foregoing and the opinion of
Houlihan, Lokey, Howard & Zukin, Inc. ("Houlihan Lokey"), an investment banking
firm (See "THE MERGER--Opinion of Houlihan Lokey"), the MBM Board concluded
that, the consideration offered in the merger is fair and the merger is in the
best interests of the shareholders of MBM. THERE CAN BE NO ASSURANCE, HOWEVER,
THAT ANY OR ALL OF THE POTENTIAL RESULTS DESCRIBED ABOVE WILL BE ACHIEVED IF THE
MERGER IS CONSUMMATED. See "THE MERGER--Background of the Merger" and
"--Consideration and Recommendation of the Merger by the MBM Board".
OPINION OF HOULIHAN LOKEY. Houlihan Lokey delivered its opinion on March 7,
1997 to the MBM Board that the consideration to be received in the Merger by the
public holders of MBM Common Stock is fair to such holders from a financial
point of view. The full text of Houlihan Lokey's written opinion, which sets
forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached as Annex II to this Proxy
Statement/Prospectus and is incorporated herein by reference. HOLDERS OF MBM
COMMON STOCK ARE STRONGLY URGED TO READ SUCH OPINION IN ITS ENTIRETY. See "THE
MERGER--Opinion of Houlihan Lokey".
INTERESTS OF CERTAIN PERSONS IN THE MERGER. As of the Record Date, the
directors and executive officers of MBM beneficially owned an aggregate of
419,272 shares of MBM Common Stock and options to purchase an aggregate of
1,471,332 shares of MBM Common Stock at a weighted average exercise price of
$7.28 per share. Pursuant to the Merger Agreement, MBM's directors and executive
officers will receive the same consideration for their shares of MBM Common
Stock as the other MBM shareholders, and all outstanding options to purchase MBM
Common Stock, including those owned by MBM's directors and executive officers,
will be converted into options to purchase Schein Common Stock as described
below under "TERMS OF THE MERGER--Treatment of MBM Stock Options and Warrants."
Because the Merger Agreement provides that the non-employee members of the MBM
Board will cease to serve as directors as of the Effective Time, the condition
to the exercise of certain options owned by such non-employee directors that the
optionee must be serving as a director at the time of exercise will be deleted
as of the Effective Time. Pursuant to the Merger Agreement, MBM's 1996
Directors' Retirement Plan will be terminated, effective as of the Effective
Time, and no benefits will be paid thereunder.
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In connection with the termination of his existing employment agreement with
MBM, Bruce J. Haber, MBM's President and a member of the MBM Board, will receive
an aggregate of $3,000,000 in installments, plus interest (subject to increase
in the event of the imposition of certain future tax liabilities), in lieu of
the payments and other rights to which he would have been entitled under such
agreement. Mr. Haber has entered into a new employment agreement with Schein
(effective as of the Effective Time) pursuant to which, as revised, he will
serve as an Executive Vice President of Schein and President of Schein's medical
products group and Schein has agreed to use its reasonable best efforts to cause
Mr. Haber to be elected to Schein's Board of Directors. Mr. Haber's employment
agreement with Schein has a term of five years from the Effective Time and
provides for, among other things, base salary at an annual rate (subject to
annual increases) of $400,000 and annual incentive compensation of up to
$200,000 (subject to increase for years after 1997 ), contingent upon the
achievement of performance targets; and annual grants of Schein Common Stock
purchase options with a value of up to $170,000 (determined using the
Black-Scholes valuation method) in each year (subject to cost of living
increases), contingent upon the achievement of the same performance targets to
which the payment of incentive compensation is contingent, as well as Mr.
Haber's participation in benefit plans and programs and receipt of a car
allowance and other benefits and perquisites provided by Schein to its most
senior executives. If Mr. Haber's Employment Agreement is not extended at the
end of its five year term, Mr. Haber will be entitled to continue to receive his
base salary at the then current rate for an additional year. At the Effective
Time, Mr. Haber will receive additional options having a value (on that date) of
$1,000,000 (determined using the Black Scholes valuation method) to purchase
Schein Common Stock, which options will vest over a five year period (subject to
acceleration in certain circumstances) and will receive restricted shares of
Schein Common Stock with a fair market value of $1,000,000, which shares will
vest over a ten year period (subject to acceleration in certain circumstances).
See "THE MERGER--Interests of Certain Persons in the Merger". If Mr. Haber's
employment is terminated by him or Schein within two years after a change in
control of Schein, Mr. Haber will be entitled to receive a lump sum payment
equal to (i) the product of the aggregate amount of base salary and car
allowance paid to him during the three months preceding such termination and the
number of months which he was employed by Schein or MBM (with a maximum benefit
of 36 months' base salary and car allowance) and (ii) three times the higher of
his last annual bonus or his last bonus prior to the change in control, but only
to the extent that such payments would not, in the aggregate, constitute
"parachute payments" for United States Federal income tax purposes.
K. Deane Reade, Jr., a director of MBM, is the President and a director and
stockholder of Bangert, Dawes, Reade, Davis & Thom Incorporated ("BDRD&T"), an
investment banking firm that has acted as a financial advisor to MBM in the past
and is also acting in that capacity in connection with the Merger. BDRD&T will
receive a fee upon consummation of the Merger of $1,230,000. Inasmuch as Mr.
Reade is a director of MBM and is president, a director and stockholder of
BDRD&T, MBM retained Houlihan Lokey, a firm which had no previous relationship
with MBM or with Schein, to render an opinion as to the fairness, from a
financial point of view, of the consideration to be received by the shareholders
of MBM (other than the officers and directors of MBM) in connection with the
proposed Merger as contemplated in the Merger Agreement. See "THE
MERGER--Opinion of Houlihan Lokey".
Schein and the members of the MBM Board have entered into an Option and
Proxy Agreement, as revised (the "Option and Proxy Agreement"), pursuant to
which such directors have granted to Schein (i) an irrevocable proxy to vote all
of the shares of MBM Common Stock (excluding certain shares) that they have the
right to vote in favor of the Merger Agreement and against any other Acquisition
Transaction (as defined in the Merger Agreement) and (ii) an irrevocable option
to purchase all shares of MBM Common Stock (excluding certain shares) owned by
them in the event that MBM becomes obligated to pay the Termination Fee (as
defined below under "--Certain Fees, Expenses and Liquidated Damages"). See
"--Option and Proxy Agreement".
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The Merger Agreement also contains certain provisions relating to
indemnification and liability insurance for officers and directors. See "THE
MERGER--Interests of Certain Persons in the Merger".
SECURITY OWNERSHIP OF CERTAIN PERSONS. As of the Record Date, there were
5,162,759 shares of MBM Common Stock outstanding, of which 549,998 shares
(approximately 10.7% of the outstanding shares of MBM Common Stock) were
beneficially owned or voted by directors and executive officers of MBM and their
affiliates. See "SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND OWNERS
OF 5% OR MORE OF MBM COMMON STOCK". All such directors and executive officers
and their affiliates have indicated to MBM that they intend to vote or direct
the vote of all such shares in favor of the approval of the Merger Agreement. In
addition, each member of the MBM Board has entered into an Option and Proxy
Agreement. See "--Option and Proxy Agreement."
TREATMENT OF MBM STOCK OPTIONS AND WARRANTS. At the Effective Time, each
outstanding option and warrant to purchase MBM Common Stock will be
automatically assumed by Schein and converted into an option ("Converted
Option") or a warrant ("Converted Warrant"), as the case may be, to purchase
shares of Schein Common Stock in an amount and at an exercise price determined
by adjusting the original terms of the option or warrant to reflect the Exchange
Ratio.
As of the Record Date, there were outstanding options and warrants to
purchase an aggregate of approximately 1,812,134 shares of MBM Common Stock.
Assuming all such options and warrants remain outstanding at the Effective Time,
an aggregate of approximately 1,123,523 shares of Schein Common Stock would
thereafter be issuable upon the exercise of such Converted Options and Converted
Warrants.
CONDITIONS TO THE MERGER. The obligations of Schein, Merger Sub and MBM to
consummate the Merger are subject to the satisfaction or waiver of various
conditions, including, without limitation, MBM shareholder approval of the
Merger Agreement and the admission for trading (subject to official notice of
issuance) on the Nasdaq National Market of the shares of Schein Common Stock to
be issued in connection with the Merger. See "TERMS OF THE MERGER
AGREEMENT--Conditions to the Merger".
NO SOLICITATION. The Merger Agreement provides that neither MBM, its
subsidiaries or affiliates, nor any of their respective directors, officers,
employees, affiliates, agents or representatives shall, among other things,
directly or indirectly, solicit, initiate, facilitate or encourage (including by
way of furnishing or disclosing non-public information) any inquiries or the
making of any proposal with respect to, or which may reasonably be expected to
lead to, an Acquisition Transaction (as defined in the Merger Agreement), or
negotiate, or otherwise engage in discussions with any person, with respect to
any Acquisition Transaction, or endorse any Acquisition Transaction; provided,
however, that MBM may, in response to an unsolicited written proposal from a
third party, furnish information to and engage in discussions with such third
party, but in each case only if (i) the Board of Directors of MBM determines in
good faith by a majority vote, after consultation with MBM's financial advisor
and after reviewing the advice of outside counsel to MBM, that such action is
reasonably likely to be required by the fiduciary duties of the Board of
Directors and (ii) prior to taking such action, MBM (x) provides reasonable
notice to Schein to the effect that it is taking such action and (y) receives
from such person (and delivers to Schein) an executed confidentiality agreement
in reasonably customary form. In the Merger Agreement, MBM agrees to immediately
advise Schein in writing of any inquiries or proposals with respect to an
Acquisition Transaction, and the terms thereof, including the identity of such
third party, and to update on an ongoing basis or upon Schein's request, the
status thereof. See "TERMS OF THE MERGER AGREEMENT--No Solicitation of Other
Offers".
RIGHT OF THE MBM BOARD TO WITHDRAW RECOMMENDATION. Under the Merger
Agreement, the MBM Board may not, among other things, (i) withdraw or modify, in
a manner adverse to Schein or Merger Sub, the MBM Board's approval or
recommendation of the Merger Agreement or the Merger, (ii) approve or recommend
any Acquisition Transaction, or (iii) cause MBM to enter into any agreement with
respect to
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<PAGE>
any Acquisition Transaction. Notwithstanding the foregoing, if the MBM Board
determines in good faith by majority vote, after consultation with MBM's
financial advisor and after reviewing the advice of outside counsel to MBM, that
such action is reasonably likely to be required by its fiduciary duties, the MBM
Board may withdraw or modify its approval or recommendation of the Merger
Agreement or the Merger, approve or recommend an Acquisition Transaction, or
cause MBM to enter into an agreement with respect to an Acquisition Transaction,
provided, in each case, that the MBM Board determines that the Acquisition
Transaction is more favorable to the shareholders of MBM than the Merger. The
Merger Agreement requires MBM to provide reasonable prior notice to Schein or
Merger Sub to the effect that it is taking such action. See "THE MERGER--Right
of the MBM Board to Withdraw Recommendation".
TERMINATION. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time and regardless of whether the
shareholders of MBM shall have approved the Merger Agreement and the Merger (if
applicable) (i) by mutual written consent of Schein and MBM, (ii) by either
Schein or MBM (except in certain circumstances) if the Merger shall not have
been consummated before September 30, 1997, or if any permanent injunction or
action by any Governmental Entity (as defined in the Merger Agreement) shall
have become final and nonappealable, (iii) by Schein, if (a) the Special Meeting
is canceled or otherwise not held (except in certain circumstances) prior to
August 31, 1997, (b) there has been a breach of any representations or
warranties of MBM set forth in the Merger Agreement, the effect of which,
individually or together with all other such breaches, is a material adverse
effect on the financial condition, results of operations, business, assets,
liabilities, prospects or properties of MBM and its subsidiaries, taken as a
whole, or the ability of MBM to consummate the Merger and the other transactions
contemplated by the Merger Agreement, (c) there has been a breach in any
material respect of any of the covenants or agreements set forth in the Merger
Agreement on the part of MBM, which breach is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by Schein to
MBM, (d) the Board of Directors of MBM (1) withdraws or amends or modifies in a
manner materially adverse to Schein or Merger Sub its recommendation or approval
to shareholders in respect of the Merger Agreement or the Merger, (2) makes any
recommendation with respect to an Acquisition Transaction (including making no
recommendation or stating an inability to make a recommendation), other than a
recommendation to reject such Acquisition Transaction, or (3) takes any action
that violates the non-solicitation provisions of the Merger Agreement, (e)
subject to certain exceptions, any person or group ("Acquiring Person") other
than Schein, or any affiliate or subsidiary of Schein, shall have become the
beneficial owner of more than 20% of the outstanding voting equity of MBM
(either on a primary or a fully diluted basis), or (f) any other Acquisition
Transaction shall have occurred with any Acquiring Person other than Schein, or
any affiliate or subsidiary of Schein, or (iv) by MBM, if (a) there has been a
breach of any representations or warranties of Schein set forth in the Merger
Agreement the effect of which, individually or together with all other such
breaches, is a material adverse effect on the financial condition, results of
operations, business, assets, liabilities, prospects or properties of Schein and
its subsidiaries taken as a whole, or the ability of Schein to consummate the
Merger and the other transactions contemplated by the Merger Agreement, (b)
there has been a breach in any material respect of any of the covenants or
agreements set forth in the Merger Agreement on the part of Schein, which breach
is not curable or, if curable, is not cured within 30 days after written notice
of such breach is given by MBM to Schein or (c) such termination is necessary to
allow MBM to enter into an Acquisition Transaction permitted under the Merger
Agreement. See "TERMS OF THE MERGER AGREEMENT--Termination Rights".
CERTAIN FEES, EXPENSES AND LIQUIDATED DAMAGES. If the Merger Agreement is
terminated as provided above (i) by Schein due to the MBM Board having withdrawn
or modified its recommendation or approval with respect to the Merger Agreement
or the Merger or having made a recommendation to shareholders with respect to an
Acquisition Transaction, or an Acquiring Person having become the owner of 20%
or more of MBM's outstanding voting equity or any other Acquisition Event
occurs, (ii) by MBM, in order to enter into an Acquisition Agreement permitted
by the Merger Agreement, (iii) by either Schein or MBM due to the Merger not
being consummated before September 30, 1997, (iv) by Schein due to the Special
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Meeting not occurring prior to August 31, 1997, or (v) by Schein due to a
material breach or misrepresentation and, in the case of a termination described
in these clauses (iii) through (v), within one year of such termination MBM or
any of its subsidiaries shall have consummated an Acquisition Transaction or
have entered into a definitive agreement with respect thereto; then MBM shall
pay to Schein a termination fee of $5,000,000 (the "Termination Fee") plus an
amount equal to Schein's out-of-pocket expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby, including, without
limitation, legal, professional and service fees and expenses. If the Merger
Agreement terminates under the circumstances described in clauses (iv) and (v)
and an Acquisition Transaction does not occur within six months of such
termination, MBM is required to pay to Schein the amount of $3,000,000 as
liquidated damages. If MBM terminates the Merger Agreement due to a
misrepresentation or breach by Schein, then Schein is required to pay to MBM the
amount of $3,000,000 as liquidated damages.
OPTION AND PROXY AGREEMENT
Schein and the members of the MBM Board have entered into an Option and
Proxy Agreement, as revised (the "Option and Proxy Agreement"), pursuant to
which such directors have granted to Schein (i) an irrevocable proxy to vote all
of the shares of MBM Common Stock (excluding certain shares) that they have the
right to vote in favor of the Merger Agreement and against any other Acquisition
Transaction and (ii) an irrevocable option to purchase all shares of MBM Common
Stock (excluding certain shares) owned by them in the event that MBM becomes
obligated to pay the Termination Fee. Under the Option and Proxy Agreement,
Schein has the right to require the members of the MBM Board to exercise or
convert all of their respective options, warrants or other rights or securities
that are exercisable for, or convertible into, shares of MBM Common Stock. As of
the date of this Proxy Statement/ Prospectus, the members of the MBM Board
beneficially owned or had the right to vote an aggregate of 512,496 shares of
MBM Common Stock (approximately 10.0% of the outstanding shares), and owned, in
the aggregate, options to purchase an aggregate of 1,098,333 shares of MBM
Common Stock. See "THE SPECIAL MEETING--Required Vote" and "THE MERGER--Option
and Proxy Agreement".
REGULATORY MATTERS
ANTITRUST. The Merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the rules and regulations thereunder, which provide that certain
transactions may not be consummated until required information and material have
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the Federal Trade Commission (the "FTC") and certain
waiting periods have expired or been terminated. MBM and Schein filed the
required information and material with the Antitrust Division and the FTC on
April 16, 1997. Early termination of the statutory waiting period under the HSR
Act was granted on April 28, 1997. See "THE MERGER--Regulatory Filings and
Approvals--Antitrust".
CERTAIN TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a "tax-free reorganization" for United
States Federal income tax purposes. Accordingly, no gain or loss will be
recognized for United States Federal income tax purposes by the MBM shareholders
as a result of the exchange of shares of MBM Common Stock for shares of Schein
Common Stock. However, cash received by MBM shareholders in lieu of fractional
shares of Schein Common Stock may give rise to taxable gain or loss.
Each shareholder of MBM is urged to consult his or her tax advisor to
determine the specific tax consequences of the Merger to such shareholder. The
obligations of both MBM and Schein to consummate the Merger are subject to the
opinion of MBM's tax counsel to the effect that the Merger will be a "tax-free
reorganization" for United States Federal income tax purposes not being
withdrawn or modified in any material respects. For a further discussion of the
tax consequences of the Merger, See "THE MERGER--Certain Tax Consequences of the
Merger".
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ANTICIPATED ACCOUNTING TREATMENT
Schein and MBM believe that the Merger will qualify as a "pooling of
interests" for accounting and financial reporting purposes. It is a condition to
Schein's obligation to consummate the Merger that BDO Seidman, LLP, the
independent auditors for Schein, and Miller, Ellin & Company, the independent
auditors for MBM, issue their opinions that, subject to customary
qualifications, the Merger qualifies as a "pooling of interests" for financial
reporting purposes in accordance with generally accepted accounting principles.
See "THE MERGER--Anticipated Accounting Treatment".
Although Schein may waive this condition to the consummation of the Merger
and Schein or MBM may waive the tax opinion condition to the consummation of the
Merger described in "--Certain Tax Consequences of the Merger", neither Schein
nor MBM anticipates waiving these conditions, and will not do so without
resoliciting the holders of MBM Common Stock for their approval of the Merger on
the basis of such waiver or waivers.
APPRAISAL RIGHTS
Holders of MBM Common Stock may demand an appraisal by the appropriate New
York State court of the "fair value" of their shares of MBM Common Stock under
Section 623 of the NYBCL, in lieu of accepting the conversion of such shares of
Schein Common Stock at the Exchange Ratio. A shareholder of MBM Common Stock
electing to demand an appraisal must deliver to MBM before the taking of the
vote on the Merger, a written demand for appraisal of such shareholder's Shares.
A proxy or vote against the Merger or an abstention or broker non-vote will not
constitute such a demand. A vote in favor of the Merger by a shareholder will
have the effect of waiving his or her appraisal rights. Schein will not be
obligated to consummate the Merger if appraisal rights are demanded with respect
to more than 9% of the outstanding shares of MBM Common Stock. See "THE
MERGER--Appraisal Rights".
Under Section 623 of the NYBCL, a corporation must notify each of its
shareholders entitled to appraisal rights as of the record date of the meeting
that such appraisal rights are available and include in such notice a copy of
Section 623. THIS PROXY STATEMENT CONSTITUTES SUCH NOTICE TO THE HOLDERS OF
SHARES OF MBM COMMON STOCK. Holders of shares of MBM Common Stock wishing to
exercise appraisal rights are urged to review carefully the information set
forth in "THE MERGER--Appraisal Rights" and the complete text of Section 623,
which is attached as Annex III to this Proxy Statement/Prospectus.
COMPARISON OF STOCKHOLDER RIGHTS
If the Merger is consummated, shareholders of MBM will become stockholders
of Schein, a Delaware corporation, which will result in their rights as
shareholders being governed by Delaware law and Schein's Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws, rather than New
York law (MBM is a New York corporation) and MBM's Certificate of Incorporation,
as amended, and By-Laws, as amended. It is not practical to describe all the
differences between Delaware law and New York law and between Schein's governing
documents and MBM's governing documents. A summary of certain of such
differences is set forth in "COMPARISON OF STOCKHOLDER RIGHTS", including,
without limitation, differences with respect to the size of the board of
directors, the calling of special meetings of stockholders, the required
stockholder vote for the approval of certain transactions, the amendment of the
governing documents, and appraisal rights.
MARKET PRICE DATA
Both the Schein Common Stock (symbol: HSIC), and the MBM Common Stock
(symbol: MBMI) are admitted for trading on the Nasdaq National Market.
The following table sets forth the high and low sales prices per share of
the Schein Common Stock and the MBM Common Stock (on a historical and equivalent
per share basis) on the Nasdaq National Market
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on March 6, 1997, the last trading day prior to public announcement of the
signing of the Merger Agreement:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Schein Common Stock.......................................... $28 7/8 $28
MBM Common Stock............................................. 16 3/8 15 3/4
Equivalent share basis(1).................................... 17 7/8 17 3/8
</TABLE>
- ------------------------
(1) Equivalent share basis is determined by multiplying the applicable Schein
Common Stock price by 0.62 to reflect the terms of the Merger Agreement.
CERTAIN SIGNIFICANT CONSIDERATIONS
In considering whether to approve and adopt the Merger Agreement providing
for the Merger, shareholders of MBM should carefully consider those factors
described under "RISK FACTORS" as well as the fact that the Exchange Ratio is
fixed and will not be adjusted based on changes in the price of the Schein
Common Stock. The price of the Schein Common Stock at the Effective Time may
vary from the price as of the date of the Proxy Statement/Prospectus or the date
on which shareholders of MBM vote on the Merger due to changes in the business,
operations or prospects of Schein, market assessments of the likelihood that the
Merger will be consummated and the timing thereof, general market and economic
conditions, and other factors.
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION AND OPERATING DATA
The following tables present summary consolidated selected historical
financial information and operating data of Schein and MBM. Schein and MBM's
consolidated historical financial information and operating data for each of the
annual periods presented have been derived from their respective audited
consolidated financial statements previously filed with the SEC. Schein and
MBM's historical consolidated financial information for the three months ended
March 29, 1997 and March 30, 1996, and February 28, 1997 and February 29, 1996,
respectively, have been derived from Schein and MBM's unaudited consolidated
financial statements for such quarterly periods previously filed with the SEC.
The summary consolidated selected historical financial information and operating
data should be read in conjunction with the consolidated selected historical
financial information and operating data presented elsewhere in this Proxy
Statement/Prospectus. Schein's Selected Operating Data has not been audited. See
"SCHEIN CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION AND OPERATING
DATA" and "MBM CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION."
15
<PAGE>
SCHEIN SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION AND OPERATING DATA
(in thousands, except per share and selected operating data)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
28, 30, 31, 25, 26,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 840,122 $ 623,302 $ 490,834 $ 417,838 $ 363,477
Gross profit............................... 253,109 195,854 145,966 122,884 106,215
Selling, general and administrative
expenses................................. 220,500 174,867 131,009 111,214 96,853
Special charges (1)........................ -- 20,797 23,603 6,057 7,510
Operating income (loss).................... 32,609 190 (8,646) 5,613 1,852
Net income (loss).......................... $ 22,523 $ (8,801) $ (10,065) $ 4,125 $ 487
PRO FORMA INCOME DATA (2):
Pro forma operating income................. $ 32,609 $ 20,987 $ 14,957
Pro forma net income....................... $ 21,326 $ 10,289 $ 7,483
Pro forma net income per common share...... $ 0.98 $ 0.71 $ 0.57
Pro forma average shares outstanding....... 21,794 14,517 13,197
SELECTED OPERATING DATA:
Number of orders shipped................... 3,079,000 2,630,000 2,275,000 2,044,000 1,824,000
Average order size......................... $ 273 $ 237 $ 216 $ 204 $ 199
BALANCE SHEET DATA (AT PERIOD END):
Working capital............................ $ 204,575 $ 104,455 $ 76,814 $ 74,167 $ 28,066
Total assets............................... 467,450 299,364 191,373 161,437 138,043
Total debt................................. 39,746 43,049 61,138 56,712 41,526
Redeemable stock (3)....................... -- -- 14,745 -- --
Minority interest.......................... 5,289 4,547 1,823 1,051 411
Stockholders' equity....................... 292,016 143,865 40,266 43,896 39,927
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
<S> <C> <C>
MARCH 29, 1997 MARCH 30, 1996
-------------- --------------
STATEMENT OF OPERATIONS DATA:
Net sales........................................................................ $ 240,499 $ 187,339
Gross profit..................................................................... 71,722 56,506
Selling, general and administrative expenses..................................... 64,782 51,396
Merger costs(4).................................................................. 2,527 --
Operating income................................................................. 4,413 5,110
Net income....................................................................... $ 1,499 $ 2,716
Net income per common share...................................................... $ 0.06 $ 0.14
Average shares outstanding....................................................... 23,678 19,740
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
MARCH 29, 1997
--------------
<S> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................................................................... $ 201,446
Total assets...................................................................................... 438,553
Total debt........................................................................................ 38,736
Minority interest................................................................................. 5,119
Stockholders' equity.............................................................................. 293,581
</TABLE>
- ------------------------
(1) Includes: (a) for 1995, non-cash special management compensation charges of
$17.5 million arising from final mark-to-market adjustments (reflecting an
increase in estimated market value from 1994 to the initial public offering
price of $16.00 per share of Schein Common Stock) for stock grants made to
an executive officer of Schein in 1992 and other stock issuances made to
certain other senior management of Schein (because of certain repurchase
features which expired with the initial public offering), an approximate
$2.8 million non-cash special management compensation charge (also based on
the initial public offering price of $16.00 per share) relating to
compensatory options granted in 1995, and a cash payment of $0.5 million for
additional income taxes resulting from such stock issuances; (b) for 1994
special professional fees of $2.0 million incurred by Schein in connection
with the reorganization of Schein's ownership, including various agreements
entered into in connection therewith, between 1992 and 1994, non-cash
special management compensation arising from accelerated amortization of
deferred compensation arising from the 1992 stock grants to an executive
officer of Schein of $17.3 million, which included a 1994 mark-to-market
adjustment (because of the repurchase features referred to above) of $9.1
million, due to the resolution, with the closing of such reorganization, of
certain contingencies surrounding the issuance of the stock grants, non-cash
special management compensation charges of $1.6 million (net of prior
accruals of approximately $1.9 million under an executive incentive plan)
arising from stock issuances to certain other senior management of Schein,
valued at $3.5 million, and cash payments for income taxes of approximately
$2.4 million resulting from these stock issuances and $0.3 million for
additional income taxes resulting from the 1992 stock grants; (c) for 1993,
special professional fees of $2.2 million relating to such reorganization,
special contingent consideration of $0.7 million paid in connection with an
acquisition and $2.5 million resulting from the buyout of employees' rights
to future income contained in their employment agreements, and non-cash
special management compensation charges of $0.6 million in amortization of
deferred compensation arising from the 1992 stock grants; and (d) for 1992,
special professional fees of $2.2 million relating to such reorganization,
and cash payments of $5.3 million for income taxes resulting from stock
grants made to an executive officer of Schein. See "Description of Schein"
and "Schein Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
(2) Reflects the pro forma elimination of special charges incurred in 1995 and
1994 for special management compensation of $20.8 million and $21.6 million,
respectively, and special professional fees incurred in 1994 of $2.0
million, arising from the reorganization referred to in note (1) above, and
the related tax effects of $1.2 million and $5.8 million for 1995 and 1994,
respectively, and provision for income taxes on previously untaxed earnings
of Dentrix Dental Systems, Inc. ('Dentrix') as an S Corporation of $1.2
million, $0.5 million and $0.3 million for 1996, 1995 and 1994,
respectively. See "Description of Schein" and "Schein Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview and Recent Developments."
(3) Redeemable stock includes stock issued for compensation which was subject to
repurchase by Schein at fair market value in the event of termination of
employment of the holder of such shares, as well as shares purchased by the
trust for Schein's ESOP and allocable to the ESOP participants. With the
completion of Schein's initial public offering, the stock issued for
compensation and the ESOP Common Stock were no longer subject to repurchase.
See "Description of Schein" and "Schein
17
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview and Recent Developments."
(4) During the three months ended March 29, 1997, Schein acquired all of the
common stock of Dentrix, a provider of clinically-based dental practice
management systems, with 1996 net sales of approximately $10.2 million, in
exchange for 1,070,000 shares of Schein Common Stock. The Dentrix
acquisition was accounted for as a pooling of interests, and, accordingly,
the consolidated financial statements for all periods presented have been
restated to include Dentrix. In connection with the Dentrix acquisition
Schein incurred merger costs of approximately $2.5 million, or $0.11 per
share, in the first quarter of 1997. Included in the merger costs are
investment banking, legal, accounting and advisory fees and other
nonrecurring costs associated with this acquisition.
18
<PAGE>
MBM SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $ 150,142,529 $ 119,873,764 $ 121,604,461 $ 73,951,410 $ 61,629,435
Gross profit..................... 30,937,027 25,566,621 26,680,772 17,604,057 14,342,026
Total expenses................... 27,871,492 23,651,732 24,047,152 15,548,838 12,157,153
Net income....................... $ 1,744,835 $ 1,108,889 $ 1,621,620 $ 1,202,219 $ 1,222,873
Net income per common share...... $ 0.31 $ 0.25 $ 0.36 $ 0.30 $ 0.41
Average shares outstanding....... 5,816,469 5,121,634 4,896,518 4,734,746 3,481,415
BALANCE SHEET DATA (AT PERIOD
END):
Working capital.................. $ 28,112,222 $ 29,965,266 $ 30,141,450 $ 20,965,370 $ 15,819,417
Long-term debt (net of current
maturities).................... 8,714,567 17,270,062 19,381,239 9,584,684 9,410,079
Total assets..................... 60,443,816 51,135,712 54,461,087 32,784,234 27,934,060
Stockholders' equity............. 31,391,765 21,064,152 18,067,056 16,193,524 10,461,736
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
<S> <C> <C>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------- -------------
STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $ 38,004,627 $ 29,887,421
Gross profit................................................... 7,333,777 6,295,512
Total expenses................................................. 6,956,941 6,143,896
Net income..................................................... $ 218,536 $ 87,916
Net income per common share.................................... $ 0.04 $ 0.02
Average shares outstanding..................................... 6,149,343 5,499,024
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................................ $ 26,382,739
Long-term debt (net of current maturities)..................... 6,966,659
Total assets................................................... 60,588,092
Stockholders' equity........................................... 31,668,076
</TABLE>
19
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables present summary unaudited pro forma combined financial
information after giving effect to the Merger under the pooling of interests
method of accounting as if the Merger had been consummated as of the beginning
of the periods presented. The tables have been derived from, or prepared on a
basis consistent with, the unaudited pro forma combined information included in
this Proxy Statement/Prospectus. The selected pro forma combined financial
information should be read in conjunction with, and is qualified in its entirety
by reference to, the unaudited pro forma combined condensed financial statements
and the notes thereto. See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS." The following data are presented for illustrative purposes only and
are not necessarily indicative of the operating results or financial position
that would have occurred or that will occur after consummation of the Merger.
<TABLE>
<CAPTION>
MARCH 29, 1997
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital............................................................... $ 219,629
Total assets.................................................................. 499,141
Total debt.................................................................... 46,136
Stockholders' equity.......................................................... 317,049
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS YEARS ENDED
ENDED -----------------------------------
MARCH DECEMBER DECEMBER DECEMBER
29, 28, 30, 31,
1997 1996 1995 1994
------------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ 278,504 $ 990,265 $ 743,176 $ 612,438
Operating income (loss) (1)................................. 4,890 36,394 3,344 (4,969)
Net income (loss)........................................... $ 1,718 $ 24,268 $ (7,692) $ (8,444)
Net income per common share................................. $ 0.06
Weighted average common and common equivalent shares
outstanding............................................... 27,490
Pro forma operating income (2).............................. $ 36,394 $ 24,141 $ 18,634
Pro forma net income (3).................................... $ 23,071 $ 11,398 $ 9,104
Pro forma net income per common share....................... $ 0.91 $ 0.66 $ 0.57
Pro forma weighted average common and common equivalent
shares outstanding........................................ 25,401 17,693 16,233
</TABLE>
- ------------------------
(1) Includes merger costs of $2,527 in 1997 and special charges of $20,797 in
1995 and $23,603 in 1994.
(2) Reflects the pro forma elimination of the special charges.
(3) Reflects the pro forma elimination of the special charges and relative tax
benefit and the provision for income taxes on previously untaxed earnings of
Dentrix as an S Corporation.
20
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table summarizes certain unaudited comparative per share data
for Schein and MBM on a pro forma combined basis, on a pro forma equivalent
basis and on a historical basis giving effect to the Merger as a "pooling of
interests" for accounting purposes. Such information is derived from and should
be read in conjunction with the Unaudited Pro Forma Combined Condensed Financial
Information, including the notes thereto, contained elsewhere in this Proxy
Statement/Prospectus. The unaudited pro forma statement presented is for
comparative purposes only and is not necessarily indicative of future combined
earnings or financial position or combined 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
information is presented. The MBM Per Share Equivalents are calculated by
multiplying the Pro Forma Combined per share amounts by the Exchange Ratio of
0.62.
<TABLE>
<CAPTION>
AT OR FOR THE PERIODS ENDED (1)
AT OR FOR THE -------------------------------------
THREE MONTHS DECEMBER DECEMBER DECEMBER
ENDED 28, 30, 31,
MARCH 29, 1997 1996 1995 1994
--------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED:
Net income per common share.................................... $ 0.06 $ 0.91 $ 0.66 $ 0.57
Book value per common share.................................... $ 11.92
MBM PER SHARE EQUIVALENTS:
Net income per common share.................................... $ 0.04 $ 0.56 $ 0.41 $ 0.35
Book value per common share.................................... $ 7.39
MBM -- HISTORICAL:
Net income per common share.................................... $ 0.04 $ 0.31 $ 0.25 $ 0.36
Book value per common share (2)................................ $ 5.15
SCHEIN:
Net income per common share--Historical........................ $ 0.06
Pro forma net income per common share (3)...................... $ 0.98 $ 0.71 $ 0.57
Book value per common share--Historical........................ $ 12.59
</TABLE>
- ------------------------
(1) Combines Schein's amounts at and for the three months ended in March with
MBM's amounts at and for the three months ended in February, and the years
ended in December with MBM's amounts at and for the years ended November 30.
(2) Includes additional shares assuming conversion of stock options and warrants
utilizing the modified treasury stock method.
(3) For Schein, excludes special management compensation and related tax effects
for 1995 and 1994, and special professional fees and related tax effects for
1994, and provides for provision for income taxes on previously untaxed
earnings of Dentrix as an S Corporation.
Except for a dividend paid by Schein in 1992 and regular distributions made by
Dentrix in the years prior to its business combination with Schein, neither
Schein nor MBM has ever paid a cash dividend on their common stocks.
21
<PAGE>
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY THE HOLDERS OF SHARES OF MBM
COMMON STOCK IN EVALUATING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT.
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE HARBOR"
FOR FORWARD LOOKING STATEMENTS. ANY FORWARD LOOKING STATEMENTS CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS, INCLUDING, WITHOUT LIMITATION, THOSE RELATING TO THE
COMBINED OPERATIONS OF SCHEIN AND MBM AFTER THE MERGER, ARE SUBJECT TO, AMONG
OTHER THINGS, THE FOLLOWING FACTORS.
FIXED EXCHANGE RATIO
In considering whether to approve and adopt the Merger Agreement providing
for the Merger, holders of shares of MBM Common Stock should carefully consider
that the Exchange Ratio is fixed and will not be adjusted based on changes in
the market price of the Schein Common Stock, and that the market price of the
Schein Common Stock at the Effective Time may vary from the price as of the date
of this Proxy Statement/Prospectus or the date on which holders of shares of MBM
Common Stock vote on the Merger due to changes in the business, operations or
prospects of Schein, market assessments of the likelihood that the Merger will
be consummated and the timing thereof, general market and economic conditions,
and other factors.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Bruce J. Haber, MBM's President and one of the four members of the MBM
Board, has entered into an agreement with Schein with respect to the termination
of his existing employment agreement with MBM pursuant to which he will receive
an aggregate of $3,000,000 in installments, plus interest (subject to increase
in the event of the imposition of certain future tax liabilities) in lieu of the
payments and other rights to which he would have become entitled under such
agreement, and has also entered into a new employment agreement with Schein
which contains provisions for salary, incentive compensation, severance, certain
rights upon a change in control, and grants of Schein Common Stock purchase
options (including options with an aggregate value of $1,000,000 on the
Effective Date). Additionally, pursuant to a restricted stock agreement with
Schein, Mr. Haber will receive restricted shares of Schein Common Stock with a
fair market value of $1,000,000 on the Effective Date. These three agreements
all take effect at the Effective Time. BDRD&T, a firm of which K. Deane Reade,
Jr., a director of MBM, is president and a director and stockholder, will
receive a fee of $1,230,000 upon consummation of the Merger. The compensation to
Mr. Haber and to BDRD&T is for services rendered or to be rendered to MBM or to
the Surviving Corporation and accordingly, the holders of shares of MBM Common
Stock (including Mr. Haber and Mr. Reade, as holders of shares of MBM Common
Stock) will not receive any part of this compensation. The additional
compensation to be received by Mr. Haber and, indirectly, Mr. Reade, may be
deemed to give rise to additional and different interests of Mr. Haber and Mr.
Reade in the Merger than those of the other directors and shareholders of MBM.
Mr. Haber and Mr. Reade, as holders of shares of MBM Common Stock, will receive
the same merger consideration as all other holders of shares of MBM Common
Stock.
OPTION AND PROXY AGREEMENT
Schein and the members of the MBM Board have entered into an Option and
Proxy Agreement pursuant to which such directors have granted to Schein (i) an
irrevocable proxy to vote all of the shares of MBM Common Stock (excluding
certain shares) that they have the right to vote in favor of the Merger
Agreement and against any other Acquisition Transaction and (ii) an irrevocable
option to purchase all shares of MBM Common Stock (excluding certain shares)
owned by them in the event that MBM becomes obligated to pay the Termination
Fee. The arrangements under the Option and Proxy Agreement may be deemed to give
rise to additional and different interests of the members of the MBM Board in
the Merger
22
<PAGE>
than those of other shareholders of MBM. In particular, the Option and Proxy
Agreement may be deemed to diminish or eliminate any economic interest that the
members of the MBM Board would otherwise have, in their individual capacities as
shareholders of MBM, in an Acquisition Transaction that was more favorable to
the MBM shareholders than the Merger. Under the terms of the Merger Agreement,
the MBM Board may terminate the Merger Agreement in order to permit MBM to enter
into an Acquisition Transaction with a third party if it determines in good
faith by majority vote, after consultation with its financial advisor, and after
reviewing the advice of outside counsel to MBM, that such Acquisition
Transaction is more favorable to the shareholders of MBM than the Merger and
that such action is required by its fiduciary duties. See "TERMS OF THE MERGER
AGREEMENT--Termination Rights."
DIFFICULTY OF INTEGRATION OF OPERATIONS FOLLOWING THE MERGER
The Board of Directors of Schein (the "Schein Board") and the MBM Board have
each given careful consideration to the Merger and believe it to be in the best
interests of their respective stockholders. However, the Merger involves the
combination of two companies that have operated independently. Accordingly,
there can be no assurance that MBM can be successfully integrated into Schein or
that Schein and its stockholders (including the shareholders of MBM who become
stockholders of Schein) will ultimately realize any benefits from the Merger.
The success of the combined company following the Merger will require the
dedication of management resources which may temporarily detract from attention
to the day to day business of Schein and MBM. There can be no assurance that
such diversion of management resources will not adversely affect revenues or
that other material adverse effects will not result from such activities.
COMPETITION
The healthcare products distribution business is intensely competitive.
Schein and MBM compete with numerous other companies, including several major
manufacturers and distributors. Some of these competitors have greater financial
and other resources than either Schein, MBM or the combined companies. Most of
Schein's and MBM's products are available from several sources, and their
customers tend to have relationships with several distributors. In addition,
such competitors could obtain rights to market particular products to the
exclusion of Schein or MBM. Manufacturers also could increase their efforts to
sell directly to end-users, thereby by-passing distributors such as Schein or
MBM. Consolidation among healthcare products distributors could result in
existing competitors increasing their market position through acquisitions or
joint ventures, which may materially adversely affect operating results. In
addition, new competitors may emerge which could materially adversely affect
Schein's or MBM's operating results. There can be no assurance the combined
companies will not face increased competition in the future.
EXPANSION OF SCHEIN THROUGH ACQUISITIONS AND JOINT VENTURES
Schein intends to expand in its domestic and international markets, in part,
through acquisitions and joint ventures. However, Schein's ability to expand
successfully through acquisitions and joint ventures will depend upon the
availability of suitable acquisition or joint venture candidates at prices
acceptable to Schein, Schein's ability to consummate such transactions and the
availability of financing on terms acceptable to Schein. There can be no
assurance that Schein will be effective in making acquisitions or joint
ventures. Such transactions involve numerous risks, including possible adverse
short-term effects on Schein's operating results or the market price of Schein's
Common Stock. Certain of Schein's acquisitions and future acquisitions may also
give rise to an obligation by Schein to make contingent payments or to satisfy
certain repurchase obligations, which payments could have an adverse financial
effect on Schein. In addition, integrating acquired businesses and joint
ventures may result in a loss of customers or product lines of the acquired
businesses or joint ventures, and also requires significant management attention
and may place significant demands on Schein's operations, information systems
and financial resources. Schein
23
<PAGE>
completed the acquisitions of (or entered into definitive agreements to acquire)
seventeen other companies in 1996, and has acquired, or entered into definitive
agreement(s) to acquire, fourteen companies so far in 1997. The failure to
effectively integrate future acquired businesses and joint ventures with the
combined companies' operations could adversely affect the combined companies.
MINORITY STATUS OF FORMER MBM SHAREHOLDERS; CONTROL BY INSIDERS
Immediately after the consummation of the Merger, the former holders of MBM
Common Stock will hold an aggregate of approximately 11.9% of the then
outstanding shares of Schein Common Stock and will not be able to control, as a
group, the management of Schein. In addition, immediately after the Merger,
Stanley M. Bergman, Chairman of the Board, Chief Executive Officer and President
of Schein, will own, directly or indirectly, approximately 5.4% of the
outstanding shares of Schein Common Stock and, by virtue of a Voting Trust
Agreement (which expires December 31, 1998 unless terminated earlier) with
certain of Schein's current principal stockholders, will have the right to vote
up to an aggregate of approximately 30.3% of the outstanding shares of Schein
Common Stock. In addition, until December 31, 1998, under certain circumstances,
Mr. Bergman has the right to direct the nomination of a majority of the nominees
to Schein's Board and, from January 1, 1999 until December 31, 2003, Mr. Bergman
has the right to direct the nomination of all, or, under certain circumstances,
four (out of nine), of the nominees to the Schein Board, and in all such events
certain of the current principal stockholders are required to vote for such
nominees. Because of these voting arrangements, Mr. Bergman has significant
influence over matters requiring the approval of the Schein Board or
stockholders of Schein. Under certain circumstances, these voting arrangements
may terminate prior to December 31, 1998. In that event, certain of Schein's
current principal stockholders may be able to significantly influence all
matters requiring stockholder approval, including the election of directors. See
"DESCRIPTION OF SCHEIN-- Reorganization."
FLUCTUATIONS IN QUARTERLY EARNINGS
Schein's business has been subject to seasonal and other quarterly
influences. Net sales and operating profits have been generally higher in the
fourth quarter due to the timing of sales of software, year-end promotions, and
purchasing patterns of office-based healthcare practitioners and have been
generally lower in the first quarter due primarily to increased purchases in the
prior quarter. Quarterly results may also be adversely affected by a variety of
other factors, including the timing of acquisitions and related costs, the
release of software enhancements, promotions, adverse weather, and fluctuations
in exchange rates associated with international operations.
PRACTICE MANAGEMENT SOFTWARE AND OTHER VALUE ADDED PRODUCTS
During 1996, approximately $31.0 million, or 3.7%, and $21.4 million, or
8.5%, of Schein's net sales and gross profit, respectively, were derived from
sales of Schein's Easy Dental-Registered Trademark- Plus, Dentrix Dental System,
AVImark-Registered Trademark- practice management software, and other value
added products to United States dental and veterinary office-based healthcare
practitioners. Competition among companies supplying practice management
software is intense and increasing. Schein's future sales of practice management
software will depend, among other factors, upon the effectiveness of Schein's
sales and marketing programs, Schein's ability to enhance its products and the
ability to provide ongoing technical support. There can be no assurance that
Schein will be successful in introducing and marketing software enhancements or
new software, or that such software will be released on time or accepted by the
market. Schein's software products, like software products generally, may
contain undetected errors or bugs when introduced or as new versions are
released. While Schein's current products have not experienced significant
post-release software errors or bugs to date, there can be no assurance that
problems will not occur in the future. Any such defective software may result in
increased expenses related to the software and could adversely affect Schein's
relationship with the customers using such software. Schein does not have any
patents on its
24
<PAGE>
software and relies upon copyright, trademark and trade secret laws; there can
be no assurance that such legal protections will be available or enforceable to
protect its software products. Schein's software products are generally
distributed under "shrink-wrap" licenses that are not signed by the customer and
therefore may be unenforceable in certain jurisdictions.
FOREIGN OPERATIONS
During 1996, approximately 17.5% and 18.1% of Schein's net sales and gross
profit, respectively, were derived from sales to customers located outside the
United States and Canada. Schein's international businesses are subject to a
number of inherent risks, including difficulties in opening and managing foreign
offices and distribution centers; establishing channels of distribution;
fluctuations in the value of foreign currencies; import/export duties and
quotas; and unexpected regulatory, economic and political changes in foreign
markets. There can be no assurance that these factors will not adversely affect
the combined companies' operating results.
DEPENDENCE ON SENIOR MANAGEMENT
Schein's future performance will depend, in part, upon the efforts and
abilities of certain members of its existing senior management, particularly
Stanley M. Bergman, Chairman, Chief Executive Officer and President, James P.
Breslawski, Executive Vice President, and Steven Paladino, Senior Vice President
and Chief Financial Officer, as well as (if the Merger is consummated) those of
Bruce J. Haber, who will serve as an Executive Vice President and President of
Schein's medical products group. The loss of service of one or more of these
persons could have an adverse effect on Schein's business. Schein has entered
into employment agreements with Mr. Bergman and, as of the Effective Time, Mr.
Haber. The success of certain acquisitions and joint ventures effected by Schein
may depend, in part, on Schein's ability to retain key management of the
acquired business or joint venture. MBM's future performance will depend, in
part, upon the efforts and abilities of certain members of its existing senior
management, including Mr. Haber.
CHANGES IN HEALTHCARE INDUSTRY
In recent years, the healthcare industry has undergone significant change
driven by various efforts to reduce costs, including potential national
healthcare reform, trends toward managed care, cuts in Medicare, consolidation
of healthcare distribution companies and collective purchasing arrangements by
office-based healthcare practitioners. Schein's or MBM's inability to react
effectively to these and other changes in the healthcare industry could
adversely affect its operating results. Schein and MBM cannot predict whether
any healthcare reform efforts will be enacted and what effect any such reforms
might have on them or their respective customers and suppliers.
GOVERNMENT REGULATION
Both Schein and MBM and their respective customers and suppliers are subject
to extensive Federal and state regulation in the United States, as well as
regulation by foreign governments, and neither Schein nor MBM can predict the
extent to which future legislative and regulatory developments concerning their
practices and products or the healthcare industry may affect them. In addition,
both Schein and MBM, as marketers, distributors and manufacturers of healthcare
products (including Schein through its 50%-owned company, HS Pharmaceutical,
Inc., which distributes and manufactures generic pharmaceuticals), are required
to obtain the approval of Federal and foreign governmental agencies, including
the Food and Drug Administration, prior to marketing, distributing and
manufacturing certain of those products, and it is possible that both Schein and
MBM may be prevented from selling new manufactured products should a competitor
receive prior approval. Further, Schein's and MBM's plants and operations are
subject to review and inspection by local, state, Federal and (in the case of
Schein) foreign governmental entities. The companies' suppliers are also subject
to similar governmental requirements.
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RISK OF PRODUCT LIABILITY CLAIMS AND INSURANCE
The sale, manufacture and distribution of healthcare products involves a
risk of product liability claims and adverse publicity. Although neither Schein
nor MBM has been subject to a significant number of such claims or incurred
significant liabilities due to such claims, there can be no assurance that this
will continue to be the case. In addition, Schein and MBM maintain product
liability insurance coverage and have certain rights to indemnification from
third parties, but there can be no assurance that claims outside of or exceeding
such coverage will not be made, that the combined companies will be able to
continue to obtain insurance coverage or that they will be successful in
obtaining indemnification from such third parties. The combined companies also
may not be able to maintain existing coverage or obtain, if they determine to do
so, insurance providing additional coverage at reasonable rates.
COST OF SHIPPING
Shipping is a significant expense in the operation of both Schein's and
MBM's business. Schein and MBM ship almost all of their orders by United Parcel
Service and other delivery services, and typically bear the cost of shipment.
Accordingly, any significant increase in shipping rates could have an adverse
effect on Schein's and MBM's operating results. Similarly, strikes or other
service interruptions by such shippers could adversely affect Schein's and MBM's
ability to deliver products on a timely basis.
RELIANCE ON TELEPHONE AND COMPUTER SYSTEMS
Both Schein and MBM believe that their success depends, in part, upon their
telesales and direct marketing efforts and their ability to provide prompt,
accurate and complete service to their customers on a price-competitive basis.
Any continuing disruption in either their computer system or their telephone
system could adversely affect their ability to receive and process customer
orders and ship products on a timely basis. Any such disruption could adversely
affect their relations with their customers.
STATE SALES TAX COLLECTION
As of June 1997, Schein collected sales tax and other similar taxes only on
sales of products to residents of 31 states, and MBM collected such taxes on
sales of products to residents of eight states. Various other states have sought
to impose on direct marketers the burden of collecting state sales taxes on the
sale of products shipped to those states' residents. A successful assertion by a
state or states that either Schein or MBM should have collected or be collecting
state sales taxes on the sale of products shipped to that state's residents
could have an adverse effect on the combined companies.
POTENTIAL VOLATILITY OF MARKET VALUE OF SCHEIN COMMON STOCK
As with the MBM Common Stock, the market prices of the Schein Common Stock
may be subject to fluctuations in response to quarter-to-quarter variations in
operating results, changes in earnings estimates by investment analysts or
changes in business or regulatory conditions affecting Schein, its customers,
its suppliers or its competitors. The stock market historically has experienced
volatility which has particularly affected the market prices of securities of
many companies in the healthcare industry and which sometimes has been unrelated
to the operating performances of such companies. These market fluctuations may
adversely affect the market price of the Schein Common Stock.
From December 31, 1996 through July 1, 1997, the closing market price of the
Schein Common Stock as reported on the Nasdaq National Market has ranged from a
high of $37 to a low of $26 7/8.
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK
Certain provisions of Schein's Amended and Restated Certificate of
Incorporation and Amended and Restated By-Laws as currently in effect may make
it more difficult for a third party to acquire, or may
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discourage acquisition bids for, Schein and could limit the price that certain
investors might be willing to pay in the future for shares of the Schein Common
Stock. These provisions, among other things, (i) require the affirmative vote of
the holders of at least 60% of the shares entitled to vote to approve a sale,
lease, transfer or exchange of all or substantially all of the assets of Schein,
(ii) require the affirmative vote of the holders of at least 66 2/3% of the
shares entitled to vote to remove a director or to fill a vacancy on the Schein
Board, (iii) require the affirmative vote of the holders of at least 80% of the
shares entitled to vote to amend or repeal certain provisions of the Amended and
Restated Certificate of Incorporation and (iv) require the affirmative vote of
at least 66 2/3% of the outstanding shares of Schein Common Stock to amend or
repeal the Amended and Restated By-Laws of Schein. In addition, the rights of
holders of Schein Common Stock will be subject to, and may be adversely affected
by, the rights of any holders of Preferred Stock that may be issued in the
future and that may be senior to the rights of the holders of Schein Common
Stock. Under certain conditions, Section 203 of the Delaware General Corporation
Law would prohibit Schein from engaging in a "business combination" with an
"interested stockholder" (in general, a stockholder owning 15% or more of
Schein's outstanding voting stock) for a period of three years. In addition,
Schein's 1994 Stock Option Plan and 1996 Non-Employee Director Stock Option Plan
provide for accelerated vesting of stock options upon a change in control of
Schein, and in certain instances, agreements between Schein and its executive
officers provide for increased severance payments if such executive officers are
terminated without cause within two years after a change in control of Schein.
At the Annual Meeting of Stockholders of Schein to be reconvened on July 15,
1997, the holders of Schein Common Stock will be asked to vote on proposed
amendments to Schein's Certificate of Incorporation and By-Laws that would
permit the Schein Board to fix the number of directors by resolution from time
to time (within certain limits), to fill vacancies and to amend By-Law
provisions adopted by stockholders, and would decrease to 66 2/3% the 80%
supermajority voting requirement with respect to future amendments of the
provisions of Schein's Certificate of Incorporation relating to the numbers and
powers of directors. See "COMPARISON OF STOCKHOLDER'S RIGHTS."
The foregoing, together with certain provisions in Schein's Amended and
Restated Certificate of Incorporation, including a provision thereof requiring
the approval of holders of 60% of the outstanding stock of Schein entitled to
vote prior to consummation of a merger or sale of substantially all the assets
of Schein, may make it more difficult for a third party to acquire, or may
discourage acquisition bids for Schein and could limit the price that certain
investors might be willing to pay in the future for shares of Schein Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALES
Future sales of substantial amounts of Common Stock (including shares issued
upon the exercise of stock options) by Schein's current stockholders (including
certain executive officers, employees and affiliates of Schein) after the
Merger, or the perception that such sales could occur, could adversely affect
the market price for the Schein Common Stock. Approximately 8,003,679 shares of
Schein Common Stock that are owned by certain of Schein's current stockholders,
constituting approximately 33.9% of the shares of Schein Common Stock
outstanding immediately prior to the Merger, may be eligible for immediate
resale in the public market pursuant to Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"). In connection with the reorganization
described "--Reorganization" below, Schein entered into a Registration Rights
Agreement with certain of the current stockholders. Schein has granted certain
registration rights in connection with certain acquisitions, and may grant
additional registration rights in connection with future acquisitions.
In addition, all of the shares of Schein Common Stock received by holders of
MBM Common Stock in the Merger will have been registered under the Securities
Act and will be freely transferable, except that persons who are deemed to be
affiliated with MBM prior to the Effective Time will enter into agreements with
Schein prohibiting such persons from disposing of any of the shares of Schein
Common Stock until after the publication of operating results including the
combined operations of Schein and MBM for a
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period of at least 30 days subsequent to the consummation of the Merger, at
which time such shares may be resold by such persons in transactions permitted
by the resale provisions of Rule 145 promulgated under the Securities Act (or
Rule 144 in the case of such persons who become affiliates of Schein) or as
otherwise permitted by the Securities Act. Persons who may be deemed to be
affiliates of MBM or Schein generally include individuals or entities that
control, are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal
stockholders of such party. In addition, approximately 1,123,523 shares of
Schein Common Stock will be issuable upon the exercise of outstanding options
and warrants to purchase MBM Common Stock that will be assumed by Schein. Schein
intends to file a registration statement under the Securities Act covering
shares issuable upon the exercise of these options and, initially, the
Registration Statement of which this Proxy Statement/ Prospectus forms a part
registers the issuance of the assumed warrants and shares issuable upon the
exercise of such warrants. See "THE MERGER--Treatment of MBM Stock Options and
Warrants".
REORGANIZATION
In connection with the reorganization of Schein's ownership and the various
agreements entered into in connection therewith between 1992 and 1994 (the
"Reorganization"), certain stockholders of Schein made customary
representations, warranties and covenants and provided for indemnification with
respect to the structure of the transaction and for breaches of such
representations, warranties and covenants. No claims for such indemnification
have arisen to date. Applicable accounting rules provide that certain amounts
paid or assumed by such stockholders on behalf of Schein in satisfaction of
indemnity obligations may be required to be recorded by Schein for financial
reporting purposes as an expense. Accordingly, although any such payment or
assumption may not materially impact Schein's cash flow, Schein's results of
operations would be negatively impacted in the period incurred. In addition,
there can be no assurance that such stockholders will have the resources in the
future to meet their respective indemnification obligations, if any, under such
agreements.
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THE SPECIAL MEETING
SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to holders of shares of
MBM Common Stock in connection with the solicitation by the MBM Board of proxies
for use at the Special Meeting to be held on Friday, August 1, 1997, at 9:00
a.m., local time, at the Ramada Hotel, One Ramada Plaza, New Rochelle, New York
10801.
At the Special Meeting, holders of MBM Common Stock will consider and vote
upon a proposal to approve the Merger Agreement. The Merger Agreement provides
that, upon the terms and subject to the conditions thereof, Merger Sub will be
merged with and into MBM and MBM will become a wholly owned subsidiary of
Schein. Each share of MBM Common Stock issued and outstanding immediately prior
to the Merger (other than shares held by shareholders who perfect their
appraisal rights under Section 623 of the NYBCL) will be converted into the
right to receive 0.62 shares of Schein Common Stock.
No certificates representing fractional shares of Schein Common Stock shall
be issued upon the surrender for exchange of MBM Certificates. Each holder of
shares of MBM Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of Schein Common Stock
(after taking into account all MBM Certificates delivered by such holder) will
receive, in lieu thereof, cash (without interest) in an amount determined by
multiplying (i) the fractional interest to which such holder would otherwise be
entitled and (ii) the average of the per share closing prices for Schein Common
Stock on the Nasdaq National Market for the five trading days immediately
preceding the Effective Time. In no event shall a holder of MBM Common Stock
receive cash in lieu of fractional Shares of Schein Common Stock in an amount
greater than the value of one full share of Schein Common Stock.
THE MBM BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT, DETERMINED THAT
THE MERGER IS IN THE BEST INTERESTS OF MBM AND ITS SHAREHOLDERS, AND RECOMMENDS
THAT THE HOLDERS OF MBM COMMON STOCK VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT. SEE "THE MERGER--BACKGROUND OF THE MERGER" AND "--RECOMMENDATION OF
THE MBM BOARD AND MBM REASONS FOR THE MERGER".
The Schein Board has approved the Merger Agreement and the Merger and the
issuance of shares of Schein Common Stock in the Merger, and the Board of
Directors of Merger Sub, and Schein, as the sole stockholder of Merger Sub, have
respectively adopted and approved the Merger Agreement and the Merger. Approval
of the Merger Agreement and the Merger by Schein stockholders is not required to
effect the Merger.
RECORD DATE; SHARES ENTITLED TO VOTE
The close of business on June 24, 1997 has been fixed as the Record Date for
determining the holders of MBM Common Stock who are entitled to notice of and to
vote at the Special Meeting. As of the Record Date, there were 5,162,759 shares
of MBM Common Stock outstanding and entitled to vote, and such shares were held
by approximately 700 holders of record. The holders of record on the Record Date
of MBM Common Stock are entitled to one vote per share of MBM Common Stock on
each matter submitted to a vote at the Special Meeting. The presence in person
or by proxy of the holders of a majority of the outstanding MBM Common Stock
entitled to vote is necessary to constitute a quorum for the transaction of
business at the Special Meeting.
Proxies relating to "street name" shares that are properly executed and
returned by brokers will be counted as shares present for purposes of
determining the presence of a quorum, but will not be treated as shares having
voted at the Special Meeting as to the Merger Agreement if authority to vote has
been withheld by the broker (a "broker non-vote"). Abstentions will be recorded
as such by the inspectors of election for the Special Meeting. In light of the
treatment of broker non-votes and abstentions and the fact that the affirmative
vote required to approve the Merger Agreement is two-thirds of the total number
of
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outstanding shares of MBM Common Stock on the Record Date, broker non-votes and
abstentions will have the same effect as votes against approval of the Merger
Agreement.
REQUIRED VOTE
The affirmative vote of holders of two-thirds (66 2/3%) of the outstanding
shares of the MBM Common Stock is required for approval of the Merger Agreement.
As of June 24, 1997, the MBM directors and executive officers and their
affiliates as a group beneficially owned or voted shares representing
approximately 10.7% of the outstanding shares of MBM Common Stock. Each of the
directors and executive officers of MBM has advised MBM that he/she intends to
vote or direct the vote of all such shares over which he/she has voting control,
subject to and consistent with any fiduciary obligations in the case of shares
held as a fiduciary, for approval and adoption of the Merger Agreement and the
Merger. In addition, as an inducement for Schein to enter into the Merger
Agreement, the members of the MBM Board have entered into the Option and Proxy
Agreement with Schein pursuant to which such directors have granted to Schein
(i) an irrevocable proxy to vote all of the shares of MBM Common Stock
(excluding certain shares) that they have the right to vote in favor of the
Merger Agreement and against any other Acquisition Transaction and (ii) an
irrevocable option to purchase all shares of MBM Common Stock (excluding certain
shares) owned by them in the event that MBM becomes obligated to pay the
Termination Fee. Under the Option and Proxy Agreement, Schein has the right to
require the members of the MBM Board to exercise or convert all of their
respective options, warrants or other rights or securities that are exercisable
for, or convertible into, shares of MBM Common Stock. As of the date of this
Proxy Statement/Prospectus, the members of the MBM Board beneficially owned or
had the right to vote an aggregate of 512,496 shares of MBM Common Stock
(approximately 10.0% of the outstanding shares), and owned, in the aggregate,
options or warrants to purchase an aggregate of 1,098,333 shares of MBM Common
Stock. See "THE MERGER--Option and Proxy Agreement".
PROXIES; PROXY SOLICITATION; REVOCATION OF PROXIES
Shares of MBM Common Stock represented by properly executed, unrevoked
proxies received at or prior to the Special Meeting will be voted at the Special
Meeting in accordance with the instructions contained therein. Shares of MBM
Common Stock represented by properly executed, unrevoked proxies for which no
instruction is given will be voted FOR approval of the Merger Agreement. MBM
shareholders are requested to complete, sign, date and return promptly the
enclosed proxy card in the postage-paid envelope provided for this purpose to
ensure that their shares are voted. A holder of shares of MBM Common Stock may
revoke a proxy by submitting a later dated proxy with respect to the same shares
at any time prior to the vote on the approval of the Merger Agreement, by
delivering written notice of revocation to American Stock Transfer & Trust
Company, the Transfer Agent for the MBM Common Stock, at 40 Wall Street, New
York, NY 10005, Attention: Proxy Department at any time prior to such vote or by
attending the Special Meeting and voting in person. Mere attendance at the
Special Meeting will not in and of itself revoke a proxy.
If the Special Meeting is postponed or adjourned for any reason, when the
Special Meeting is convened or reconvened, all proxies will be voted in the same
manner as such proxies would have been voted at the original convening of the
meeting (except for any proxies which have been effectively revoked or
withdrawn), notwithstanding that they may have been effectively voted on the
same or any other matter at a previous meeting.
The cost of the solicitation of proxies by MBM Board of Directors for use at
the Special Meeting will be borne by MBM. In addition to solicitation by mail,
directors, officers and employees of MBM may solicit proxies by telephone,
telegram or otherwise. Such directors, officers and employees of MBM will not be
additionally compensated for such solicitation but may be reimbursed by MBM for
out-of-pocket expenses incurred in connection therewith. Brokerage firms,
fiduciaries and other custodians who forward soliciting material to the
beneficial owners of shares of Common Stock held of record by them will be
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reimbursed for their reasonable expenses incurred in forwarding such material.
In addition, MBM has retained D.F. King & Co., Inc. of New York, New York, a
proxy solicitation organization, to assist in the solicitation of proxies. The
fee payable to D.F. King & Co., Inc. for its services will be $4,000, plus
expenses, and $3.00 for each incoming telephone call received, or outgoing
telephone call made by it in connection with such solicitation.
MISCELLANEOUS
Representatives of Miller, Ellin & Company, MBM's independent auditors, are
expected to be present at the Special Meeting. Such representatives will be
afforded an opportunity to make a statement, if they desire to do so, and are
expected to be available to respond to appropriate questions.
THE MERGER
BACKGROUND OF THE MERGER
In December, 1995, Mark M. Mlotek, Vice President, General Counsel,
Secretary and a director of Schein, and Bruce J. Haber, President, Chief
Executive Officer and a director of MBM, had a telephone conference during which
Mr. Mlotek suggested to Mr. Haber that they meet. Mr. Mlotek and Mr. Haber met
on December 21, 1995, during which meeting Mr. Mlotek indicated to Mr. Haber
that, since the Reorganization (see "DESCRIPTION OF SCHEIN"), Schein's business
strategy has been to expand through acquisitions and joint ventures as well as
internal development. In connection therewith, Mr. Mlotek explained to Mr. Haber
that Schein identifies and evaluates potential acquisition or joint venture
candidates from time to time, and that MBM had been so identified. No specific
terms of a potential acquisition were discussed, but both Mr. Mlotek and Mr.
Haber indicated that their respective companies would be willing to continue
discussions at a future date.
In March, 1996, Mr. Mlotek telephoned Mr. Haber inviting him to meet with
Mr. Mlotek, Stanley M. Bergman, Chairman of the Board of Directors, Chief
Executive Officer and President of Schein, and other representatives of Schein
to discuss whether a basis existed to explore a potential transaction between
the two companies. The meeting between representatives of Schein and MBM took
place on March 21, 1996. Mr. Haber and senior executives of Schein were present,
as were representatives of Tanner & Co., Inc. ("Tanner & Co."), financial
adviser to Schein, and K. Deane Reade, Jr., a director of MBM and the President
and a director and stockholder of BDRD&T. BDRD&T is a financial advisor to MBM.
(See " -- Interests of Certain Persons in Merger.")
At the March 21, 1996 meeting, Schein's and MBM's representatives exchanged
general information regarding their respective company's businesses and their
views of the industry in which they operate. There was a general discussion of
respective growth strategies and Schein's representatives reiterated the
business strategy explained to Mr. Haber by Mr. Mlotek in the December 21, 1995
meeting. This discussion led to whether Schein and MBM had a mutual interest in
exploring an acquisition of MBM by Schein through a stock-for-stock merger. Both
Schein's and MBM's representatives indicated that any such interest would be
conditioned upon such merger qualifying for "pooling of interests" accounting
treatment. Schein's representatives advised MBM's representatives that, because
of the Reorganization, Schein could not initiate a "pooling of interests"
transaction prior to October, 1996. There was no discussion of any material
terms of any such merger at this meeting. As a result of this meeting and a
meeting between Mr. Bergman and Mr. Haber held on April 29, 1996, it was
determined that discussions should continue to determine whether a basis existed
for a merger at such time as a "pooling of interests" accounting treatment would
be available for such potential merger.
During the period from April through September, 1996, Mr. Reade and
representatives of Tanner & Co. had telephone conferences regarding the terms
and conditions of a confidentiality agreement to be
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entered into between MBM and Schein, which agreement was executed on November 8,
1996. Additionally, on September 27, 1996, Mr. Haber and Mr. Bergman met and
generally discussed the possibility of a merger between MBM and Schein.
During this same period, MBM investigated other business strategies,
including whether potential merger opportunities with other companies might
exist as well as growth possibilities as an independent company through certain
acquisitions or by availing itself of additional funding through the capital
markets. In particular, commencing in the Spring of 1996 and continuing through
the Summer of 1996, MBM had discussions with another publicly held distributor
of medical supplies about a possible merger. These discussions terminated when
fluctuations in the respective market prices of the Common Stock of MBM and the
other entity made any such business combination economically unfeasible and
before any discussions were held regarding the pricing terms of the possible
merger. During the Autumn of 1996, MBM also explored with an underwriting firm
the feasibility of a public offering of shares of MBM Common Stock as a means of
increasing both shareholder liquidity and MBM's working capital for acquisitions
and other general corporate purposes. MBM determined not to pursue the public
offering alternative because it believed that a public offering would not have
enabled MBM to position itself in the medical supply industry, taking into
account the trend to consolidation in that industry, as beneficially from the
point of view of MBM's shareholders as would the Merger. Additionally, the
public offering would not have afforded MBM's shareholders the opportunities for
international growth, decreases in business volatility or efficiencies which,
the MBM Board believes, may result from the Merger. (See "--Considerations and
Recommendations of the Merger by the MBM Board.")
On November 6, 1996, Mr. Haber and Mr. Bergman and other representatives of
Schein had a meeting to consider further whether a potential merger was in the
mutual interest of MBM and Schein. Previously, Mr. Reade and representatives of
Tanner & Co. had exchanged certain financial information and general views
regarding such potential merger.
On November 20, 1996, Mr. Haber and Mr. Reade met with Mr. Bergman and other
representatives of Schein and further discussions were held regarding the
structure of a potential merger between MBM and Schein as well as the
responsibilities that Mr. Haber would assume if such merger were to be
consummated and the employment arrangements for Mr. Haber. Subsequently, MBM and
BDRD&T entered into an engagement agreement for investment banking services to
be rendered by BDRD&T to MBM in connection with such potential merger.
During the period from November, 1996 through January, 1997, several
discussions were held between representatives of MBM and Schein regarding the
potential merger. On January 24, 1997, the MBM Board held a meeting at which Mr.
Haber and Mr. Reade reported to the MBM Board on their discussions with Schein.
The MBM Board authorized Mr. Haber and Mr. Reade to continue discussions with
Schein to determine if a basis exists for a merger on terms and conditions that
would be in the best interests of MBM's shareholders and to proceed with due
diligence review of Schein.
Discussions regarding the potential merger, including the ratio at which
shares of Schein Common Stock would be exchanged for shares of MBM Common Stock
in such merger, the treatment of outstanding MBM options and warrants, and
various employment and compensation issues, continued between MBM and Schein and
their respective financial advisors during the period from late January, 1997
through February, 1997. During this period, Schein and MBM conducted reviews of
each other's operations and financial condition, and, in late January, 1997,
drafts of the definitive agreements were prepared by counsel to Schein and
delivered to MBM. MBM commenced its review of such agreements through its
counsel and proceeded to negotiate certain terms and conditions of such
agreements through its counsel.
The MBM Board met again on February 25, 1997 and Mr. Haber and Mr. Reade
reported on the subject matter of the discussions held to such date with Schein
and indicated to the MBM Board that there appeared to be a basis upon which MBM
and Schein could enter into definitive agreements with respect to a merger,
although further negotiations of certain material terms and conditions
(including the exchange
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ratio) as well as additional due diligence would be required. The MBM Board
directed Mr. Haber and Mr. Reade to proceed with the discussions with Schein and
to continue their due diligence regarding Schein.
Mr. Reade and the firm of BDRD&T assisted MBM in identifying and analyzing
alternative strategies, in identifying entities with which MBM might engage in a
business combination, in analyzing the respective values of such entities,
including Schein, in structuring the terms of the transaction with Schein, in
performing due diligence of Schein and in negotiating the terms and conditions
of the proposed merger. Royce Investment Group ("Royce") assisted MBM from time
to time during the months prior to the execution and delivery of the Merger
Agreement in providing information regarding stock prices, trends and
volatility, and in evaluating the market reaction of the financial and business
community in connection with the proposed merger. However, inasmuch as Mr. Reade
was (and remains) a director of MBM and the president and a director and
shareholder of BDRD&T and BDRD&T would receive a fee for its services upon
consummation of the Merger, and Royce would also receive a fee for its services
upon consummation of the Merger, the MBM Board determined that a firm that had
no previous relationship with either MBM or Schein and whose compensation was
not dependent on the consummation of the Merger should render an opinion as to
the fairness, from a financial point of view, of the consideration to be
received by the shareholders of MBM (other than the officers and directors of
MBM) in connection with the proposed Merger as contemplated in the Merger
Agreement. Schein also insisted that MBM obtain such an opinion from an entity
which had no previous relationship with either MBM or Schein. Accordingly, on
February 26, 1997, MBM engaged Houlihan Lokey to review the potential merger and
to render such an opinion. Houlihan Lokey was only engaged for purposes of such
review and opinion and did not advise MBM regarding alternative strategies or
business combinations, nor did it consider alternative transaction structures,
terms or conditions of the proposed merger with Schein. (See "-- Opinion of
Houlihan Lokey".)
At the regular meeting of the Schein Board held on February 27, 1997, Mr.
Bergman and other senior executive officers of Schein gave a presentation to the
Schein Board regarding MBM and the potential merger, which presentation
included, among other things, financial, strategic and due diligence analyses
and reports. Tanner & Co. also made a presentation to the Schein Board in its
capacity as financial advisor. It was the consensus of the Schein Board at this
meeting that the negotiations with MBM should continue.
Subsequent to the dates of the respective meetings of the MBM Board and the
Schein Board held in February, 1997, Mr. Haber and Mr. Reade and MBM's counsel
continued discussions with Schein, its counsel and Tanner & Co. and proceeded to
continue to negotiate certain of the terms and conditions of the definitive
agreements.
On March 1, 1997 the MBM Board met again to review the status of the
negotiations with Schein, to review the due diligence with respect to Schein
presented by Mr. Haber and Mr. Reade and to review an explanation from Mr. Reade
regarding the methodology to be used by Houlihan Lokey regarding its opinion on
the fairness of the Merger from a financial point of view. The MBM Board again
authorized Mr. Haber and Mr. Reade to continue negotiations with Schein.
On March 6, 1997, Mr. Haber, Mr. Reade and legal counsel to MBM met with
Schein, Tanner & Co. and legal counsel to Schein to complete negotiations and
finalize the definitive agreements relating to the proposed merger. Late on
March 6, 1997, the parties reached tentative agreement regarding the Exchange
Ratio (see "THE MERGER--Exchange Ratio"). The Exchange Ratio was determined
after negotiations in which representatives of MBM, Schein, Tanner & Co. and
BDRD&T participated. In arriving at the Exchange Ratio, the parties' negotiating
positions were influenced by Schein's insistence that the Merger be accretive to
its earnings per share and by MBM's desire that its shareholders realize a
premium over the current market price of the MBM Common Stock in connection with
any acquisition by Schein of all of the outstanding equity interests in MBM.
Late on March 6, 1997, MBM received the oral opinion of Houlihan Lokey to the
effect that, based on the draft agreements reviewed by them, the consideration
to be received
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by the public holders of MBM Common Stock in the Merger was fair to such holders
from a financial point of view. Houlihan Lokey confirmed its opinion in writing
on March 7, 1997 and subsequently confirmed such opinion as of that date after
reviewing the revised definitive agreements. A meeting of the MBM Board was held
on March 7, 1997 during which meeting the MBM Board reviewed the terms and
conditions of the definitive agreements, the recent due diligence regarding
Schein and the opinion of Houlihan Lokey. At such meeting, the MBM Board
approved the Merger Agreement and the Merger and the related agreements and
transactions. In a special meeting held on the same date, the Schein Board,
after further presentations by its management, Tanner & Co. and counsel to
Schein, approved the Merger Agreement and the Merger and the related agreements
and transactions. The Merger Agreement was signed by MBM and Schein on March 7,
1997. Subsequent to that date, the Merger Agreement and various related
agreements were revised to reflect certain agreements among the respective
parties thereto on March 7, 1997 that were not fully or accurately reflected in
such agreements as initially executed. None of such revisions to the Merger
Agreement were material.
Several weeks after March 7, 1997, MBM was contacted by a third party who
claims to be owed a brokerage commission in an unspecified amount in connection
with the Merger as a result of the introduction of Mr. Haber to an executive of
Schein in 1990. MBM intends vigorously to resist such claim.
CONSIDERATION AND RECOMMENDATION OF THE MERGER BY THE MBM BOARD
At the meeting of the MBM Board held on March 7, 1997, the MBM Board
determined that, based upon its deliberations and the opinion of Houlihan Lokey
regarding the fairness of the Merger to the public shareholders of MBM from a
financial point of view, the terms of the Merger are fair to, and in the best
interests of, MBM and its shareholders and adopted the Merger Agreement and
authorized and directed the appropriate officers of MBM to execute the Merger
Agreement on behalf of MBM. The MBM Board also unanimously resolved to recommend
to the shareholders of MBM that they approve the Merger.
In the meetings of the MBM Board held on January 24, February 25, March 1,
and March 7, 1997, the MBM Board as part of its deliberations and approval of
the Merger considered the following factors:
- The Exchange Ratio and the different concerns of MBM and of Schein which
led to negotiation and the establishment of the Exchange Ratio as a fixed
exchange ratio. See "THE MERGER-- Background of the Merger".
- The treatment under the Merger Agreement of options and warrants to
purchase MBM Common Stock. See "THE MERGER--Treatment of MBM Stock Options
and Warrants".
- The anticipated qualification of the Merger as a tax free reorganization
for federal income tax purposes and for "pooling-of-interests" accounting.
See "THE MERGER--Certain Tax Consequences of the Merger" and "Anticipated
Accounting Treatment".
- The growth prospects for the business of MBM that could result from MBM
becoming part of a larger company pursuant to the Merger because the
increased purchasing power of the combined entity should enable MBM to
offer products to its customers on a more desirable basis.
Furthermore, a larger company with greater capitalization should be
perceived by customers as more capable of servicing larger customers which
operate in a more broadly based geographic area. Additionally, the MBM Board
believed that, as a larger and more diversified company, MBM would be in a
better position than it would as an independent company to reduce the costs of
doing business and to reduce the market and product volatility which may result
in an ability to sustain profit margins that are superior to those of smaller
companies operating within MBM's industry.
- The trend toward consolidation in the industry in which MBM operates. In
particular, the MBM Board believed that this consolidation would result in
fewer and more expensive acquisition
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candidates thereby decreasing acquisitions as a commercially viable method
to expand MBM's business. Ultimately, it was the opinion of the MBM Board
that consolidation would yield a smaller number of larger companies as
participants in the industry. The MBM Board considered the Merger as a
strategic response to this industry trend that would be in the best
interests of the shareholders of MBM. Specifically, the MBM Board
considered that MBM's access to debt and equity capital resources should
be substantially increased by being part of a larger company.
Additionally, the MBM Board believed that, as a larger company after
consummation of the Merger, it should be in a significantly better
position to be among the surviving companies after the conclusion of the
consolidation trend than would be the case if it were to remain an
independent company.
- The similar business strategies of Schein and MBM. Specifically, both
entities seek to expand through acquisitions and joint ventures as well as
internal development, and both entities seek to provide logistical
efficiencies which create added value for customers by using centralized
rather than localized distribution facilities.
- The other product businesses of Schein and particularly the dental
products distribution business which, combined with the medical products
distribution business of MBM, could result in economies of scale in the
distribution of product and may result in less business volatility because
of a diversified product offering.
- The strategic alternatives to the proposed merger with Schein available to
MBM. See "THE MERGER--Background of the Merger".
- The anticipated market reaction of the business and financial community to
the proposed Merger.
The MBM Board also recognized that the Merger could hold certain
disadvantages for MBM and its shareholders. Specifically, the MBM Board
considered the following:
- The potential volatility of the market values of the Schein Common Stock.
See "RISK FACTORS-- Potential Volatility of Market Value of Schein Common
Stock".
- The challenges presented to management (and consequent use of executive
time) by the task of combining the operations of Schein and MBM and
achieving potential synergistic benefits. In particular, these challenges
involve integrating the personnel of MBM and Schein, which have different
corporate cultures, and of integrating business and computer systems of
MBM and Schein involving inventory, purchasing, sales, distribution,
personnel practices and other functions. In reviewing this issue, the MBM
Board took into account the significant number of acquisitions that Schein
has consummated.
- The inability of the former shareholders of MBM, as a group, to control
the management of Schein as a result of their minority interest in Schein
upon completion of the Merger. See "RISK FACTORS--Minority Status of
Former MBM Shareholders: Control by Insiders".
- The potential business risks associated with Schein's operations outside
the United States as they may be affected by economic, political and
military conditions in foreign countries, currency exchange fluctuations
and exchange control regulations.
In its deliberations, the MBM Board did not undertake a separate analysis of
each of the above factors nor did the MBM Board reach a separate conclusion with
respect to each such factor in its determination of the fairness of the terms of
the Merger. The consideration of such factors resulted from the information
obtained with respect to such factors being added to the collective business
knowledge, experience and understanding of the MBM Board so as to enable the MBM
Board to apply such information to its deliberative processes. In view of the
above, and the variety of factors considered by the MBM Board in reaching its
conclusion as to the fairness of the Merger, the MBM Board did not find it
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practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination as to the fairness
of the terms of the Merger.
After deliberations based upon a review of the foregoing factors, the MBM
Board concluded that the following may result from the Merger. The shareholders
of MBM should have increased investment liquidity because Schein has a larger
number of shareholders, its trading volume is greater than MBM's and Schein
Common Stock is the subject of more market makers with greater capital resources
and more industry analysts than MBM Common Stock. MBM's business may have
greater growth opportunities resulting from larger capital availability and
other resources for working capital and other purposes, including acquisitions.
Additionally, the Merger might provide opportunities to grow MBM's business
internationally. The Merger may be an effective response to industry trends
which indicate consolidation of companies operating within the industry and
increasing product pricing pressure resulting in a reduction of profit margins.
It appeared to the MBM Board that the management of Schein and MBM hold similar
business strategies which may facilitate the integration of MBM and Schein after
the Merger. As part of a larger and a more diversified company, MBM's business
may be less volatile as a result of the combined companies' greater breadth of
product offerings with broader geographic coverage, domestically as well as
internationally. Additionally, such a larger and more diversified company should
present opportunities for efficiencies achievable through the elimination of
certain expenses that should be redundant as a result of the Merger. There can
be no assurance that any of the foregoing factors will, in fact, result from the
Merger and, if such factors do result from the Merger, the extent to which the
shareholders of MBM will receive any benefits therefrom.
The MBM Board evaluated the foregoing potential benefits that may result
from the Merger in relation to the foregoing potential disadvantages that the
MBM Board also recognized might result from the Merger, and concluded that, upon
balance, the potential benefits outweighed the potential disadvantages. Based
upon this conclusion and the opinion of Houlihan Lokey that the consideration to
be received by the public shareholders of MBM in connection with the Merger is
fair to such shareholders from a financial point of view, the MBM Board
considered the Merger to be in the best interests of the shareholders of MBM.
See "--Opinion of Houlihan Lokey".
During its deliberations, the MBM Board was cognizant that certain members
of the MBM Board had interests in the Merger in addition to their interests as
shareholders of MBM. Such additional interests concerned certain compensation
that such individuals would receive upon consummation of the Merger or as a
result of post-consummation services to the Surviving Corporation and Schein.
The MBM Board viewed such compensation as being earned by such individuals in
their respective capacities other than as shareholders of MBM. See "--Interests
of Certain Persons in the Merger".
Furthermore, the MBM Board recognized that the execution and delivery of the
Option and Proxy Agreement by each of the Members of the MBM Board decreased or
eliminated their individual economic interests, as shareholders of MBM, in an
Acquisition Transaction that might be more favorable to the other shareholders
of MBM than the Merger. See "RISK FACTORS - Option and Proxy Agreement". After
reviewing their fiduciary duties with outside counsel, the MBM Board determined
that, given their determination that the Merger was fair to, and in the best
interests of, MBM and its shareholders, and that Schein was requiring that each
member of the MBM Board execute and deliver the Option and Proxy Agreement as a
condition to Schein's execution and delivery of the Merger Agreement, that it
was appropriate and in the best interests of MBM and its shareholders for the
individual members of the MBM Board to enter into the Option and Proxy
Agreement. The Option and Proxy Agreement provides that none of the MBM
directors are making any agreement in their respective capacities as directors
of MBM and that they are executing and delivering the Option and Proxy Agreement
solely in their capacity as the record and beneficial owner of shares of MBM
Common Stock. Accordingly, the MBM Board does not believe that the Option and
Proxy Agreement has had or will have any effect on the ability of the MBM Board
to discharge its fiduciary obligations under applicable state law.
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In light of the relationship of Mr. Reade to MBM and to BDRD&T, however, the
MBM Board concluded that it required an opinion from an entity that had no
previous relationship with MBM regarding the consideration to be received by the
shareholders of MBM from a financial point of view and, therefore, MBM engaged
Houlihan Lokey for the purposes of rendering such an opinion. See "-- Background
of the Merger" and "--Opinion of Houlihan Lokey". As noted above, Houlihan Lokey
has rendered its opinion to the MBM Board as of March 7, 1997. It is not
contemplated that Houlihan Lokey will render a supplemental opinion regarding
the fairness of the Merger as of any date other than March 7, 1997. Although the
MBM Board was cognizant of the possibility of changing circumstances between the
date of the opinion of Houlihan Lokey, March 7, 1997, and the consummation of
the Merger, the MBM Board concluded that, particularly inasmuch as the merger
transaction contemplated a fixed Exchange Ratio -- which the MBM Board believes
to be more favorable to the shareholders of MBM than any adjustable ratio that
would have been agreed to by Schein -- it was not practicable to obtain
supplemental opinions in respect of such possible changing circumstances. The
MBM Board viewed the conditions to the consummation of the Merger and the rights
of the parties to the Merger Agreement to terminate the Merger Agreement
(including for the purpose of effecting other transactions under certain
circumstances), which had been negotiated at arm's-length between MBM and
Schein, to be reasonable under the circumstances. See "TERMS OF THE MERGER
AGREEMENT--Termination Rights, Condition to the Merger".
The Merger Agreement also requires that MBM does not solicit any inquiries
or the making of any proposal with respect to any merger, consolidation, other
business combination or acquisition involving MBM or any subsidiary of MBM. See
"TERMS OF THE MERGER AGREEMENT--No Solicitation of Other Offers". This provision
was required by Schein as a condition for it to enter into the Merger Agreement,
and the MBM Board viewed such provision to be reasonable given the substantial
efforts that would be required by MBM and Schein to consummate the Merger and
given the view by the MBM Board that the Merger is in the best interests of the
shareholders of MBM.
Additionally, the foregoing deliberations by the MBM Board regarding the
Merger were based upon the premise that the Merger would be eligible for
"pooling-of-interests" accounting treatment. Such accounting treatment had been
a prerequisite for the commencement of substantive discussions between MBM and
Schein regarding the proposed Merger. See "--Background of the Merger".
Accounting for the Merger as a "pooling-of-interests" was considered by the MBM
Board to be beneficial to the shareholders of MBM because it would permit
Schein, subsequent to the consummation of the Merger, to account for the Merger
in a manner which would enable it to consummate the transaction on the basis of
an Exchange Ratio that is more favorable to the shareholders of MBM than would
otherwise be the case. See "-- Anticipated Accounting Treatment".
OPINION OF HOULIHAN LOKEY
In connection with the Merger, MBM has retained Houlihan Lokey, an
investment banking firm which had no prior relationship with MBM or Schein, to
render an opinion as to the fairness, from a financial point of view, of the
consideration to be received by the shareholders of MBM (other than the officers
and directors of MBM) in connection with the proposed Merger as contemplated in
the Merger Agreement. MBM has agreed to pay Houlihan Lokey a fee of $150,000 for
Houlihan Lokey's services in connection with the fairness opinion. No portion of
Houlihan Lokey's fees is contingent upon the successful completion of the Merger
or any related transactions. In connection therewith, Houlihan Lokey has
delivered to MBM its written opinion dated March 7, 1997 to the effect that,
based upon and subject to certain matters discussed therein, the consideration
to be received by the shareholders of MBM in connection with the Merger is fair
to them from a financial point of view. Said opinion was based on, among other
things, the drafts of the Merger Agreement and other agreements available to
Houlihan Lokey at that time. Subsequently, Houlihan Lokey confirmed such opinion
(as of March 7, 1997), based solely upon a review of the definitive Merger
Agreement and other agreements as revised, in a letter dated
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April 18, 1997. This supplemental letter does not purport to consider the
fairness of the Merger at any time other than March 7, 1997 and should not be
viewed or construed as doing so; it only considered the impact of the revised
definitive agreements upon Houlihan Lokey's opinion as of March 7, 1997.
References herein to Houlihan Lokey's opinion refer to such opinion as confirmed
in such supplemental letter.
In formulating its opinion, Houlihan Lokey made such reviews, analyses, and
inquiries as it deemed necessary and appropriate under the circumstances without
placing any specific weight on any of the items listed below. Among other
things, Houlihan Lokey:
1. reviewed the MBM's annual reports to shareholders and on Form 10-K for
the five fiscal years ended 1995, draft Form 10-K for the fiscal year
ended November 30, 1996, and quarterly reports on Form 10-Q for the three
quarters ended August 31, 1996, and MBM-prepared draft financial
statements for the fiscal year ended November 30, 1996, which the MBM's
management identified as being the most current financial statements
available at such time;
2. reviewed Schein's annual reports to shareholders and on Form 10-K for
the fiscal year ended 1995, quarterly reports on form 10-Q for the three
quarters ended September 28, 1996, Prospectus dated June 21, 1996, and
draft financial statements for the fiscal year ended December 28, 1996,
which Schein's management has identified as being the most current
financial statements available;
3. reviewed copies of the following agreements:
a. Agreement and Plan of Merger;
b. Option and Proxy Agreement;
c. Form of Affiliate Agreement to be executed by affiliates of MBM, as
revised;
d. Employment Agreement between Bruce J. Haber and Schein;
e. Form of Option Agreement between Bruce J. Haber and Schein pursuant
to Schein's 1994 Stock Option Plan, as revised;
f. Agreement between Schein and Bruce J. Haber relating to the
termination of his prior employment agreement with MBM, as revised;
g. Form of Restricted Stock Agreement between Bruce J. Haber and Schein,
as revised; and
h. Form of Agreement between Bruce J. Haber and Schein with respect to
the termination of his employment under certain circumstances.
4. met with certain members of the senior management of MBM to discuss the
transaction, the operations, financial condition, future prospects and
projected operations and performance of MBM, and had discussions with
representatives of MBM's investment bankers and counsel to discuss
certain matters;
5. met with certain members of the senior management of Schein to discuss
the transaction, the operations, financial condition, future prospects
and projected operations and performance of Schein;
6. visited certain facilities and business offices of MBM and Schein;
7. reviewed forecasts and projections prepared by MBM's management with
respect to MBM for the fiscal year ending November 30, 1997;
8. reviewed forecasts and projections prepared by Schein's management with
respect to Schein for the fiscal year ending December 27, 1997;
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9. reviewed the historical market prices and trading volume for MBM's and
Schein's publicly traded securities;
10. reviewed certain other publicly available financial data for certain
companies that it deemed comparable to MBM and Schein, and publicly
available prices and premiums paid in other transactions that it
considered similar to the Merger transaction; and
11. conducted such other studies, analyses and inquiries as Houlihan Lokey
has deemed appropriate.
Houlihan Lokey's opinion is necessarily based on business, economic, market
and other conditions as they existed and could be evaluated by them at the date
of their opinion. In rendering its opinion, Houlihan Lokey assumed and relied
upon, without independent verification, that the financial results, forecasts
and projections provided to them have been reasonably prepared and reflect the
best available estimates of the historical and future financial results and
conditions of Schein and MBM. Houlihan Lokey did not independently verify the
accuracy or completeness of the information supplied to it with respect to
Schein or MBM and does not assume responsibility for such information. Houlihan
Lokey did not make any physical inspection or independent appraisal of the
specific properties or assets of Schein or MBM. Houlihan Lokey was not asked to,
and did not, solicit indications of interest from other parties relating to
possible mergers with either Schein or MBM or any acquisition of assets.
Houlihan Lokey was not involved in the negotiations leading to the Merger
Agreement which ultimately determined the Exchange Ratio to be used in the
Merger. Houlihan Lokey was not asked to consider the relative merits of the
Merger as compared to any other business strategy which might exist for either
Schein or MBM. Houlihan Lokey's opinion does not address whether or not the
transaction is fair to Schein's shareholders. No other limitations were imposed
with respect to the investigation made or procedures to be followed by Houlihan
Lokey in rendering its opinion. There has been no prior relationship between
Houlihan Lokey and either Schein or MBM.
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In its analysis, Houlihan Lokey made numerous assumptions with respect to
Schein, MBM, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Schein and MBM. The estimates contained in such analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be more or less favorable than suggested by such analyses. Analyses relating to
the value of businesses or securities are not appraisals; accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Houlihan Lokey estimated the value of MBM's shares and Schein's shares by a
comparative market multiple analysis. In this approach, the values of MBM and
Schein were estimated by calculating capitalization rates for certain income and
cash flows of a peer group of companies and then applying selected
capitalization multiples based on a comparative financial analysis of MBM and
Schein to the peer group. Houlihan Lokey also considered the publicly traded
values of the MBM Common Stock and the Schein Common Stock. Houlihan Lokey also
considered the potential synergies of the post-Merger company.
The capitalization rate is an expression of what investors believe to be a
fair and reasonable rate of return for the particular security, given the
inherent risk of ownership. It incorporates expectations of growth and rests on
the assumption that some level of earnings will be generated by the enterprise
into perpetuity. The capitalization rates employed were selected through the
market comparison method, whereby companies having their stock traded in the
public market were selected for comparison purposes and used as a basis for
choosing reasonable capitalization rates for MBM and Schein.
The following paragraphs summarize the material analyses performed by
Houlihan Lokey in arriving at the opinion:
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ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES IN THE MEDICAL AND DENTAL
SUPPLY INDUSTRY. Using publicly available information, Houlihan Lokey reviewed
the stock prices, market multiples, and certain financial statistics and ratios
of the following companies: Allegiance Corporation, Gulf South Medical Supply,
Moore Medical, Owens & Minor, Physician Sales & Services, MBM, and Schein
(collectively, the "Medical Tier"). Houlihan Lokey believes these companies are
engaged in lines of business that are generally similar to those of MBM.
Houlihan Lokey also reviewed the stock prices, market multiples, and certain
financial statistics and ratios of the following companies: Dentsply
International, Patterson Dental, Sullivan Dental Products, Inc. and Schein
(collectively, the "Dental Tier"), which, together with the Medical Tier,
Houlihan Lokey believes are engaged in lines of business that are generally
similar to those of Schein.
Houlihan Lokey calculated the equity value (shares outstanding multiplied by
the recent public share price) and the total invested capital ("TIC", which is
the equity value determined above, plus all interest bearing liabilities at book
value) for each of the companies in the Medical Tier and the Dental Tier.
Houlihan Lokey then calculated various market multiples for the companies in the
Medical Tier and Dental Tier. For the Medical Tier, the TIC as a multiple of the
latest twelve months revenues ranged from 0.17 to 2.42 and had a median of 0.60;
the TIC as a multiple of the latest twelve months earnings before interest,
taxes, depreciation and amortization ("EBITDA") ranged from 5.4 to 20.7 and had
a median of 14.8; the TIC as a multiple of the latest twelve months earnings
before interest and taxes ("EBIT") ranged from 8.2 to 23.4 and had a median of
19.2; the price to latest twelve months earnings multiple ranged from 11.8 to
37.6 and had a median of 35.0; and the price as a multiple of latest twelve
months cash flow ranged from 6.9 to 33.2 and had a median of 22.9.
For the Dental Tier, the TIC as a multiple of the latest twelve months
revenues ranged from 0.56 to 2.37 and had a median of 1.04; the TIC to latest
twelve months EBITDA multiple ranged from 8.5 to 16.9 and had a median of 12.5;
the TIC as a multiple of the latest twelve months EBIT ranged from 9.8 to 20.7
and had a median of 14.3; the price as a multiple of latest twelve months
earnings ranged from 16.4 to 34.8 and had a median of 22.7; and the price to
latest twelve months cash flow multiple ranged from 13.0 to 24.7 and had a
median of 18.0.
Houlihan Lokey also calculated future multiples for the peer group of
companies. For the Medical Tier, the TIC as a multiple of next fiscal year
EBITDA ranged from 5.6 to 13.6 and had a median of 10.6; the TIC to next fiscal
year EBIT multiple ranged from 6.9 to 16.1 and had a median of 12.3; the price
as a multiple of next fiscal year earnings ranged from 9.0 to 27.2 and had a
median of 20.0; and the price as a multiple of next fiscal year cash flow ranged
from 5.5 to 22.2 and had a median of 15.0.
For the Dental Tier, the TIC as a multiple of next fiscal year EBITDA ranged
from 7.9 to 13.6 and had a median of 10.1; the TIC as a multiple of next fiscal
year EBIT ranged from 9.0 to 16.1 and had a median of 11.3; the price to next
fiscal year earnings multiple ranged from 15.2 to 27.2 and had a median of 18.4;
and the price to next fiscal year cash flow ranged from 12.2 to 20.7 and had a
median of 15.1.
Based upon recent public stock prices as of March 6, 1997, the implied
public multiples for MBM were as follows: the TIC as a multiple of latest twelve
months revenues was 0.60; the TIC to latest twelve month EBITDA multiple was
14.8 and TIC to latest twelve month EBIT was 19.2; MBM's price to latest twelve
month earnings multiple was 37.6 and price to latest twelve month cash flow was
22.9.
Based upon recent public stock prices as of March 6, 1997, the implied
public multiples for Schein were as follows: the TIC as a multiple of latest
twelve months revenues was 0.86; the TIC to latest twelve month EBITDA multiple
was 16.9 and TIC to latest twelve month EBIT was 20.7; Schein's price to latest
twelve month earnings multiple was 34.8 and price to latest twelve month cash
flow was 24.7.
Finally, in this comparative market multiple analysis, Houlihan Lokey
performed comparative qualitative and quantitative analyses of MBM and Schein
relative to their respective peer groups of companies. Based on these analyses,
Houlihan Lokey determined that MBM's and Schein's public stock prices as of
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March 6, 1997 of $15.75 and $28.50, respectively, reasonably reflected the per
share fair market value of each company.
However, because the comparative market multiple analysis did not include
the benefit from any potential synergies resulting from the Merger, Houlihan
Lokey also considered the potential additional value of these synergies based on
discussions with MBM management. Houlihan Lokey capitalized estimated synergies
ranging from $2 million to $5 million at a multiple range of 5 to 15 times. This
calculation resulted in incremental value to current MBM shareholders of $0.24
to $1.79 per share.
Houlihan Lokey then compared the value of MBM Common Stock to the sum of (i)
the Exchange Ratio of 0.62 multiplied by the value of Schein Common Stock and
(ii) the incremental value of synergies to current MBM shareholders, Houlihan
Lokey concluded that the value of MBM Common Stock was less than the sum of (i)
the Exchange Ratio of 0.62 multiplied by the value of Schein Common Stock and
(ii) the incremental value of synergies. Based on these analyses, Houlihan Lokey
determined that the consideration to be received by the public shareholders of
MBM in connection with the Transaction is fair to them from a financial point of
view.
The summary of Houlihan Lokey's analyses set forth above does not purport to
be a complete description of the analyses underlying the opinion. Rather, the
summary set forth above attempts to describe the material points of more
detailed analyses performed by Houlihan Lokey in arriving at its fairness
opinion. In arriving at its opinion, Houlihan Lokey did not attribute any
particular weight to any analysis or factor considered by it, but rather made
the qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Houlihan Lokey believes that its analyses and the
summary set forth herein must be considered as a whole, and that selecting
portions of its analyses, without considering all factors and analyses, could
create a misleading or incomplete view of the processes underlying the analyses
set forth in the Houlihan Lokey opinion.
The full text of Houlihan Lokey's opinion, which sets forth the assumptions
made, matters considered and limits on the review undertaken, is attached hereto
as Annex II. Holders of MBM Common Stock are urged to 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 Houlihan Lokey set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
SCHEIN'S REASONS FOR THE MERGER
Schein's business strategy includes continued acquisitions of companies
whose businesses are complementary to Schein's. In recent years, the healthcare
industry has undergone significant change driven by various efforts to reduce
costs, including potential national healthcare reform, trends toward managed
care, cuts in Medicare, consolidation of healthcare distribution companies and
collective purchasing arrangements by office-based healthcare practitioners.
These trends, combined with increased consolidation among distributors,
including through acquisitions or joint ventures, could adversely affect
Schein's operating results unless Schein is able to maintain or increase its
market share.
Consequently, Schein identifies and analyzes potential acquisition
candidates on an ongoing basis. MBM was identified as an attractive candidate
for a business acquisition. Schein believes that the Merger will substantially
broaden its market presence in the medical products distribution market, add
additional senior management strength and enable it to compete more effectively
in the overall healthcare products distribution market. Given that the product
lines of the two companies are largely complementary, the Merger will permit
Schein to offer a broad base of health products in the medical distribution
market and should enable Schein to compete effectively in such market.
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EFFECTIVE TIME
The Merger will become effective at such time as a Certificate of Merger is
duly filed with the Secretary of State of the State of New York, or at such
other time as Schein and MBM agree should be specified in such certificate. The
Merger Agreement provides that Merger Sub and MBM will execute and file such
certificate or other appropriate documents as soon as practicable after the last
of the conditions to the Merger have been fulfilled. See "TERMS OF THE MERGER
AGREEMENT--Conditions to the Merger".
EXCHANGE RATIO
At the Effective Time, each share of MBM Common Stock issued and outstanding
immediately prior to the Effective Time, other than shares of MBM Common Stock
held by MBM shareholders who perfect their appraisal rights under Section 623 of
the NYBCL, will be converted into the right to receive 0.62 shares of Schein
Common Stock.
Based upon the 0.62 Exchange Ratio and the closing sales price of shares of
Schein Common Stock on July 1, 1997, as reported on the Nasdaq National Market
($32- 7/16 per share), each such outstanding share of MBM Common Stock would
have been converted into Schein Common Stock with a then-current market value of
approximately $20.11 had the Merger been consummated on that date, and the
aggregate then-current market value of the shares of Schein Common Stock issued
in the Merger would have been $103,831,119.
As of the Effective Time, all shares of MBM Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of MBM
Common Stock shall cease to have any rights with respect thereto, except the
right to receive shares of Schein Common Stock and any cash in lieu of
fractional shares of Schein Common Stock to be issued or paid in consideration
therefor upon surrender of such certificate, in each case without interest. Any
treasury shares of MBM Common Stock will automatically be canceled and retired
and will cease to exist as of the Effective Time.
EXCHANGE AGENT; EXCHANGE PROCEDURES; DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED
SHARES; NO FURTHER OWNERSHIP RIGHTS IN MBM COMMON STOCK; NO FRACTIONAL SHARES OF
SCHEIN COMMON STOCK
EXCHANGE AGENT. The Merger Agreement requires Schein to deposit as of the
Effective Time, with Continental Stock Transfer & Trust Company (the "Exchange
Agent"), for the benefit of the holders of shares of MBM Common Stock, the
shares of Schein Common Stock issuable in exchange for MBM Common Stock.
EXCHANGE PROCEDURES. As soon as reasonably practicable after the Effective
Time, Schein shall cause the Exchange Agent to mail to each holder of record of
a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of MBM Common Stock (the "MBM Certificates"),
whose shares were converted into the right to receive shares of Schein Common
Stock pursuant to the Merger, (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the MBM Certificates to the Exchange Agent,
and shall be in such form and have such other provisions as Schein may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the MBM Certificates in exchange for certificates representing shares of Schein
Common Stock. Upon surrender of an MBM Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such MBM Certificate shall be entitled to receive in exchange therefor
certificates representing shares of Schein Common Stock (rounded down to the
nearest whole share) which such holder has the right to receive after taking
into account all the shares of MBM Common Stock then held by such holder under
all such MBM Certificates so surrendered, cash in lieu of fractional shares of
MBM Common Stock and any dividends or other distributions to which such holder
is entitled, and the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of MBM Common Stock that is not registered
in the transfer records of MBM, a certificate
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representing shares of Schein Common Stock may be issued to a person other than
the person in whose name the MBM Certificate so surrendered is registered, if,
upon presentation to the Exchange Agent, such MBM Certificate is properly
endorsed or otherwise is in proper form for transfer and the person requesting
such payment pays any transfer or other taxes required by reason of the issuance
of shares of Schein Common Stock to a person other than the registered holder of
such MBM Certificate or establishes to the satisfaction of Schein that such tax
has been paid or is not applicable. Until so surrendered, each MBM Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender a certificate representing shares of Schein
Common Stock, cash in lieu of any fractional shares of Schein Common Stock and
any dividends or other distributions to which such holder is entitled pursuant
to the Merger Agreement. No interest will be paid or will accrue on any cash
payable pursuant to the Merger Agreement.
MBM SHAREHOLDERS SHOULD NOT FORWARD MBM CERTIFICATES TO THE EXCHANGE AGENT
UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. MBM SHAREHOLDERS SHOULD NOT RETURN
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions with respect to shares of Schein Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered MBM
Certificate with respect to the shares of Schein Common Stock represented
thereby and no cash payment in lieu of fractional shares of Schein Common Stock
shall be paid to any such holder until the holder of record of such MBM
Certificate shall surrender such MBM Certificate. Following surrender of any
such MBM Certificate, there shall be paid to the record holder of the shares of
Schein Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of any cash payable in lieu of a fractional
share of Schein Common Stock and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole shares of Schein Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time, but prior to such surrender, and a payment date subsequent
to such surrender payable with respect to such whole shares of Schein Common
Stock.
NO FURTHER OWNERSHIP RIGHTS IN MBM COMMON STOCK. All shares of Schein
Common Stock issued upon the surrender for exchange of shares of MBM Common
Stock in accordance with the terms of the Merger Agreement (including any cash
paid) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of MBM Common Stock, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of MBM Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, MBM Certificates are
presented to the Surviving Corporation or the Exchange Agent for any reason,
they shall be canceled and exchanged as provided in the Merger Agreement.
NO FRACTIONAL SHARES OF SCHEIN COMMON STOCK. No certificates representing
fractional shares of Schein Common Stock shall be issued upon the surrender for
exchange of MBM Certificates. Each holder of shares of MBM Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Schein Common Stock (after taking into account
all MBM Certificates delivered by such holder) will receive, in lieu thereof,
cash (without interest) in an amount determined by multiplying (i) the
fractional interest to which such holder would otherwise be entitled and (ii)
the average of the per share closing sales prices for Schein Common Stock on the
Nasdaq National Market for the five trading days immediately preceding the
Effective Time. In no event shall a holder of MBM Common Stock receive cash in
lieu of fractional Shares of Schein Common Stock in an amount greater than the
value of one full share of Schein Common Stock.
ADMISSION FOR TRADING ON NASDAQ NATIONAL MARKET
The outstanding shares of Schein Common Stock are presently admitted for
trading on the Nasdaq National Market. It is a condition to each party's
obligation to effect the Merger that the shares of Schein
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Common Stock issuable to MBM's shareholders pursuant to the Merger Agreement
shall have been admitted for trading on the Nasdaq National Market, subject to
official notice of issuance. See "TERMS OF THE MERGER AGREEMENT--Conditions to
the Merger".
CESSATION OF NASDAQ NATIONAL MARKET TRADING AND DEREGISTRATION OF MBM COMMON
STOCK AFTER THE MERGER
If the Merger is consummated, the MBM Common Stock will cease to be traded
on the Nasdaq National Market and will be deregistered under the Exchange Act.
After such delisting and deregistration, MBM will no longer be subject to any
reporting obligations under the Exchange Act.
CERTAIN SIGNIFICANT CONSIDERATIONS
In considering whether to approve and adopt the Merger Agreement providing
for the Merger, shareholders of MBM should carefully consider those factors
described under "RISK FACTORS" as well as the fact that the Exchange Ratio is
fixed and will not be adjusted based on changes in the price of the Schein
Common Stock, and the price of the shares of Schein Common Stock at the
Effective Time may vary from the price as of the date of this Proxy
Statement/Prospectus or the date on which shareholders of MBM vote on the Merger
due to changes in the business, operations or prospects of Schein, market
assessments of the likelihood that the Merger will be consummated and the timing
thereof, general market and economic conditions, and other factors.
CERTAIN TAX CONSEQUENCES OF THE MERGER
Neither MBM nor Schein 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 MBM Common Stock of the Merger or of any of the
federal income tax consequences to MBM or Schein of the Merger. Instead MBM will
rely upon the opinion of Cummings & Lockwood, special tax counsel to MBM, as to
all of the material federal income tax consequences of the Merger to MBM and its
shareholders in their capacities as shareholders of MBM. The opinion of Cummings
& Lockwood 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, as well as various representations and certificates of officers of MBM
and Schein and of the other appropriate persons, and is subject to various
assumptions and qualifications. 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 the positions set
forth therein are challenged by the IRS.
In the opinion of Cummings & Lockwood, which opinion is based upon various
representations and subject to various assumptions and qualifications, each as
more fully set forth in such opinion letter, the following federal income tax
consequences will result from the Merger:
1. The Merger of Merger Sub with and into MBM, with MBM surviving, will
qualify as a reorganization under Section 368(a) of the Code. MBM, Schein
and Merger Sub will each be a party to a reorganization within the
meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by a shareholder of MBM upon the
exchange of their MBM Common Stock for the right to receive Schein Common
Stock and the exercise of such right by a shareholder of MBM.
3. The aggregate tax basis of the Schein Common Stock received by a
shareholder of MBM in the exchange (including any fractional shares which
the shareholder otherwise might be entitled to receive) will be the same
as the basis of the MBM stock exchanged therefor.
4. The holding period of the Schein Common Stock to be received by an MBM
shareholder will include the holding period of the MBM shares surrendered
by the shareholder in the exchange, provided the MBM stock was held as a
capital asset on the date of the exchange.
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5. Cash received by a shareholder of MBM in lieu of a fractional share of
Schein Common Stock will 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 will
be capital gain or loss, if such stock was held as a capital asset at the
time of the exchange, equal to the difference between the cash received
and the shareholder's basis in MBM Common Stock for which such fractional
share interest is received.
6. MBM will recognize no gain or loss as a result of the Merger.
The opinion of Cummings & Lockwood (which Cummings & Lockwood is not
required to reissue or reconfirm at the Effective Time) is rendered solely with
respect to certain United States federal income tax consequences of the Merger
under the Code, and does not extend to the income or other potential tax
consequences of the Merger under the laws of any State or any political
subdivision of any State or any other jurisdiction nor does it extend to any tax
effects or consequences of the Merger to Schein, Merger Sub or MBM other than
those expressly stated in the opinion. Furthermore, no opinion is expressed as
to the United States 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 Proskauer Rose LLP, legal
counsel to Schein, or Lester Morse P.C. or Otterbourg, Steindler, Houston &
Rosen, P.C., 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 MBM. SHAREHOLDERS OF MBM 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.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is designed to qualify as "pooling of interests" for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of MBM and Schein will be carried forward to Schein at
their recorded amounts; income of Schein will include income of Schein and MBM
for the entire fiscal year in which the Merger occurs; and the reported income
of the separate corporations for prior periods will be combined and restated as
income of the combined company. The obligations of Schein and Merger Sub to
consummate the Merger are subject to the receipt by Schein of the opinions of
BDO Seidman, LLP, the independent auditors of Schein and Miller, Ellin &
Company, the independent auditors of MBM (whose opinion shall be addressed to
MBM), that, subject to customary qualifications, the Merger qualifies as a
"pooling of interests" for financial reporting purposes in accordance with
generally accepted accounting principles. See "TERMS OF THE MERGER AGREEMENT--
Conditions to the Merger".
APPRAISAL RIGHTS
Pursuant to Section 910 of the NYBCL, a holder of shares of MBM Common Stock
may demand payment of the "fair value" of such holder's shares in lieu of
accepting the payment to be made pursuant to the Merger. Any holder of shares of
MBM Common Stock wishing to exercise such appraisal rights must fully comply
with Section 623 of the NYBCL. A holder may not exercise appraisal rights with
respect to less than all of the shares of MBM Common Stock owned by such holder.
The following is a summary of Section 623 and the procedures that must be
followed to perfect appraisal rights thereunder. The complete text of Section
623 is set forth as Annex III to this Proxy Statement/Prospectus. Under Section
623, a corporation must notify each of its shareholders entitled to appraisal
rights as of the record date of the meeting that such appraisal rights are
available and include in such notice a copy of Section 623.
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THIS PROXY STATEMENT CONSTITUTES SUCH NOTICE TO THE HOLDERS OF SHARES OF MBM
COMMON STOCK. HOLDERS OF SHARES OF MBM COMMON STOCK WISHING TO EXERCISE
APPRAISAL RIGHTS ARE URGED TO REVIEW CAREFULLY THE COMPLETE TEXT OF SECTION 623.
Each holder of shares of MBM Common Stock electing to demand payment of the
"fair value" of such holder's shares of MBM Common Stock if the Merger is
consummated must deliver to MBM, before the taking of the vote on the Merger, a
written objection to the Merger with respect to such holder's shares. Such
objection must include a notice of such holder's election to dissent, the name
and residence address of the holder, the number of shares of MBM Common Stock as
to which the dissent applies and a demand for payment of the "fair value" of
such shares if the action is taken. A proxy or vote against the Merger or an
abstention will not constitute such a demand; a holder of shares of MBM Common
Stock electing to take such action must do so by a separate written demand. Such
demands should be mailed or delivered to MBM at 846 Pelham Parkway, Pelham
Manor, New York, NY 10803, Attention: Bruce J. Haber, President.
Upon consummation of the Merger, the dissenting holder shall cease to have
any of the rights of a shareholder except the right to be paid the "fair value"
of his shares of MBM Common Stock. Within ten days after the Effective Time, the
Surviving Corporation will notify each former holder of shares of MBM Common
Stock who has made a proper written demand and who has not voted in favor of or
consented to the Merger as of the Effective Time. A vote in favor of the Merger
by a holder of shares of MBM Common Stock will have the effect of waiving
shareholder's appraisal rights.
The right of appraisal may be lost if the procedural requirements of Section
623 are not followed exactly. If the right of appraisal is lost, the former
holder of shares of MBM Common Stock will be entitled to receive the merger
consideration, without interest, for each share of MBM Common Stock owned at the
Effective Time upon surrender of the MBM Certificates representing such shares.
At the time of filing the notice of election to dissent or within one month
thereafter, a holder of shares of MBM Common Stock shall submit the MBM
Certificates representing such shares to MBM or the Exchange Agent. Schein will
note conspicuously thereon that a notice of election has been filed and return
the MBM Certificates to the shareholder. Any holder of shares of MBM Common
Stock who fails to submit his MBM Certificates for such notation will, at the
Surviving Corporation's option exercised by written notice to such shareholder
within 45 days from the date of filing of such notice of election to dissent,
lose his, her or its dissenter's rights unless a court otherwise directs.
Within 15 days after the expiration of the period within which holders of
shares of MBM Common Stock may file their notices of election to dissent, or
within fifteen days after the consummation of the Merger as to which objection
has been filed, whichever is later (but in no case later than 90 days from the
Special Meeting authorization date), the Surviving Corporation must make a
written offer by registered mail to each shareholder who has filed such notice
of election to pay for his shares of MBM Common Stock at a specific price which
MBM considers to be their "fair value." Such 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 received and the aggregate number of
holders of such shares. If the Merger has been consummated, such offer must also
be accompanied by (1) advance payment to each such shareholder who submitted
his, her or its MBM Certificates to MBM of an amount equal to 80% of the amount
of such offer or (2) as to each shareholder who has not yet submitted his, her
or its MBM Certificates, a statement that advance payment to such holder of an
amount equal to 80% of the amount of such offer will be made by the Surviving
Corporation promptly upon submission of his, her or its MBM Certificates. Every
advance payment or statement as to advance payment must include advice to the
shareholder to the effect that acceptance of such payment does not constitute a
waiver of any dissenters' rights. If the Merger has not been consummated upon
the expiration of the 90-day period after it was authorized by the holders of
MBM Common Stock, the offer may be conditioned upon the consummation of the
Merger. Such offer must be made at the same price per share of MBM Common Stock
to all dissenting shareholders of the same class. If within 30 days after the
making of such offer, MBM and any shareholder agree upon the price to be paid
for his, her or its shares, payment therefor must be made within 60 days after
the making
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of such offer or the consummation of the corporate action to which such
shareholder objected, whichever is later, upon the surrender of the MBM
Certificates representing such shares.
A notice of election may be withdrawn by the dissenting shareholder at any
time prior to such holder's acceptance in writing of an offer made by the
Surviving Corporation, but in no case later than 60 days from the date of the
consummation of the Merger. Upon expiration of such time, withdrawal of a notice
of election will require the written consent of the Surviving Corporation. If a
notice of election is withdrawn, a shareholder will have such rights as provided
in Section 623.
The following procedures apply if MBM fails to make such offer within such
period of fifteen days, or if it makes the offer and any dissenting MBM
Shareholder fails to agree with it within the period of 30 days thereafter upon
the price to be paid for their shares of MBM Common Stock:
(1) MBM must, within 20 days after the expiration of whichever is applicable
of the two periods last mentioned, institute a special proceeding in the
appropriate New York State court to determine the rights of dissenting
holders of MBM Common Stock and to fix the "fair value" of their shares
of MBM Common Stock.
(2) If MBM fails to institute such proceeding within such period of 20 days,
any dissenting holder of MBM Common Stock 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 such 30-day
period, all dissenter's rights will be lost unless the court otherwise
directs.
(3) All dissenting shareholders, excepting those who have agreed with MBM
upon the price to be paid for their shares of MBM Common Stock, must be
made parties to such proceeding, which will have the effect of an action
QUASI IN REM against their shares. The jurisdiction of the court will be
plenary and exclusive.
(4) The court will fix the value of the shares of MBM Common Stock, which
will be the "fair value" as of the close of business on the day prior to
the date of the Special Meeting, considering the nature of the
transaction giving rise to the shareholders' right to receive payment for
shares of MBM Common Stock, and its effects on MBM and its shareholders,
the concepts and methods then customary in the relevant securities and
financial markets for determining fair values of shares of a corporation
engaging in a similar transaction under comparable circumstances and all
other relevant factors.
Within 60 days after final determination of the proceeding, the Surviving
Corporation must pay to each dissenting shareholder the amount found to be due
such holder, upon surrender of the Certificates representing such shares. Both
the Surviving Corporation and the dissenting shareholder will, generally, bear
their respective costs and expenses in the proceeding.
The foregoing does not purport to be a complete statement of the provisions
of Section 623 and is qualified in its entirety by reference to said section,
which is reproduced in full in Annex III to this Proxy Statement/Prospectus.
ANY HOLDER OF SHARES OF MBM COMMON STOCK WHO WISHES TO EXERCISE APPRAISAL
RIGHTS BUT WHO DOES NOT FOLLOW THE PROCEDURES PROVIDED UNDER SECTION 623 IN A
PROPER AND TIMELY MANNER WILL BE UNABLE TO PERFECT APPRAISAL RIGHTS. IN THAT
CASE, THE SHARES OF MBM COMMON STOCK OWNED BY SUCH SHAREHOLDER IMMEDIATELY PRIOR
TO THE EFFECTIVE TIME WILL BE CONVERTED INTO THE RIGHT TO RECEIVE SHARES OF
SCHEIN COMMON STOCK AT THE EXCHANGE RATIO, WITHOUT INTEREST, PURSUANT TO THE
MERGER.
OPTION AND PROXY AGREEMENT
As an inducement to Schein to enter into the Merger Agreement each of the
four members of the MBM Board, Bruce J. Haber, Marvin S. Caligor, K. Deane
Reade, Jr. and Renee Steinberg (each an "Optionor," and collectively, the
"Optionors"), entered into the Amended and Restated Option and Proxy Agreement.
Pursuant to the Option and Proxy Agreement, each Optionor has granted to Schein
an option (collectively, the "Options") to purchase all but not less than all of
that Optionor's shares of MBM Common Stock (exclusive of certain shares of MBM
Common Stock beneficially owned by one Optionor
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that are currently held in pension plans and approximately 20,000 shares
currently held by that Optionor in margin accounts subject to the terms thereof
(the "Excluded Shares")). Except as otherwise described below, the consideration
for the purchase of each Optionor's shares of MBM Common Stock shall be the
issuance to such Optionor of the number of shares of Schein Common Stock into
which such Optionor's shares of MBM Common Stock would have been converted in
the Merger pursuant to the Exchange Ratio had the Effective Time (as defined in
the Merger Agreement) occurred at the time of the exercise of the Options. Each
of the Optionors has also agreed not to dispose of any of the shares of MBM
Common Stock owned by such Optionor prior to the termination of the Option and
Proxy Agreement.
Each Optionor has also agreed to exercise all options, warrants or other
rights to acquire any shares of MBM Common Stock, and to convert or exchange any
securities or other rights that are convertible into or exchangeable for shares
of MBM Common Stock, whether now owned or hereafter acquired by such Optionor
(collectively, "Rights"), in connection with any exercise by Schein of the
Options in order to permit the acquisition by Schein of the shares of MBM Common
Stock receivable upon such exercise, conversion or exchange (the "Additional MBM
Common Shares") pursuant to the exercise of the Options. To the extent that an
Optionor is obligated to pay any consideration in connection with the exercise,
conversion or exchange of such Optionor's Rights (the "Rights Consideration"),
such Rights Consideration shall be paid in such form as is permitted under the
Rights as Schein shall direct. If payment of the Rights Consideration is to be
made in cash, Schein shall advance such payment and credit the amount so
advanced against the purchase price of the Additional MBM Common Shares acquired
upon such exercise; if payment of an Optionor's Rights Consideration may be made
by delivery of shares of MBM Common Stock, at Schein's direction such Optionor
shall deliver that number of shares owned by him or her in payment (or partial
payment, as the case may be) of the Rights. If any Right is to be exercised by
means of a "cashless exercise," the Optionor exercising such Right shall cause
the net number of shares from such cashless exercise to be issued and delivered
to Schein. In the event that Schein funds any Rights Consideration payment on
behalf of Optionor (i) the number of shares of Schein Common Stock to be issued
by Schein in respect of the Additional Shares that were acquired pursuant to the
payment of such Rights Consideration shall be reduced by that number of shares
(rounded to the nearest whole share) as is equal to the quotient obtained by
dividing the aggregate amount of Rights Consideration so paid by Schein by the
closing sales prices of the Schein Common Stock on the last trading date prior
to the exercise of the Options; and (ii) if the funding of the Rights
Consideration payment on behalf of such Optionor subjects such Optionor to
income tax in respect of such payment, Schein shall pay to such Optionor the
amount of such income tax, provided such Optionor shall cooperate with Schein
(at Schein's expense) in disputing the imposition of such income tax; and
provided further, that if Schein determines in good faith that there is a basis
for disputing all or any amount of the income tax imposed, Schein shall be
entitled to direct any such dispute, but shall indemnify the Optionor against
any additional income tax for which he or she may become liable as a result.
Each Optionor further agrees not to acquire any Right that provides, whether
contingent or otherwise, for any reduction in the amount of the Rights
Consideration payable upon the exercise, conversion or exchange of such Right,
whether or not such reduction is contingent or fixed as to occurrence or amount,
and shall immediately decline in writing any such Right that may be granted to
him or her.
The Options may be exercised (during the exercise periods provided in the
Option and Proxy Agreement) only if the Merger Agreement terminates under the
circumstances under which MBM would be obligated to pay the Termination Fee to
Schein, including as a result of MBM's Board withdrawing its recommendation to
MBM's shareholders that the Merger be approved or the consummation, under
certain circumstances, by MBM of an Acquisition Transaction (as defined below)
with any person other than Schein or the Merger Sub. See "TERMS OF THE MERGER
AGREEMENT--Certain Fees, Expenses and Liquidation Damages".
Pursuant to the Option and Proxy Agreement, each Optionor has irrevocably
agreed to constitute and appoint Schein or any designee of Schein as the lawful
agent, attorney and proxy of such Optionor to vote all of his or her shares of
MBM Common Stock (excluding the Excluded Shares but including additional
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shares as to which one Optionor has an irrevocable proxy to vote) at any meeting
or in connection with any written consent of MBM's shareholders (i) in favor of
the Merger, (ii) in favor of the Merger Agreement, as it may be modified or
amended from time to time, (iii) against any Acquisition Transaction (other than
the Merger) or other proposal which provides for any merger, sale of assets or
other business combination between MBM and any other person or entity or which
would make it impractical for Schein to effect a merger or other business
combination of MBM with Schein or Merger Sub, and (iv) against any other action
or agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of MBM under the Merger Agreement
or which would result in any of MBM's obligations under the Merger Agreement not
being fulfilled. An "Acquisition Transaction" means any merger, consolidation or
other business combination involving MBM or any subsidiary of MBM (excluding
certain acquisitions by MBM expressly permitted under the Merger Agreement) or
the acquisition of all or any significant assets or capital stock of MBM and its
subsidiaries, taken as a whole.
The Option and Proxy Agreement terminates on the earlier of (i) the
Effective Time or (ii) the termination of the last period of time during which
Schein could have exercised the Options; provided, however, that the appointment
of Schein or any designee of Schein as agent, attorney and proxy automatically
terminates upon the termination of the Merger Agreement.
As of the date of this Proxy Statement/Prospectus, the Optionors own or had
the right to vote, in the aggregate, 512,496 shares of MBM Common Stock
(approximately 10.0% of the outstanding shares), and owned, in the aggregate,
options to purchase an aggregate of 1,098,333 shares of MBM Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, the directors and executive officers of MBM owned an
aggregate of 419,272 shares of MBM Common Stock and options or warrants to
purchase an aggregate of 1,471,332 shares of MBM Common Stock at a weighted
average exercise price of $7.28 per share. Pursuant to the Merger Agreement,
MBM's directors and executive officers will receive the same consideration for
their shares of MBM Common Stock as the other MBM shareholders, and all
outstanding options and warrants to purchase MBM Common Stock will be converted
into options and warrants to purchase Schein Common Stock as described under
"TERMS OF THE MERGER -- Treatment of MBM Stock Options and Warrants." Pursuant
to the Merger Agreement, MBM's 1996 Directors' Retirement Plan has been
terminated, effective as of the Effective Time, and no benefits will be paid
thereunder.
Bruce J. Haber, MBM's President, has entered into a Termination of
Employment Agreement with Schein dated as of March 7, 1997, as revised (the
"Termination of Employment Agreement"), pursuant to which, among other things,
Mr. Haber's existing employment agreement will automatically terminate as of the
Effective Time and Schein will cause MBM to pay to Mr. Haber an aggregate of
$3,000,000 (the "Contract Termination Payment") in lieu of the payments and
other rights to which he would have been entitled under such agreement. Payment
of such amount will be made in equal installments of $600,000, plus interest,
with the first installment being made at the Effective Time. If Mr. Haber's
employment agreement with Schein discussed below is terminated by Schein without
cause or is terminated by Mr. Haber for breach, Mr. Haber dies or becomes
disabled, or certain events involving a potential change of control of Schein
occur, then the aggregate unpaid amount, plus accrued interest, will become due
and payable. The Contract Termination Payment is subject to increase in the
event of the imposition of certain future tax liabilities.
Mr. Haber has also entered into a new employment agreement with Schein, as
revised, (effective as of the Effective Time) pursuant to which, he will serve
as an Executive Vice President of Schein and President of Schein's medical
products group (the "New Employment Agreement"). The New Employment Agreement
has a term of five years from the Effective Time and provides for, among other
things, the grant to Mr. Haber of Schein Common Stock purchase options with a
value at the Effective Time of $1,000,000 (using the Black-Scholes valuation
method); base salary at an annual rate (subject to annual increases) of
$400,000; annual incentive compensation (subject to increase) of up to $200,000,
contingent upon the achievement of performance targets; and annual grants of
Schein Common Stock Purchase options with a
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value at the time of grant of $170,000, determined using the Black-Scholes
valuation method, (subject to cost of living increases), in each year,
contingent upon the achievement of the same performance targets to which the
payment of incentive compensation is contingent. The options to be granted to
Bruce Haber under the New Employment Agreement at the Effective Time will vest
over a five year period from the date of the grant; each of the options, if any,
to be granted thereunder annually will vest over a three year period from the
date of grant. Both vesting periods are subject to acceleration in the
discretion of Schein's Chief Executive Officer or upon the occurrence of certain
events. The New Employment Agreement also provides for, among other things,
participation in all benefit, welfare and perquisite plans, policies and
programs as are provided from time to time to the most senior executives of
Schein, term life insurance and an automobile allowance. If Mr. Haber's
employment is terminated by Schein without cause or by Mr. Haber after a
material breach by Schein that is not cured within 30 days after notice from Mr.
Haber, Mr. Haber will be entitled to receive accrued and unpaid salary through
the date of termination, a pro rata bonus for that portion of the current year
prior to the date of termination, continuation of his base pay for the remaining
term of the New Employment Agreement (but in no event less than 18 months), and
continued participation, for a period of one year after such termination, by Mr.
Haber, his spouse and his dependent children in all health and medical plans,
benefits and policies of Schein then applicable to its most senior executive
officers. If Mr. Haber's Employment Agreement is not extended at the end of its
five year term, Mr. Haber will be entitled to continue to receive his base
salary at the then current rate for an additional year.
At the Effective Time, Mr. Haber will receive, pursuant to restricted stock
agreement between him and Schein, restricted shares of Schein Common Stock with
a fair market value of $1,000,000, which shares will vest in equal amounts and
become non-forfeitable over a ten year period contingent upon Mr. Haber's
continued employment with Schein; provided, however, that such shares will
become fully vested if (i) Mr. Haber's employment is terminated by Schein
without cause or by Mr. Haber after a material breach by Schein that is not
cured within 30 days after notice from Mr. Haber, (ii) Mr. Haber dies or becomes
disabled, (iii) Mr. Haber's employment terminates prior to the expiration of
such 10 year period as a result of Schein's failure to offer to renew any
employment agreement with Mr. Haber upon the expiration of its term, or (iv)
certain events involving a change in control of Schein occur. If Mr. Haber's
employment is terminated by him or Schein within two years after the occurrence
of certain events involving a change in control of Schein, Mr. Haber will be
entitled to receive a lump sum payment equal to (i) the product of the aggregate
amount of base salary and car allowance paid to him during the three months
preceding such termination and the number of months for which he was employed by
Schein or MBM (with a maximum benefit of 36 months' base salary and car
allowance) and (ii) three times the higher of his last annual bonus or his last
bonus prior to the change in control, but only to the extent that all such
payments would not be subject to an excise tax.
K. Deane Reade, Jr. is a director of MBM, and President and a director and
stockholder of BDRD&T. BDRD&T will receive a fee upon consummation of the Merger
of approximately $1,230,000.
Schein and the members of the MBM Board have entered into the Option and
Proxy Agreement pursuant to which such directors have granted to Schein (i) an
irrevocable proxy to vote all of the shares of MBM Common Stock (excluding
certain shares) that they have the right to vote in favor of the Merger
Agreement and against any other Acquisition Transaction and (ii) an irrevocable
option to purchase all shares of MBM Common Stock (excluding certain shares)
owned by them in the event that MBM becomes obligated to pay the Termination
Fee. Under the Option and Proxy Agreement, Schein has the right to require the
members of the MBM Board to exercise or convert all of their respective options,
warrants or other rights or securities that are exercisable or convertible into
shares of MBM Common Stock. Schein required that the MBM directors enter into
the Option and Proxy Agreement simultaneously with Schein and MBM entering into
the Merger Agreement. The Option and Proxy Agreement provides that none of the
MBM directors are making any agreement in their respective capacities as
directors of MBM and that they are executing and delivering the Option and Proxy
Agreement solely in their capacity as the record and beneficial owner of shares
of MBM Common Stock. Nonetheless, the execution and delivery of the
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Option and Proxy Agreement by the members of MBM Board may be deemed to give
rise to additional and different interests of the members of the MBM Board in
the merger than those of other shareholders of MBM. See "--Option and Proxy
Agreement."
MBM shall also pay a fee of $500,000 to Royce Investment Group, Inc.
("Royce") for financial advice, including in connection with the Merger. Royce
held warrants to purchase an aggregate of 48,210 shares of MBM Common Stock that
it received for acting as the standby underwriter in connection with a rights
offering made by MBM to its shareholders in 1992. These warrants have been
exercised but the shares of MBM Common Stock have not yet been issued. Royce
provided financial advice to MBM regarding stock prices, trends and volatility
and the anticipated market reaction of the business and financial community to
the Merger generally. The fee to Royce represents consideration for such
advisory services in connection with the Merger.
Pursuant to the Merger Agreement, Schein has agreed, for a period of six
years after the Effective Time, to cause the Surviving Corporation to,
indemnify, defend and hold harmless the present and former directors, officers,
employees and agents of MBM and its Subsidiaries (each, an "Indemnified Party")
against any and all losses, costs, damages, claims and liabilities (including
reasonable attorneys' fees) arising out of the Indemnified Party's service or
services as a director, officer, employee or agent of MBM or, if at MBM's
request, of another corporation, partnership, joint venture, trust or other
enterprise occurring at or prior to the Effective Time (including the
transactions contemplated by or related to the Merger Agreement) to the fullest
extent permitted under New York Law and MBM's Articles of Incorporation and
Bylaws as in effect on the date hereof, including provisions relating to
advances of expenses incurred in the defense of any litigation, action, claim or
proceeding and whether or not Schein or the Surviving Corporation is insured
against any such matter. Schein also agreed to maintain in effect or cause the
Surviving Corporation to maintain in effect (for at least six years from the
Effective Time in the case of claims made policies) directors' and officers'
liability insurance policies providing coverage in an aggregate amount of at
least $10,000,000 and with a carrier(s) having a rating by A.M. Best ("Best"),
an independent nationally recognized insurance publishing and rating service, at
least equal to the Best rating of the current carrier(s) covering directors and
officers of MBM serving as of or after December 1, 1990 with respect to claims
arising from occurrences prior to or at the Effective Time (including the
transactions contemplated by or related to the Merger Agreement).
OPERATIONS AFTER THE MERGER
At the Effective Time, Merger Sub will be merged with and into MBM, and MBM,
as the Surviving Corporation in the Merger, will become a wholly owned
subsidiary of Schein. Schein plans to cause MBM and Medical Products Group to be
managed as a single unit under the direction of Bruce J. Haber, MBM's President,
and become part of the same consolidated tax return group.
DIVIDENDS
MBM has never paid a cash dividend on the MBM Common Stock and Schein has
not paid a cash dividend on the Schein Common Stock, except for a dividend paid
prior to its initial public offering. Schein does not anticipate paying any cash
dividends on the Schein Common Stock in the foreseeable future; it intends to
retain its earnings to finance the expansion of its business and for general
corporate purposes. Any payment of dividends will be at the discretion of
Schein's Board of Directors and will depend upon the earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
with respect to payment of dividends and other factors. Schein's revolving
credit agreement and the note issued in connection with Schein's acquisition of
a Netherlands company limit the distribution of dividends without the prior
written consent of the lenders.
TREATMENT OF MBM STOCK OPTIONS AND WARRANTS
At the Effective Time, each outstanding option and warrant to purchase MBM
Common Stock will be automatically assumed by Schein and converted into an
option ("Converted Option") or a warrant
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("Converted Warrant"), as the case may be, to purchase shares of Schein Common
Stock in an amount and at an exercise price determined by adjusting the original
terms of the option or warrant to reflect the Exchange Ratio.
As of the Record Date, there were outstanding options and warrants to
purchase an aggregate of approximately 1,812,134 shares of MBM Common Stock.
Assuming all such options and warrants remain outstanding at the Effective Time,
an aggregate of approximately 1,123,523 shares of Schein Common Stock would
thereafter be issuable upon the exercise of such Converted Options and Converted
Warrants.
Except as noted above and the elimination of the requirement that options
granted to non-employee directors of MBM may be exercised only while they
continue to serve on the MBM Board, the terms and conditions of the Converted
Options and the Converted Warrants will not be modified as a result of the
Merger. Schein intends to register the issuance of shares of Schein Common Stock
pursuant to the exercise of the Converted Options on Form S-8 upon the
consummation of the Merger.
This Proxy Statement/Prospectus also relates to the issuance of the 6,200
Converted Warrants and the up to 6,200 shares of Schein Common Stock (subject to
adjustments pursuant to antidilution provisions) that are issuable upon the
exercise of the Converted Warrants. The MBM warrants with respect to which the
Converted Warrants will relate were issued in December 1993 in connection with
the acquisition of a business by MBM. Pursuant to the terms of the MBM warrants,
the Converted Warrants will be exercisable, in whole or in part, at any time
(and from time to time) prior to the close of business November 30, 2003 at a
purchase price of $12.90 per share of Schein Common Stock (subject to adjustment
pursuant to antidilution provisions) by submitting the Converted Warrant and the
completed and executed Subscription Form annexed thereto, together with payment
in full of the exercise price of the shares of Schein Common Stock being
purchased, to the Secretary of MBM at MBM's principal office.
RIGHT OF THE MBM BOARD TO WITHDRAW RECOMMENDATION
Under the Merger Agreement, the MBM Board may not, among other things, (i)
withdraw or modify, in a manner adverse to Schein or Merger Sub, the MBM Board's
approval or recommendation of the Merger Agreement or the Merger, (ii) approve
or recommend any Acquisition Transaction, or (iii) cause MBM to enter into any
agreement with respect to any Acquisition Transaction. Notwithstanding the
foregoing, if the MBM Board determines in good faith by majority vote, after
consultation with MBM's financial advisor and after reviewing the advice of
outside counsel to MBM, that such action is reasonably likely to be required by
its fiduciary duties, the MBM Board may withdraw or modify its approval or
recommendation of the Merger Agreement or the Merger, approve or recommend an
Acquisition Transaction, or cause MBM to enter into an agreement with respect to
an Acquisition Transaction provided, in each case that the MBM Board determines
that the Acquisition Transaction is more favorable to the shareholders of MBM
than the Merger. The Merger Agreement requires MBM to provide reasonable prior
notice to Schein or Merger Sub to the effect that it is taking such action.
REGULATORY FILINGS AND APPROVALS
ANTITRUST. The Merger is subject to the requirements of the HSR Act and the
rules and regulations thereunder, which provide that certain transactions may
not be consummated until required information and materials have been furnished
to the Antitrust Division and the FTC and certain waiting periods have expired
or been terminated. Schein and MBM filed the required information and materials
with the Antitrust Division and the FTC on April 16, 1997. Early termination of
the statutory waiting period under the HSR Act was granted on April 28, 1997.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Effective Time, either the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, or certain other persons could take action under the antitrust
laws, including seeking to enjoin the Merger.
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RESALE OF SCHEIN COMMON STOCK RECEIVED IN THE MERGER
All Schein Common Stock received by holders of MBM Common Stock in the
Merger will have been registered under the Securities Act and will be freely
transferable, except that Schein Common Stock received by persons who are deemed
to be affiliated to MBM (for purposes of Rule 145 under the Securities Act or
for purposes of qualifying the Merger for "pooling of interests" accounting
treatment under Opinion 16 of the Accounting Principles Board and applicable SEC
rules and regulations) prior to the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 in the case of such persons who become
affiliates of Schein) or as otherwise permitted by the Securities Act. Persons
who may be deemed to be affiliates of MBM or Schein generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal shareholders of such party. The rights of affiliates
of MBM to receive Schein Common Stock in the Merger are conditioned upon the
execution by each of such affiliates of a written agreement to the effect that
such person will not offer or sell or otherwise dispose of any of the Schein
Common Stock issued to such person in the Merger either in violation of
Securities Act or the rules and regulations promulgated thereunder or at any
time during the period beginning 30 days before the Merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published. The Schein Common Stock received in the
Merger by such affiliates will bear a restrictive legend to such effect.
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DESCRIPTION OF SCHEIN
GENERAL
Schein is the largest direct marketer of healthcare products and services to
office-based healthcare practitioners in the combined North American and
European markets. Schein has operations in the United States, Canada, the United
Kingdom, The Netherlands, Belgium, Germany, France, the Republic of Ireland and
Spain. Schein sells products and services to over 230,000 customers, primarily
dental practices and dental laboratories, as well as physician practices,
veterinary clinics and institutions. In 1996, Schein sold products to over 65%
of the estimated 100,000 dental practices in the United States. Schein believes
that there is strong awareness of the "Henry Schein" name among office-based
healthcare practitioners due to its more than 60 years of experience in
distributing healthcare products. Through its comprehensive catalogs and other
direct sales and marketing programs, Schein offers its customers a broad product
selection of both branded and private brand products which include approximately
50,000 stock keeping units ("SKUs") in North America and approximately 40,000
SKUs in Europe at published prices that Schein believes are below those of many
of its competitors. Schein also offers various value-added products and
services, such as practice management software. As of December 28, 1996, Schein
had sold over 18,000 dental practice management software systems, more than any
of its competitors. On February 28, 1997, Schein acquired all of the outstanding
common stock of Dentrix Dental Systems, Inc., a provider of clinically-based
dental practice management systems, with 1996 net sales of approximately $10.2
million and a 3,500 installed user base. This transaction has been accounted for
as a "pooling of interests".
During 1996 Schein distributed over 9.0 million pieces of direct marketing
materials (such as catalogs, flyers and order stuffers) to approximately 500,000
office-based healthcare practitioners. Schein supports its direct marketing
efforts with approximately 450 telesales representatives who facilitate order
processing and generate sales through direct and frequent contact with customers
and with over 300 field sales consultants. Schein utilizes database segmentation
techniques to more effectively market its products and services to customers. In
recent years, Schein has continued to expand its management information systems
and has established strategically located distribution centers in the United
States and Europe to enable it to better serve its customers and increase its
operating efficiency. Schein believes that these investments, coupled with its
broad product offerings, enable Schein to provide its customers with a single
source of supply for substantially all their healthcare product needs and
provide them with convenient ordering and rapid, accurate and complete order
fulfillment. Schein estimates that approximately 99% of all orders in the United
States and Canada received before 7:00 p.m. and 4:00 p.m., respectively, are
shipped on the same day the order is received and approximately 90% of orders
are received by the customer within two days of placing the order. In addition,
Schein estimates that approximately 99% of all items ordered in the United
States and Canada are shipped without back ordering.
Schein believes that there has been consolidation among healthcare products
distributors serving office-based healthcare practitioners and that this
consolidation will continue to create opportunities for Schein to expand through
acquisitions and joint ventures. In recent years, Schein has acquired or entered
into joint ventures with a number of companies engaged in businesses that are
complementary to those of Schein. Schein's acquisition and joint venture
strategies include acquiring additional sales that will be channeled through
Schein's existing infrastructure, acquiring access to additional product lines,
acquiring regional distributors with networks of field sales consultants and
international expansion. Schein entered into or completed seventeen acquisitions
during the year ended December 28, 1996. The businesses acquired included 10
dental and three medical companies, a veterinary supply distributor, and three
international dental companies with aggregate net sales in their last fiscal
year ends of approximately $104.0 million, all of which were accounted for as
purchase transactions. Of these, fifteen were for majority ownership (100% in
nine of the transactions). In 1995, Schein acquired the distribution business of
The Veratex Corporation, a national direct marketer of dental, medical and
veterinary products, and Schein
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Dental Equipment Corp., a distributor and manufacturer of large dental
equipment. Schein also completed the majority acquisition of 11 other companies
and a 50% acquisition of one other company during 1995.
REORGANIZATION
Schein was formed on December 23, 1992 as a wholly-owned subsidiary of
Schein Holdings, Inc. ("Schein Holdings"). At that time, Schein Holdings
conducted the business in which Schein is now engaged and in addition owned 100%
of the outstanding capital stock of Schein Pharmaceutical, Inc. ("Schein
Pharmaceutical"), a company engaged in the manufacture and distribution of
multi-source pharmaceutical products.
In December 1992, Schein Holdings separated Schein's business from Schein
Pharmaceutical by transferring to Schein all of the assets and liabilities of
the healthcare distribution business now conducted by Schein including Schein
Holdings' 50% interest in HS Pharmaceutical, Inc., a manufacturer and
distributor of generic pharmaceuticals ("HS Pharmaceutical"). No other assets or
liabilities, including the assets and liabilities associated with Schein
Pharmaceutical's business, were transferred to Schein. In connection with that
transaction, Schein agreed to indemnify Schein Holdings for all of the
liabilities assumed by Schein, and Schein Holdings agreed to indemnify Schein
for the liabilities associated with Schein Pharmaceutical's business of
manufacturing and distributing generic pharmaceuticals. Other than certain
common stockholders, there is no affiliation between Schein and Schein
Pharmaceutical, and all transactions between Schein and Schein Pharmaceutical
are on an arm's-length basis.
In February 1994 Schein, Schein Holdings, Stanley M. Bergman, Marvin H.
Schein, Pamela Joseph, Pamela Schein, Steven Paladino, James P. Breslawski,
Martin Sperber (the Chief Executive Officer of Schein Pharmaceutical) and
certain other parties entered into a number of reorganization agreements. In
September 1994, pursuant to the reorganization agreements, all of the Schein
Common Stock held by Schein Holdings was distributed to certain of the current
stockholders of Schein. Marvin H. Schein, Pamela Schein and Pamela Joseph have
agreed to severally indemnify Schein against certain potential costs and claims,
if any, which might be incurred by Schein in the future from the transactions
related to the Reorganization. Schein and Schein Pharmaceutical also agreed that
after September 1994 Schein would be entitled to use the "Henry Schein" name in
activities involving non-pharmaceutical products and pharmaceuticals for dental
and veterinary purposes, which activities may include marketing, distributing,
labeling, packaging, manufacturing (such as HS Pharmaceutical's manufacturing of
generic pharmaceuticals and Schein Dental Equipment's manufacturing of large
dental equipment, which are the principal manufacturing activities currently
conducted by Schein, its subsidiaries and 50%-or-less owned entities) and
selling such products. Schein and Schein Pharmaceutical also agreed that after
September 1994, Schein Pharmaceutical would be entitled to use the "Schein
Pharmaceutical" name in similar activities involving pharmaceuticals for
non-dental human treatment. Schein Pharmaceutical is not permitted to use the
name "Henry Schein."
One of the Reorganization agreements, a Voting Trust Agreement (the "Voting
Trust"), gives Stanley M. Bergman (or his successor trustee) the right to vote
all of the shares of Schein Common Stock owned by certain stockholders of the
Company, which will be approximately 30.3% of the outstanding shares of Schein
Common Stock immediately after the consummation of the Merger. Another of the
Reorganization agreements, the Amended and Restated HSI Agreement (the "Global
Agreement"), provides that the Schein Board of Directors consist of up to 11
members, and that until the earlier of January 1, 1999 or the termination of the
Voting Trust, Mr. Bergman (or his successor trustee) has the right to nominate
all but three of the nominees to the Board of Directors. Marvin H. Schein,
Pamela Joseph and Pamela Schein have the right to serve as or nominate the
remaining three directors. In general, from the earlier of January 1, 1999 or
the termination of the Voting Trust until the earlier of January 1, 2004 or the
first date on which Marvin H. Schein and his family group no longer beneficially
own at least 25% of the outstanding Schein Common Stock that they owned
immediately after the Reorganization or the date of certain
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changes in Schein management, Mr. Bergman (or his successor trustee) has the
right to nominate all of the nominees to the Board of Directors, provided, that
if Marvin H. Schein does not approve such nominations, Mr. Bergman (or his
successor trustee) and Mr. Schein will each nominate four nominees (of which one
will be an independent nominee) and the ninth nominee will be selected by the
two independent nominees. As a result of the foregoing, until December 31, 1998,
Mr. Bergman, as a practical matter, will be able to significantly influence all
matters requiring stockholder approval, including the election of directors, and
until January 1, 2004, Mr. Bergman will have the ability to significantly
influence the election of all or a substantial number of the directors of
Schein.
The Global Agreement also requires the parties to the Voting Trust and
Marvin H. Schein to vote in favor of the individuals so nominated until the
earlier of January 1, 1999 or the termination of the Voting Trust, and to vote
their shares in favor of the nominees of Stanley M. Bergman until January 1,
2004. The Voting Trust terminates on December 31, 1998, but is subject to
earlier termination if, among other things, Stanley M. Bergman ceases to be
employed by or serve as a director of Schein (unless certain other members of
current management are serving as senior executives of Schein) or Schein
consummates a business combination which results in Marvin H. Schein (including
his family members) owning less than 5% of the voting securities of the
surviving corporation.
As described below under "COMPARISON OF STOCKHOLDER RIGHTS--Directors",
Schein is submitting to its shareholders a proposed amendment to its Amended and
Restated Certificate of Incorporation providing for, among other things, an
expanded Schein Board (although there is no current intention to add any
individual to the Schein Board except Bruce Haber). It is anticipated that the
Voting Trust and the Global Agreement will be amended to reflect such amendment,
if adopted.
The Global Agreement affords Marvin H. Schein or his designee the right to
serve on each committee of the Board of Directors to which the Board of
Directors has delegated decision-making authority and the right to call a
special meeting of the Board of Directors. The Global Agreement also limits
Schein's ability to adopt a shareholder rights plan or "fair price amendment,"
if such plan or amendment would affect Marvin H. Schein or Pamela Schein
(including their respective family members), as long as Marvin H. Schein or
Pamela Schein own certain specified percentages of the outstanding Schein Common
Stock. The Global Agreement also limits the ability of Marvin H. Schein, Pamela
Schein and Pamela Joseph to participate in any solicitation of proxies or any
election contest.
The Global Agreement places certain restrictions on the ability of the
parties thereto to transfer any of the shares of Common Stock owned by them and
further provides that Schein may not, prior to the earlier of December 31, 2003
or the first date on which neither Marvin H. Schein nor Pamela Schein (including
their respective family members) own at least 5% of the outstanding shares of
Common Stock, (i) issue in one or more private transactions securities having
more than 20% of the total votes that can be cast in any election of directors
of Schein without first offering Marvin H. Schein and Pamela Schein (including
their respective family members) the right to purchase such securities; (ii)
issue securities in connection with a business combination having more than 20%,
or resulting in a person owning more than 20%, of the total votes that can be
cast in any election of directors without the consent of Marvin H. Schein; or
(iii) issue preferred stock having the right to cast more than 20% of the total
votes that can be cast in any election of directors of Schein. In addition,
certain members of management have agreed not to transfer their shares until
November 3, 1998, subject to acceleration in Mr. Bergman's discretion.
Restrictions on the ability of stockholders to transfer their stock may make it
more difficult for a third party to acquire, or may discourage acquisition bids
for, Schein, and could limit the price that certain investors might be willing
to pay in the future for Schein Common Stock.
The Global Agreement provides that Schein will indemnify each of the other
parties to the Reorganization agreements, and their family groups, from damages
resulting from (i) claims asserted by third parties relating to the
Reorganization agreements and (ii) any material breach of a representation,
warranty or covenant made by Schein in any of the Reorganization agreements.
Marvin H. Schein has agreed to consult with Pamela Schein prior to the exercise
of certain of his rights of approval and consent under the Reorganization
agreements.
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MANAGEMENT OF SCHEIN
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of Schein. Mr. Haber will become an Executive Vice
President of Schein and the President of Schein's Medical Group upon the
consummation of the Merger.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- ----------- -----------------------------------------------------
<S> <C> <C>
CORPORATE
Stanley M. Bergman........... 47 Chairman, Chief Executive Officer, President and
Director
James P. Breslawski.......... 43 Executive Vice President and Director
Gerald A. Benjamin........... 44 Senior Vice President--Administration and Customer
Satisfaction and Director
Leonard A. David............. 48 Vice President--Human Resources, Special Counsel and
Director
Diane Forrest................ 50 Senior Vice President--Information Services and Chief
Information Officer
Stephen R. LaHood............ 49 Senior Vice President--Distribution Services
Mark E. Mlotek............... 41 Vice President, General Counsel, Secretary and
Director
Steven Paladino.............. 40 Senior Vice President, Chief Financial Officer and
Director
BUSINESS UNITS
Larry M. Gibson.............. 50 President--Practice Management Technologies Division
James W. Stahly.............. 48 President--North American Dental Group
Michael Zack................. 44 Senior Vice President--International Group
OTHER DIRECTORS
Barry J. Alperin............. 56 Director
Pamela Joseph................ 54 Director
Donald J. Kabat.............. 61 Director
Marvin H. Schein............. 55 Founder, Schein Dental Equipment and Director
Irving Shafran............... 53 Director
</TABLE>
BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS
STANLEY M. BERGMAN has been Chairman, Chief Executive Officer and President
since 1989, and a director of Schein since 1982. Mr. Bergman held the position
of Executive Vice President of Schein and Schein Pharmaceutical, Inc., from 1985
to 1989 and Vice President of Finance and Administration of Schein from 1980 to
1985. Mr. Bergman is a certified public accountant.
JAMES P. BRESLAWSKI has been Executive Vice President of Schein since 1990,
with primary responsibility for the North American Dental Group, the Veterinary
Group and corporate creative services, and a director of Schein since 1990.
Between 1980 and 1990, Mr. Breslawki held various positions with Schein,
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including Chief Financial Officer, Vice President of Finance and Administration
and Controller. Mr. Breslawski is a certified public accountant.
GERALD A. BENJAMIN has been Senior Vice President of Administration and
Customer Satisfaction since 1993, including responsibility for the worldwide
human resource function, and has been a director of Schein since September 1994.
Prior to holding his current position, Mr. Benjamin was Vice President of
Distribution Operations of Schein from 1990 to 1992 and Director of Materials
Management of Schein from 1988 to 1990. Before joining Schein, Mr. Benjamin was
employed for 13 years in various management positions at Estee Lauder, where his
last position was Director of Materials Planning and Control.
LEONARD A. DAVID has been Vice President of Human Resources and Special
Counsel since January 1995. Mr. David held the office of Vice President, General
Counsel and Secretary from 1990 to 1995 and practiced corporate and business law
for eight years prior to joining Schein. Mr. David has been a director of Schein
since September 1994.
DIANE FORREST joined Schein in 1994 as Senior Vice President of Information
Services and Chief Information Officer. Prior to joining Schein, Ms. Forrest was
employed by Tambrands Inc. as Vice President of Information Services from 1987
to 1994, KPMG Peat Marwick as Senior Manager in the management consulting
division from 1982 to 1987 and Nabisco Brands, Inc. as Corporate Manager of
Manufacturing Systems from 1978 to 1982.
STEPHEN R. LAHOOD joined Schein in 1992 as Senior Vice President of
Distribution Services and also responsible for purchasing. Prior to joining
Schein, Mr. LaHood was employed by Lex/Schweber Electronics Inc. as Vice
President of Operations and Quality from 1988 to 1991. Mr. LaHood also spent ten
years at Johnson & Johnson Products, Inc., where his last position was Manager
of Corporate Business Planning and thereafter, seven years at Schering-Plough
Corporation where his last position was Senior Director of Manufacturing
Operations.
MARK E. MLOTEK joined Schein in December 1994 as Vice President, General
Counsel and Secretary, and became a director of Schein in September 1995. Prior
to joining Schein, Mr. Mlotek was a partner in the law firm of Proskauer Rose
Goetz & Mendelsohn LLP, counsel to Schein, specializing in mergers and
acquisitions, corporate reorganizations and tax law from 1989 to 1994.
STEVEN PALADINO has been Senior Vice President and Chief Financial Officer
of Schein since 1993, and has been a director of Schein since 1992. From 1990 to
1992, Mr. Paladino served as Vice President and Treasurer and from 1987 to 1990
served as Corporate Controller of Schein. Before joining Schein, Mr. Paladino
was employed as a public accountant for seven years and most recently was with
the international accounting firm of BDO Seidman, LLP. Mr. Paladino is a
certified public accountant.
LARRY M. GIBSON joined Schein as President of the Practice Management
Technologies Division on February 24, 1997 concurrent with the acquisition of
Dentrix Dental Systems, Inc. Before joining Schein, Mr. Gibson was founder,
Chairman and CEO of Dentrix, started in 1980. Prior to his employment with
Dentrix, Mr. Gibson was employed by Weidner Communication Systems from 1978.
JAMES W. STAHLY joined Schein in 1994 as President of the North American
Dental Group of Schein. Before joining Schein, Mr. Stahly was employed by Fox
Meyer Corporation for seven years where his last position was Senior Vice
President--Hospital and Alternate Care Sales. Prior to his employment with Fox
Meyer, Mr. Stahly spent 16 years at McKesson Drug Company.
MICHAEL ZACK has been responsible for the International Group of Schein
since 1989. Mr. Zack was employed by Polymer Technology (a subsidiary of Bausch
& Lomb) as Vice President of International Operations from 1984 to 1989 and by
Gruenthal GmbH as Manager of International Subsidiaries from 1975 to 1984.
BARRY J. ALPERIN has been a director of Schein since May 1996. Mr. Alperin
has also been a private consultant since August 1995. Mr. Alperin served as a
director of Hasbro, Inc. from 1986 through
58
<PAGE>
May 1996 and as Vice Chairman of Hasbro, Inc. from 1990 through July 1995. Mr.
Alperin served as Co-Chief Operating Officer of Hasbro, Inc. from 1989 through
1990 and as its Senior Vice President and Executive Vice President from 1985
through 1989. Mr. Alperin recently served as Chairman of the Board for Toy
Manufacturers of America, an industry trade association. Mr. Alperin currently
serves as a director for Seaman Furniture Co., Inc. and K'nex Industries, Inc.
PAMELA JOSEPH has been a director of Schein since September 1994. For the
past five years Ms. Joseph has been a self-employed artist, and is president of
MA Nose Studios, Inc. Ms. Joseph is also a trustee of Alfred University.
DONALD J. KABAT has been a director of Schein since May 1996. From 1992
until the present, Mr. Kabat has served as President of D.K. Consulting
Services, Inc. and Chief Financial Officer of Central Park Skaters, Inc. From
1970 to 1992, Mr. Kabat was a partner in Andersen Consulting, an affiliate of
Arthur Andersen, LLP.
MARVIN H. SCHEIN has been a director of Schein since September 1994 and has
provided consulting services to Schein since 1982. Mr. Schein founded Schein
Dental Equipment and had been its President for more than 15 years. Prior to
founding Schein Dental Equipment, Mr. Schein held various management and
executive positions with Schein.
IRVING SHAFRAN has been a director of Schein since September 1994 and was
nominated by Pamela Schein as her designee for director of Schein. Mr. Shafran
has been an attorney in private practice for more than twenty-five years. From
1992 through mid-1995, Mr. Shafran was a partner in the law firm of Anderson
Kill Olick and Oshinsky, PC.
BRUCE J. HABER will serve as Executive Vice President and President of
Schein's Medical Group commencing as of the Effective Time. Moreover, Schein has
agreed to use its reasonable best effort to cause Bruce Haber to be elected to
Schein's Board of Directors. Bruce Haber has been President of MBM since 1983
and a director of MBM since 1981.
Schein's Board of Directors is currently composed of eleven directors, six
of whom are employees of Schein. Directors serve until the next annual
stockholders' meeting or until their successors have been duly elected and
qualified.
DESCRIPTION OF MBM
MBM is a New York company 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 in obtaining the necessary
products.
CALIGOR DIVISION. MBM's Caligor division is a physician and hospital
supplier in the New York metropolitan area, serving over 12,000 physicians and
laboratories. It also serves nursing homes and industrial medical departments.
Caligor provides its physicians and hospitals with a comprehensive selection of
supplies and related logistical and software 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's logistical and software services include
"stockless" inventory services for hospitals which allow the customer to reduce
on-hand inventory by up to ninety percent and significantly reduce operating
expenses. 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
59
<PAGE>
combination of sales force support, direct mail, catalogs and telemarketing
sales that it uses in existing territories.
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 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.
HEALER PRODUCTS DIVISION. MBM 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, insects 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.
60
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
Both the Schein Common Stock (symbol: HSIC), and the MBM Common Stock
(symbol: MBMI) are admitted for trading on the Nasdaq National Market.
The following table sets forth the high and low sales prices per share of
the Schein Common Stock and the MBM Common Stock (on a historical and equivalent
per share basis) on the Nasdaq National Market on March 6, 1997, the last
trading day prior to public announcement of the signing of the Merger Agreement:
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
Schein Common
Stock............. $ 287/8 $ 28
MBM Common Stock.... 163/8 153/4
Equivalent share
basis (1)......... 177/8 173/8
</TABLE>
- ------------------------
(1) Equivalent share basis is determined by multiplying the applicable Schein
Common Stock price by 0.62 to reflect the terms of the Merger Agreement.
SCHEIN COMMON STOCK
The Schein Common Stock is quoted through the Nasdaq National Market Stock
Market under the symbol "HSIC." The following table sets forth for the periods
indicated the high and low reported sales prices of the Common Stock on the
Nasdaq National Market System from November 3, 1995, the date of the commencing
of Schein's initial public offering.
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
YEAR ENDED DECEMBER
30, 1995:
Fourth Quarter (from
November 3,
1995)............. $ 291/2 $ 203/8
YEAR ENDED DECEMBER
28, 1996:
First Quarter....... 303/4 231/2
Second Quarter...... 431/2 271/2
Third Quarter....... 401/4 311/4
Fourth Quarter...... 411/4 323/4
YEAR ENDING DECEMBER
27, 1997:
First Quarter....... 39 241/2
Second Quarter
(through June 30,
1997)............. 37 267/8
</TABLE>
On March 6, 1997, there were approximately 150 holders of record of Schein
Common Stock. On March 6, 1997, the last full trading day before the
announcement of the Merger, the last reported sales price was $28 1/2.
Schein does not anticipate paying any cash dividends on the Schein Common
Stock in the foreseeable future; it intends to retain its earnings to finance
the expansion of its business and for general corporate purposes. Any payment of
dividends will be at the discretion of the Schein Board and will depend upon the
earnings, financial condition, capital requirements, level of indebtedness, and
contractual restrictions with respect to payment of dividends and other factors.
Schein's revolving credit agreement and the note issued in connection with an
acquisition in the Netherlands limit the distributions of dividends without the
prior written consent of the lenders.
61
<PAGE>
MBM COMMON STOCK
The MBM Common Stock is traded on the Nasdaq National Market under the
symbol "MBMI". The following table sets forth, for the periods indicated, the
high and low sales prices of the MBM Common Stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
YEAR ENDED NOVEMBER
30, 1995:
First Quarter....... $10 $ 9 7/16
Second Quarter...... 12 5/8 9 5/16
Third Quarter....... 13 7/8 11 1/4
Fourth Quarter...... 14 12
YEAR ENDED NOVEMBER
30, 1996:
First Quarter....... 14 3/4 12 1/4
Second Quarter...... 17 13 7/8
Third Quarter....... 21 14 3/8
Fourth Quarter...... 18 1/4 16 1/8
YEAR ENDING NOVEMBER
30, 1997:
First Quarter....... 18 1/8 15 3/4
Second Quarter...... 20 14 3/4
Third Quarter
(through July 1,
1997)............. 21 1/2 18 1/4
</TABLE>
On March 6, 1997, the last full trading day prior to the announcement of the
Merger Agreement, the last reported sales price was $15 3/4. As of March 6,
1997, there were approximately 685 record holders of MBM Common Stock. No cash
dividends have been paid by MBM on the MBM Common Stock and no such payment is
anticipated in the foreseeable future.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the Merger using the "pooling of interests" method of accounting,
after giving effect to the pro forma adjustments described in the accompanying
notes. These unaudited pro forma combined condensed financial statements have
been prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of Schein and MBM, which are
incorporated by reference in this Proxy Statement/Prospectus.
The unaudited pro forma statements are presented for illustrative purposes
only and are not necessarily indicative of the operating results or financial
position that would have occurred had the Merger been consummated at the dates
indicated, nor is it necessarily indicative of future operating results or
financial position of the merged companies.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the
Merger as if it had occurred on March 29, 1997, combining the balance sheets of
Schein at March 29, 1997 with that of MBM as of February 28, 1997. The Unaudited
Pro Forma Combined Condensed Statements of Operations give effect to the Merger
as if it had occurred at the beginning of the earliest period presented,
combining the results of Schein for each year in the three-year period ended
December 28, 1996 and three months ended March 29, 1997 with those of MBM for
each year in the three-year period ended November 30, 1996 and the three months
ended February 28, 1997.
As a result of the Merger, the merged companies will incur certain
acquisition and transition related costs in connection with consummating the
transaction and integrating the operations of Schein and MBM. The acquisition
and transition related costs consist principally of professional and
registration fees, employment contract termination costs, systems modification
costs and other costs associated with the
62
<PAGE>
integration of the two businesses resulting from the Merger. While the exact
timing, nature and amount of these acquisition and transition related costs are
subject to change, Schein anticipates that a one-time pretax charge of
approximately $9.0 million for direct incremental acquisition-related costs will
be recorded in the quarter in which the Merger is consummated. The estimate is
comprised of the following amounts:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Professional services.......................................................... $ 4,000
Employment contract termination costs.......................................... 3,000
Registration and other regulatory costs........................................ 1,000
Taxes and other................................................................ 1,000
------
$ 9,000
------
------
</TABLE>
The direct incremental acquisition-related costs have been reflected as an
increase in accounts payable and accrued expenses in the Unaudited Pro Forma
Combined Condensed Balance Sheet as of March 29, 1997. The after-tax cost of
this anticipated charge ($8.2 million) has been reflected as a reduction in
retained earnings in the Unaudited Pro Forma Combined Condensed Balance Sheet as
of March 29, 1997.
In addition to the one-time pretax charge of approximately $9.0 million for
direct incremental acquisition-related costs, Schein also expects to record
additional special costs associated with systems modifications and other
integration related charges after the Merger. Such pretax charges are currently
not estimatable, but could be in the range of $5.0 million to $10.0 million. The
ultimate amount of such costs and the periods in which they will be charged to
expense will vary depending on a number of factors, including the timing and
extent of the integration of the businesses.
The unaudited pro forma combined condensed financial statements do not
reflect the special costs associated with systems modifications and other
integration related charges described above to be incurred during the remainder
of 1997 and thereafter, or any of the anticipated recurring expense savings.
63
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 29, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
SCHEIN MBM ADJUSTMENTS COMBINED
----------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 16,911 $ 355 $-- $ 17,266
Accounts receivable, net........................ 143,353 30,694 -- 174,047
Inventories..................................... 118,760 15,355 -- 134,115
Deferred income taxes........................... 6,347 782 -- 7,129
Other........................................... 29,378 970 -- 30,348
----------- ---------- ------ ----------
Total current assets...................... 314,749 48,156 -- 362,905
Property and equipment, net..................... 38,374 3,665 -- 42,039
Goodwill and other intangibles, net............. 56,014 8,605 -- 64,619
Investments and other........................... 29,416 162 -- 29,578
----------- ---------- ------ ----------
$ 438,553 $60,588 $-- $499,141
----------- ---------- ------ ----------
----------- ---------- ------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
and accrued expenses.......................... $ 98,274 $21,340 $9,000(2b) $127,814
(800)(2c)
Bank credit lines............................... 6,826 -- -- 6,826
Current maturities of long-term debt............ 8,203 433 -- 8,636
----------- ---------- ------ ----------
Total current liabilities................. 113,303 21,773 8,200 143,276
Long-term debt.................................. 23,707 6,967 -- 30,674
Other liabilities............................... 2,843 180 -- 3,023
Minority interest............................... 5,119 -- -- 5,119
Common stock.................................... 233 152 (117)(2a) 268
Additional paid-in capital...................... 255,308 21,012 116(2a) 276,436
Retained earnings............................... 40,810 10,505 (8,200)(2b)(2c) 43,115
Treasury stock.................................. (1,156) (1) 1(2a) (1,156)
Foreign currency translation adjustment......... (1,614) -- -- (1,614)
----------- ---------- ------ ----------
Total stockholders' equity................ 293,581 31,668 (8,200) 317,049
----------- ---------- ------ ----------
$ 438,553 $60,588 $-- $499,141
----------- ---------- ------ ----------
----------- ---------- ------ ----------
</TABLE>
64
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 29, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
SCHEIN MBM COMBINED
---------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................................. $ 240,499 $ 38,005 $ 278,504
Cost of sales............................................................. 168,777 30,671 199,448
---------- ----------- -----------
Gross profit.............................................................. 71,722 7,334 79,056
Selling, general and administrative expenses.............................. 64,782 6,857 71,639
Merger costs.............................................................. 2,527 -- 2,527
---------- ----------- -----------
Operating income.......................................................... 4,413 477 4,890
Interest income (expense)--net............................................ (325) (100) (425)
Other--net................................................................ (73) -- (73)
---------- ----------- -----------
Income before taxes on income, minority interest and equity in earnings of
affiliates.............................................................. 4,015 377 4,392
Taxes on income........................................................... 2,480 158 2,638
Minority interest in net income of subsidiaries........................... (14) -- (14)
Equity in earnings of affiliates.......................................... (50) -- (50)
---------- ----------- -----------
Net income................................................................ $ 1,499 $ 219 $ 1,718
---------- ----------- -----------
---------- ----------- -----------
Net income per common share (1)........................................... $ 0.06 $ 0.04 $ 0.06
---------- ----------- -----------
---------- ----------- -----------
Weighted average common and common equivalent shares outstanding (1)...... 23,678 6,149 27,490
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
65
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
SCHEIN MBM COMBINED
---------- ---------- -----------
<S> <C> <C> <C>
Net sales.................................................................... $ 840,122 $ 150,143 $ 990,265
Cost of sales................................................................ 587,013 119,206 706,219
---------- ---------- -----------
Gross profit................................................................. 253,109 30,937 284,046
Selling, general and administrative expenses................................. 220,500 27,152 247,652
---------- ---------- -----------
Operating income............................................................. 32,609 3,785 36,394
Interest income (expense)--net............................................... (863) (719) (1,582)
Other--net................................................................... 771 -- 771
---------- ---------- -----------
Income before taxes on income, minority interest and equity in earnings of
affiliates................................................................. 32,517 3,066 35,583
Taxes on income.............................................................. 11,343 1,321 12,664
Minority interest in net income of subsidiaries.............................. 246 -- 246
Equity in earnings of affiliates............................................. 1,595 -- 1,595
---------- ---------- -----------
Net income................................................................... $ 22,523 $ 1,745 $ 24,268
---------- ---------- -----------
---------- ---------- -----------
PRO FORMA:
Historical net income...................................................... $ 22,523 $ 1,745 $ 24,268
Pro forma adjustment:
Provision for income taxes on previously untaxed earnings of an
acquisition.............................................................. (1,197) -- (1,197)
---------- ---------- -----------
Pro forma net income......................................................... $ 21,326 $ 1,745 $ 23,071
---------- ---------- -----------
---------- ---------- -----------
Pro forma net income per common share (1).................................... $ 0.98 $ 0.31 $ 0.91
Pro forma weighted average common and common equivalent shares outstanding
(1)........................................................................ 21,794 5,817 25,401
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
66
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
SCHEIN MBM COMBINED
---------- ---------- -----------
<S> <C> <C> <C>
Net sales.................................................................... $ 623,302 $ 119,874 $ 743,176
Cost of sales................................................................ 427,448 94,307 521,755
---------- ---------- -----------
Gross profit................................................................. 195,854 25,567 221,421
Selling, general and administrative expenses................................. 174,867 22,413 197,280
Special charges.............................................................. 20,797 -- 20,797
---------- ---------- -----------
Operating income............................................................. 190 3,154 3,344
Interest income (expense)--net............................................... (5,283) (1,239) (6,522)
Other--net................................................................... 390 -- 390
---------- ---------- -----------
Income (loss) before taxes on income, minority interest and equity in
earnings of affiliates..................................................... (4,703) 1,915 (2,788)
Taxes on income.............................................................. 5,126 806 5,932
Minority interest in net income of subsidiaries.............................. 509 -- 509
Equity in earnings of affiliates............................................. 1,537 -- 1,537
---------- ---------- -----------
Net income (loss)............................................................ $ (8,801) $ 1,109 $ (7,692)
---------- ---------- -----------
---------- ---------- -----------
PRO FORMA:
Historical net income (loss)............................................... $ (8,801) $ 1,109 $ (7,692)
Pro forma adjustments:
Special management compensation and professional fees...................... 20,797 -- 20,797
Tax effect of above........................................................ (1,174) -- (1,174)
Provision for income taxes on previously untaxed earnings of an
acquisition.............................................................. (533) -- (533)
Pro forma net income......................................................... $ 10,289 $ 1,109 $ 11,398
---------- ---------- -----------
---------- ---------- -----------
Pro forma net income per common share(1)..................................... $ 0.71 $ 0.25 $ 0.66
---------- ---------- -----------
---------- ---------- -----------
Pro forma weighted average common and common equivalent shares
outstanding(1)............................................................. 14,517 5,122 17,693
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
67
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
SCHEIN MBM COMBINED
---------- ---------- -----------
<S> <C> <C> <C>
Net sales.................................................................... $ 490,834 $ 121,604 $ 612,438
Cost of sales................................................................ 344,868 94,924 439,792
---------- ---------- -----------
Gross profit................................................................. 145,966 26,680 172,646
Selling, general and administrative expenses................................. 131,009 23,003 154,012
Special charges.............................................................. 23,603 -- 23,603
---------- ---------- -----------
Operating income (loss)...................................................... (8,646) 3,677 (4,969)
Interest income (expense)--net............................................... (3,524) (1,044) (4,568)
Other--net................................................................... 542 -- 542
---------- ---------- -----------
Income (loss) before taxes on income, minority interest and equity in
earnings of affiliates..................................................... (11,628) 2,633 (8,995)
Taxes on income (recovery)................................................... (1,630) 952 (678)
Minority interest in net income of subsidiaries.............................. 561 -- 561
Equity in earnings of affiliates............................................. 494 -- 494
Cumulative effect of accounting change for income taxes prior to 1994........ -- (60) (60)
---------- ---------- -----------
Net income (loss)............................................................ $ (10,065) $ 1,621 $ (8,444)
---------- ---------- -----------
---------- ---------- -----------
PRO FORMA:
Historical net income (loss)............................................... $ (10,065) $ 1,621 $ (8,444)
Pro forma adjustments:
Special management compensation and professional fees...................... 23,603 -- 23,603
Tax effect of above........................................................ (5,749) -- (5,749)
Provision for income taxes on previously untaxed earnings of an
acquisition.............................................................. (306) -- (306)
---------- ---------- -----------
Pro forma net income......................................................... $ 7,483 $ 1,621 $ 9,104
---------- ---------- -----------
---------- ---------- -----------
Pro forma net income per common share(1)..................................... $ 0.57 $ 0.36 $ 0.57
---------- ---------- -----------
---------- ---------- -----------
Pro forma weighted average common and common equivalent shares
outstanding(1)............................................................. 13,197 4,897 16,233
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
68
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--EXCHANGE RATIO
Under the Merger Agreement, each outstanding share of MBM Common Stock will
be converted into 0.62 shares of Schein Common Stock. This exchange ratio was
used in computing share and per share amounts in the accompanying unaudited pro
forma combined condensed financial statements.
The computation of earnings per share was also adjusted to reflect the
incremental net income ($59 in 1996, $191 in 1995 and $146 in 1994) resulting
from MBM's use of the modified treasury stock method.
NOTE 2--PRO FORMA ADJUSTMENTS
(a) A pro forma adjustment has been made to reflect the issuance of shares
in the exchange ratio stated in Note 1 above and the cancellation of MBM
treasury stock, in accordance with the Merger Agreement.
(b) A pro forma adjustment has been made for certain acquisition-related
costs and expenses including as described in the fourth paragraph under
"Unaudited Pro Forma Combined Condensed Financial Statements."
(c) A pro forma adjustment has been made for the estimated tax effects of
the adjustments discussed in (b) above.
69
<PAGE>
SCHEIN CONSOLIDATED SELECTED HISTORICAL FINANCIAL
INFORMATION AND OPERATING DATA
The following consolidated selected financial data with respect to Schein's
financial position and its results of operations for each of the five years in
the period ended December 28, 1996 set forth below has been derived from
Schein's audited consolidated financial statements, which have previously been
filed with the SEC. The related financial information for the three months ended
March 29, 1997 and March 30, 1996 have been derived from the unaudited
statements of Schein and, in Schein's opinion, include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the information. The results for the three months ended March
29, 1997 are not necessarily indicative of the results that may be expected for
any other period. The consolidated selected financial data presented below
should be read in conjunction with such audited consolidated financial
statements and related notes and the other information set forth in this Proxy
Statement/Prospectus or incorporated by reference herein. See "SCHEIN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." The Selected Operating Data and Net Sales by Market Data presented
below have not been audited.
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31, DECEMBER 25, DECEMBER 26,
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Net sales.............................................. $ 840,122 $ 623,302 $ 490,834 $ 417,838 $ 363,477
Cost of sales.......................................... 587,013 427,448 344,868 294,954 257,262
------------- ------------- ------------- ------------- -------------
Gross profit........................................... 253,109 195,854 145,966 122,884 106,215
Selling, general and administrative expenses........... 220,500 174,867 131,009 111,214 96,853
Special management compensation(1)..................... -- 20,797 21,596 617 5,283
Special contingent consideration(2).................... -- -- -- 3,216 --
Special professional fees(3)........................... -- -- 2,007 2,224 2,227
------------- ------------- ------------- ------------- -------------
Operating income (loss)................................ 32,609 190 (8,646) 5,613 1,852
Interest income........................................ 2,558 552 251 856 1,210
Interest expense....................................... (3,421) (5,835) (3,775) (3,228) (2,971)
Other income (expense)--net............................ 771 390 542 (634) 255
------------- ------------- ------------- ------------- -------------
Income (loss) before taxes on income (recovery),
minority interest and equity in earnings of
affiliates........................................... 32,517 (4,703) (11,628) 2,607 346
Taxes on income (recovery)............................. 11,343 5,126 (1,630) 1,351 622
Minority interest in net income (loss) of
subsidiaries......................................... 246 509 561 318 (249)
Equity in earnings of affiliates....................... 1,595 1,537 494 1,296 514
------------- ------------- ------------- ------------- -------------
Income (loss) before cumulative effect of accounting
change............................................... 22,523 (8,801) (10,065) 2,234 487
Cumulative effect of accounting change................. -- -- -- 1,891 --
------------- ------------- ------------- ------------- -------------
Net income (loss)...................................... $ 22,523 $ (8,801) $ (10,065) $ 4,125 $ 487
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
PRO FORMA INCOME DATA (4):
Pro forma operating income............................. $ 32,609 $ 20,987 $ 14,957
Pro forma net income................................... $ 21,326 $ 10,289 $ 7,483
Pro forma net income per common share.................. $ 0.98 $ 0.71 $ 0.57
Pro forma average shares outstanding................... 21,794 14,517 13,197
SELECTED OPERATING DATA:
Number of orders shipped............................... 3,079,000 2,630,000 2,275,000 2,044,000 1,824,000
Average order size..................................... $ 273 $ 237 $ 216 $ 204 $ 199
NET SALES BY MARKET DATA(5):
Dental(6).............................................. $ 435,643 $ 327,697 $ 274,337 $ 253,223 $ 234,655
Medical................................................ 191,186 125,565 89,789 71,021 51,923
Veterinary............................................. 35,329 29,330 27,872 24,312 19,481
Technology(7).......................................... 30,965 33,007 14,909 9,866 6,377
International(8)....................................... 146,999 107,703 83,927 59,416 51,041
------------- ------------- ------------- ------------- -------------
$ 840,122 $ 623,302 $ 490,834 $ 417,838 $ 363,477
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................................ $ 204,575 $ 104,455 $ 76,814 $ 74,167 $ 28,066
Total assets........................................... 467,450 299,364 191,373 161,437 138,043
Total debt............................................. 39,746 43,049 61,138 56,712 41,526
Redeemable stock (9)................................... -- -- 14,745 -- --
Minority interest...................................... 5,289 4,547 1,823 1,051 411
Stockholders' equity................................... 292,016 143,865 40,266 43,896 39,927
</TABLE>
70
<PAGE>
SCHEIN CONSOLIDATED SELECTED HISTORICAL FINANCIAL
INFORMATION AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
<S> <C> <C>
MARCH 29, 1997 MARCH 30, 1996
-------------- --------------
STATEMENT OF OPERATIONS DATA:
Net sales........................................................................ $ 240,499 $ 187,339
Gross profit..................................................................... 71,722 $ 56,506
Selling, general and administrative expenses..................................... 64,782 $ 51,396
Merger costs (10)................................................................ 2,527 --
Operating income................................................................. 4,413 $ 5,110
Net income....................................................................... $ 1,499 $ 2,716
Net income per common share...................................................... $ 0.06 $ 0.14
Average shares outstanding....................................................... 23,678 $ 19,740
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................................................. $ 201,446
Total assets..................................................................... 438,553
Total debt....................................................................... 38,736
Minority interest................................................................ 5,119
Stockholders' equity............................................................. 293,581
</TABLE>
- ------------------------
(1) Includes: (a) for 1995, non-cash special management compensation charges of
$17.5 million arising from final mark-to-market adjustments (reflecting an
increase in estimated market value from 1994 to the initial public offering
price of $16.00 per share of Schein Common Stock) for stock grants made to
an executive officer of Schein in 1992 and other stock issuances made to
certain other senior management of Schein (because of certain repurchase
features which expired with Schein's initial public offering), an
approximate $2.8 million non-cash special management compensation charge
(also based on the initial public offering price of $16.00 per share)
relating to compensatory options granted in 1995, and a cash payment of $0.5
million for additional income taxes resulting from such stock issuances; (b)
for 1994, non-cash special management compensation arising from accelerated
amortization of deferred compensation arising from the 1992 stock grants to
an executive officer of Schein of $17.3 million, which included a 1994
mark-to-market adjustment (because of the repurchase features referred to
above) of $9.1 million, due to the resolution, with the closing of the
Reorganization, of certain contingencies surrounding the issuance of the
stock grants, non-cash special management compensation charges of $1.6
million (net of prior accruals of approximately $1.9 million under an
executive incentive plan) arising from stock issuances to certain other
senior management of Schein, valued at $3.5 million, and cash payments for
income taxes of approximately $2.4 million resulting from these stock
issuances and $0.3 million for additional income taxes resulting from the
1992 stock grants; (c) for 1993, non-cash special management compensation
charges of $0.6 million in amortization of deferred compensation arising
from the 1992 stock grants; and (d) for 1992, cash payments of $5.3 million
for income taxes resulting from stock grants made to an executive officer of
Schein. See "SCHEIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Overview".
(2) Includes $0.7 million paid in connection with an acquisition and $2.5
million resulting from the buyout of employees' rights to future income
contained in their employment agreements. See "SCHEIN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Overview."
71
<PAGE>
(3) Includes special professional fees incurred by Schein in connection with the
Reorganization. See "SCHEIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Overview".
(4) Reflects the pro forma elimination of special charges incurred in 1995 and
1994 for special management compensation of $20.8 million and $21.6 million,
respectively, and special professional fees incurred in 1994 of $2.0
million, arising from the Reorganization, and the related tax effects of
$1.2 million and $5.8 million for 1995 and 1994, respectively, and provision
for income taxes on previously untaxed earnings of Dentrix Dental Systems,
Inc. ("Dentrix") as an S Corporation of $1.2 million, $0.5 million and $0.3
million for 1996, 1995 and 1994, respectively. See "SCHEIN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Overview and Recent Developments."
(5) Restated to conform to 1996 presentation.
(6) Dental consists of Schein's dental business in the United States and Canada.
(7) Technology consists of Schein's practice management software business and
certain other value-added products and services.
(8) International consists of Schein's business (substantially all dental)
outside the United States and Canada, primarily Europe.
(9) Redeemable stock includes stock issued for compensation which was subject to
repurchase by Schein at fair market value in the event of termination of
employment of the holder of such shares, as well as shares purchased by the
trust for Schein's ESOP and allocable to the ESOP participants. With the
completion of Schein's initial public offering, the stock issued for
compensation and the ESOP Common Stock were no longer subject to repurchase.
See "SCHEIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-- Overview".
(10) During the three months ended March 29, 1997, Schein acquired all of the
common stock of Dentrix, a provider of clinically-based dental practice
management systems, with 1996 net sales of approximately $10.2 million, in
exchange for 1,070,000 shares of Schein Common Stock. The Dentrix
acquisition was accounted for as a pooling of interests, and, accordingly,
the consolidated financial statements for the periods presented have been
restated to include Dentrix. In connection with the Dentrix acquisition,
Schein incurred merger costs of approximately $2.5 million, or $0.11 per
share, in the first quarter of 1997. Included in the merger costs are
investment banking, legal, accounting and advisory fees and other
nonrecurring costs associated with this acquisition.
72
<PAGE>
SCHEIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF SCHEIN'S CONSOLIDATED FINANCIAL
CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION
WITH SCHEIN'S CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS AND NOTES THERETO.
See "SCHEIN'S CONSOLIDATED SELECTED HISTORICAL FINANCIAL DATA".
OVERVIEW
Schein's results of operations in recent years have been significantly
impacted by strategies and transactions undertaken by Schein to expand its
business, both domestically and internationally, in part to address significant
changes in the healthcare industry, including potential national healthcare
reform, trends toward managed care, cuts in Medicare, consolidation of
healthcare distribution companies and collective purchasing arrangements.
Schein's results of operations in recent years have also been impacted by the
Reorganization.
From 1992 through 1994, Schein was a party to a series of transactions
leading to the Reorganization that resulted in, among other things, Schein being
separated from Schein Holdings and the distribution of shares of the Schein
Common Stock to its then current stockholders. In December 1992, an executive
officer of Schein received certain stock grants in Schein and Schein
Pharmaceutical, Inc. valued at approximately $6.2 million and $2.6 million,
respectively, and cash of approximately $5.3 million to pay income taxes on the
stock grants received. These stock grants were subject to the occurrence of
certain future events, including the fulfillment of the employment term by the
executive officer. Accordingly, these stock grants, totaling $8.8 million, were
treated as deferred compensation while the cash payments were charged to
earnings as special management compensation in the year ended December 26, 1992.
During 1993, Schein amortized the deferred compensation relating to stock grants
by Schein to the executive officer resulting in a charge to earnings of $0.6
million. In 1994, the contingencies relating to the stock granted to the
executive officer were eliminated, such that these shares became fully vested.
Accordingly, deferred compensation of $8.8 million, less the 1993 amortization
of $0.6 million, plus a mark-to-market adjustment (because of certain repurchase
features) of approximately $9.1 million, along with a $0.3 million cash payment
for income taxes relating to the 1992 stock grants, was expensed in 1994 as
special management compensation.
In addition, in connection with the Reorganization, certain senior
management of Schein were issued shares of Schein Common Stock in 1994 and 1995
to extinguish an obligation under a pre-existing long-term incentive plan and to
provide them with an ownership interest in Schein. In connection with the
issuance of the shares, a cash payment for income taxes relating to such stock
issuances of approximately $2.4 million was paid. This cash bonus, plus $3.5
million, the fair value of the related stock issued, net of amounts accrued
under the long-term incentive plan of approximately $1.9 million, resulted in an
additional special management compensation charge to Schein of approximately
$4.0 million in 1994. Charges to earnings for the year ended 1995 related to a
mark-to-market adjustment (because of certain repurchase features) for stock
grants made to an executive officer of Schein and the stock issuances of the
other senior management of approximately $17.5 million and cash payments of $0.5
million for income taxes related to the stock issuances.
Additionally, Schein has granted certain employees options for shares of
Schein Common Stock, which became exercisable upon Schein's initial public
offering on November 3, 1995, at which time substantially all such options
vested. Non-recurring special compensation charges for the options issued to
employees recorded in the fourth quarter of 1995 amounted to approximately $2.8
million. In addition, Schein recorded an approximate $1.1 million related tax
benefit.
Special charges for special management compensation and special professional
fees incurred in connection with the Reorganization aggregated $20.8 million and
$23.6 million for 1995 and 1994, respectively.
73
<PAGE>
RECENT DEVELOPMENTS
Since December 28, 1996, Schein has acquired (i) in a pooling of interests
transaction, all of the outstanding common stock of Dentrix Dental Systems, Inc.
("Dentrix"), a provider of clinically-based dental practice management systems
with 1996 net sales of approximately $10.2 million, and (ii) a purchase
transaction, the business of Smith Holden, the longest operating dental supply
company in the United States, with 1996 net sales of approximately $14.2
million. Additionally, on March 7, 1997, Schein entered into the Merger
Agreement, and on June 27, 1997 Schein acquired Roane-Barker, Inc., a medical
and laboratory supplies and equipment distributor in the Southeast with net
sales of approximately $25.0 for the fiscal year ended May 31, 1997, in a
pooling of interests transaction.
MBM distributes medical supplies to physicians and hospitals in the New York
metropolitan area, as well as to healthcare professionals in sports medicine,
emergency medicine, school health, industrial safety, government and laboratory
markets nationwide. MBM had net sales of approximately $150.0 million and
earnings of approximately $1.7 million for its fiscal year ended November 30,
1996. Upon completion of the acquisition, Schein believes that it will become
North America's largest distributor of healthcare products to office-based
healthcare practitioners and a leading provider of healthcare products and
services to the U.S. physician market.
The completion of the transaction is subject to the satisfaction of
customary closing conditions, including, among others, MBM shareholder approval.
The transaction is expected to be completed by mid-1997 although no assurances
can be given in this regard. For a more complete description of the terms of the
Merger Agreement, reference is made to the Exhibits of Schein's Form 10-K.
Schein has filed a Registration Statement on Form S-4 with the Securities and
Exchange Commission with respect to the securities to be issued in connection
with the Merger Agreement.
In connection with the Dentrix acquisition, Schein incurred merger costs of
approximately $2.5 million, or $0.11 per share, in the first quarter of 1997.
Included in the merger costs are investment banking, legal, accounting and
advisory fees and other nonrecurring costs associated with the merger.
Additional merger costs are expected to be incurred during 1997 relating to
integrating this acquisition.
Excluding the non-recurring merger costs of $2.5 million, or $0.11 per
share, for the Dentrix acquisition, pro forma net income and pro forma net
income per common share would have been $4.0 million and $0.17, respectively.
The financial statements include adjustments to give effect to the acquisition
of Dentrix, effective February 28, 1997, which was accounted for under the
pooling of interests method.
Prior to its acquisition by Schein, Dentrix elected to be treated as an S
Corporation under the Internal Revenue Code, and accordingly, its earnings were
not subject to taxation at the corporate level. Pro forma adjustments have been
made to reflect a provision for income taxes on such previously untaxed earnings
for each period presented.
74
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales by market of Schein and the percentage change in such items for the
three months ended March 29, 1997 and March 30, 1996, and for the years ended
1996, 1995 and 1994.
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE
PERCENTAGE OF NET SALES (DECREASE)
--------------------------------------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS
ENDED
MARCH 29,
1997 TO
THREE MONTHS ENDED YEARS ENDED THREE MONTHS
------------------------ ------------------------------------------------- ENDED
MARCH 29, MARCH 30, DECEMBER 28, DECEMBER 30, DECEMBER 31, MARCH 30,
1997 1996 1996 1995 1994 1996
----------- ----------- --------------- --------------- --------------- -----------------
NET SALES BY MARKET(1):
Dental(2)............... 52.4% 50.5% 51.8% 52.6% 55.9% 33.4%
Medical................. 23.3 21.4 22.8 20.1 18.3 39.6
Veterinary.............. 4.1 4.5 4.2 4.7 5.7 16.9
Technology(3)........... 3.3 4.2 3.7 5.3 3.0 (1.6)
International(4)........ 16.9 19.4 17.5 17.3 17.1 12.2
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0% 28.4
<CAPTION>
<S> <C> <C>
1996 TO 1995 TO
1995 1994
----------- -----------
NET SALES BY MARKET(1):
Dental(2)............... 32.9% 19.5%
Medical................. 52.3 39.8
Veterinary.............. 20.5 5.2
Technology(3)........... (6.2) 121.4
International(4)........ 36.5 28.3
34.8 27.0
</TABLE>
- ------------------------
(1) Restated to conform to 1996 presentation.
(2) Dental consists of Schein's dental business in the United States and Canada.
(3) Technology consists of Schein's practice management software business and
certain other value-added products and services.
(4) International consists of Schein's business (substantially all dental)
outside the United States and Canada, primarily in Europe.
THREE MONTHS ENDED MARCH 29, 1997 COMPARED TO THREE MONTHS ENDED MARCH 30, 1996
Net sales increased $53.2 million, or 28.4%, to $240.5 million for the three
months ended March 29, 1997 from $187.3 million for the three months ended March
30, 1996. Schein estimates that overall approximately 17.1% of the increase was
due to internal growth, while the remaining 11.3% was due to acquisitions. Of
the $53.2 million increase, approximately $31.6 million represented a 33.4%
increase in Schein's dental business, $15.9 million represented a 39.6% increase
in its medical business, $4.4 million represented a 12.2% increase in its
international business, and $1.4 million represented a 16.9% increase in
Schein's veterinary business. Technology net sales decreased $0.1 million, or
1.6%. The increase in dental net sales was primarily the result of the
continuing favorable impact of Schein's integrated sales and marketing approach
(which coordinates the efforts of its field sales consultants with its direct
marketing and telesales personnel), acquisitions, continued success in Schein's
target marketing programs and increased sales in the large dental equipment
market. The increase in medical net sales was primarily due to acquisitions,
increased net sales to renal dialysis centers and net sales to customers
enrolled in the AMA Purchase Link program. In the international market, the
increase in net sales was due equally to acquisitions and increased unit volume
growth. Unfavorable exchange rate translation adjustments resulted in a net
sales decrease of approximately $1.4 million. Had net sales for the
international market been translated at the same exchange rates in effect during
1996, net sales would have increased by an additional 4.0%. In the veterinary
market, the increase in net sales was primarily due to increased account
penetration with corporate accounts. In the technology market, sales were
essentially unchanged from the prior year's quarter.
75
<PAGE>
Gross profit increased by $15.2 million, or 26.9%, to $71.7 million for the
three months ended March 29, 1997 from $56.5 million for the three months ended
March 30, 1996, while gross profit margin decreased to 29.8% from 30.2%. The
$15.2 million increase in gross profit was primarily due to increased sales
volume and acquisitions. The decrease in gross profit margin was primarily due
to lower technology sales as a percentage of total net sales and other sales mix
changes.
Selling, general and administrative expenses increased by $13.4 million, or
26.1%, to $64.8 million for the three months ended March 29, 1997 compared to
$51.4 million for the three months ended March 30, 1996. Selling and shipping
expenses increased by $8.2 million, or 23.8%, to $42.7 million for the three
months ended March 29, 1997 from $34.5 million for the three months ended March
30, 1996. As a percentage of net sales, selling and shipping expenses decreased
0.6% to 17.8% for the three months ended March 29, 1997 from 18.4% for the three
months ended March 30, 1996. This decrease was primarily due to leveraging of
Schein's distribution infrastructure, partially offset by an increase in selling
expenses. General and administrative expenses increased $5.2 million, or 30.8%,
to $22.1 million for the three months ended March 29, 1997 from $16.9 million
for the three months ended March 30, 1996, primarily as a result of
acquisitions. As a percentage of net sales, general and administrative expenses
increased 0.2% to 9.2% for the three months ended March 29, 1997 from 9.0% for
the three months ended March 30, 1996.
Other income (expense)-net decreased by $0.2 million, or 33.3%, to ($0.4)
million for the three months ended March 29, 1997 from ($0.6) million for the
three months ended March 30, 1996. This decrease was primarily due to a decrease
in average borrowings, which were partially paid off with proceeds from Schein's
follow-on offering in June 1996, combined with an increase in imputed interest
income arising from non-interest bearing extended payment term sales.
For the three months ended March 29, 1997, Schein's effective tax rate was
61.8%, excluding merger costs, substantially all of which are not deductible for
income tax purposes, Schein's effective tax rate would have been 37.9%. The
difference between the effective tax rate and the federal statutory rate relates
primarily to a favorable tax treatment for certain donated inventory. For the
three months ended March 30, 1996, Schein's effective rate was 43.7%, which was
higher than the federal statutory rate primarily due to state income taxes and
the non-deductible net operating losses of certain foreign subsidiaries.
1996 COMPARED TO 1995
Net sales increased $216.8 million, or 34.8%, to $840.1 million in 1996 from
$623.3 million in 1995. Of the $216.8 million increase, approximately $107.9
million represented a 32.9% increase in Schein's dental business, $65.6 million
represented a 52.3% increase in its medical business, $39.3 million represented
a 36.5% increase in its international business and $6.0 million represented a
20.5% increase in Schein's veterinary business, offset by a $2.0 million, or
6.2%, decrease in its technology business. The dental net sales increase was
primarily the result of Schein's continued emphasis on its integrated sales and
marketing approach (which coordinates the efforts of its field sales consultants
with its direct marketing and telesales personnel), expansion into the U.S.
market for large dental equipment and acquisitions. Of the approximately $65.6
million increase in medical net sales, approximately $20.9 million, or 31.9%,
represents incremental net sales to renal dialysis centers, with the effects of
acquisitions and increased outbound telesales activity primarily accounting for
the balance of the increase in medical net sales. In the international market,
the increase in net sales was due to acquisitions, primarily in France, and
increased account penetration in Germany and the United Kingdom. Unfavorable
exchange rate translation adjustments resulted in a net sales decrease of
approximately $4.4 million. Had net sales for the international market been
translated at the same exchange rates in effect during 1995, net sales would
have increased by an additional 4.1%. In the veterinary market, the increase in
net sales was due to the full year impact of new product lines introduced in the
fourth quarter of 1995, increased account penetration and continued volume
growth to customers of a veterinary-sponsored purchasing service. As
anticipated, net sales in
76
<PAGE>
Schein's technology group was below last year's sales volume levels due to
unusually high sales volume in the fourth quarter of 1995 due to the
introductory launch, at that time, of Schein's Easy Dental-Registered Trademark-
Plus Windows-Registered Trademark- based product; offset due to increase in
sales of Dentrix software systems.
Gross profit increased by $57.2 million, or 29.2%, to $253.1 million in
1996, from $195.9 million in 1995, while gross profit margin decreased by 1.3%
to 30.1% from 31.4% for the same period. The decrease in gross profit margin was
primarily due to product mix as fewer high margin Easy
Dental-Registered Trademark- Plus for Windows-Registered Trademark- products
were sold in 1996. Excluding gross profit margin for Schein's technology group,
which was 69.0% for 1996 as compared to 79.3% for 1995, gross profit margins
were relatively unchanged at 28.6% for 1996 as compared to 28.7% for 1995.
Selling, general and administrative expenses increased by $45.6 million, or
26.1%, to $220.5 million in 1996 from $174.9 million in 1995. Selling and
shipping expenses increased by $38.2 million, or 33.6%, to $151.8 million in
1996 from $113.6 million in 1995. As a percentage of net sales, selling and
shipping expenses decreased 0.1% to 18.1% in 1996 from 18.2% in 1995. The
decrease in selling and shipping expenses as a percentage of net sales was
primarily due to reductions in sales promotions offered by Schein's technology
group in conjunction with the introductory promotion of Easy
Dental-Registered Trademark- Plus for Windows-Registered Trademark- version
which occurred during 1995. These introductory promotional expenses represented
0.6% of net sales in 1995. Excluding these expenses from 1995, selling and
shipping expenses, as a percentage of net sales, would have been 0.4% higher
than last year. This increase was due primarily to various promotional programs
and incremental field sales and marketing personnel. General and administrative
expenses increased $7.4 million, or 12.1%, to $68.7 million in 1996 from $61.3
million in 1995, primarily as a result of acquisitions. As a percentage of net
sales, general and administrative expenses decreased 1.6% to 8.2% in 1996 from
9.8% in 1995 due primarily to the relatively fixed nature of general and
administrative expenses when compared to the 34.8% increase in sales volume for
the same period.
Net interest expenses decreased $4.4 million to $0.9 million in 1996 from
$5.3 million in 1995. This decrease primarily resulted from the use of the
proceeds of Schein's follow-on offering in June 1996 to reduce debt and an
increase in interest income arising from the temporary investment of proceeds in
excess of debt and imputed interest income arising from non-interest bearing
extended payment term sales, offset in part by an increase in average interest
rates.
For 1996, Schein's provision for taxes was $11.3 million, while the pre-tax
income was $32.6 million. On a pro forma basis, adjusting for a provision for
taxes on the previously untaxed earnings of Dentrix included in 1996 results,
Schein's effective tax rate would have been 38.6%. The difference between
Schein's effective tax rate and the Federal statutory rate relates primarily to
state income taxes offset by tax-exempt interest on municipal securities. In
1995, Schein's provision for taxes was $5.1 million, while the pre-tax loss was
$4.7 million. The difference between the tax provision and the amount that would
have been recoverable by applying the statutory rate to pre-tax loss was
attributable substantially to the non-deductibility for income tax purposes of
the $17.5 million appreciation in the value of the stock issued to an executive
officer and other senior management of Schein. On a pro forma basis, excluding
special charges, and adjusting for a provision for taxes on the previously
untaxed earnings of Dentrix including in 1995 results, taxes on income for 1995
were $6.8 million, resulting in an effective tax rate of 42.5%. The difference
between the pro forma effective tax rate and the Federal statutory rate relates
primarily to state income taxes and currently non-deductible net operating
losses of certain foreign subsidiaries, primarily in France, which are not
included in Schein's consolidated tax return.
In the fourth quarter of 1996 Schein made adjustments which increased net
income by approximately $2.4 million. These adjustments, which related
predominately to estimated reserves for premium coupon redemptions, finance
charges receivable and income taxes, resulted from management's updated
evaluations of historical trends (reflecting changes in business practices and
other factors) and other assumptions underlying such estimates. The amounts of
such reserves in prior quarters were based on reasonable estimates reflecting
available facts and circumstances.
77
<PAGE>
1995 COMPARED TO 1994
Net sales increased $132.5 million, or 27.0%, to $623.3 million in 1995 from
$490.8 million in 1994. Of the $132.5 million increase, approximately $53.4
million represented a 19.5% increase in Schein's dental business, $35.8 million
represented a 39.8% increase in its medical business, $23.8 million represented
a 28.3% increase in its international business, $18.1 million represented a
121.4% increase in its technology business and $1.4 million represented a 5.2%
increase in Schein's veterinary business. The dental net sales increase, after
taking into consideration acquisitions, was primarily due to Schein's increase
in field sales consultants and telesales personnel, database marketing programs
and promotional activities. Of the approximately $35.8 million increase in
medical net sales, approximately $17.0 million, or 47.5%, represents incremental
net sales to renal dialysis centers, with the effects of acquisitions and
increased telesales personnel accounting for the other major increase in net
sales. In the international market, the increase in net sales was due to the
full year benefit of an acquisition made in France in July 1994, acquisitions
made in 1995, increased unit volume growth and favorable exchange rate
translation adjustments. The increase in net sales for Schein's technology
market was primarily the result of an increase in unit sales due to the release
of the new Windows-Registered Trademark- version of Easy
Dental-Registered Trademark- Plus software in December 1995 and substantial
price increases. The increased pricing on the Easy Dental-Registered Trademark-
Plus software product was accompanied by substantial sales promotions and
related expense, offset by increased Dentrix software sales. In the veterinary
market, Schein now earns a commission on certain products which the manufacturer
now sells direct. Including those sales on a basis similar to 1994, sales to the
veterinary market would have increased by approximately 19.0%.
Gross profit increased by $49.9 million, or 34.2%, to $195.9 million in
1995, from $146.0 million in 1994, while gross profit margin increased by 1.7%
to 31.4% from 29.7% for the same period. Of the 1.7% increase in gross profit
margin, approximately 82.4%, or 1.4%, was primarily attributed to increased
sales volume of Schein's Easy Dental-Registered Trademark- Plus software, which
carried a higher gross profit margin than other products sold by Schein. The
higher net sales volume for Schein's technology business, up 121.4% to $33.0
million from $14.9 million for the same period last year, was primarily due to
the release of the new Windows-Registered Trademark- version of Easy
Dental-Registered Trademark- Plus software, which increased unit sales, coupled
with substantial price increases. The increased pricing on the Easy
Dental-Registered Trademark- Plus software product was accompanied with
substantial sales promotions. The balance of the change in gross profit margin
was due to changes in product mix.
Selling, general and administrative expenses increased by $43.9 million, or
33.5%, to $174.9 million in 1995 from $131.0 million in 1994. Selling and
shipping expenses increased by $35.3 million, or 45.1%, to $113.6 million in
1995 from $78.3 million in 1994. As a percentage of net sales, selling and
shipping expenses increased 2.2% to 18.2% in 1995 from 16.0% in 1994. The
increase in selling and shipping expenses as a percentage of net sales was
primarily due to substantial sales promotions offered by Schein's technology
group in conjunction with the promotion of Easy Dental-Registered Trademark-
Plus software and the new Windows-Registered Trademark- version released in
December 1995, which accounted for approximately 0.9% of the 2.2% increase in
selling and shipping expenses as a percentage of net sales. The balance of the
increase was due primarily to various promotional programs and incremental field
sales and marketing personnel. General and administrative expenses increased
$8.6 million, or 16.3%, to $61.3 million in 1995 from $52.7 million in 1994,
primarily as a result of acquisitions. As a percentage of net sales, general and
administrative expenses decreased 0.9% to 9.8% in 1995 from 10.7% in 1994 due
primarily to the relatively fixed nature of general and administrative expenses
when compared to the 27.0% increase in sales volume for the same period.
Interest expense--net increased $1.8 million, or 51.4%, to $5.3 million in
1995 from $3.5 million in 1994. This increase was due to two factors: average
interest rates rose to 8.3% in 1995 from 6.4% in 1994, and Schein's average
borrowings increased by $11.6 million in 1995 as compared to 1994 as a result of
higher working capital requirements and financing of acquisitions.
Equity in earnings of affiliates increased by $1.0 million, or 200.0%, to
$1.5 million in 1995 from $0.5 million in 1994. This increase in equity in
earnings of affiliates was primarily due to an increase in earnings
78
<PAGE>
of one unconsolidated affiliate which was the result of increased sales volume
and the acquisition of another unconsolidated affiliate during the fourth
quarter of 1995.
In 1995, Schein's provision for taxes was $5.1 million, while the pre-tax
loss was $4.7 million. The difference between the tax provision and the amount
that would have been recoverable by applying the statutory rate to pre-tax loss
was attributable substantially to the non-deductibility for income tax purposes
of the $17.5 million appreciation in the value of the stock issued to an
executive officer and other senior management of Schein. On a pro forma basis,
to give effect to special charges, and adjusting for a provision for taxes on
the previously untaxed earnings of Dentrix included in 1995 results, taxes on
income for 1995 were $6.8 million, resulting in an effective tax rate of 42.5%.
The difference between the pro forma effective tax rate and the Federal
statutory rate relates primarily to state income taxes and currently
non-deductible net operating losses of certain foreign subsidiaries, primarily
in France, which are not included in Schein's consolidated tax return. In 1994,
the income tax recovery was $1.6 million, while the pre-tax loss was $11.6
million. The effective tax rate of Schein for 1994 differed from the Federal
statutory rate, primarily due to non-deductible special charges of approximately
$9.1 million arising from the appreciation in the value of stock issued to an
executive officer of Schein and currently non-deductible net operating losses of
certain foreign subsidiaries.
INFLATION
Schein's Management does not believe inflation had a material adverse effect
on the financial statements for the periods presented.
RISK MANAGEMENT
Schein has operations in the United States, Canada, the United Kingdom, The
Netherlands, Belgium, Germany, France, the Republic of Ireland and Spain. Each
of Schein's operations endeavors to protect its margins by using foreign
currency forward contracts to hedge the estimated foreign currency payments to
foreign vendors. The total U.S. dollar equivalent of all foreign currency
forward contracts hedging vendor payments was $5.0 million as of the 1996 fiscal
year end.
Schein considers its investment in foreign operations to be both long-term
and strategic. As a result, Schein does not hedge the long-term translation
exposure to its balance sheet. Schein experienced a negative translation
adjustment of $0.5 million in 1996 and a positive translation adjustment of $0.3
million in 1995, which adjustments were reflected in the balance sheet as an
adjustment to stockholders' equity. The cumulative translation adjustment at the
end of 1996 showed a net negative translation adjustment of $0.6 million.
Schein issues a Canadian catalog once a year with prices stated in Canadian
dollars; however, orders are shipped from Schein's United States warehouses
resulting in U.S. dollar costs for Canadian dollar sales. To minimize the
exposure to fluctuations in foreign currency exchange rates, Schein enters into
foreign currency forward contracts with major international banks and an
unconsolidated 50%--owned company to convert estimated monthly Canadian dollar
receipts into U.S. dollars. Schein usually enters into the forward contract
prior to the issuance of its Canadian catalog and for the expected life of the
catalog. As of December 28, 1996, Schein had 28 forward contracts outstanding
for the forward sale of 5.2 million Canadian dollars. The last of the contracts
expires on October 31, 1997, however, Schein anticipates entering into new
contracts in the normal course of its business.
Schein borrowed money in U.S. dollars under a term loan related to the
acquisition of Van den Braak, a Netherlands company. Schein loaned the proceeds
to Henry Schein B.V. in Netherland Guilders ("NLG") with principal and interest
payable in NLGs. To minimize the resultant exposure to fluctuations in foreign
currency exchange rates between the U.S. dollar and the Netherland Guilder,
Schein entered into a series of foreign currency forward contracts to sell NLGs
for U.S. dollars. As of December 28, 1996, Schein had 5 contracts outstanding
for the forward sale of NLG 7.1 million. The last contract expires on October
31, 1997.
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Schein entered into two interest rate swaps with major financial
institutions to exchange variable rate interest for fixed rate interest. The net
result was to substitute a weighted average fixed interest rate of 7.81% for the
variable LIBOR rate on $13.0 million of Schein's debt. The interest rate swaps
expire in October and November of 2001.
LIQUIDITY AND CAPITAL RESOURCES
Schein's principal capital requirements have been to fund (a) working
capital needs resulting from increased sales, extended payment terms on various
products and special inventory forward buy-in opportunities, (b) acquisitions,
and (c) capital expenditures. Since sales have been strongest during the fourth
quarter and special inventory forward buy-in opportunities are most prevalent
just before the end of the year, Schein's working capital requirements have been
generally higher from the end of the third quarter to the end of the first
quarter of the following year. Schein has financed its business primarily
through its revolving credit facilities and stock issuances.
Net cash used in operating activities for the three months ended March 29,
1997 of $17.3 million resulted primarily from a net increase in working capital
of $21.6 million offset, in part, by net income adjusted for non-cash charges
relating primarily to depreciation and amortization of approximately $4.5
million. The increase in working capital was primarily due to (i) a decrease in
accounts payable and other accrued expenses of $28.6 million resulting primarily
from payments to vendors for inventory purchased as part of Schein's year-end
inventory forward buy-in program and, (ii) a $3.0 million increase in accounts
receivable resulting from increased sales and extended payment terms, offset by,
(i) a $9.5 million decrease in inventory, and (ii) a $0.4 million decrease in
other current assets. Schein anticipates future increases in working capital as
a result of its continued sales growth.
Net cash used in operating activities for the year ended December 28, 1996
of $30.1 million resulted primarily from a net increase in working capital of
$63.0 million offset in part by net income, adjusted for non-cash charges
relating primarily to depreciation and amortization and deferred income taxes of
$30.5 million and $2.4 million, respectively. The increase in working capital
was primarily due to (i) a $43.1 million increase in accounts receivable
resulting primarily from increased net sales (80.7%) and extended payment terms
(10.9%), and a decrease in the percentage of customers who make payment with
their orders (5.7%), (ii) a $23.1 million increase in inventories primarily due
to year-end inventory buying opportunities and (iii) an $8.6 million increase in
loans and other receivables offset in part by an increase in accounts payable
and other accrued expenses of $11.8 million. Schein anticipates future increases
in working capital as a result of its continued sales growth, extended payment
terms and special inventory buying opportunities.
Net cash used in investing activities for the three months ended March 29,
1997 of $7.2 million resulted primarily from cash outlays for acquisitions of
$4.4 million and capital expenditures of $2.4 million. The increased amount of
capital expenditures over the comparable prior year period was due to the
development of new computer systems, as well as expenditures for additional
operating facilities. Schein expects that it will continue to invest in excess
of $10.0 million per year in capital projects to modernize and expand its
facilities and infrastructure systems.
Net cash used in investing activities for the year ended December 28, 1996,
of $49.4 million resulted primarily from cash used to make acquisitions of $32.5
million and capital expenditures of $11.5 million. During the past three years,
Schein has invested more than $26.3 million in the development of new computer
systems, and expenditures for new operating facilities. Schein expects that it
will continue to invest in excess of $10.0 million per year in capital projects
to modernize and expand its facilities and infrastructure systems.
Net cash used in financing activities for the three months ended March 29,
1997 of $2.3 million resulted primarily from net payments on long-term debt and
bank credit lines. A balloon payment of approximately $3.5 million is due on
October 31, 1997 under a term loan associated with a foreign acquisition.
80
<PAGE>
Net cash provided by financing activities for the year ended December 28,
1996 of $114.4 million resulted primarily from net cash proceeds from a
follow-on offering of Schein's Common Stock, which was completed on June 21,
1996 amounting to $124.1 million, partially offset by net debt repayments of
approximately $5.6 million.
A balloon payment of approximately $3.5 million is due on October 31, 1997
under a term loan associated with a foreign acquisition. In addition, with
respect to certain acquisitions and joint ventures, holders of minority interest
in the acquired entities or ventures have the right at certain times to require
Schein to acquire their interest at either fair market value or a formula price
based on earnings of the entity.
Pursuant to a shareholders' agreement, certain minority shareholders of a
subsidiary of Schein have advised Schein of their intention to exercise their
option to sell their shares in the subsidiary to Schein. The value of the shares
which will be put to Schein under the shareholders' agreement is estimated to be
approximately $11.5 million and is expected to be payable in cash and term notes
of approximately $3.0 million and $8.5 million, respectively. It is expected
that the term notes will be payable upon demand at anytime within five years of
issue, but no more than one-half after each of the first and second
anniversaries of issue.
Schein's cash and cash equivalents as of March 29, 1997 of $16.9 million are
invested primarily in short-term tax-exempt securities rated AAA by Moodys (or
an equivalent rating). These investments have staggered maturity dates, none
greater than three months, and have a high degree of liquidity since the
securities are actively traded in public markets.
Schein entered into an amended revolving credit facility on January 31, 1997
that increased its main credit facility from $65.0 million to $100.0 million,
extended the facility termination to January 30, 2002 and reduced the interest
rate on Schein's borrowings under the facility. Borrowings under the credit
facility were $19.5 million at March 29, 1997. Certain of Schein's subsidiaries
have revolving credit facilities that total approximately $10.0 million under
which $6.8 million have been borrowed at March 29, 1997.
Since December 28, 1996, Schein has acquired (i) in a "pooling of interests"
transaction, all of the outstanding common stock of Dentrix, a provider of
clinically-based dental practice management systems, with 1996 net sales of
approximately $10.2 million, and (ii) in a purchase transaction, the business of
Smith Holden, Inc., the longest operating dental supply company in the United
States, with 1996 net sales of approximately $14.2 million. The aggregate
purchase price for acquisitions completed in the first quarter of 1997 was
approximately $32.8 million, payable $28.4 million in stock and $4.4 million in
cash. Additionally, on March 7, 1997, Schein entered into an Agreement and Plan
of Merger (the "Merger Agreement") pursuant to which Micro Bio-Medics, Inc.
("MBM") will merge into a wholly-owned subsidiary of Schein. As a result of the
transaction, which has been approved by the Boards of Directors of MBM and
Schein, each outstanding share of MBM's Common Stock will be exchanged at a
fixed rate of 0.62 of a share of Schein's Common Stock.
The completion of the transaction is subject to the satisfaction of
customary closing conditions, including, among others, MBM shareholder approval.
The transaction is expected to be completed by mid-1997 although no assurances
can be given in this regard.
The aggregate purchase price of the acquisitions completed during 1996 was
approximately $38.8 million, payable $32.5 million in cash, $0.9 million in
notes and $5.4 million in stock. The cash portion of the purchase price was
primarily funded by proceeds from Schein's initial public offering, completed in
November 1995, and a follow-on offering, completed in June 1996.
Schein believes that its cash and cash equivalents of $16.9 million as of
March 29, 1997, its anticipated cash flow from operations, its ability to access
public debt and equity markets and the availability of funds under its existing
credit agreements will provide it with sufficient liquidity to meet its
currently foreseeable short-term and long-term capital needs.
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<PAGE>
MBM CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION
The following consolidated selected historical financial information with
respect to MBM's financial position and its results of operations for each of
the five years in the period ended November 30, 1996 set forth below has been
derived from the audited consolidated financial statements of MBM, which have
previously been filed with the SEC. The related financial information for the
three months ended February 28, 1997 and February 29, 1996 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 information. The results for the three month period
ended February 28, 1997 are not necessarily indicative of the results that may
be expected for the year ending November 30, 1997. The consolidated selected
financial information presented below should be read in conjunction with such
audited consolidated historical financial statements and related notes and the
other information set forth in this Proxy Statement/Prospectus or incorporated
herein by reference. See "MBM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS".
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------ ------------
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 150,142,529 $ 119,873,764 $ 121,604,461 $ 73,951,410 $ 61,629,435
Cost of goods sold................................... 119,205,502 94,307,143 94,923,689 56,347,353 47,287,409
------------- ------------- ------------- ------------ ------------
Gross profit......................................... 30,937,027 25,566,621 26,680,772 17,604,057 14,342,026
------------- ------------- ------------- ------------ ------------
Expenses:
Selling, shipping and warehouse.................... 17, 357,225 14,511,793 14,421,280 8,521,021 6,852,670
General and administrative......................... 9,795,069 7,901,052 8,581,615 6,525,488 5,015,128
Interest and financing costs -net.................. 719,198 1,238,887 1,044,257 502,329 289,355
------------- ------------- ------------- ------------ ------------
Total expenses..................................... 27,871,492 23,651,732 24,047,152 15,548,838 12,157,153
------------- ------------- ------------- ------------ ------------
Income before provision for income tax............... 3,065,535 1,914,889 2,633,620 2,055,219 2,184,873
Provision for income taxes........................... 1,320,700 806,000 952,000 853,000 962,000
------------- ------------- ------------- ------------ ------------
Income before cumulative effect of accounting
change............................................. 1,744,835 1,108,889 1,681,620 1,202,219 1,222,873
Cumulative effect of accounting change for income
taxes prior to 1994................................ -- -- (60,000) -- --
------------- ------------- ------------- ------------ ------------
Net income........................................... $ 1,744,835 $ 1,108,889 $ 1,621,620 $ 1,202,219 $ 1,222,873
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Earnings per common and common equivalent share
before cumulative effect of accounting change...... $ 0.31 $ 0.25 $ 0.37 $ 0.30 $ 0.41
Cumulative effect of accounting change for income
taxes prior to 1994................................ -- -- (0.01) -- --
------------- ------------- ------------- ------------ ------------
Earnings per common and common equivalent share...... $ 0.31 $ 0.25 $ 0.36 $ 0.30 $ 0.41
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Average number of shares used to compute earnings per
common and common equivalent share(1).............. 5,816,469 5,121,634 4,896,518 4,734,746 3,481,415
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
BALANCE SHEET DATA
(AT PERIOD END):
Dividends paid....................................... None None None None None
Working Capital...................................... $ 28,112,222 $ 29,965,266 $ 30,141,450 $ 20,965,370 $ 15,819,417
Long-Term Debt (net of current maturities)........... 8,714,567 17,270,062 19,381,239 9,584,684 9,410,079
Total Assets......................................... 60,443,816 51,135,712 54,461,087 32,784,234 27,934,060
Stockholders' Equity................................. 31,391,765 21,064,152 18,067,056 16,193,524 10,461,736
Stockholders' Equity Per Share (1)................... $ 5.40 $ 4.11 $ 3.69 $ 3.42 $ 3.01
Tangible Book Value Per Share (1).................... $ 3.98 $ 3.14 $ 2.92 $ 3.13 $ 2.72
</TABLE>
- ------------------------
(1) Includes additional shares assuming conversion of stock options and warrants
utilizing the modified treasury stock method.
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MBM CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
<S> <C> <C>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------- -------------
STATEMENT OF OPERATIONS DATA:
Net sales.......................................................................... $ 38,004,627 $ 29,887,421
Cost of goods sold................................................................. 30,670,850 23,591,909
------------- -------------
Gross profit....................................................................... 7,333,777 6,295,512
------------- -------------
Expenses:
Selling, shipping and warehouse.................................................. 4,501,452 3,823,293
General and administrative....................................................... 2,355,750 2,006,500
Interest and financing costs--net................................................ 99,739 314,103
------------- -------------
Total expenses................................................................... 6,956,941 6,143,896
------------- -------------
Income before provision for income tax............................................. 376,836 151,616
Provision for income taxes......................................................... 158,300 63,700
------------- -------------
Net income......................................................................... $ 218,536 $ 87,916
------------- -------------
------------- -------------
Earnings per common and common equivalent share.................................... $ 0.04 $ 0.02
------------- -------------
------------- -------------
Average number of shares used to compute earnings per common and common equivalent
share............................................................................ 6,149,343 5,499,024
------------- -------------
------------- -------------
BALANCE SHEET DATA (AT PERIOD END):
Dividends Paid..................................................................... None None
Working Capital.................................................................... $ 26,382,739
Long-term Debt (net of current maturities)......................................... 6,966,659
Total Assets....................................................................... 60,588,092
Stockholders' Equity............................................................... 31,668,076
Stockholders' Equity Per Share(1).................................................. $ 5.15
Tangible Book Value Per Share(1)................................................... $ 3.75
</TABLE>
- ------------------------
(1) Includes additional shares assuming conversion of stock options and warrants
utilizing the treasury stock method.
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<PAGE>
MBM MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended February 28, 1997 net sales increased 27.2% from
the three months ended February 29, 1996. The increase in net sales resulted
from MBM's increased volume to hospitals, the acquisition of Stone Medical
Supply Corporation ("Stone") and MBM's continuing effort to gain market
penetration and sales volume from its existing customer base and the addition of
new customers. For the three months ended February 28, 1997, the introduction of
new products, changing prices and inflation had no material impact on MBM's
operations.
For fiscal 1996, net sales increased 25.3%. The increase in net sales
resulted from MBM's increased volume to hospitals, the acquisition of Stone and
its continuing effort to gain market penetration and sales volume to its
existing customer base and the addition of new customers.
For fiscal 1995, net sales decreased 1.4%. The decrease in net sales for the
fiscal 1995 resulted in MBM's downsizing of unprofitable divisions acquired from
Clark Surgical Corp. ("Clark") during the prior year. During 1996, 1995 and
1994, the introduction of new products, changing prices and inflation had no
material impact on MBM's operations.
Net income for the three months ended February 28, 1997 was .6% of net
sales, versus .3% of net sales for the three months ended February 29, 1996. The
increase for the three months ended February 28, 1997 was due to increased sales
volume to hospitals, MBM's acquisition of Stone during the prior year's quarter
and lower interest expense as a result of lower interest rates charged by
financial institutions and lower debt.
Net income for fiscal 1996 was 1.2% of net sales versus .9% of net sales in
fiscal 1995. The increase for fiscal 1996 versus fiscal 1995 was due to
increased sales volume to hospitals, MBM's acquisition of Stone, lower interest
expense as a result of using the proceeds from the conversion of outstanding
warrants to decrease long-term debt and decreases in the interest rates charged
by financial institutions partially offset by a fourth quarter increase in
provisions for estimated inventory obsolescence of approximately $400,000, net
of taxes.
Net income for fiscal 1995 was .9% of net sales versus 1.3% of net sales in
fiscal 1994. Net income before the cumulative effect of accounting change in
1994 was 1.4% of net sales. The decrease for fiscal 1995 versus fiscal 1994 was
due to increased interest rates charged by financial institutions, the
downsizing of unprofitable divisions acquired from Clark during the prior year,
a decrease in the overall consolidated gross profit percentage and an increase
in the effective income tax rate for 1995.
GROSS PROFIT/OPERATING EXPENSES
Gross profit for the three months ended February 28, 1997, expressed as a
percent of net sales, decreased from 21.1% to 19.3% from the three months ended
February 29, 1996 due to increased sales to hospitals and changes in the product
mix.
Gross profit for fiscal 1996 was 20.6% of net sales versus 21.3% of net
sales in fiscal 1995. The decrease in gross profit was a result of increased
sales to hospitals and changes in MBM's product mix. Gross profit for fiscal
1995 was 21.3% of net sales versus 21.9% of net sales in fiscal 1994. The
decrease in gross profit was a result of changes in MBM's product mix.
Selling, shipping and warehouse and general and administrative expenses,
expressed as a percent of net sales, decreased 1.5% for the three months ended
February 28, 1997 when compared to the prior period.
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Selling, shipping and warehouse and general and administrative expenses
expressed as a percent of net sales decreased .6% for fiscal 1996 as compared to
fiscal 1995. Selling, shipping and warehouse and general and administrative
expenses expressed as a percent of net sales decreased .2% for fiscal 1995 as
compared to fiscal 1994.
INTEREST AND FINANCING COSTS (NET OF INTEREST INCOME)
Interest expense net of interest income for the three months ended February
28, 1997, expressed as a percent of net sales, decreased .8% from the three
months ended February 29, 1996 as a result of using the proceeds from the
conversion of outstanding warrants to decrease long-term debt and decreases in
the interest rates charged by financial institutions.
Interest expense net of interest income expressed as a percent of net sales
decreased .6% for fiscal 1996 when compared to the prior year as a result of
using the proceeds from the conversion of outstanding warrants to decrease
long-term debt and decreases in the interest rates charged by financial
institutions. Interest expense net of interest income expressed as a percent of
net sales increased .1% for fiscal 1995 when compared to the prior year as a
result of increases in the interest rates charged by financial institutions.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years and the fiscal quarter ended February 28,
1997, MBM continued to meet its cash needs via cash flow from operations and
borrowings. During fiscal 1996, 1995 and 1994, MBM had an average of
approximately $14,800,000, $10,500,000 and $11,000,000, respectively, of unused
credit lines available each month over its normal operating requirements.
MBM's management believes that its working capital of approximately
$26,400,000 at February 28, 1996 provides sufficient liquidity for its short and
long-term requirements and that MBM's long-term liquidity is not materially
affected by any restrictive covenants contained in MBM's Revolving Credit
Agreement. Further, MBM's management 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 1997.
For the three months ended February 28, 1997, MBM provided cash from
operating activities. The increase in accounts payable of $2,041,623 and a
decrease in accounts receivable of $584,520 over and above an increase in
inventory of $1,866,774 contributed to MBM's cash. For the three months ended
February 29, 1996, MBM provided cash from operating activities. The increase in
accounts payable of $1,219,346 and a decrease in inventory of $310,648 over and
above an increase in accounts receivable of $505,445 contributed to MBM's cash.
During the three months ended February 28, 1997, MBM's financing activities used
cash as a result of net repayments of $2,500,000 of the bank loan under its
long-term credit agreement and $179,457 to repay other long-term debt. Cash of
$931,549 was provided by entering into a capitalized lease agreement. During the
three months ended February 29, 1996 MBM's financing activities used cash to
repay $1,500,000 of the bank loan under its long-term credit agreement and
$158,446 to repay other long-term debt. During the three months ended February
28, 1997 MBM's investing activities used cash for capital expenditures of
$182,775 and $457,910 for payments of intangible assets. During the three months
ended February 29, 1996, MBM's investing activities used cash for capital
expenditures of $138,563 and $128,791 for payments of intangible assets.
For fiscal 1996, MBM had increased sales and profitability which generated
cash from operating activities. An increase in accounts payable of $5,785,344
and $710,872 in accrued expenses over and above an increase in accounts
receivable of $4,381,287, $1,198,068 in inventory and $159,254 in prepaid
expenses contributed to MBM's generation of cash. During fiscal 1996, MBM's
financing activities used cash as a result of net repayments of $7,000,000 of
the bank loan under its long-term credit agreement and $603,532 to repay other
long-term debt. Cash was provided from the exercise of warrants of $3,586,059
and an
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<PAGE>
additional $371,122 was provided from the proceeds of the exercising of employee
stock options. For fiscal 1996, MBM used cash in investing activities to make
capital expenditures of $664,433 and payments of intangible assets of
$1,058,485.
For fiscal 1995, MBM had profits which generated cash from operating
activities. A decrease in inventory of $3,130,709 and accounts receivable of
$1,098,227 over and above a decrease in accounts payable of $3,462,612 and a net
increase in prepaid expenses and prepaid income taxes of $358,452 contributed to
MBM's generation of cash. During fiscal 1995, MBM's financing activities used
cash as a result of net repayments of $150,000 of the bank loan under its
long-term credit agreement and $419,952 of other long-term debt. Cash was
provided from the exercise of warrants of $300,601 and an additional $197,606
was provided from the exercise of employee stock options. For fiscal 1995, MBM
used cash in investing activities of $931,466 for certain net assets of business
acquired, $788,330 for capital expenditures and $1,488,654 for payments of
intangible assets.
For fiscal 1994, MBM had increased sales and profitability which generated
cash flow from operating activities. An increase in accounts payable of
$8,441,961 over and above increases in inventory of $2,506,516, accounts
receivable of $1,055,450 and prepaid expenses of $265,042 contributed to MBM's
generation of cash. During fiscal 1994, MBM's financing activities used cash as
a result of net repayments of $3,224,695 of the bank loan under its long-term
credit agreement and $380,085 of other long-term debt. Cash was provided from
the exercise of warrants of $126,409 and an additional $125,503 was provided
from the exercise of employee stock options. For fiscal 1994, MBM used cash in
investing activities of $2,718,009 for certain net assets of businesses
acquired, $713,484 for capital expenditures and $1,027,851 for payments of
intangible assets. Cash of $1,000,000 was provided by the receipt of a note
receivable. During 1994, MBM acquired the business and certain assets of Clark
through an increase in MBM's line-of-credit and the use of same.
TERMS OF THE MERGER AGREEMENT
THE FOLLOWING DESCRIPTION OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT IS
ONLY A SUMMARY AND DOES NOT PURPORT TO BE COMPLETE. THIS DISCUSSION IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE MERGER AGREEMENT, WHICH
IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX I AND INCORPORATED BY
REFERENCE HEREIN.
THE MERGER; EXCHANGE AND CONVERSION OF SHARES
Pursuant to and subject to the terms and conditions of the Merger Agreement,
at the Effective Time Merger Sub will be merged with and into MBM. MBM will be
the surviving corporation in the Merger (the "Surviving Corporation"). Each
outstanding share of MBM Common Stock, other than shares as to which the holders
have perfected their appraisal rights, shall automatically be converted into the
right to receive 0.62 (the "Exchange Ratio") of a share of Schein Common Stock,
payable upon the surrender of the certificates formerly representing such share
of MBM Common Stock. All shares of MBM Common Stock that are held in MBM's
treasury shall be canceled and retired prior to the Effective Time and no
securities of Schein or other consideration shall be delivered in exchange
therefor.
Dissenting holders of shares of MBM Common stock who perfect their appraisal
rights under Section 623 of the NYBCL will be entitled to payment by the
Surviving Corporation of the appraised value of such shares to the extent
permitted by and in accordance with Section 623 of the NYBCL. (See "THE MERGER
- -- Appraisal Rights").
Based on the number of shares of MBM Common Stock outstanding as of the
Record Date, approximately 3,200,910 shares of Schein Common Stock will be
issued in the Merger (without taking into account the shares of Schein Common
Stock that will be issuable upon the exercise of options or warrants to purchase
shares of MBM Common Stock as described in "--Treatment of MBM Stock Options and
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Warrants"), representing approximately 11.9% of the shares of Schein Common
Stock to be outstanding immediately after the Effective Time.
No fractional shares of Schein Common Stock will be issued in connection
with the Merger. If a holder of shares of MBM Common Stock would otherwise be
entitled at the Effective Time to a fraction of a share of Schein Common Stock,
such stockholder will be entitled to receive from the Exchange Agent an amount
in cash in lieu of such fractional share of MBM Common Stock, determined by
multiplying (i) the fractional interest to which such holder would otherwise be
entitled and (ii) the average of the per share closing prices for Schein Common
Stock on the Nasdaq National Market for the five trading days immediately
preceding the Effective Time. In no event shall a holder of MBM Common Stock
receive cash in lieu of fractional shares of Schein Common Stock in an amount
greater than the value of one full share of Schein Common Stock. The payment of
cash in lieu of fractional shares is solely for purpose of avoiding the expense
and inconvenience to Schein of issuing fractional shares and does not represent
separately bargained-for consideration.
EXCHANGE OF SHARE CERTIFICATES
At the Effective Time, certificates representing shares of MBM Common Stock
("MBM Certificates") will be deemed to represent solely the right to receive the
number of shares of Schein Common Stock, or the amount of cash in lieu of any
fractional shares of Schein Common Stock, determined as described above. Until
shares of MBM Common Stock are converted into shares of Schein Common Stock,
such shares of MBM Common Stock will have no voting rights with respect to
matters considered by Schein's stockholders.
As soon as practicable after the Effective Time, Schein will cause the
Exchange Agent to mail or make available a notice and letter of transmittal to
each holder of record of shares of MBM Common Stock at the Effective Time,
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the MBM Certificates to
the Exchange Agent, and advising such record holder of the procedures for
surrendering to the Exchange Agent any MBM Certificates for exchange.
Each holder of shares of MBM Common Stock so converted, upon surrender to
the Exchange Agent of one or more MBM Certificates for cancellation together
with a properly completed letter of transmittal, will be entitled to receive (i)
a certificate representing 0.62 of a share of Schein Common Stock with respect
to each share of MBM Common Stock and (ii) cash in lieu of any fractional shares
of Schein Common Stock, in an amount calculated as described above after giving
effect to any tax withholdings. In the event of a transfer of ownership of MBM
Common Stock which is not registered in the transfer records of MBM, a
certificate representing the proper number of shares of Schein Common Stock may
be issued to the transferee if the MBM Certificate representing such MBM Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer, and by evidence that any applicable stock
transfer taxes have been paid.
No dividends or other distributions declared on shares of Schein Common
Stock, if any, will be paid to persons entitled to receive certificates
representing shares of Schein Common Stock until such persons surrender their
MBM certificates. Upon such surrender, there shall be paid, without interest, to
the person in whose name the certificates representing such shares of Schein
Common Stock shall be issued, all dividends and other distributions payable with
respect to such securities which have a record date after the Effective Time and
shall have become payable between the Effective Time and the time of such
surrender. It is not anticipated that Schein will pay cash dividends in the
foreseeable future. See "COMPARATIVE STOCK PRICES AND DIVIDENDS."
Six months after the Effective Time, the Exchange Agent shall deliver to the
Surviving Corporation all cash, certificates and other documents in its
possession relating to the Merger, and any holders of MBM Common Stock who have
not surrendered their certificates shall look only to the Surviving Corporation
for
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any shares of Schein Common Stock, any dividends or distributions thereon, and
any cash in lieu of fractional shares to which they are entitled.
Notwithstanding the foregoing, neither the Exchange Agent nor any party to the
Merger Agreement shall be liable to a holder of MBM Common Stock for any shares
of Schein Common Stock, any dividends or distributions thereon or any cash in
lieu of fractional shares delivered to a public official pursuant to applicable
abandoned property laws.
TREATMENT OF MBM STOCK OPTIONS AND WARRANTS
At the Effective Time, each outstanding option and warrant to purchase MBM
Common Stock shall be assumed by Schein and converted automatically into an
option ("Converted Option") or a warrant ("Converted Warrant"), as the case may
be, to purchase shares of Schein Common Stock in an amount and at an exercise
price determined as follows: (a) The number of shares of Schein Common Stock to
be subject to such Converted Option or Warrant shall be equal to the product of
the number of shares of MBM Common Stock remaining subject to the original
option or warrant and the Exchange Ratio, provided that any fractional shares of
Schein Common Stock resulting from such multiplication shall be rounded down to
the nearest share; and (b) The exercise price per share of Schein Common Stock
under such Converted Option or Warrant shall be equal to the exercise price per
share of MBM Common Stock under the original option or warrant divided by the
Exchange Ratio, provided that such exercise price shall be rounded down to the
nearest cent.
After the Effective Time, each Converted Option and Converted Warrants shall
be exercisable and shall vest upon the same terms and conditions as were
applicable to the related MBM stock option plans immediately prior to the
Effective Time, except that all references to MBM shall be deemed to be
references to Schein. Schein shall file with the SEC a registration statement on
Form S-8 (or other appropriate form) and shall take any action required under
state securities "blue sky" laws for purposes of registering all shares of
Schein Common Stock issuable after the Effective Time upon exercise of the
Converted Options. This Proxy Statement/Prospectus also relates to up to 6,200
shares of Schein Common Stock issuable upon exercise of the Converted Warrants.
EACH VOTE BY A HOLDER OF MBM COMMON STOCK IN FAVOR OF THE MERGER SHALL BE
DEEMED TO BE A VOTE BY SUCH HOLDER IN FAVOR OF THE CONVERSION OF THE OUTSTANDING
OPTIONS TO PURCHASE MBM COMMON STOCK FOR THE PURPOSES OF ALL SHAREHOLDER CONSENT
REQUIREMENTS UNDER APPLICABLE LAW.
EFFECTIVE TIME
The Effective Time of the Merger, at which time the closing of the Merger
will occur and the conversion of the shares of MBM Common Stock will become
effective, will be the time of the filing of a Certificate of Merger with the
Secretary of State of the State of New York or at such later time as is provided
in the Certificate of Merger. This filing will occur as soon as practicable
following the approval of the Merger Agreement by the shareholders of MBM and
the satisfaction or waiver of other conditions precedent set forth in the Merger
Agreement. The Effective Time is currently expected to take place on or about
August 1, 1997. See "--Termination Rights" and "--Conditions to the Merger".
TERMINATION RIGHTS
1. The Merger Agreement may be terminated at any time prior to the Effective
Time by mutual consent of MBM, on the one hand, and of Schein, on the other
hand, or by either Schein or MBM, if:
(a) the Merger is not consummated before September 30, 1997, or the
approval of shareholders of MBM shall not have been obtained (unless such
failure to consummate the Merger or to obtain such shareholder approval is
caused by the act or omission of the party seeking to terminate the Merger
Agreement, which act or omission constitutes a breach of the Merger
Agreement); or
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(b) there is any law or regulation of any competent authority that makes
consummation of the Merger illegal or otherwise prohibited or if any
judgment, injunction, order or decree of any competent authority prohibiting
such transaction is entered and such judgment, injunction, order or decree
has become final and nonappealable (provided that the party seeking to
terminate the Merger Agreement has used all reasonable efforts to remove
such injunction or overturn such action); or
(c) there is a material breach of any covenant or a breach of any
representation or warranty in the Merger Agreement on the part of the other,
which breach of representation or warranty, individually or together with
all other such breaches, materially and adversely affects the financial
condition, results of operations, business, assets, liabilities, prospects
or properties of the breaching party; or
(d) there is a breach in any material respect of any of the covenants or
agreements set forth in the Merger Agreement which is not cured within 30
business days following receipt by the breaching party of notice of such
breach.
2. The Merger Agreement may be terminated by MBM if such termination is
necessary to allow MBM to enter into an Acquisition Transaction (as defined
below in "--No Solicitation of Other Offers") with any corporation, partnership,
person, group or entity (the "Acquiring Person"). MBM may enter into such
Acquisition Transaction only if (i) the Board of Directors of MBM determines in
good faith by a majority vote, after consultation with its financial advisor,
Houlihan Lokey, and after reviewing the advice of outside counsel to MBM, that
the Acquisition Transaction is more favorable to the shareholders of MBM than
the Merger with Schein and that such action is required by the fiduciary duties
of the Board of Directors; and, (ii) prior to taking such action, MBM provides
reasonable notice to Schein (see "No Solicitation of Other Offers").
3. The Merger Agreement may be terminated by Schein if:
(a) the Board of Directors of MBM (i) withdraws or amends or modifies in
a manner materially adverse to Schein or Merger Sub its recommendation or
approval in respect to the Merger Agreement or the Merger, (ii) makes any
recommendation with respect to an Acquisition Transaction other than a
recommendation to reject such Acquisition Transaction, or (iii) directly or
indirectly solicits, initiates, facilitates or encourages any inquiries or
the making of any proposal with respect to an Acquisition Transaction, or
enters into any agreement with respect to such Acquisition Transaction or
which would require it to abandon, terminate or fail to consummate the
Merger or any transaction contemplated by the Merger Agreement; or
(b) any Acquiring Person other than Schein or any affiliate or
subsidiary of Schein becomes the beneficial owner of more than 20% of the
outstanding voting equity of MBM (either on primary or a fully diluted
basis); provided, however that "Acquiring Person" shall not include any
corporation, partnership, person, other entity or group which beneficially
owned as of March 7, 1997 (either on a primary or fully diluted basis) more
than 20% of the outstanding voting equity of MBM and which has not after
March 7, 1997 increased such ownership percentage by more than an additional
1% of the outstanding voting equity of MBM; or
(c) any other Acquisition Transaction occurs with any Acquisition Person
other than Schein, or any affiliate or subsidiary of Schein; or
(d) the meeting of shareholders of MBM to vote upon the Merger Agreement
is canceled or is otherwise not held prior to August 31, 1997 (except as a
result of a judgment, injunction, order or decree of any competent authority
or event or circumstances beyond the reasonable control of MBM).
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4. Upon termination, the Merger Agreement shall become void and have no
effect, and there shall be no liability thereunder on the part of Schein, Merger
Sub or MBM, except as provided below:
(a) the provisions governing access and information, expenses and
recruitment shall survive any termination of the Merger Agreement;
(b) if Schein terminates the Merger Agreement under the circumstances
described in paragraph 1(c), 1(d) or 3(d) above, then MBM shall pay to
Schein as liquidated damages and not as penalty three million dollars; if
MBM terminates the Merger Agreement under the circumstances described in
paragraph 1(c) or 1(d) above, then Schein shall pay to MBM as liquidated
damages but not as a penalty three million dollars.
(c) if Schein terminates the Merger Agreement in accordance with
paragraphs 3(a), 3(b), or 3(c) above, or if either Schein or MBM terminates
the Merger Agreement under the circumstances described in paragraph 1(a)
above, or if Schein terminates under the circumstances described in
paragraph 1(c), 1(d) or 3(d) above and within one year after any termination
described in paragraph 1(a), 1(c), 1(d) or 3(d) above MBM enters into a
definitive agreement or has consummated an Acquisition Transaction, or if
MBM terminates the Merger Agreement under the circumstances described in
paragraph 2 above, then MBM shall promptly pay Schein a termination fee of
five million dollars, plus an amount equal to Schein's out-of-pocket
expenses incurred in connection with the Merger Agreement and related
transactions, including legal, professional and service fees and expenses
(the "Expenses Amount"); provided that any liquidated damage amounts
previously paid by MBM to Schein (described in paragraph 4(b) above) shall
be credited against such termination fee.
CERTAIN FEES AND EXPENSES
Except as provided in "Termination Rights" above, whether or not the Merger
is consummated, all costs and expenses incurred in connection with the Merger,
the Merger Agreement and the transactions contemplated thereby shall be paid by
the party incurring such costs and expenses, except that (i) the filing fee in
connection with filings under the HSR Act, (ii) the expenses incurred in
connection with printing the Registration Statement and the Proxy Statement and
(ii) the filing fee with the SEC relating to the Registration Statement or the
Proxy Statement will be shared equally by Schein and MBM.
CONDITIONS TO THE MERGER
The parties' obligations to effect the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of various conditions,
including: (i) approval of the Merger Agreement by the requisite holders of the
MBM Common Stock in accordance with applicable law; (ii) any waiting period (and
any extension thereof) under the HSR Act applicable to the Merger having expired
or been terminated; (iii) no preliminary or permanent injunction or other order
having been issued by any court or by any governmental or regulatory agency,
body or authority which enjoins, restrains or prohibits the consummation of the
Merger or has the effect of making the Merger illegal and which is in effect at
the Effective Time (each party has agreed to use its best efforts to have any
such injunction or order lifted); (iv) the absence of any statute, rule,
regulation, executive order, decree or order of any kind which prohibits the
consummation of the Merger or has the effect of making the Merger illegal; (v)
the authorization of the shares of Schein Common Stock issuable to the holders
of MBM Common Stock for listing on the Nasdaq National Market; (vi) the
effectiveness of the Registration Statement and the absence of any stop order or
proceeding for a stop order; (vii) other than the filings of Merger documents in
accordance with the NYBCL, all authorizations, consents or waivers having been
obtained from any government bodies and authorities which are required in order
to consummate the Merger and the other transactions contemplated by the Merger
Agreement and the failure to obtain which would have a material adverse effect
on the condition (financial or otherwise) of Schein and its subsidiaries taken
as a whole after giving effect to the Merger; Schein shall have received all
state securities or "blue sky" permits and other authorizations
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necessary to issue the shares of Schein Common Stock; (viii) MBM having received
an opinion in form and substance satisfactory to it from Cummings & Lockwood,
special tax counsel to MBM, to the effect that the Merger will be treated for
United States Federal income tax purposes as a reorganization with the meaning
of Section 368(a) of the Code; and (ix) no general suspension or limitation of
trading having been imposed on Schein Common Stock or on securities generally on
the Nasdaq National Market;
Further conditions precedent to the obligations of Schein and Merger Sub to
effect the Merger are: (i) the aggregate effect of all inaccuracies in the
representations and warranties of MBM having no material and adverse effect on
the value of MBM and its subsidiaries taken as a whole, and the representations
and warranties of MBM that are qualified with reference to a material adverse
effect on the value of MBM or its subsidiaries being true and correct; (ii) the
performance in all material respects of all obligations of MBM contained in the
Merger Agreement to be performed by it prior to the Effective Time; (iii) all
persons who are "affiliates" of MBM for purposes of Rule 145 under the
Securities Act having delivered a written agreement in form and substance
satisfactory to Schein with respect to Rule 145 of the Securities Act and the
pooling of interests requirements; (iv) Schein having received opinions from BDO
Seidman, LLP and Miller, Ellin & Company, stating that the Merger qualifies for
"pooling of interests" treatment for financial reporting purposes in accordance
with GAAP; (v) Schein and Merger Sub having received letters of resignation
addressed to MBM from the members of MBM's board of directors other than Bruce
Haber, which resignations shall be effective as of the Effective Time; (vi) the
aggregate number of shares of MBM Common Stock as to which appraisal rights are
exercised not constituting more than 9% of the number of shares of MBM Common
Stock outstanding as of immediately prior to the Effective Time; (vii) Schein
having received opinions of Otterbourg, Steindler, Houston & Rosen, P.C. and
Lester Morse, P.C.; and (viii) MBM's 1996 Directors' Retirement Plan having been
terminated and neither MBM, Schein nor any of their respective subsidiaries
having any liability or obligation to any person arising under or in respect of
such plan.
Further conditions precedent to the obligations of MBM to effect the Merger
are: (i) the aggregate effect of all inaccuracies in the representations and
warranties of Schein having no material and adverse effect on the value of
Schein, and the representations and warranties of Schein that are qualified with
reference to a material adverse effect on the value of Schein being true and
correct; (ii) the performance in all material respects of all obligations of
Schein and Merger Sub contained in the Merger Agreement to be performed or
complied with prior to the Effective Time; and (iii) MBM having received an
opinion of Proskauer Rose LLP.
The waiver by MBM or Schein of any of the conditions to the consummation of
the Merger that may be deemed to be material to a holder of MBM Common Stock in
deciding whether to vote in favor of or against the Merger may require a
resolicitation of the shareholders of MBM for the purpose of approving the
Merger with such waiver. Neither MBM nor Schein, however, currently anticipates
waiving any material conditions to its obligation to consummate the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (i) each of MBM's and Schein's
organization, capital structure and similar corporate matters, (ii) the
financial statements of each of MBM and Schein, (iii) the authorization of the
Merger Agreement by each of MBM and Schein and related matters, (iv) the absence
of any conflicts under charters or by-laws, receipt of required consents or
approvals, and absence of violations of any instruments or law, (v) documents
filed by MBM and Schein with the SEC and the accuracy of information contained
therein, (vi) the absence of a material adverse change in the business,
properties, assets, liabilities, operations, results of operations or condition
(financial or otherwise) of MBM and its subsidiaries taken as a whole and Schein
and its subsidiaries taken as a whole, each since certain specified dates, (vii)
in the case of MBM, Employee Benefit Plans and ERISA matters, (viii) in the case
of MBM, certain environmental matters, (x) litigation, (xi) compliance with law,
(xii) in the case of MBM, the shareholders' vote required
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and (xiii) broker's or finder's fees. The representations and warranties in the
Merger Agreement (other than those relating to broker's or finder's fees) will
not survive the Effective Time.
INDEMNIFICATION; OFFICERS' AND DIRECTORS' LIABILITY INSURANCE
MBM, the surviving corporation in the Merger, for a period of six years
commencing at the Effective Time, will indemnify the directors, officers or
employees of MBM with respect to acts and omissions occurring through the
Effective Time, to the extent permitted by law and MBM's Certificate of
Incorporation or By-Laws, and regardless of whether Schein or the Surviving
Corporation is insured against any such matter. The Surviving Corporation or
Schein shall maintain directors' and officers' liability insurance policies
providing coverage of an aggregate amount of at least $10,000,000 and with a
carrier(s) having a Best rating at least equal to the Best rating of the current
carrier(s) covering directors and officers of MBM serving as of or after
December 1, 1990 with respect to acts and omissions occurring prior to the
Effective Time.
CERTAIN COVENANTS OF MBM
MBM has agreed, among other things, that during the period from the date of
the Merger Agreement until the Effective Time, MBM and its subsidiaries will
conduct their operations in all material respects in the ordinary and usual
course and will use their reasonable efforts to preserve intact their business
organizations, to keep available the services of its present officers and key
employees, and preserve the goodwill of those having business relationships with
it. MBM has also agreed that neither it nor any of its subsidiaries will during
such period (i) make any change in or amendment to its charter or by-laws; (ii)
split, combine or reclassify any shares of its outstanding capital stock; (iii)
declare, set aside or pay any dividend or other distribution in cash, stock or
property; (iv) redeem or otherwise acquire any shares of its capital stock or
shares of the capital stock of any of its subsidiaries; (v) sell any shares of,
or options, warrants or other rights to acquire or convertible into any shares
of, their capital stock, except for the issuance of shares of MBM Common Stock
upon the exercise of MBM stock options and warrants outstanding on the date of
the Merger Agreement, or amend any outstanding MBM stock option, MBM warrant or
other right, except that MBM may amend the terms of certain MBM stock options
annexed to the Merger Agreement under the heading "1987 Plan" to provide that
the holders thereof may exercise such options prior to their expiration dates
regardless of whether such holders are then serving as directors of MBM; (vi)
merge or consolidate with another entity; (vii) acquire or purchase an equity
interest in or a substantial portion of the assets of another corporation,
partnership or other business organization (except for such potential
acquisition, and on substantially such terms, as have been described in a letter
executed and delivered by MBM and Schein simultaneously with the execution and
delivery of the Merger Agreement and provided that MBM keeps Schein informed as
to the status of all negotiations with respect thereto (including any
termination of such negotiations) and gives Schein prior notice of the
consummation of any such acquisition and the signing of any agreement with
respect thereto) or otherwise acquire any assets outside the ordinary and usual
course of business and consistent with past practice or otherwise enter into any
material contract, commitment or transaction outside the ordinary and usual
course of business consistent with past practice; (vii) sell, lease, license,
waive, release, transfer, encumber or otherwise dispose of any of its assets
outside the ordinary and usual course of business and consistent with past
practice; (viii) incur, assume or prepay any material indebtedness or any other
material liabilities other than in the ordinary course of business and
consistent with past practice; (ix) assume, guarantee, endorse or otherwise
become liable or responsible for the obligations of any other person other than
a subsidiary of MBM or customers, in each case in the ordinary course of
business and consistent with past practice; (x) make, extend or modify in any
material respect any loans, advances or capital contributions to, or investments
in, any other person, other than to subsidiaries of MBM or loans to employees of
MBM or any of its subsidiaries, in an aggregate amount not exceeding $25,000,
for such reasons, and on such terms and conditions, as are consistent with past
practice; (xi) authorize or make capital expenditures in excess of certain
amounts; (xii) permit any insurance policy naming MBM or any of its subsidiaries
a beneficiary or a
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loss payee to be canceled or terminated other than in the ordinary course of
business; (xiii) adopt, enter into, terminate or amend (except as may be
required by applicable law) any MBM arrangement for the current or future
benefit or welfare of any director, officer or current or former employee; (xiv)
increase in any manner the compensation or fringe benefits of, or pay any bonus
to, any director, officer or employee (except for normal increases in
compensation in the ordinary course of business consistent with past practice
and accrued and unpaid bonuses in respect of MBM's fiscal year ended November
30, 1996 that are consistent with past practice and have been properly accrued
and reflected on MBM's books and records); (xv) take any action to fund or in
any other way secure, or to accelerate or otherwise remove restrictions with
respect to, the payment of compensation or benefits under any employee plan,
stock option plan, agreement, contract, or arrangement; (xvi) take any action
with respect to, or make any material change in, its accounting or tax policies
or procedures, except as required by law or to comply with GAAP; (xvii) take any
action which would jeopardize the treatment of Schein's acquisition of the MBM
as a "pooling of interests" for accounting purposes; or (xviii) take any action
which would jeopardize qualification of the Merger as a reorganization within
the meaning of Section 368(a) of the Code. In addition, MBM, acting through its
Board of Directors, shall promptly call, give notice and as soon as practicable
following the date of effectiveness of the Registration Statement of which this
Proxy Statement/ Prospectus is a part, hold a meeting of the MBM Shareholders
for the purpose of voting to approve and adopt the Merger Agreement and the
transactions contemplated thereby.
CERTAIN COVENANTS OF SCHEIN
Schein has agreed that during the period from the date of the Merger
Agreement until the Effective Time, unless MBM shall otherwise agree in writing,
Schein shall conduct its business and the business of its subsidiaries in a
manner designed, in the good faith judgment of its Board of Directors, to
enhance the long-term value of the Schein Common Stock and the business
prospects of Schein and its subsidiaries. Schein has also agreed that neither
Schein nor any of its subsidiaries shall (i) issue or sell any shares of, or
options, warrants or other rights to acquire or convertible into any shares of,
its capital stock, except for shares of Schein Common Stock upon the exercise of
Schein stock options, warrants or other rights outstanding as of March 7, 1997
or upon the exercise of options, warrants or other rights described in the
immediately following clause; (ii) issue options, warrants or other rights
pursuant to existing employee benefit plans or arrangements other than in a
manner consistent with past practice; (iii) issue shares of Schein Common Stock
other than in connection with arms' length acquisitions with non-affiliates; and
(iv) split, combine or reclassify any shares of its outstanding capital stock,
or declare, set aside or pay any dividend or other distribution payable in cash,
stock or property, amend its charter, bylaws or other organizational documents,
or redeem or otherwise acquire any shares of its capital stock. In addition,
Schein will use its reasonable best efforts to cause the shares of Schein Common
Stock (as well as the shares of Schein Common Stock issuable afer the Effective
Time upon exercise of Schein stock options) to be listed for quotation and
trading on the Nasdaq National Market.
CERTAIN COVENANTS OF MBM AND SCHEIN
Prior to the Effective Time, each of MBM and Schein and their respective
subsidiaries have agreed that they will afford to the other and to the other's
representatives reasonable access to its properties, books and records during
normal business hours and to furnish a copy of each report or document filed or
received by it pursuant to the requirements of federal securities laws. Unless
otherwise required by law, each of MBM and Schein agrees that it (and its
respective subsidiaries and representatives) shall hold in confidence all
non-public information so acquired in accordance with the terms of the
confidentiality agreement between Schein and MBM executed in November 1996. In
addition, both MBM and Schein have agreed to cooperate in filing the
Registration Statement of which this Proxy Statement/Prospectus is a part and to
use their best efforts to procure its effectiveness.
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NO SOLICITATION OF OTHER OFFERS
Prior to the Effective Time, MBM agrees that neither it, any of its
subsidiaries or its affiliates, nor any of the respective directors, officers,
employees, affiliates, agents or representatives of the foregoing (including,
without limitation, any investment banker, attorney or accountant retained by
MBM or any of its subsidiaries) will, directly or indirectly, facilitate any
inquiries or the making of any proposal with respect to any merger,
consolidation or other business combination involving MBM or any subsidiary of
MBM or the acquisition of all or any significant assets or capital stock of MBM
or any subsidiary of MBM taken as a whole (an "Acquisition Transaction") or
negotiate, explore or otherwise engage in discussions with any corporation,
partnership, person, other entity or group (other than Schein and its
representatives) with respect to any Acquisition Transaction, or enter into any
agreement with respect to any such Acquisition Transaction or which would
require it to fail to consummate the Merger or any other transaction
contemplated by the Merger Agreement; provided, however, that (i) MBM may, in
response to an unsolicited written proposal from a third party, furnish
information to and engage in discussions with such third party (subject to the
following conditions), and (ii) the Board of Directors of MBM may withdraw or
modify its approval or recommendation of the Merger Agreement or the Merger,
approve any Acquisition Transaction, or cause MBM to enter into any agreement
with respect to any Acquisition Transaction (subject to the following
conditions), in each case only if the Board of Directors of MBM determines in
good faith, after consultation with its outside counsel and financial advisor,
that such action is reasonably likely to be required by the fiduciary duties of
the Board of Directors and, prior to taking such action, MBM (x) provides
reasonable notice to Schein to the effect that it is taking such action and (y)
receives from the Acquiring Person (and delivers to Schein) a confidentiality
agreement in a customary form.
MBM agrees that it, its subsidiaries and affiliates, and respective
directors, officers, employees, agents and representatives of the foregoing,
shall immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any third party with respect to any Acquisition
Transaction. MBM will immediately advise Schein of any terms of any inquiries
received by, proposals from, negotiations, or discussions with a third party
with respect to an Acquisition Transaction, including the identity of such third
party, and update on an ongoing basis or upon Schein's request, the status
thereof, as well as any actions taken or other developments. In no event shall
MBM (i) disclose any information received by it or any of its directors,
officers, employees, agents or representatives pursuant to the Confidentiality
Agreement or any other confidentiality or other similar agreement between MBM
and Schein to any person in violation of such agreement and (ii) be obligated to
disclose to Schein any confidential information provided to MBM by any third
party in violation of any confidentiality agreement between MBM and such third
party.
AMENDMENTS
Any provision of the Merger Agreement may be amended or waived in writing by
the appropriate parties thereto before the Effective Time (notwithstanding any
stockholder approval), provided that after any such stockholder approval, no
such amendment or waiver shall be made which by law requires further approval by
such stockholders without such further approval.
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COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
If the Merger is consummated, shareholders of MBM will become holders of
Schein Common Stock, which will result in their rights as shareholders being
governed by the laws of the State of Delaware (rather than the law of New York
which governs their rights as shareholders of MBM) and by Schein's Amended and
Restated Certificate of Incorporation (the "Schein Certificate") and Amended and
Restated By-Laws (the "Schein By-Laws") (rather than MBM's Certificate of
Incorporation, as amended (the "MBM Certificate") and By-Laws, as amended (the
"MBM By-Laws")). It is not practical to describe all the differences between
Delaware law and New York law and between the Schein Certificate and Schein By-
Laws and the MBM Certificate and MBM By-Laws. The following is a summary of
certain differences which may affect the rights of shareholders of MBM. This
summary is qualified in its entirety by reference to the full text of such
documents. For information as to how such documents may be obtained, see
"Available Information." Holders of MBM Common Stock should also consider the
information set forth in "RISK FACTORS --Control by Insiders" in reviewing the
following.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Schein consists of 61,000,000 shares,
consisting of 60,000,000 shares of Common Stock having a par value of $.01 per
share and 1,000,000 shares of preferred stock having a par value of $.01 per
share. As of the Record Date, approximately 23,570,819 shares of Schein Common
Stock and no shares of Schein's preferred stock were outstanding. Holders of
Schein Common Stock or preferred stock do not have preemptive rights.
The authorized capital stock of MBM consists of 21,000,000 shares,
consisting of 20,000,000 shares of Common Stock having a par value of $.03 per
share, and 1,000,000 shares of preferred stock, having a par value of $1.00 per
share. As of the Record Date, 5,162,759 shares of MBM Common Stock and no shares
of MBM's preferred stock were outstanding. Holders of MBM Common Stock or
preferred stock do not have preemptive rights.
Under both the MBM Certificate and the Schein Certificate, the Board of
Directors is authorized, subject to certain limitations by law, without further
stockholder approval, to issue from time to time up to an aggregate of 1,000,000
shares of preferred stock in one or more series with such designations and such
powers, preferences and rights, and such qualifications, limitations or
restrictions as the Board may fix by resolution. Unless otherwise provided by
board resolution, the consent of holders of any class or series of Preferred
Stock shall not be required for the issuance by the Board of Directors of any
other series of Preferred Stock. The Schein Certificate provides that no
dividend may be declared on any series of Preferred Stock unless a dividend is
declared on all shares of Preferred Stock of each other series entitled to
cumulative dividend, then outstanding, which rank senior to or equally as to
dividends with the series in question, and the MBM Board may provide for such
priority in the payment of dividends in any series of preferred stock that it
may designate. Neither Schein nor MBM anticipates paying cash dividends in the
foreseeable future.
DIRECTORS
The Schein Certificate currently provides that the Schein Board will consist
of between five and eleven directors through December 31, 1998; thereafter the
number of directors will be nine. A proposed amendment to the Schein Certificate
and a conforming change to Schein's By-Laws (collectively, the "Proposed
Amendment") will be submitted for shareholder approval on July 15, 1997. The
Proposed Amendment would, among other things, provide for a Schein Board
consisting of from five to 19 directors, with the actual number of directors
being fixed from time to time by resolution of the Board of Directors, and that
there shall not be fewer than five directors. The Schein By-Laws provide that a
majority of the total number of directors constitutes a quorum for the
transaction of business. In addition, the Schein By-
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Laws provide that a vacancy among the directors occurring for any reason may be
filled by the affirmative vote of a majority of the directors then in office,
although less than a quorum of the Board of Directors. In addition, the Schein
By-Laws provide that any director may be removed with or without cause by the
vote of the holders of at least two-thirds of the shares entitled to vote at a
special meeting of the stockholders called for that purpose.
The MBM By-Laws provide that the MBM Board will consist of three directors,
unless otherwise determined by vote of a majority of the entire MBM Board. By
unanimous written consent, the MBM Board has determined that the number of
directors will be four. A majority of MBM's directors constitutes a quorum for
the transaction of business. A vacancy among the directors occurring between
annual meetings of the shareholders shall be filled for the unexpired term by a
majority of the vote of the remaining directors, even though less than a quorum
exists. Any directors may be removed by a vote of the shareholders at any
meeting called for such purpose.
The Proposed Amendment would give the Schein Board the flexibility to add
one or more additional qualified individuals as directors without the need for a
vacancy to exist as a result of the death, disability, removal or resignation of
a current director. If the Proposed Amendment is adopted, Schein anticipates
that this flexibility be used to appoint Bruce Haber, the President and Chief
Executive Officer of MBM, to the Schein Board pursuant to the new employment
agreement. See "THE MERGER--Interests of Certain Persons in the Merger".
ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERS
Under the NYBCL and the Delaware General Corporation Law (the "DGCL"),
special meetings of shareholders may be called by the board of directors and by
such other person or persons authorized to do so by the corporation's
certificate of incorporation or by-laws. The Schein Certificate provides that
special meetings of stockholders may be called by the Chairman of the Board, the
Board of Directors or by stockholders holding more than 10% of the outstanding
shares entitled to vote. The MBM By-Laws provide that special meetings of
shareholders may be called by the Board of Directors or the President, and must
be called by the President at the request in writing by shareholders owning a
majority of the outstanding shares entitled to vote. Consequently, it is easier
for stockholders of Schein to call a special meeting than it is for the
shareholders of MBM.
The NYBCL provides that if, for a period of one month after the date fixed
by or under the by-laws for the annual meeting of shareholders, or if no date
has been fixed for a period of 13 months after the last annual meeting, there is
a failure to elect a sufficient number of directors to conduct the business of
the corporation, the board of directors shall call a special meeting for the
election for directors. If the board fails to call such meeting within 14 days
of expiration of that period of time, or if it is so called but there is a
failure to elect such directors for a period of two months after the expiration
of such period, the holders of 10% of the shares entitled to vote in an election
of directors may demand the call of a special meeting for the election of
directors. Under the DGCL, if an annual meeting is not held within 30 days of
the date designated for such a meeting, or is not held for a period of 13 months
after the last annual meeting, the Delaware Court of Chancery may summarily
order a meeting to be held upon the application of any stockholder or director.
In both New York and Delaware, the number of shares represented at such meeting
constitutes a quorum without regard to other provisions of law.
Under the NYBCL and the DGCL, unless the certificate of incorporation
provides otherwise, a majority of the shares entitled to vote constitutes a
quorum, and shareholder action is generally by majority vote, except that
directors are elected by a plurality vote and the NYBCL requires the vote of at
least 66 2/3% of the outstanding shares in connection with certain mergers,
consolidations and sales of assets (see "-- Mergers and Business Combinations;
Sales of Assets"). The Schein Certificate and Schein By-Laws provide that a
majority of the shares entitled to vote constitutes a quorum, and all action may
be authorized by the vote of the majority of shares entitled to vote, unless
otherwise provided in the Schein
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By-Laws or Schein Certificate. The Schein Certificate requires the affirmative
vote of two-thirds of all outstanding shares entitled to vote to remove
directors, 60% of all outstanding shares entitled to vote to approve certain
mergers and sales of assets, 60% of the outstanding shares entitled to vote to
amend or repeal the section of the Schein Certificate regarding mergers and
sales of assets, and 80% of all outstanding shares entitled to vote to amend or
repeal the sections of the Schein Certificate regarding (i) the number, election
and powers of directors and (ii) the number of votes to which each share of
Common Stock is entitled. The Proposed Amendment, however, would decrease the
80% supermajority vote for the amendment of the section of the Schein
Certificate regarding the number and powers of directors to 66-2/3% of the
outstanding shares entitled to vote. The MBM By-Laws provide that a majority of
the shares entitled to vote constitutes a quorum, and the vote of a majority of
shares is required for shareholder action. Because of the supermajority voting
provisions of the Schein Certificate, it may be more difficult for Schein's
stockholders to effect certain amendments to the Schein Certificate than it
would be for the shareholders of MBM to effect similar changes to the MBM
Certificate. See also "-- Amendment of By-Laws" and "-- Amendment of Certificate
of Incorporation."
Under the DGCL, unless otherwise provided by a corporation's certificate of
incorporation, any action which is to be taken by stockholders may be taken
without a meeting if such action is authorized by written consent signed by
stockholders having not less than the minimum number of votes necessary to take
such action at a meeting at which all shares were present and voting. The Schein
Certificate does not otherwise provide. Under the NYBCL, any required or
permitted action taken by shareholders may be taken without a meeting with the
written consent of all outstanding shares entitled to vote, unless the
certificate of incorporation otherwise provides for a lesser number. The MBM
Certificate does not otherwise provide.
AMENDMENT OF BY-LAWS
The DGCL reserves the power to amend, repeal, or adopt by-laws exclusively
to the stockholders, unless the certificate of incorporation also confers such
power upon the board of directors. The Schein Certificate currently confers such
powers upon the Schein Board of Directors, provided, however, that (a) any
by-law made, amended or repealed by the Board of Directors may be amended or
repealed by the stockholders of Schein, and (b) the Board of Directors may not
amend or repeal any by-law adopted by the stockholders of Schein and all of the
current by-laws were adopted by Schein's stockholders. However, the Proposed
Amendment would allow the Board of Directors to amend or repeal By-Laws that
were adopted by the stockholders of Schein prior to the 1997 Annual Meeting of
Stockholders. Under the Schein By-Laws, by-laws may be adopted, repealed or
amended by a vote of two-thirds of the outstanding shares entitled to vote, or
by a vote of two-thirds of the Board of Directors.
Under the NYBCL, by-laws may be adopted, amended or repealed by vote of the
holders of the shares at the time entitled to vote in the election of any
directors. When so provided in the certificate of incorporation or a by-law
adopted by the shareholders, by-laws may also be adopted, amended or repealed by
the board by such vote as therein specified, but any by-law adopted by the board
may be amended or repealed by the shareholders entitled to vote thereon. The MBM
By-Laws provide that the By-Laws may be amended, repealed or adopted by vote of
the holders of the shares at the time entitled to vote in the election of any
directors. The MBM By-Laws may also be amended, repealed or adopted by the MBM
Board but any by-law adopted by the MBM Board may be amended by the shareholders
entitled to vote.
Consequently, the Schein Board is and will be more restricted in its ability
to amend Schein's By-laws than the MBM Board is in amending MBM's By-Laws even
if the Proposed Amendment is adopted.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under the DGCL, amendments to certificates of incorporation generally
require the authorization of the board of directors and the approval of
stockholders holding a majority of the outstanding shares
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entitled to vote on such amendment, unless a greater proportion is specified in
the certificate of incorporation. In addition, amendments which make changes
relating to the capital stock by increasing its par value or aggregate number of
authorized shares, or otherwise adversely affecting the rights of a class, must
be approved by the majority vote of each class or series of stock affected, even
if such stock would not otherwise have voting rights. The Schein Certificate
generally provides that the Schein Certificate may be amended upon the approval
of a majority of Schein's stockholders holding a majority of the outstanding
shares entitled to vote on such amendment; however, the Schein Certificate
currently requires 60% of all outstanding shares entitled to vote to amend or
repeal the section of the Schein Certificate regarding mergers and sales of
assets, and 80% of all outstanding shares entitled to vote to amend or repeal
the sections of the Schein Certificate regarding (i) the number and powers of
directors and (ii) the number of votes to which each share of Common Stock is
entitled. The Proposed Amendment would decrease the 80% "supermajority" voting
requirement for the amendment of the section of the Schein Certificate regarding
the number and powers of directors to 66 2/3% of the outstanding shares entitled
to vote.
Under the NYBCL, except for certain specified matters, an amendment to the
certificate of incorporation requires the authorization of the board of
directors and the approval of the holders of a majority of all outstanding
shares entitled to vote unless the certificate of incorporation specifies a
supermajority vote (which the MBM Certificate does not). In addition, certain
specified amendments affecting the rights of a class of securities must be
approved by vote of a majority of all outstanding shares of such class entitled
to vote, even though they ordinarily would not have voting rights. Under the
NYBCL, certain specified amendments to the certificate of incorporation may be
made by the board of directors without shareholder approval.
The supermajority approval requirements for amending certain provisions of
the Schein Certificate may prevent the holders of a majority of the outstanding
shares of Schein Common Stock from adopting an amendment to the Schein
Certificate, whereas the vote of a majority of the outstanding shares of MBM
Common Stock is (subject to any applicable class voting requirement) sufficient
to adopt any amendment to the MBM Certificate that is presented to its
shareholders for approval under the NYCBL.
MERGERS AND BUSINESS COMBINATIONS; SALES OF ASSETS
Under the DGCL, when stockholder approval is required for a merger, or
consolidation or a sale, lease or exchange of all or substantially all of a
corporation's assets, such transaction must be approved by a majority of
outstanding shares entitled to vote, unless a greater proportion is specified in
the certificate of incorporation. The Schein Certificate provides that the vote
of 60% or more of the outstanding stock entitled to vote is required to approve
such action. Under the NYBCL, whenever shareholder approval is required for a
merger or consolidation or sale, lease, exchange or disposition of all or
substantially all of a corporation's assets, such transaction must be approved
by two-thirds of the outstanding shares entitled to vote.
Under the DGCL, unless required by a corporation's certificate of
incorporation (the Schein Certificate does not contain such requirement), no
vote of stockholders of the surviving corporation in a merger is required if (i)
the agreement of merger does not amend the certificate of incorporation of the
surviving corporation, (ii) each share of stock of such surviving corporation
outstanding immediately prior to the effective date of the merger will be an
identical outstanding or treasury share of the surviving corporation after such
effective date, (iii) either no shares of common stock of the surviving
corporation and no shares, securities or obligations convertible into such stock
are to be issued or delivered under the plan of merger, or the authorized
unissued shares or treasury shares of common stock of the surviving corporation
to be issued or delivered under the plan of merger plus those initially issuable
upon conversion of any other securities or obligations to be issued or delivered
under such plan, do not exceed 20% of the issuer's common shares outstanding
immediately prior to the merger and (iv) certain other requirements are
satisfied. The DGCL also provides that a Delaware corporation which is the
record holder of at least 90%
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of each class of outstanding shares of a Delaware subsidiary may merge such
subsidiary into such parent without approval of such subsidiary's stockholders
or board of directors.
Under the NYBCL, the vote of at least 66 2/3% of the outstanding shares of
stock of each New York corporation that is a party to the merger is required to
approve such merger. A New York corporation owning at least 90% of each class of
outstanding shares of another New York corporation may merge such other
corporation into itself without authorization of the shareholders of any such
corporation.
Under the DGCL, a "business combination" with an "interested stockholder"
(as defined in the DGCL) of a publicly held Delaware corporation is subject to a
three-year moratorium unless specified conditions are met. Under the NYBCL,
certain types of a "business combination" with an "interested shareholder" (as
defined in the NYBCL) of a New York corporation are subject to a five-year
moratorium unless specified conditions are met.
DIVIDENDS, REDEMPTIONS, AND REPURCHASES
Under the NYBCL and the DGCL, a corporation may generally pay dividends out
of surplus. New York requires a board of directors to make certain disclosures
when paying dividends out of any account other than earned surplus. The DGCL
also permits a corporation, unless otherwise provided in its certificate of
incorporation (which the Schein Certificate does not), to pay dividends, if
there is no surplus, out of net profits for the fiscal year in which the
dividends are declared and/or for the preceding fiscal year. Dividends out of
net profits may not be paid when the capital of the corporation amounts to less
than the aggregate amount of capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets.
SHAREHOLDERS LISTS; INSPECTIONS RIGHTS
Under the DGCL and the Schein By-laws, stockholders have a right during
regular business hours and for at least ten days prior to any stockholders
meeting and during such meeting to examine a list of stockholders of Schein for
any purpose germane to such meeting. Additionally, under the DGCL, any
stockholder, following a written request, also has the right to inspect the
corporation's books and records, including the stockholder list, during normal
business hours for a proper purpose.
Under the NYBCL, a person who has been a shareholder for at least six months
preceding his or her demand, or any person holding, or authorized in writing by
the holders of, at least 5% of any class of outstanding shares, upon at least
five days' prior written demand, has the right to examine, during normal
business hours, minutes of shareholder meetings and the record of shareholders
unless such inspection is for a purpose which is in the interest of a business
other than the corporation's and such shareholder has within five years sold or
offered for sale any list of shareholders of any corporation.
TRANSACTIONS WITH INTERESTED DIRECTORS
Generally, under the NYBCL and the DGCL, no contract or transaction between
a corporation and one or more of its directors or between a corporation and
another entity in which one or more of its directors are directors or officers
or in which one or more of its directors have a material financial interest is
void or voidable because of such relationship or interest, if (i) the material
facts of the transaction and the director's interest are disclosed or known to
the board of directors or a committee of the board of directors which
authorizes, approves or ratifies the transaction by the vote of a majority of
directors who have no direct or indirect interest in the transaction; (ii) the
material facts of the transaction and the director's interest are disclosed or
known to shareholders entitled to vote and they authorize, approve or ratify the
transaction; or (iii) the transaction is fair to the corporation.
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INDEMNIFICATION; LIMITATION OF LIABILITY
Both Delaware and New York allow broad indemnification by a corporation of
its officers, directors, employees and other agents and permit, with certain
exceptions, corporations to provide in their certificate of incorporation or
by-laws (which Schein and MBM have done) for elimination of liability of
directors to the corporation or its shareholders for monetary damages for breach
of such directors' fiduciary duty of care.
The DGCL authorizes a Delaware corporation to indemnify any person who was,
is, or is threatened to be made, a party in any civil, criminal, administrative
or investigative pending or completed action, suit or proceeding (other than an
action by or in the right of a corporation) by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another entity, for expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with any threatened, pending or completed action, suit or
proceeding. With respect to actions by or in the right of a corporation, the
DGCL authorizes indemnification of such person for expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit. To be entitled to indemnification,
a person must have acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe such conduct was unlawful with respect to actions taken by or in the
right of the corporation. With respect to actions by or in the right of the
corporation, court approval is required for indemnification relating to any
claim as to which a person has been adjudged liable to the corporation.
The DGCL requires indemnification for expenses actually and reasonably
incurred by any director, officer, employee or agent in connection with a
proceeding against such person for actions in such capacity to the extent that
the person has been successful on the merits or otherwise. Advancement of
expenses (i.e., payment prior to a determination on the merits) is permitted,
but not required, by the DGCL. A director or officer must undertake to repay
such expenses if it is ultimately determined that he or she is not entitled to
indemnification. The disinterested members of the board (or independent legal
counsel or stockholders) must determine, in each instance where indemnification
is not required by the DGCL, that such director, officer, employee or agent is
entitled to indemnification. The DGCL provides that the statutory
indemnification is not exclusive.
The Schein Certificate provides that Schein will indemnify to the fullest
extent permitted by the DGCL each director and officer made, or threatened to be
made, a party to or who is involved in any action (civil, criminal or otherwise)
by reason of the fact that he or she, or the person of whom he or she is the
legal representative, is or was a director or officer of Schein or is or was
serving at the request of Schein as a director or officer of another entity. The
Schein Certificate also provides that a director will not have personal
liability to Schein or any stockholder for monetary damages for breach of
fiduciary duty as a director, but such provision does not eliminate or limit the
liability of a director (i) for any breach of duty of loyalty to Schein or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) under certain
provisions of the DGCL regarding unlawful dividends, stock purchases or
redemptions or (iv) for any transaction from which the director derived an
improper personal benefit.
Under the NYBCL, a corporation may indemnify any person made, or threatened
to be made, a party to any action or proceeding except for shareholder
derivative suits, by reason of the fact that he or she was a director or officer
of the corporation, provided such director or officer acted in good faith for a
purpose which he or she reasonably believed to be in the best interests of the
corporation and, in criminal proceedings, in addition, had no reasonable cause
to believe his or her conduct was unlawful. In the case of shareholder
derivative suits, the corporation may indemnify any person who was a director or
officer of the corporation if he or she acted in good faith for a purpose which
he or she reasonably believed to be in the
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best interests of the corporation, except that no indemnification may be made
for (i) a threatened action, or a pending action which is settled or otherwise
disposed of, or (ii) any claim, issue or matter as to which such person has been
adjudged to be liable to the corporation, unless and only to the extent that the
court in which the action was brought or, if no action was brought, any court of
competent jurisdiction, determines upon application that, in view of all
circumstances, the person is fairly and reasonably entitled to an indemnity for
such portion of the settlement amount and expenses as the court deems proper.
Indemnification under the NYBCL is not exclusive of other indemnification
rights to which a director or officer may be entitled, whether contained in the
certificate of incorporation or by-laws, or when authorized by (i) such
certificate of incorporation or by-laws, (ii) a resolution of shareholders or
directors or (iii) an agreement providing for such indemnification, provided
that no indemnification may be made to or on behalf of any director or officer
if a judgment or other final adjudication adverse to the director or officer
establishes that his or her acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he or she personally gained a financial profit or other
advantage to which he or she was not legally entitled.
Under the NYBCL, any person to whom such provisions regarding
indemnification apply who has been successful on the merits or otherwise in the
defense of a civil or criminal action or proceeding is entitled to
indemnification. Except as provided in the preceding sentence, unless ordered by
a court pursuant to the NYBCL, indemnification under the NYBCL pursuant to the
above paragraphs may be made only if authorized in the specific case and after a
finding that the director or officer met the requisite standard of conduct (i)
by the board acting by a quorum of disinterested directors or (ii) if such
quorum is not available, if so directed by either (A) the board upon the written
opinion of counsel or (B) by shareholders.
The MBM By-Laws provide that MBM will indemnify to the maximum extent
possible under the NYBCL, each officer and director made, or threatened to be
made, a party to any action (civil, criminal or otherwise) for liability arising
out of his or her action in such capacity, provided that the Board of Directors
has determined that such person acted in good faith, or in the case of a
criminal action, that such person had no reasonable cause to believe that his
action was unlawful. The MBM Certificate also provides that a director will not
have personal liability to MBM or its shareholders for breach of fiduciary duty,
but such provision does not eliminate or limit the liability of a director for
acts or omissions made in bad faith which involve intentional violation of the
law, or which violate certain provisions of the NYBCL concerning, among other
things, unlawful dividends, redemptions, and loans.
APPRAISAL RIGHTS
Under the DGCL, a stockholder of a corporation who does not vote in favor of
certain mergers or consolidations and demands appraisal of his or her shares,
under varying circumstances, may be entitled to dissenters' rights pursuant to
which such stockholder may receive cash for the "fair value" of his or her
shares (as determined by a Delaware court) in lieu of the consideration
otherwise receivable in the transaction. Unless the corporation's certificate of
incorporation provides otherwise (the Schein Certificate does not), such
dissenters' rights are not available in certain circumstances, including (a) the
sale of all or substantially all of the assets of a corporation, (b) the merger
or consolidation by a corporation the shares of which are either listed on a
national securities exchange (or designated as a national market security by the
National Association of Securities Dealers, Inc.) or held of record by more than
2,000 holders, if a stockholder receives only shares of the surviving
corporation or of any other corporation which are either listed on a national
securities exchange (or so designated as stated above) or held of record by more
than 2,000 holders, or cash in lieu of fractional shares or any combination of
the foregoing or (c) to shareholders of a corporation surviving a merger if no
vote of shareholders of the surviving corporation is required to approve the
merger because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to the
merger is to be an identical outstanding or treasury share after the merger, and
the number of shares to be issued in the merger does
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not exceed 20% of the shares of the surviving corporation outstanding
immediately prior to the merger, and certain other conditions are met.
Under the NYBCL, holders of shares have the right, in certain circumstances,
to dissent from certain mergers, consolidations, sales and other dispositions of
assets requiring shareholder approval and share exchanges and to demand payment
in cash for their shares equal to the "fair value" of such shares in an action
timely brought by the dissenters. For a description of the NYBCL regarding
dissenters' rights, see "THE MERGER--Appraisal Rights."
ISSUANCE OF RIGHTS OR OPTIONS TO PURCHASE SHARES TO DIRECTORS, OFFICERS AND
EMPLOYEES
The DGCL does not contain any provision requiring the issuance of rights or
options to officers, directors and employees to be approved by a stockholder
vote. The NYBCL requires that the issuance to officers, directors or employees
of rights or options to purchase shares must be authorized by a majority of all
outstanding shares entitled to vote thereon. Consequently, stockholders of
Schein have no right under state law to approve the grant of options and other
rights to purchase shares of Schein Common Stock to Schein's officers and
directors, although stockholder approval may be required by Nasdaq National
Market rules or for tax law or other purposes.
LOANS TO DIRECTORS
The DGCL allows loans to and guarantees of obligations of officers and
directors without any stockholder approval. The NYBCL requires that any loan
made by the corporation to any director must be authorized by a vote of the
shareholders. For the purposes of this authorization, the shares held by the
director who would be the borrower in the transaction are not entitled to vote.
Consequently, Schein may make loans to its officers and directors without
stockholder approval.
ANTI-GREENMAIL
The DGCL does not contain any provisions prohibiting the selective
repurchase by a corporation of its stock at a premium over market price
("greenmail"). Delaware courts have permitted the repurchase of shares at a
premium in certain cases.
Section 513 of the NYBCL provides that no domestic corporation may purchase
more than 10% of its stock from a shareholder who has held the shares for less
than two years at any price which is higher than the market price unless such
transaction is approved by both the corporation's board of directors and a
majority of the shares entitled to vote or the corporation offers to purchase
shares from all shareholders on the same terms. Consequently, there is no
statutory prohibition against the payment of greenmail by Schein, as there is in
the case of MBM.
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EXPERTS
The consolidated financial statements and schedule included in Schein's
Annual Report on Form 10-K, Amended Annual Report on Form 10-K/A and Form 8-K
dated June 24, 1997 for the year ended December 28, 1996, which are incorporated
by reference in this Proxy Statement/Prospectus, have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the periods indicated in their reports with respect thereto and are incorporated
herein in reliance upon such reports given the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements and schedule included in MBM's Annual
Report on Form 10-K and Amended Annual Report on Form 10-K/A for the year ended
November 30, 1996 have been audited by Miller, Ellin & Company, independent
certified public accountants, to the extent and for the periods indicated in
their report with respect thereto and are incorporated herein in reliance upon
such report given the authority of said firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the shares of Schein Common Stock to be issued pursuant to
this Proxy Statement/ Prospectus will be passed upon for Schein by Proskauer
Rose LLP, counsel to Schein. Certain U.S. tax matters will be passed upon for
MBM by Cummings & Lockwood, special tax counsel to MBM.
Shareholders wishing to present proposals for action by the shareholders at
the next Annual Meeting of MBM's Shareholders (assuming that the Merger is not
consummated prior thereto) must present such proposals at the principal offices
of MBM not later than December 24, 1997. It is suggested that any such proposals
be submitted by certified mail, return receipt requested.
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ANNEX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HENRY SCHEIN, INC.,
HSI ACQUISITION CORP.
AND
MICRO BIO-MEDICS, INC.
DATED MARCH 7, 1997
AS REVISED
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I THE MERGER................................................................... I-7
Section 1.1 The Merger......................................................... I-7
Section 1.2 Effective Time of the Merger....................................... I-7
Section 1.3 Closing............................................................ I-7
ARTICLE II THE SURVIVING CORPORATION................................................... I-8
Section 2.1 Certificate of Incorporation....................................... I-8
Section 2.2 By-Laws............................................................ I-8
Section 2.3 Directors and Officers of Surviving Corporation.................... I-8
ARTICLE III CONVERSION OF SHARES....................................................... I-8
Section 3.1 Exchange Ratio..................................................... I-8
Section 3.2 Exchange of Company Common Stock; Procedures....................... I-9
Section 3.3 Dividends; Transfer Taxes; Escheat................................. I-9
Section 3.4 No Fractional Securities........................................... I-10
Section 3.5 Closing of Company Transfer Books.................................. I-10
Section 3.6 Further Assurances................................................. I-10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................... I-10
Section 4.1 Organization....................................................... I-10
Section 4.2 Capitalization..................................................... I-11
Section 4.3 Company Subsidiaries............................................... I-11
Section 4.4 Authority Relative to this Agreement............................... I-12
Section 4.5 Consents and Approvals; No Violations.............................. I-12
Section 4.6 Reports and Financial Statements................................... I-12
Section 4.7 Absence of Certain Changes or Events; Material Contracts........... I-13
Section 4.8 Litigation......................................................... I-13
Section 4.9 Absence of Undisclosed Liabilities................................. I-13
Section 4.10 No Default......................................................... I-13
Section 4.11 Taxes.............................................................. I-13
Section 4.12 Title to Properties; Encumbrances.................................. I-14
Section 4.13 Intellectual Property.............................................. I-15
Section 4.14 Compliance with Applicable Law..................................... I-15
Section 4.15 Information in Disclosure Documents and Registration Statement..... I-16
Section 4.16 Employee Benefit Plans; ERISA...................................... I-16
Section 4.17 Environmental Laws and Regulations................................. I-17
Section 4.18 Vote Required...................................................... I-17
Section 4.19 Opinion of Financial Advisor....................................... I-18
Section 4.20 Accounting Matters................................................. I-18
Section 4.21 NYBCL Section 912.................................................. I-18
Section 4.22 Labor Matters...................................................... I-18
Section 4.23 Affiliate Transactions............................................. I-18
Section 4.24 Brokers............................................................ I-18
Section 4.25 Tax Matters........................................................ I-18
Section 4.26 Accounts Receivable................................................ I-18
Section 4.27 Inventory.......................................................... I-19
</TABLE>
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<TABLE>
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT..................................... I-19
Section 5.1 Organization....................................................... I-19
Section 5.2 Capitalization..................................................... I-19
Section 5.3 Authority Relative to this Agreement............................... I-20
Section 5.4 Consents and Approvals No Violations............................... I-20
Section 5.5 Reports and Financial Statements................................... I-20
Section 5.6 Absence of Certain Changes or Events; Material Contracts........... I-20
Section 5.7 Information in Disclosure Documents and Registration Statement..... I-21
Section 5.8 Absence of Undisclosed Liabilities................................. I-21
Section 5.9 Compliance with Applicable Law..................................... I-21
Section 5.10 Litigation......................................................... I-21
Section 5.11 Opinion of Financial Advisor....................................... I-21
Section 5.12 Accounting Matters................................................. I-21
Section 5.13 Tax Matters........................................................ I-22
Section 5.14 Brokers............................................................ I-22
Section 5.15 No Default......................................................... I-22
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER...................................... I-22
Section 6.1 Conduct of Business by the Company Pending the Merger.............. I-22
Section 6.2 Conduct of Business by Parent Pending the Merger................... I-23
Section 6.3 Conduct of Business of Sub......................................... I-24
ARTICLE VII ADDITIONAL AGREEMENTS...................................................... I-24
Section 7.1 Access and Information............................................. I-24
Section 7.2 No Solicitation.................................................... I-24
Section 7.3 Registration Statement............................................. I-25
Section 7.4 Proxy Statements; Stockholder Approval............................. I-26
Section 7.5 Compliance with the Securities Act................................. I-26
Section 7.6 Reasonable Best Efforts............................................ I-26
Section 7.7 Proxy and Option Agreement......................................... I-27
Section 7.8 Company Stock Options.............................................. I-27
Section 7.9 Public Announcements............................................... I-28
Section 7.10 Expenses........................................................... I-28
Section 7.11 Listing Application................................................ I-28
Section 7.12 Supplemental Disclosure............................................ I-28
Section 7.13 Letters of Accountants............................................. I-28
Section 7.14 Recruitment........................................................ I-28
Section 7.15 Indemnification.................................................... I-29
ARTICLE VIII CONDITIONS TO CONSUMMATION OF THE MERGER.................................. I-29
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger......... I-29
Section 8.2 Conditions to Obligations of Parent and Sub to Effect the Merger... I-30
Section 8.3 Conditions to Obligation of the Company to Effect the Merger....... I-31
ARTICLE IX TERMINATION................................................................. I-32
Section 9.1 Termination........................................................ I-32
Section 9.2 Effect of Termination.............................................. I-33
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE X GENERAL PROVISIONS........................................................... I-34
Section 10.1 Amendment and Modification......................................... I-34
Section 10.2 Waiver............................................................. I-34
Section 10.3 Survivability; Investigations...................................... I-34
Section 10.4 Notices............................................................ I-34
Section 10.5 Descriptive Headings; Interpretation............................... I-35
Section 10.6 Entire Agreement; Assignment....................................... I-35
Section 10.7 Governing Law...................................................... I-35
Section 10.8 Severability....................................................... I-35
Section 10.9 Counterparts....................................................... I-35
</TABLE>
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SCHEDULE
<TABLE>
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Schedule 4.2(b) Rights to Acquire Capital Stock
Schedule 4.2(c) Vesting and Modification of Company Stock Options
Schedule 4.3 Subsidiaries of the Company
Schedule 4.5 No Violations
Schedule 4.6 Accounting Changes
Schedule 4.7 Absence of Certain Changes
Schedule 4.9 Undisclosed Liabilities
Schedule 4.10 No Defaults
Schedule 4.11 Taxes
Schedule 4.12 Liens
Schedule 4.13(a) Intellectual Property
Schedule 4.14 Compliance with applicable Laws
Schedule 4.16. Employee Benefit Plans
Schedule 4.17(a) Compliance with Environmental Laws and Regulations
Schedule 4.17(b) Asbestos; Underground Storage, Etc.
Schedule 4.17(c) Certain Communications and Requests for Information; Remediation
Schedule 4.23 Affiliate Transactions
Schedule 5.1 Subsidiaries of Parent
Schedule 5.4 Violations (Parent)
Schedule 5.5 Accounting Changes (Parent)
Schedule 5.8 Undisclosed Liabilities (Parent)
Schedule 5.9 Compliance with Applicable Laws (Parent)
Schedule 6.1 Conduct of Business
Schedule 6.2(d) Changes to Parent's Capitalization
Schedule 8.2(h) Required Governmental Approvals
</TABLE>
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EXHIBITS
<TABLE>
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Exhibit A Proxy and Option Agreement
Exhibit B Affiliate Agreement
Exhibit C Opinion of Otterbourg, Steindler, Houston & Rosen, P.C.
Exhibit D Opinion of Proskauer Rose LLP
</TABLE>
[Exhibits Omitted]
I-6
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated March 7, 1997, by and among Henry Schein,
Inc., a Delaware corporation ("Parent"), HSI Acquisition Corp., a New York
corporation and wholly-owned subsidiary of Parent ("Sub"), and Micro Bio-Medics,
Inc., a New York corporation (the "Company"), as revised.
The Boards of Directors of Parent and Sub and the Company deem it advisable
and in the best interests of their respective stockholders that Parent acquire
the Company pursuant to the terms and conditions of this Agreement, and, in
furtherance of such acquisition, such Boards of Directors have unanimously
approved the merger of Sub with and into the Company in accordance with the
terms of this Agreement and the New York Business Corporation Law (the "NYBCL").
Concurrently with the execution and delivery of this Agreement and as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain holders of shares of the Common Stock, par value $.03 per share, of the
Company (the "Company Common Stock") are entering into an agreement with Parent
and Sub in the form attached hereto as Exhibit A (the "Proxy and Option
Agreement") granting Parent the right to vote such shares of the Company Common
Stock and granting Parent an option to purchase such shares of the Company
Common Stock in accordance with the terms set forth in the Proxy and Option
Agreement.
For federal income tax purposes, it is intended that the Merger (as defined
in Section 1.1) shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
For accounting purposes, it is intended that the Merger shall be accounted
for as a pooling of interests.
In consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth herein, the parties hereto agree
as follows:
ARTICLE I.
THE MERGER
SECTION 1.1. THE MERGER. In accordance with the provisions of this Agreement
and the NYBCL, at the Effective Time (as defined in Section 1.2), Sub shall be
merged with and into the Company (the "Merger"), the separate existence of Sub
shall thereupon cease, and the Company shall be the surviving corporation in the
Merger (sometimes hereinafter called the "Surviving Corporation") and shall
continue its corporate existence under the laws of the State of New York. The
Merger shall have the effects set forth in Section 906 of the NYBCL.
SECTION 1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
at the time of filing of, or at such later time specified in, a properly
executed Certificate of Merger, in the form required by and executed in
accordance with the NYBCL, filed with the Secretary of State of the State of New
York in accordance with the provisions of Section 904 of the NYBCL. Such filing
shall be made as soon as practicable after the Closing (as defined in Section
1.3). When used in this Agreement, the term "Effective Time" shall mean the date
and time at which the Merger shall become effective.
SECTION 1.3. CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Proskauer Rose
Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York, at 10:00 a.m., on the
day on which all of the conditions set forth in Article VIII are satisfied or
waived or on such other date and at such other time and place as Parent and the
Company shall agree (such date, the "Closing Date").
I-7
<PAGE>
ARTICLE II.
THE SURVIVING CORPORATION
SECTION 2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of Sub in effect at the Effective Time shall be the Certificate of Incorporation
of the Surviving Corporation until amended in accordance with applicable law,
except that the name of the Surviving Corporation shall be "Micro Bio-Medics,
Inc.".
SECTION 2.2 BY-LAWS. The By-Laws of Sub as in effect at the Effective Time
shall be the By-Laws of the Surviving Corporation until amended in accordance
with applicable law.
SECTION 2.3 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
(a) The directors of Sub at the Effective Time shall be the initial
directors of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified in the manner provided in the Certificate of Incorporation or By-Laws
of the Surviving Corporation or as otherwise provided by law.
(b) The officers of the Company at the Effective Time shall be the initial
officers of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified in the manner provided in the Certificate of Incorporation or By-Laws
of the Surviving Corporation, or as otherwise provided by law.
ARTICLE III.
CONVERSION OF SHARES
SECTION 3.1 EXCHANGE RATIO. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be canceled in
accordance with Section 3.1(b) and other than shares of Company Common Stock
as to which appraisal rights shall have been duly demanded under the NYBCL
("Dissenting Shares")) shall be converted into the right to receive 0.62
(the "Exchange Ratio") of a share of the Common Stock, par value $.01 per
share, of Parent (the "Parent Common Stock"), payable upon the surrender of
the certificate formerly representing such share of Company Common Stock.
(b) All shares of Company Common Stock that are held by the Company as
treasury shares shall be canceled and retired and cease to exist, and no
securities of Parent or other consideration shall be delivered in exchange
therefor.
(c) Each share of Common Stock, par value $.01 per share, of Sub ("Sub
Common Stock") issued and outstanding immediately prior to the Effective
Time shall be converted into and become one fully paid and nonassessable
share of Common Stock, par value $.03 per share, of the Surviving
Corporation.
(d) Each outstanding option to purchase Company Common Stock set forth
on Schedule 4.2(b) (each, a "Company Stock Option") and each warrant to
purchase Company Common Stock set forth on Schedule 4.2(b) (each, a "Company
Warrant") shall be assumed by Parent as more specifically provided in
Section 7.8.
(e) The holders of Dissenting Shares, if any, shall be entitled to
payment by the Surviving Corporation of the appraised value of such shares
to the extent permitted by and in accordance with the provisions of Section
623 of the NYBCL; provided, however, that (i) if any holder of the
Dissenting Shares shall, under the circumstances permitted by the NYBCL,
subsequently deliver a
I-8
<PAGE>
written withdrawal of such holder's demand for appraisal of such shares, or
(ii) if any holder fails to establish such holder's entitlement to rights to
payment as provided in such Section 623, or (iii) if neither any holder of
Dissenting Shares nor the Surviving Corporation has filed a petition
demanding a determination of the value of all Dissenting Shares within the
time provided in such Section 623, such holder or holders (as the case may
be) shall forfeit such right to payment for such shares and such shares
shall thereupon be deemed to have been converted into Parent Common Stock
pursuant to Section 3.1(a) as of the Effective Time. The Surviving
Corporation shall be solely responsible for, and shall pay out of its own
funds, any amounts which become due and payable to holders of Dissenting
Shares, and such amounts shall not be paid directly or indirectly by Parent.
SECTION 3.2 EXCHANGE OF COMPANY COMMON STOCK; PROCEDURES.
(a) Prior to the Closing Date, Parent shall designate a bank or trust
company reasonably acceptable to the Company to act as Exchange Agent hereunder
(the "Exchange Agent"). As soon as practicable after the Effective Time, Parent
shall deposit with or for the account of the Exchange Agent stock certificates
representing the number of shares of Parent Common Stock issuable pursuant to
Section 3.1 in exchange for outstanding shares of Company Common Stock, which
shares of Parent Common Stock shall be deemed to have been issued at the
Effective Time.
(b) As soon as practicable after the Effective Time, Parent shall cause the
Exchange Agent to mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates") that were converted pursuant to
Section 3.1 into the right to receive shares of Parent Common Stock (i) a form
of letter of transmittal specifying that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and (ii) instructions for use in surrendering
such Certificates in exchange for certificates representing shares of Parent
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange therefor (x) a
certificate representing that number of whole shares of Parent Common Stock
which such holder has the right to receive pursuant to the provisions of this
Article III and (y) cash in lieu of any fractional shares of Parent Common Stock
to which such holder is entitled pursuant to Section 3.4, after giving effect to
any required tax withholdings, and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Company Common
Stock which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Parent Common Stock may
be issued to a transferee if the Certificate representing such Company Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer, and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
3.2(b), each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender a certificate
representing shares of Parent Common Stock and cash in lieu of any fractional
shares of Parent Common Stock as contemplated by this Article III.
SECTION 3.3 DIVIDENDS; TRANSFER TAXES; ESCHEAT. No dividends or
distributions that are declared on shares of Parent Common Stock will be paid to
persons entitled to receive certificates representing shares of Parent Common
Stock until such persons surrender their Certificates. Upon such surrender,
there shall be paid, to the person in whose name the certificates representing
such shares of Parent Common Stock shall be issued, any dividends or
distributions with respect to such shares of Parent Common Stock which have a
record date after the Effective Time and shall have become payable between the
Effective Time and the time of such surrender. In no event shall the person
entitled to receive such dividends or distributions be entitled to receive
interest thereon. Promptly following the date which is six months after the
Effective Time, the Exchange Agent shall deliver to the Surviving Corporation
all cash, certificates and other documents in its possession relating to the
transactions described in this Agreement, and any holders of Company Common
Stock who have not theretofore complied with this Article III shall look
thereafter only to the Surviving Corporation for the shares of Parent Common
Stock, any dividends or distributions
I-9
<PAGE>
thereon, and any cash in lieu of fractional shares thereof to which they are
entitled pursuant to this Article III. Notwithstanding the foregoing, neither
the Exchange Agent nor any party hereto shall be liable to a holder of Company
Common Stock for any shares of Parent Common Stock, any dividends or
distributions thereon or any cash in lieu of fractional shares thereof delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws upon the lapse of the applicable time periods provided for therein.
SECTION 3.4 NO FRACTIONAL SECURITIES. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional interests shall not entitle the
owner thereof to vote or to any rights of a security holder. In lieu of any such
fractional securities, each holder of Company Common Stock who would otherwise
have been entitled to a fraction of a share of Parent Common Stock upon
surrender of such holder's Certificates will be entitled to receive, and Parent
will timely provide (or cause to be provided) to the Exchange Agent sufficient
funds to make, a cash payment (without interest) determined by multiplying (i)
the fractional interest to which such holder would otherwise be entitled (after
taking into account all shares of Company Common Stock then held of record by
such holder) and (ii) the average of the per share closing prices for Parent
Common Stock on the Nasdaq National Market ("Nasdaq") for the five trading days
immediately preceding the Effective Time. It is understood (i) that the payment
of cash in lieu of fractional shares of Parent Common Stock is solely for the
purpose of avoiding the expense and inconvenience to Parent of issuing
fractional shares and does not represent separately bargained-for consideration
and (ii) that no holder of Company Common Stock will receive cash in lieu of
fractional shares of Parent Common Stock in an amount greater than the value of
one full share of Parent Common Stock.
SECTION 3.5 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on such stock transfer books. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged as provided in this Article
III.
SECTION 3.6 FURTHER ASSURANCES. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of Sub or the Company acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger
or otherwise to carry out this Agreement, the officers of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of each of Sub and the Company or otherwise, all such deeds, bills of
sale, assignments and assurances and to take and do, in such names and on such
behalf or otherwise, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out the purposes of this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
SECTION 4.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and has the corporate power to carry on its business as it is now being
conducted or presently proposed to be conducted. The Company is duly qualified
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified will not have a material adverse effect,
individually or in the aggregate, on the financial condition, results of
operations, business, assets, liabilities, prospects or
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properties of the Company and its Subsidiaries (as defined below) taken as a
whole, or the ability of the Company to consummate the Merger and the other
transactions contemplated by this Agreement (a "Company Material Adverse
Effect"). As used in this Agreement, the term "Subsidiary" means, with respect
to any party, any corporation or other organization, whether incorporated or
unincorporated, of which (x) such party or any other Subsidiary of such party is
a general partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a majority
of the voting interest in such partnership) or (y) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party and/or one or more of its
Subsidiaries.
SECTION 4.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of Company Common Stock and 1,000,000 shares of Preferred Stock, par
value $1.00 per share, of the Company (the "Company Preferred Stock"). As of the
date hereof, (i) 5,072,848 shares of Company Common Stock are issued and
outstanding, (ii) no shares of Company Preferred Stock are issued and
outstanding, (iii) Company Stock Options to acquire 1,842,668 shares of Company
Common Stock are outstanding under all stock option plans of the Company or
otherwise, (iv) Company Warrants to acquire 106,420 shares of Company Common
Stock are outstanding, and (v) 2,524,090 shares of Company Common Stock are
reserved for issuance pursuant to the Company Stock Options, the Company
Warrants and all other Rights (as hereinafter defined) to purchase or otherwise
receive capital stock or other securities of the Company. All of the issued and
outstanding shares of Company Common Stock are validly issued, fully paid and
nonassessable.
(b) Except as set forth on Schedule 4.2(b), (i) there is no outstanding
right, subscription, warrant, call, option or other agreement or arrangement
(including, without limitation, pursuant to any employee benefit plan) of any
kind (collectively, "Rights") to purchase or otherwise to receive from the
Company or any of its Subsidiaries, any of the outstanding authorized but
unissued or treasury shares of the capital stock or any other security of the
Company or any of its Subsidiaries or to require the Company or any of its
Subsidiaries to purchase any such security, (ii) there is no outstanding
security of any kind convertible into or exchangeable for such capital stock,
and (iii) there is no voting trust or other agreement or understanding to which
the Company or any of its Subsidiaries is a party or is bound with respect to
the voting of the capital stock of the Company or any of its Subsidiaries. The
conversion of the Company Stock Options provided for in Section 7.8 of this
Agreement is in accordance with the respective terms of the Company Stock
Options and the plans under which they were issued.
(c) Since December 1, 1995, except as set forth on Schedule 4.2(c), the
Company has not in any manner accelerated or provided for the acceleration of
the vesting or exercisability of, or otherwise modified the terms and conditions
applicable to, any of the Company Stock Options, whether set forth in the
governing stock option plans of the Company, a stock option grant, award or
other agreement or otherwise. Except as set forth on Schedule 4.2(c), none of
the awards, grants or other agreements pursuant to which Company Stock Options
were issued have provisions which accelerate the vesting or right to exercise
such options upon the execution of this Agreement (including the documents
attached as Exhibits hereto), the consummation of the transactions contemplated
hereby (or thereby) or any other "change of control" events.
SECTION 4.3 COMPANY SUBSIDIARIES. Schedule 4.3 contains a complete and
accurate list of all Subsidiaries of the Company. Each Subsidiary of the Company
that is a corporation is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Each
Subsidiary of the Company that is a partnership is duly formed and validly
existing under the laws of its jurisdiction of formation. Each Subsidiary of the
Company has the corporate power or the partnership power, as the case may be, to
carry on its business as it is now being conducted or presently proposed to be
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conducted. Each Subsidiary of the Company is duly qualified as a foreign
corporation or a foreign partnership, as the case may be, authorized to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified will
not have a Company Material Adverse Effect. All of the outstanding shares of
capital stock of the Subsidiaries of the Company that are corporations are
validly issued, fully paid and nonassessable, except to the extent provided in
Section 630 of the NYBCL. All of the outstanding shares of capital stock of, or
other ownership interests in, each Subsidiary of the Company are owned by the
Company or a Subsidiary of the Company, in each case, except as set forth in the
Company SEC Reports (as hereinafter defined), free and clear of any liens,
pledges, security interests, claims, charges or other encumbrances of any kind
whatsoever ("Liens").
SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated on its part hereby have been duly authorized by
the Company's Board of Directors and, except for the approval of its
stockholders to be sought at the stockholders meeting contemplated by Section
7.4(a) with respect to this Agreement, no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement or for the Company
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
SECTION 4.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the execution,
delivery and performance of this Agreement by the Company, nor the consummation
by the Company of the transactions contemplated hereby, will (i) conflict with
or result in any breach of any provisions of the charter, by-laws or other
organizational documents of the Company or any of its Subsidiaries, (ii) require
a filing with, or a permit, authorization, consent or approval of, any federal,
state, local or foreign court, arbitral tribunal, administrative agency or
commission or other governmental or other regulatory authority or administrative
agency or commission (a "Governmental Entity"), except in connection with or in
order to comply with the applicable provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Securities
Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of
1934, as amended (the "Exchange Act"), state securities or "blue sky" laws, the
By-Laws of the National Association of Securities Dealers (the "NASD"), the
filing and recordation of a Certificate of Merger as required by the NYBCL, and
filing with the New York Board of Pharmacy and with the New York State
Department of Social Services (as required by 18 NYCRR Section 502.5(b), (iii)
except as set forth on Schedule 4.5, result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, or
result in the creation of a Lien on any property or asset of the Company or any
of its Subsidiaries pursuant to, any of the terms, conditions or provisions of
any material note, bond, mortgage, indenture, license, contract, agreement or
other instrument or obligation (each, a "Contract") to which the Company or any
of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound or (iv) violate any material law, order, writ,
injunction, decree, statute, rule or regulation of any Governmental Entity
applicable to the Company, any of its Subsidiaries or any of their properties or
assets.
SECTION 4.6 REPORTS AND FINANCIAL STATEMENTS. The Company has timely filed
all reports required to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Exchange Act or the Securities Act since December 1,
1993 (collectively, the "Company SEC Reports"), and has previously made
available to Parent true and complete copies of all such Company SEC Reports.
Such Company SEC Reports, as of their respective dates, complied in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and none of such Company SEC Reports contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were
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made, not misleading. The financial statements of the Company included in the
Company SEC Reports have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the periods
indicated (except as otherwise noted therein) and fairly present the
consolidated financial position of the Company and its consolidated Subsidiaries
as at the dates thereof and the consolidated results of operations and cash
flows of the Company and its consolidated Subsidiaries for each of the periods
then ended, except that in the case of the unaudited consolidated financial
statements included in any Form 10-Q, the presentation and disclosures conform
with the applicable rules of the Exchange Act, but include all adjustments
necessary to conform to GAAP requirements with respect to interim financial
statements. Except as set forth on Schedule 4.6, since December 1, 1993, there
has been no change in any of the significant accounting (including tax
accounting) policies, practices or procedures of the Company or any of its
consolidated Subsidiaries.
SECTION 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS; MATERIAL CONTRACTS. Except
as set forth on Schedule 4.7 or in the Company SEC Reports, since December 1,
1995, (i) neither the Company nor any of its Subsidiaries has conducted its
business and operations other than in the ordinary course of business and
consistent with past practices or taken any actions that, if it had been in
effect, would have violated or been inconsistent with the provisions of Section
6.1 and (ii) there has not been any fact, event, circumstance or change
affecting or relating to the Company or any of its Subsidiaries which has had or
is reasonably likely to have a Company Material Adverse Effect. Except as set
forth on Schedule 4.7, the transactions contemplated by this Agreement will not
constitute a change of control under or require the consent from or the giving
of notice to a third party pursuant to the terms, conditions or provisions of
any material Contract to which Parent or any of its Subsidiaries is a party, or
require any payment to be made under any Contract to which the Parent or any of
its Subsidiaries is a party.
SECTION 4.8 LITIGATION. Except for litigation disclosed in the notes to the
financial statements included in the Company's Annual Report to Stockholders for
the year ended November 30, 1995 or in the Company SEC Reports filed subsequent
thereto, there is no suit, action, proceeding or investigation pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries, the outcome of which, in the reasonable judgment of the
Company, is likely to have a Company Material Adverse Effect; nor is there any
judgment, decree, injunction, ruling or order of any Governmental Entity
outstanding against the Company or any of its Subsidiaries having, or which is
reasonably likely to have, a Company Material Adverse Effect.
SECTION 4.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities or
obligations which are accrued or reserved against in the Company's financial
statements (or reflected in the notes thereto) included in the Company SEC
Reports or which were incurred after August 31, 1996 in the ordinary course of
business and consistent with past practice, and except as set forth on Schedule
4.9, none of the Company and its Subsidiaries has any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of a nature required by
GAAP to be reflected in a consolidated balance sheet (or reflected in the notes
thereto) or which would reasonably be expected to have a Company Material
Adverse Effect.
SECTION 4.10 NO DEFAULT. Except as set forth on Schedule 4.10, neither the
Company nor any Subsidiary of the Company is in default or violation (and no
event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (i)
its charter, by-laws or comparable organizational documents, (ii) any material
Contract to which the Company or any of its Subsidiaries is a party or by which
they or any of their properties or assets may be bound, or (iii) any material
order, writ, injunction or decree, or any material statute, rule or regulation,
of any Governmental Entity applicable to the Company or any of its Subsidiaries.
SECTION 4.11 TAXES.
(a) The Company has heretofore delivered or made available to Parent true,
correct and complete copies of the consolidated federal, state, local and
foreign income, franchise sales and other Tax Returns
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(as hereinafter defined) filed by the Company and the Company Subsidiaries for
each of the Company's years ended November 30, 1995, 1994, 1993, 1992 and 1991
inclusive. Except as set forth on Schedule 4.11, the Company has duly filed, and
each Subsidiary has duly filed, all material federal, state, local and foreign
income, franchise, sales and other Tax Returns required to be filed by the
Company or any of its Subsidiaries. All such Tax Returns are true, correct and
complete, in all material respects, and the Company and its Subsidiaries have
paid all Taxes (as hereinafter defined) shown on such Tax Returns and have made
adequate provision for payment of all accrued but unpaid material Taxes
anticipated in respect of all periods since the periods covered by such Tax
Returns. Except as set forth on Schedule 4.11, all material deficiencies
assessed as a result of any examination of Tax Returns of the Company or any of
its Subsidiaries by federal, state, local or foreign tax authorities have been
paid or reserved on the financial statements of the Company in accordance with
GAAP consistently applied, and true, correct and complete copies of all revenue
agent's reports, "30-day letters," or "90-day letters" or similar written
statements proposing or asserting any Tax deficiency against the Company or any
of its Subsidiaries for any open year have been heretofore delivered to Parent.
The Company has heretofore delivered or will make available to Parent true,
correct and complete copies of all written tax-sharing agreements and written
descriptions of all such unwritten agreement or arrangements to which the
Company or any of its Subsidiaries is a party. Except as set forth in Schedule
4.11, no material issue has been raised during the past five years by any
federal, state, local or foreign taxing authority which, if raised with regard
to any subsequent period, could reasonably be expected to result in a proposed
material deficiency for any such subsequent period. Except as disclosed in
Schedule 4.11 hereof, neither the Company nor any of its Subsidiaries has
granted any extension or waiver of the statutory period of limitations
applicable to any claim for any material Taxes. Schedule 4.11 lists the
consolidated federal income tax returns of the Company and its Subsidiaries that
have been examined by and settled with the Internal Revenue Service (the
"Service"). Except as set forth in Schedule 4.11, (i) no consent has been filed
under Section 341(f) of the Code with respect to any of the Company or the
Subsidiaries of the Company; (ii) neither the Company nor any of the
Subsidiaries of the Company has participated in, or cooperated with, an
international boycott within the meaning of Section 999 of the Code; and (iii)
neither the Company nor any of the Subsidiaries of the Company has issued or
assumed any corporate acquisition indebtedness, as defined in Section 279(b) of
the Code. The Company and each Subsidiary of the Company have complied (and
until the Effective Time will comply) in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes (including, without limitation, withholding of Taxes pursuant to
Sections 1441 and 1442 of the Code or similar provisions under any foreign laws)
and have, within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over under all applicable laws.
(b) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
charges, fees, levies, duties, imposts or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, use, transfer,
gains, license, payroll, withholding, capital stock and franchise taxes, imposed
by the United States, or any state, local or foreign government or subdivision
or agency thereof, including any interest, penalties or additions thereto. For
purposes of this Agreement, the term "Tax Return" shall mean any report, return
or other information or document required to be supplied to a taxing authority
in connection with Taxes.
SECTION 4.12 TITLE TO PROPERTIES; ENCUMBRANCES. Except as described in the
following sentence, each of the Company and its Subsidiaries has good, valid and
marketable title to, or a valid leasehold interest in, all of its material
properties and assets (real, personal and mixed, tangible and intangible),
including, without limitation, all the properties and assets reflected in the
consolidated balance sheet of the Company and its Subsidiaries as of August 31,
1996 included in the Company's Quarterly Report on Form 10-Q for the period
ended on such date (except for properties and assets disposed of in the ordinary
course of business and consistent with past practices since August 31, 1996).
None of such properties or assets are subject to any Liens (whether absolute,
accrued, contingent or otherwise), except (i) as specifically set forth in the
Company SEC Reports; (ii) Liens for taxes, assessments or other governmental
charges not
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delinquent or being contested in good faith and by appropriate proceedings and
with respect to which proper reserves have been taken by the Company or its
Subsidiaries and have been duly reflected on their books and records and, with
respect to reserves taken on or prior to August 31, 1996, the financial
statements of the Company ("Proper Reserves"); (iii) deposits or pledges to
secure obligations under workmen's compensation, social security or similar
laws, or under unemployment insurance as to which the Company and its
Subsidiaries are not in default; (iv) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of like
nature arising in the ordinary course of business of the Company or its
Subsidiaries; (v) judgment Liens listed on Schedule 4.12 that have been stayed
or bonded and mechanics', workmen's, materialmen's or other like liens with
respect to obligations which are not due or which are being contested in good
faith by the Company or its Subsidiaries and as to which they have taken Proper
Reserves; and (vi) minor imperfections of title and encumbrances, if any, which
are not substantial in amount, do not materially detract from the value of the
property or assets subject thereto and do not materially impair the operations
of any of the Company and its Subsidiaries.
SECTION 4.13 INTELLECTUAL PROPERTY.
(a) Except as set forth on Schedule 4.13(a), the Company and its
Subsidiaries are the sole and exclusive owners of all material patents, patent
applications, patent rights, trademarks, trademark rights, trade names, trade
name rights, copyrights, service marks and registrations for and applications
for registration of trademarks, service marks and copyrights, and are the sole
and exclusive owners of, or have an irrevocable, royalty free right to use, all
material technology and know-how, trade secrets, rights in computer software and
other proprietary rights and information and all technical and user manuals and
documentation made or used in connection with any of the foregoing, in each case
used or held for use in connection with the businesses of the Company or any of
its Subsidiaries as currently conducted (collectively, the "Intellectual
Property"), free and clear of all Liens except as set forth on Schedule 4.13(a)
and except minor imperfections of title and encumbrances, if any, which are not
substantial in amount, do not materially detract from the value of the
Intellectual Property subject thereto and do not impair in any material respect
the operations of any of the Company and its Subsidiaries.
(b) All outstanding registrations and applications for Intellectual Property
(i) are valid, subsisting, in proper form and enforceable, and have been duly
maintained, including the submission of all necessary filings and fees in
accordance with the legal and administrative requirements of the appropriate
jurisdictions and (ii) have not lapsed, expired or been abandoned, and no
application or registration therefor is the subject of any pending, or, to the
knowledge of the Company, threatened legal or governmental proceeding before any
registration authority in any jurisdiction.
(c) To the knowledge of the Company, there are no conflicts with or
infringements of any Intellectual Property by any third party. The conduct of
the businesses of the Company and its Subsidiaries as currently conducted
(collectively, the "Business") does not conflict with or infringe in any way any
proprietary right of any third party, which conflict or infringement would have
a Company Material Adverse Effect, and there is no claim, suit, action or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries (i) alleging any such conflict or
infringement with any third party's proprietary rights, or (ii) challenging the
ownership, use, validity or enforceability of the Intellectual Property.
SECTION 4.14 COMPLIANCE WITH APPLICABLE LAW. Except as set forth on Schedule
4.14 or as disclosed in the Company SEC Reports, (i) the Company and its
Subsidiaries hold, and are in compliance with the terms of, all material
permits, licenses, exemptions, orders and approvals of all Governmental Entities
necessary for the current and presently proposed conduct of their respective
businesses ("Company Permits"), (ii) no fact exists or event has occurred, and
no action or proceeding is pending or, to the Company's knowledge, threatened,
that has a reasonable possibility of resulting in a revocation, nonrenewal,
termination, suspension or other material impairment of any material Company
Permits, (iii) the
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businesses of the Company and its Subsidiaries are not being conducted in
violation, in any material respect, of any material applicable law, ordinance,
regulation, judgment, decree or order of any Governmental Entity ("Applicable
Law"), and (iv) to the knowledge of the Company, (x) no investigation or review
by any Governmental Entity with respect to the Company or its Subsidiaries is
pending or threatened or has been undertaken within the past six years, and (y)
no Governmental Entity has indicated an intention to conduct the same.
SECTION 4.15 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENT. None of the information to be supplied by the Company for inclusion
in (i) the Registration Statement to be filed with the SEC by Parent on Form S-4
under the Securities Act for the purpose of registering the shares of Parent
Common Stock to be issued in connection with the Merger (the "Registration
Statement") or (ii) the proxy statement to be distributed in connection with the
Company's meeting of stockholders to vote upon this Agreement (the "Proxy
Statement") will, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time, or, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of the meeting of stockholders of the Company to be held in connection
with the Merger, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all material
respects with the applicable provisions of the Exchange Act, and the rules and
regulations promulgated thereunder, except that no representation is made by the
Company with respect to statements made therein based on information supplied by
Parent or its representatives for inclusion in the Proxy Statement or with
respect to information concerning Parent or any of its Subsidiaries incorporated
by reference in the Proxy Statement.
SECTION 4.16 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Schedule 4.16 hereto sets forth a true and complete list of each
material employee benefit plan, arrangement or agreement that is maintained, or
was maintained at any time during the five (5) calendar years preceding the date
of this Agreement (the "Company Plans"), by the Company or by any trade or
business, whether or not incorporated (a "Company ERISA Affiliate"), which
together with the Company would be deemed a "single employer" within the meaning
of Section 4001 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(b) Each of the Company Plans that is subject to ERISA is and has been in
compliance with ERISA and the Code in all material respects; each of the Company
Plans intended to be "qualified" within the meaning of Section 401(a) of the
Code is so qualified; no Company Plan has an accumulated or waived funding
deficiency within the meaning of Section 412 of the Code; neither the Company
nor any Company ERISA Affiliate has incurred, directly or indirectly, any
material liability (including any material contingent liability) to or on
account of a Company Plan pursuant to Title IV of ERISA; no proceedings have
been instituted to terminate any Company Plan that is subject to Title IV of
ERISA; no "reportable event," as such term is defined in Section 4043(b) of
ERISA, has occurred with respect to any Company Plan; and no condition exists
that presents a material risk to the Company or any Company ERISA Affiliate of
incurring a liability to or on account of a Company Plan pursuant to Title IV of
ERISA.
(c) The current value of the assets of each of the Company Plans that are
subject to Title IV of ERISA, based upon the actuarial assumptions (to the
extent reasonable) presently used by the Company Plans, exceeds the present
value of the accrued benefits under each such Company Plan; no Company Plan is a
multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) and no
Company Plan is a multiple employer plan as defined in Section 413 of the Code;
and all material contributions or other amounts payable by the Company as of the
Effective Time with respect to each Company Plan in respect of current or prior
plan years have been either paid or accrued on the balance sheet of the Company.
To the knowledge of the Company, there are no material pending, threatened or
anticipated claims (other than
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routine claims for benefits) by, on behalf of or against any of the Company
Plans or any trusts related thereto.
(d) Neither the Company nor any Company ERISA Affiliate, nor any Company
Plan, nor any trust created thereunder, nor any trustee or administrator thereof
has engaged in a transaction in connection with which the Company or any Company
ERISA Affiliate, any Company Plan, any such trust, or any trustee or
administrator thereof, or any party dealing with any Company Plan or any such
trust could be subject to either a material civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section
4975 or 4976 of the Code. No Company Plan provides death or medical benefits
(whether or not insured), with respect to current or former employees of the
Company or any Company ERISA Affiliate beyond their retirement or other
termination of service other than (i) coverage mandated by applicable law or
(ii) death benefits under any "employee pension plan," as that term is defined
in Section 3(2) of ERISA).
SECTION 4.17 ENVIRONMENTAL LAWS AND REGULATIONS.
a. Except as set forth on Schedule 4.17(a): (i) the Company and its
Subsidiaries are and have been, in all material respects, in compliance with,
and there are no outstanding allegations by any person or entity that the
Company or its Subsidiaries has not been in compliance with, all material
applicable laws, rules, regulations, common law, ordinances, decrees, orders or
other binding legal requirements relating to pollution (including the treatment,
storage and disposal of wastes and the remediation of releases and threatened
releases of materials), the preservation of the environment, and the exposure to
materials in the environment or work place ("Environmental Laws") and (ii) the
Company and its Subsidiaries currently hold all material permits, licenses,
registrations and other governmental authorizations (including exemptions,
waivers, and the like) and financial assurance required under Environmental Laws
for the Company and its Subsidiaries to operate their businesses as currently
conducted.
(b) Except as set forth on Schedule 4.17(b), to the knowledge of the Company
(and without special investigation for purposes hereof) (i) there is no friable
asbestos-containing material in or on any real property currently owned, leased
or operated by the Company or its Subsidiaries and (ii) there are and have been
no underground storage tanks (whether or not required to be registered under any
applicable law), dumps, landfills, lagoons, surface impoundments, injection
wells or other land disposal units in or on any property currently owned, leased
or operated by the Company or its Subsidiaries.
(c) Except as set forth on Schedule 4.17(c), (i) neither the Company nor its
Subsidiaries has received (x) any written communication from any person stating
or alleging that any of them may be a potentially responsible party under any
Environmental Law (including, without limitation, the Federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended)
with respect to any actual or alleged environmental contamination or (y) any
request for information under any Environmental Law from any Governmental Entity
with respect to any actual or alleged material environmental contamination; and
(ii) none of the Company, its Subsidiaries or any Governmental Entity is
conducting or has conducted (or, to the knowledge of the Company, is threatening
to conduct) any environmental remediation or investigation.
SECTION 4.18 VOTE REQUIRED. The affirmative vote of the holders of
two-thirds of the outstanding shares of the Company Common Stock are the only
votes of the holders of any class or series of the Company's capital stock
necessary to approve the Merger. The Board of Directors of the Company, at a
meeting duly called and held on March 7, 1997, unanimously (i) approved this
Agreement and the Proxy and Option Agreement, (ii) determined that the
transactions contemplated hereby and thereby are fair to and in the best
interests of the holders of Company Common Stock and (iii) determined to
recommend this Agreement, the Merger and the other transactions contemplated
hereby to such holders for approval and adoption. The resolutions of the
Company's Board of Directors taking the actions described in the preceding
sentence have not been rescinded, withdrawn, amended or otherwise modified,
remain in full
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force and effect, and constitute the only action of such Board of Directors with
respect to the Merger or the other transactions contemplated by this Agreement.
SECTION 4.19 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Houlihan, Lokey, Howard & Zukin, Inc., dated March 7, 1997,
substantially to the effect that the consideration to be received in the Merger
by the holders of Company Common Stock is fair to such holders from a financial
point of view, a copy of which opinion has been delivered to Parent.
SECTION 4.20 ACCOUNTING MATTERS. None of the Company, any of its
Subsidiaries or any of their respective directors, officers or stockholders has
taken any action which would prevent the accounting for the Merger as a pooling
of interests in accordance with Accounting Principles Board Opinion No. 16, the
interpretative releases pursuant thereto and the pronouncements of the SEC.
SECTION 4.21 NYBCL SECTION 912. Prior to the date hereof, the Board of
Directors of the Company has approved this Agreement and the Proxy and Option
Agreement, and the Merger and the other transactions contemplated hereby and
thereby, and such approval is sufficient to render inapplicable to the Merger
and any of such other transactions the provisions of Section 912 of the NYBCL.
SECTION 4.22 LABOR MATTERS. Neither the Company nor any of its Subsidiaries
is a party to, or bound by, any collective bargaining agreement, contract or
other understanding with a labor union or labor organization and, to the
knowledge of the Company, there is no activity involving any employees of the
Company or its Subsidiaries seeking to certify a collective bargaining unit or
engaging in any other organizational activity.
SECTION 4.23 AFFILIATE TRANSACTIONS. Except as set forth in Schedule 4.23 or
as disclosed in the Company SEC Reports, there are no Contracts or other
transactions between the Company or any of its Subsidiaries, on the one hand,
and any (i) officer or director of the Company or any of its Subsidiaries, (ii)
record or beneficial owner of five percent or more of the voting securities of
the Company or (iii) affiliate (as such term is defined in Regulation 12b-2
promulgated under the Exchange Act) of any such officer, director or beneficial
owner, on the other hand.
SECTION 4.24 BROKERS. Except for its financial advisors, Houlihan, Lokey,
Howard & Zukin, Inc., Bangert, Dawes, Reade, Davis & Thom, Incorporated, and
Royce Investment Group, Inc., no broker, finder or financial advisor is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company, and the Company has delivered
to the Parent true, complete and correct copies of (or, in the case of any oral
agreement or arrangement, a true, complete and correct summary of) each
agreement or arrangement pursuant to which any of such advisors is entitled to
any such fee or commission.
SECTION 4.25 TAX MATTERS. The Company knows of no fact or circumstance which
is reasonably likely to cause the Merger to be treated other than as a tax-free
reorganization under Section 368(a) of the Code.
SECTION 4.26 ACCOUNTS RECEIVABLE. All of the accounts and notes receivable
of the Company and its Subsidiaries set forth on the books and records of the
Company or to be incurred after the date hereof (in each case net of the
applicable reserves reflected or, with respect to future accounts and notes
receivable, to be reflected on the books and records of the Company and in the
financial statements included in the Company's SEC reports): (i) represent or
will represent sales actually made or to be made in the ordinary course of
business for goods or services delivered or rendered to unaffiliated customers
in bona fide arm's length transactions, (ii) constitute or will constitute valid
claims, and (iii) are, or upon incurrence will be, good and collectible, in each
case at the aggregate recorded amounts thereof without right of recourse,
defense, deduction, return of goods, counterclaim, or offset and have been or
will be collected in the ordinary course of business and consistent with past
experience.
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SECTION 4.27 INVENTORY. All inventory of the Company and its Subsidiaries is
(net of the applicable reserves reflected on the books and records of the
Company and in the financial statements included in the Company's SEC reports)
of merchantable quality, free of defects in workmanship or design and is usable
and salable at normal profit margins and in accordance with historical sales
practices in the ordinary course of the business of the Company and its
Subsidiaries. The Inventory (net of such reserves) does not include any items
which are obsolete, damaged, excessive, below standard quality or slow moving
(I.E., items that are for discontinued or expected to be discontinued product
lines, or items that have not been used or sold within 12 months prior to the
date hereof).
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
SECTION 5.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power to carry on its business as it is now being conducted or
presently proposed to be conducted. Parent is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified will not have a material adverse effect individually or in the
aggregate, on the financial condition, results of operations, business, assets,
liabilities, prospects or properties of Parent and its Subsidiaries taken as a
whole or on the ability of Parent to consummate the Merger and the other
transactions contemplated by this Agreement (a "Parent Material Adverse
Effect"). Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York. Sub has not engaged in any
business (other than in connection with this Agreement and the transactions
contemplated hereby) since the date of its incorporation. Schedule 5.1 contains
a complete and accurate list of all Subsidiaries of Parent.
SECTION 5.2 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of 60,000,000 shares of
Parent Common Stock and 1,000,000 shares of Preferred Stock, par value $.01 per
share, of Parent ("Parent Preferred Stock"). As of the date hereof, (i)
approximated 23,282,000 shares of Parent Common Stock are issued and
outstanding, (ii) no shares of Parent Preferred Stock are issued and
outstanding, (iii) options to acquire approximately 800,000 shares of Parent
Common Stock (the "Parent Stock Options") are outstanding under all stock option
plans of Parent, and (iv) approximately 800,000 shares of Parent Common Stock
are reserved for issuance pursuant to the Parent Stock Options and all other
Rights to purchase or otherwise receive capital stock or other securities of
Parent. All of the outstanding shares of capital stock of Parent are, and the
shares of Parent Common Stock issuable in exchange for shares of Company Common
Stock at the Effective Time in accordance with this Agreement will be, when so
issued, duly authorized, validly issued, fully paid and nonassessable.
(b) The authorized capital stock of Sub consists of 1,000 shares of Sub
Common Stock, of which 1,000 shares, as of the date hereof, were issued and
outstanding. All of such outstanding shares are owned by Parent, and are validly
issued, fully paid and nonassessable.
(c) Except as disclosed in Schedule 5.2, (i) there are no outstanding Rights
to purchase or otherwise to receive from Parent or Sub any of the outstanding
authorized but unissued or treasury shares of the capital stock or any other
security of Parent or Sub, (ii) there is no outstanding security of any kind
convertible into or exchangeable for such capital stock, and (iii) there is no
voting trust or other agreement or understanding to which Parent or Sub is a
party or is bound with respect to the voting of the capital stock of Parent or
Sub.
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(d) Parent and its subsidiaries do not beneficially own any shares of the
Company's voting stock and, to Parent's knowledge, none of its affiliates or
associates (as such terms are defined in Section 912 of the NYBCL) beneficially
own any shares of the Company's voting stock.
SECTION 5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Sub has
the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each of Parent and Sub and the consummation by
Parent and Sub of the transactions contemplated on its part hereby have been
duly authorized by their respective Boards of Directors, and by Parent as the
sole stockholder of Sub, and no other corporate proceedings on the part of
Parent or Sub are necessary to authorize this Agreement or for Parent and Sub to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by each of Parent and Sub and constitutes a
valid and binding agreement of each of Parent and Sub, enforceable against
Parent and Sub in accordance with its terms.
SECTION 5.4 CONSENTS AND APPROVALS NO VIOLATIONS. Neither the execution,
delivery and performance of this Agreement by Parent or Sub, nor the
consummation by Parent or Sub of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provisions of the Certificate of
Incorporation or By-Laws of Parent or of Sub, (ii) require a filing with, or a
permit, authorization, consent or approval of, any Governmental Entity except in
connection with or in order to comply with the applicable provisions of the HSR
Act, the Securities Act, the Exchange Act, state securities or "blue sky" laws,
the By-Laws of the NASD, and the filing and recordation of a Certificate of
Merger as required by the NYBCL, (iii) except as set forth on Schedule 5.4
hereto, result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the creation of a
Lien on any property or asset of Parent or any of its Subsidiaries pursuant to,
any of the terms, conditions or provisions of any material Contract to which
Parent or Sub is a party or by which either of them or any of their properties
or assets may be bound or (iv) violate any material law, order, writ,
injunction, decree, statute, rule or regulation of any Governmental Entity
applicable to Parent, Sub or any of their properties or assets.
SECTION 5.5 REPORTS AND FINANCIAL STATEMENTS. Parent has timely filed all
reports required to be filed with the SEC pursuant to the Exchange Act or the
Securities Act since November 3, 1995 (collectively, the "Parent SEC Reports"),
and has previously made available to the Company true and complete copies of all
such Parent SEC Reports. Such Parent SEC Reports, as of their respective dates,
complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and none of such SEC
Reports contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Parent included in the Parent SEC
Reports have been prepared in accordance with GAAP consistently applied
throughout the periods indicated (except as otherwise noted therein) and fairly
present the consolidated financial position of Parent and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of operations
and cash flows of Parent and its consolidated Subsidiaries for each of the
periods then ended, except that in the case of the unaudited consolidated
financial statements included in any Form 10-Q, the presentation and disclosures
conform with the applicable rules of the Exchange Act, but include all
adjustments necessary to conform to GAAP requirements with respect to interim
financial statements. Since December 31, 1995, there has been no change in any
of the significant accounting (including tax accounting) policies, practices or
procedures of the Parent or, except as set forth on Schedule 5.5, any of its
consolidated Subsidiaries.
SECTION 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS; MATERIAL CONTRACTS. Except
as set forth in the Parent SEC Reports, since September 29, 1996, (i) Parent has
not conducted its business and operations other than in the ordinary course of
business and consistent with past practices or taken any of the actions set
forth in Section 6.2(b) and (ii) there has not been any fact, event,
circumstance or change affecting or
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relating to Parent and its Subsidiaries which has had or is reasonably likely to
have a Parent Material Adverse Effect.
SECTION 5.7 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENT. None of the information to be supplied by Parent or Sub for inclusion
in (i) the Registration Statement or (ii) the Proxy Statement will in the case
of the Registration Statement, at the time it becomes effective and at the
Effective Time, or, in the case of the Proxy Statement or any amendments thereof
or supplements thereto, at the time of the mailing of the Proxy Statement and
any amendments or supplements thereto, and at the time of the meeting of
stockholders of the Company to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement will comply as to form in all material
respects with the applicable provisions of the Securities Act and the Exchange
Act, and the rules and regulations promulgated thereunder, except that no
representation is made by Parent with respect to statements made therein based
on information supplied by the Company or its respective representatives for
inclusion in the Registration Statement or the Proxy Statement or with respect
to information concerning the Company or any of its Subsidiaries incorporated by
reference in the Registration Statement or the Proxy Statement.
SECTION 5.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities or
obligations which are accrued or reserved against in Parent's consolidated
financial statements (or reflected in the notes thereto) included in the Company
SEC Reports or which were incurred after September 30, 1996 in the ordinary
course of business and consistent with past practice, and except as set forth on
Schedule 5.8, none of Parent and its Subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in a consolidated balance sheet (or reflected
in the notes thereto) or which would have a Parent Material Adverse Effect.
SECTION 5.9 COMPLIANCE WITH APPLICABLE LAW. Except as set forth on Schedule
5.9 or as disclosed in the Parent SEC Reports, (i) the Parent and its
Subsidiaries hold, and are in compliance with the terms of, all material
permits, licenses, exemptions, orders and approvals of all Governmental Entities
necessary for the current and presently proposed conduct of their respective
businesses ("Parent Permits"), (ii) no fact exists or event has occurred, and no
action or proceeding is pending or, to Parent's knowledge, threatened, that has
a reasonable possibility of resulting in a revocation, nonrenewal, termination,
suspension or other material impairment of any material Parent Permits, (iii)
the businesses of Parent and its Subsidiaries are not being conducted in
violation of Applicable Law, and (iv) to the knowledge of Parent, (x) no
investigation or review by any Governmental Entity with respect to Parent or its
Subsidiaries is pending or threatened and (y) no Governmental Entity has
indicated an intention to conduct the same.
SECTION 5.10 LITIGATION. Except for litigation disclosed in the notes to the
financial statements included in Parent's Annual Report to Stockholders for the
year ended December 31, 1995 or in Parent SEC Reports filed subsequent thereto,
there is no suit, action, proceeding or investigation pending or, to the
knowledge of Parent, threatened against or affecting Parent or any of its
Subsidiaries, the outcome of which, in the reasonable judgment of Parent, is
likely to have a Parent Material Adverse Effect; nor is there any judgment,
decree, injunction, ruling or order of any Governmental Entity outstanding
against Parent or any of its Subsidiaries having, or which is reasonably likely
to have, a Parent Material Adverse Effect.
SECTION 5.11 OPINION OF FINANCIAL ADVISOR. Parent has received the opinion
of Tanner & Co., Inc., dated March 7, 1997, substantially to the effect that the
consideration to be received in the Merger by the holders of Company Common
Stock is fair to the holders of Parent Common Stock from a financial point of
view, a copy of which opinion has been delivered to the Company.
SECTION 5.12 ACCOUNTING MATTERS. None of the Parent, any of its Subsidiaries
or any of their respective directors, officers or stockholders has taken any
action which would prevent the accounting for
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the Merger as a pooling of interests in accordance with Accounting Principles
Board Opinion No. 16, the interpretative releases pursuant thereto and the
pronouncements of the SEC.
SECTION 5.13 TAX MATTERS. Parent knows of no fact or circumstance which is
reasonably likely to cause the Merger to be treated other than as a tax-free
reorganization under Section 368(a) of the Code.
SECTION 5.14 BROKERS. Except for its financial advisor, Tanner & Co., Inc.,
no broker, finder or financial advisor is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Sub.
SECTION 5.15 NO DEFAULT. Neither Parent nor any Subsidiary of Parent is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (i) its charter, by-laws or comparable organizational documents,
(ii) any material Contract to which Parent or any of its Subsidiaries is a party
or by which they or any of their properties or assets may be bound, or (iii) any
material order, writ, injunction or decree, or any material statute, rule or
regulation, of any Governmental Entity applicable to Parent or any of its
Subsidiaries.
ARTICLE VI.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. From the
date of this Agreement until the earlier of the Effective Time or the
termination of this Agreement, unless Parent shall otherwise agree in writing,
or as otherwise expressly contemplated by this Agreement:
(a) the Company shall conduct, and cause each of its Subsidiaries to
conduct, its business only in the ordinary and usual course consistent with
past practice, and the Company shall use, and cause each of its Subsidiaries
to use, its reasonable efforts to preserve intact the present business
organization, keep available the services of its present officers and key
employees, and preserve the goodwill of those having business relationships
with it;
(b) the Company shall not, nor shall it permit any of its Subsidiaries
to, (i) amend its charter, bylaws or other organizational documents, (ii)
split, combine or reclassify any shares of its outstanding capital stock,
(iii) declare, set aside or pay any dividend or other distribution payable
in cash, stock or property, or (iv) directly or indirectly redeem or
otherwise acquire any shares of its capital stock or shares of the capital
stock of any of its Subsidiaries;
(c) the Company shall not, nor shall it permit any of its Subsidiaries
to, (i) authorize for issuance, issue or sell or agree to issue or sell any
shares of, or Rights to acquire or convertible into any shares of, its
capital stock or shares of the capital stock of any of its Subsidiaries
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), except for the issuance of
shares of Company Common Stock upon the exercise of Company Stock Options
outstanding on the date of this Agreement, or amend any outstanding Company
Stock Option, Company Warrant or other Right, except that the Company may
amend the terms of the Company Stock Options set forth on Schedule 4.2(b)
under the heading "1987 Plan" to provide that the holders thereof may
exercise such options prior to their expiration dates regardless of whether
such holders are then serving as directors of the Company; (ii) merge or
consolidate with another entity; (iii) acquire or purchase an equity
interest in or a substantial portion of the assets of another corporation,
partnership or other business organization (except for such potential
acquisitions, and on substantially such terms, as have been described in a
letter executed and delivered by the Company and Parent simultaneously with
the execution and delivery of this Agreement and provided that the Company
keeps Parent informed as to the status of all negotiations with respect
thereto
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(including any termination of such negotiations) and gives Parent prior
notice of the consummation of any such acquisition and the signing of any
agreement with respect thereto) or otherwise acquire any assets outside the
ordinary and usual course of business and consistent with past practice or
otherwise enter into any material contract, commitment or transaction
outside the ordinary and usual course of business consistent with past
practice; (iv) sell, lease, license, waive, release, transfer, encumber or
otherwise dispose of any of its assets outside the ordinary and usual course
of business and consistent with past practice; (v) incur, assume or prepay
any material indebtedness or any other material liabilities other than in
the ordinary course of business and consistent with past practice; (vi)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person other than a Subsidiary of the Company or customers, in each
case in the ordinary course of business and consistent with past practice;
(vii) make, extend or modify in any material respect any loans, advances or
capital contributions to, or investments in, any other person, other than to
Subsidiaries of the Company or loans to employees of the Company or any of
its Subsidiaries, in an aggregate amount not exceeding $25,000, for such
reasons, and on such terms and conditions, as are consistent with past
practice; (viii) authorize or make capital expenditures in excess of the
respective amounts set forth on Schedule 6.1 hereto; (ix) permit any
insurance policy naming the Company or any Subsidiary of the Company as a
beneficiary or a loss payee to be canceled or terminated other than in the
ordinary course of business; or (x) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(d) the Company shall not, nor shall it permit its Subsidiaries to, (i)
adopt, enter into, terminate or amend (except as may be required by
Applicable Law) any Company Plan or other arrangement for the current or
future benefit or welfare of any director, officer or current or former
employee, (ii) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, officer or employee (except for
normal increases in compensation in the ordinary course of business
consistent with past practice and accrued and unpaid bonuses in respect of
the Company's fiscal year ended November 30, 1996 that are consistent with
past practice and have been properly accrued and reflected on the Company's
books and records, or (iii) take any action to fund or in any other way
secure, or to accelerate or otherwise remove restrictions with respect to,
the payment of compensation or benefits under any employee plan, agreement,
contract, arrangement or other Company Plan (including the Company Stock
Options);
(e) the Company shall not, nor shall it permit its Subsidiaries to, take
any action with respect to, or make any material change in, its accounting
or tax policies or procedures, except as required by law or to comply with
GAAP; and
(f) the Company shall not (i) take any action or allow any action to be
taken by any of its Subsidiaries or affiliates which would jeopardize the
treatment of Parent's acquisition of the Company as a pooling of interests
for accounting purposes; or (ii) take any action which would jeopardize
qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
SECTION 6.2 CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. From the date
of this Agreement until the earlier of the Effective Time or the termination of
this Agreement, unless the Company shall otherwise agree in writing, or as
otherwise expressly contemplated by this Agreement:
(a) Parent shall conduct its business and the business of its
Subsidiaries in a manner designed, in the good faith judgment of its Board
of Directors, to enhance the long-term value of the Parent Common Stock and
the business prospects of Parent and its Subsidiaries;
(b) Parent shall not (i) split, combine or reclassify any shares of its
outstanding capital stock; or (ii) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property;
(c) Parent shall not authorize for issuance, issue or sell or agree to
issue or sell any shares of, or Rights to acquire or convertible into any
shares of, its capital stock, except for (i) the issuance of
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shares of Parent Common Stock (x) upon the exercise of Parent Stock Options
or other Rights outstanding on the date of this Agreement or (y) upon the
exercise of Rights described in the immediately following clause (ii), (ii)
the issuance of Rights pursuant to existing employee benefit plans or
arrangements in a manner consistent with past practice, and (iii) the
issuance of shares of Parent Common Stock in connection with arms' length
acquisitions with non-affiliates; and
(d) Except as described on Schedule 6.2(d), Parent shall not, nor shall
it permit any of its Subsidiaries to, (i) amend its charter, bylaws or other
organizational documents, (ii) split, combine or reclassify any shares of
its outstanding capital stock, or (iii) directly or indirectly redeem or
otherwise acquire any shares of its capital stock or shares of the capital
stock of any of its Subsidiaries.
SECTION 6.3 CONDUCT OF BUSINESS OF SUB. During the period from the date of
this Agreement to the Effective Time, Sub shall not engage in any activities of
any nature except as provided in or contemplated by this Agreement. It is
understood that Sub was formed by Parent solely for the purpose of effecting the
Merger, and that Sub will have no material assets and no material liabilities
prior to the Merger. Parent shall cause Sub to perform its obligations under
this Agreement.
ARTICLE VII.
ADDITIONAL AGREEMENTS
SECTION 7.1 ACCESS AND INFORMATION. Each of the Company and Parent shall
(and shall cause its Subsidiaries and its and their respective officers,
directors, employees, auditors and agents to) afford to the other and to the
other's officers, employees, financial advisors, legal counsel, accountants,
consultants and other representatives reasonable access, during normal business
hours throughout the period from the date hereof until the earlier of the
Effective Time and the termination of this Agreement, to all of its books and
records and its properties, plants and personnel and, during such period, each
shall furnish promptly to the other a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of federal
securities laws, provided that no investigation pursuant to this Section 7.1
shall affect any representations or warranties made herein or the conditions to
the obligations of the respective parties to consummate the Merger. Unless
otherwise required by law, each of Parent and the Company agrees that it (and
its respective Subsidiaries and its and their respective representatives) shall
hold in confidence all non-public information so acquired in accordance with the
terms of the confidentiality agreement between Parent and the Company executed
in November 1996 (the "Confidentiality Agreement").
SECTION 7.2 NO SOLICITATION.
(a) Prior to the Effective Time, the Company agrees that neither it, any of
its Subsidiaries or its affiliates, nor any of the respective directors,
officers, employees, affiliates, agents or representatives of the foregoing
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its Subsidiaries) will, directly or
indirectly, solicit, initiate, facilitate or encourage (including by way of
furnishing or disclosing non-public information) any inquiries or the making of
any proposal with respect to or which may reasonably be expected to lead to, any
merger, consolidation or other business combination involving the Company or any
Subsidiary of the Company (other than any acquisition by the Company permitted
under Section 6.1(c)) or the acquisition of all or any significant assets or
capital stock of the Company or any Subsidiary of the Company taken as a whole
(an "Acquisition Transaction") or negotiate, explore or otherwise engage in
discussions with any corporation, partnership, person, other entity or group (as
defined in Section 13(d)(2) of the Exchange Act) (other than Parent and its
representatives) in furtherance of such inquiries or with respect to any
Acquisition Transaction, or endorse any Acquisition Transaction, or enter into
any agreement, arrangement or understanding with respect to any such Acquisition
Transaction or which would require it to abandon, terminate or fail to
consummate the Merger or any other transaction contemplated by this Agreement;
provided, however, that the Company may, in response to an unsolicited written
proposal from a third party, furnish
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information to and engage in discussions with such third party, in each case
only if the Board of Directors of the Company determines in good faith by a
majority vote, after consultation with its financial advisor, Houlihan, Lokey,
Howard & Zukin, Inc., and after reviewing the advice of outside counsel to the
Company, that such action is reasonably likely to be required by the fiduciary
duties of the Board of Directors and, prior to taking such action, the Company
(i) provides reasonable notice to Parent to the effect that it is taking such
action and (ii) receives from such corporation, partnership, person or other
entity or group (and delivers to Parent) an executed confidentiality agreement
in reasonably customary form. The Company agrees that as of the date hereof, it,
its Subsidiaries and affiliates, and the respective directors, officers,
employees, agents and representatives of the foregoing, shall immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any person (other than Parent and its representatives) conducted heretofore
with respect to any Acquisition Transaction. The Company agrees to immediately
advise Parent in writing of any inquiries or proposals (or desire to make a
proposal) received by (or indicated to), any such information requested from, or
any such negotiations or discussions sought to be initiated or continued with,
any of it, its Subsidiaries or affiliates, or any of the respective directors,
officers, employees, agents or representatives of the foregoing, in each case
from a corporation, partnership, person or other entity or group (other than
Parent and its representatives) with respect to an Acquisition Transaction, and
the terms thereof, including the identity of such third party, and to update on
an ongoing basis or upon Parent's request, the status thereof, as well as any
actions taken or other developments pursuant to this Section 7.2(a).
Notwithstanding anything in the foregoing provisions of the Section 7.2(a) to
the contrary: (i) the Company shall not disclose any information received by it
or any of its directors, officers, employees, agents or representatives pursuant
to the Confidentiality Agreement or any other confidentiality or other similar
agreement between the Company and Parent to any person in violation of such
agreement and (ii) the Company shall not be obligated to disclose to Parent any
confidential information provided to the Company by any third party in violation
of any confidentiality agreement between the Company and such third party
provided for in this Section 7.2.
(b) Except as set forth in this Section 7.2(b), the Board of Directors of
the Company shall not (i) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to the Parent or the Sub, the approval or recommendation by
the Board of Directors of this Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Transaction or
(iii) cause the Company to enter into any agreement with respect to any
Acquisition Transaction. Notwithstanding the foregoing, in the event that prior
to the Effective Time the Board of Directors of the Company determines in good
faith by a majority vote, after consultation with its financial advisor,
Houlihan, Lokey, Howard & Zukin, Inc., and after reviewing the advice of outside
counsel to the Company, that such action is reasonably likely to be required by
the fiduciary duties of the Board of Directors, the Board of Directors of the
Company may withdraw or modify its approval or recommendation of this Agreement
and the Merger, approve or recommend an Acquisition Transaction or cause the
Company to enter into an agreement with respect to an Acquisition Transaction,
provided, in each case, that such Board determines in its good faith reasonable
judgment, by a majority vote after consultation with its financial advisor and
after reviewing the advice of outside counsel to the Company, that the
Acquisition Transaction is more favorable to the stockholders of the Company
than the Merger. The Company shall provide reasonable prior notice to the Parent
or the Sub to the effect that it is taking such action.
SECTION 7.3 REGISTRATION STATEMENT. As promptly as practicable, Parent and
the Company shall in consultation with each other prepare and file with the SEC
the Proxy Statement and Parent in consultation with the Company shall prepare
and file with the SEC the Registration Statement. Each of Parent and the Company
shall use its reasonable best efforts to have the Registration Statement
declared effective as soon as practicable. Parent shall also use its reasonable
best efforts to take any action required to be taken under state securities or
"blue sky" laws in connection with the issuance of the shares of Parent Common
Stock pursuant to this Agreement in the Merger. The Company shall furnish Parent
with all information concerning the Company and the holders of its capital stock
and shall take such other action as Parent may reasonably request in connection
with the Registration Statement and the issuance of shares of Parent
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Common Stock, and Parent shall furnish the Company with all information
concerning Parent and the holders of its capital stock and shall take such other
action as the Company may reasonably request in connection with the Proxy
Statement. If at any time prior to the Effective Time any event or circumstance
relating to Parent, any Subsidiary of Parent, the Company, any Subsidiary of the
Company, or their respective officers or directors, should be discovered by such
party which should be set forth in an amendment or a supplement to the
Registration Statement or Proxy Statement, such party shall promptly inform the
other thereof and take appropriate action in respect thereof.
SECTION 7.4 PROXY STATEMENTS; STOCKHOLDER APPROVAL.
(a) The Company, acting through its Board of Directors, shall, subject to
and in accordance with applicable law and its Certificate of Incorporation and
By-Laws, promptly and duly call, give notice of and, as soon as practicable
following the date upon which the Registration Statement becomes effective, hold
a meeting of the holders of Company Common Stock for the purpose of voting to
approve and adopt this Agreement and the transactions contemplated hereby, and,
except as otherwise provided in Section 7.2(b), (i) recommend approval and
adoption of this Agreement and the transactions contemplated hereby, by the
stockholders of the Company and include in the Proxy Statement such
recommendation and (ii) take all reasonable and lawful action to solicit and
obtain such approval.
(b) The Company, as promptly as practicable, shall cause the definitive
Proxy Statement to be mailed to its stockholders.
(c) At or prior to the Closing, the Company shall deliver to Parent a
certificate of its Secretary setting forth the voting results from its
stockholder meeting.
SECTION 7.5 COMPLIANCE WITH THE SECURITIES ACT.
(a) At least 10 days prior to the Effective Time, the Company shall cause to
be delivered to Parent a list identifying all persons who were at the record
date for its stockholders' meeting convened in accordance with Section 7.4
hereof, "affiliates" of the Company, as that term is used in paragraphs (c) and
(d) of Rule 145 under the Securities Act (the "Affiliates").
(b) The Company shall use its reasonable best efforts to cause each person
who is identified as one of its Affiliates in its list referred to in Section
7.5(a) above to deliver to Parent (with a copy to the Company), at least 10 days
prior to the Effective Time, a written agreement, in the form attached hereto as
Exhibit B (the "Affiliate Agreement").
(c) If any Affiliate of the Company refuses to provide an Affiliate
Agreement, Parent may place appropriate legends on the certificates evidencing
the shares of Parent Common Stock to be received by such Affiliate pursuant to
the terms of this Agreement and may issue appropriate stop transfer instructions
to the transfer agent for shares of Parent Common Stock to the effect that the
shares of Parent Common Stock received by such Affiliate pursuant to this
Agreement only may be sold, transferred or otherwise conveyed (i) pursuant to an
effective registration statement under the Securities Act, (ii) in compliance
with Rule 145 promulgated under the Securities Act, or (iii) pursuant to another
exemption under the Securities Act.
SECTION 7.6 REASONABLE BEST EFFORTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, the obtaining of all necessary
waivers, consents and approvals and the effecting of all necessary registrations
and filings. Without limiting the generality of the foregoing, as promptly as
practicable, the Company, Parent and Sub shall make all filings and submissions
under the HSR Act as may be reasonably required to be made in connection with
this Agreement and the transactions contemplated hereby. Subject to the
Confidentiality Agreement, the Company will furnish to Parent and Sub, and
Parent and Sub will
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furnish to the Company, such information and assistance as the other may
reasonably request in connection with the preparation of any such filings or
submissions. Subject to the Confidentiality Agreement, the Company will provide
Parent and Sub, and Parent and Sub will provide the Company, with copies of all
material written correspondence, filings and communications (or memoranda
setting forth the substance thereof) between such party or any of its
representatives and any Governmental Entity, with respect to the obtaining of
any waivers, consent or approvals and the making of any registrations or
filings, in each case that is necessary to consummate the Merger and the other
transactions contemplated hereby. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers or directors of Parent and the Surviving
Corporation shall take all such necessary action.
SECTION 7.7 PROXY AND OPTION AGREEMENT. Concurrently herewith, and as an
essential inducement for Parent's entering into this Agreement, Parent and Sub
are entering into the Proxy and Option Agreement with certain holders of Company
Common Stock with respect to all such shares of Company Common Stock held by
such holders, except for the Excluded Reade Shares (as described in the Option
and Proxy Agreement).
Section 7.8 COMPANY STOCK OPTIONS. To the extent permitted by the respective
terms of the Company Stock Options and the plans under which they were issued
and the respective terms of the Company Stock Warrants, at the Effective Time,
each of the Company Stock Options (and, solely with respect to such options, the
applicable option plans pursuant to which such options were issued) and each of
the Company Warrants which is outstanding immediately prior to the Effective
Time and listed on Schedule 4.2(b) shall be assumed by Parent on the terms set
forth herein and converted automatically into an option or a warrant, as the
case may be, to purchase shares of Parent Common Stock (each, a "Converted
Option" or a "Converted Warrant", as the case may be) in an amount and at an
exercise price determined as provided below:
(a) The number of shares of Parent Common Stock to be subject to a
Converted Option or a Converted Warrant shall be equal to the product of the
number of shares of Company Common Stock remaining subject (as of
immediately prior to the Effective Time) to the original option or warrant
and the Exchange Ratio, provided that any fractional shares of Parent Common
Stock resulting from such multiplication shall be rounded down to the
nearest share; and
(b) The exercise price per share of Parent Common Stock under a
Converted Option or a Converted Warrant shall be equal to the exercise price
per share of Company Common Stock under the original option or warrant
divided by the Exchange Ratio, provided that such exercise price shall be
rounded down to the nearest cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be
modified to the extent required to comply with Section 424(a) of the Code and
the applicable Treasury Regulations. After the Effective Time, each Converted
Option shall be exercisable and shall vest upon the same terms and conditions as
were applicable to the related Company Stock Option immediately prior to the
Effective Time, except that all references to the Company shall be deemed to be
references to Parent. Parent shall file with the SEC a registration statement on
Form S-8 (or other appropriate form) and shall take any action required to be
taken under state securities "blue sky" laws for purposes of registering all
shares of Parent Common Stock issuable after the Effective Time upon exercise of
the Converted Options, and use all reasonable efforts to have such registration
statement (or a successor or replacement registration statement) become
effective with respect thereto as promptly as practicable after the Effective
Time and to remain in effect while any of the Converted Options remain
exercisable. Parent shall reserve for issuance in connection with the exercise
of Converted Options and Converted Warrants such number of shares of Parent
Common Stock as shall be required to be issued upon such exercise.
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SECTION 7.9 PUBLIC ANNOUNCEMENTS. Each of Parent, Sub and the Company agrees
that it will not issue any press release or otherwise make any public statement
with respect to this Agreement (including the Exhibits hereto) or the
transactions contemplated hereby (or thereby) without the prior consent of the
other party, which consent shall not be unreasonably withheld or delayed;
provided, however, that such disclosure can be made without obtaining such prior
consent if (i) the disclosure is required by law or by obligations imposed
pursuant to any listing agreement with any national securities exchange or
quotation system and (ii) the party making such disclosure has first used its
reasonable best efforts to consult with (but not obtain the consent of) the
other party about the form and substance of such disclosure.
SECTION 7.10 EXPENSES. Except as otherwise set forth in Section 9.2(b),
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement (including the Exhibits hereto) and the
transactions contemplated hereby (and thereby) shall be paid by the party
incurring such expenses, except that (i) the filing fee in connection with
filings under the HSR Act, (ii) the expenses incurred in connection with
printing the Registration Statement and the Proxy Statement and (iii) the filing
fee with the SEC relating to the Registration Statement or the Proxy Statement
will be shared equally by Parent and the Company.
SECTION 7.11 LISTING APPLICATION. Parent will use its reasonable best
efforts to cause the shares of Parent Common Stock to be issued pursuant to this
Agreement in the Merger (as well as the shares of Parent Common Stock issuable
after the Effective Time upon exercise of the Parent Options) to be listed for
quotation and trading on the Nasdaq National Market.
SECTION 7.12 SUPPLEMENTAL DISCLOSURE. The Company shall give prompt notice
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause (x) any representation or warranty contained
in this Agreement to be untrue or inaccurate or (y) any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied and
(ii) any failure of the Company or Parent, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 7.12 shall not have any effect for the purpose of determining the
satisfaction of the conditions set forth in Article VIII of this Agreement or
otherwise limit or affect the remedies available hereunder to any party.
SECTION 7.13 LETTERS OF ACCOUNTANTS.
(a) Parent shall use all reasonable efforts to cause to be delivered to the
Company a letter of BDO Seidman, LLP, Parent's independent auditors, dated a
date within two business days before the date on which the Registration
Statement shall become effective and addressed to the Company, in form and
substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement, which letter
shall be brought down to a date within two business days prior to the Effective
Time.
(b) The Company shall use all reasonable best efforts to cause to be
delivered to Parent a letter of Miller, Ellin & Company, the Company's
independent auditors, dated a date within two business days before the date on
which the Registration Statement shall become effective and addressed to Parent,
in form and substance reasonably satisfactory to Parent and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement,
which letter shall be brought down to a date within two business days prior to
the Effective Time.
SECTION 7.14 RECRUITMENT. Prior to the Effective Time, and, if this
Agreement is terminated by the Company pursuant to Section 9.1(e)(i) or
9.1(e)(ii), prior to the first anniversary of the date of such termination,
neither Parent nor any of its Subsidiaries shall hire or solicit the employment
of any employee of the Company or any of its Subsidiaries. Prior to the
Effective Time and, if this Agreement is terminated
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by Parent pursuant to Section 9.1(d)(i) or 9.1(d)(ii) prior to the first
anniversary of such termination, neither the Company nor any of its Subsidiaries
shall hire or solicit the employment of any employee of Parent or any of its
Subsidiaries. If this Agreement terminates without the Merger being consummated
except as provided in the preceding sentences of this Section 7.14, neither
Parent nor its Subsidiaries, on the one hand, nor the Company nor its
Subsidiaries, on the other, will hire or solicit the employment of any employee
of any of the others, for a period of six months from the date of such
termination.
SECTION 7.15 INDEMNIFICATION.
(a) For a period of six years after the Effective Time, Parent shall, and
shall cause the Surviving Corporation to, indemnify, defend and hold harmless
the present and former directors, officers, employees and agents of the Company
and its Subsidiaries (each, an "Indemnified Party") against any and all losses,
costs, damages, claims and liabilities (including reasonable attorneys' fees)
arising out of the Indemnified Party's service or services as a director,
officer, employee or agent of the Company or, if at the Company's request, of
another corporation, partnership, joint venture, trust or other enterprise
occurring at or prior to the Effective Time (including the transactions
contemplated by or related to this Agreement) to the fullest extent permitted
under New York Law and the Company's Articles of Incorporation and Bylaws as in
effect on the date hereof, including provisions relating to advances of expenses
incurred in the defense of any litigation, action, claim or proceeding and
whether or not Parent or Surviving Corporation is insured against any such
matter. Without limiting the foregoing, in any case in which approval by the
Surviving Corporation is required to effectuate any indemnification and subject
to the applicable requirements of the NYBCL, the Surviving Corporation shall
direct, at the election of the Indemnified Party, that the determination of any
such approval shall be made by independent counsel selected by the Surviving
Corporation and reasonably acceptable to the Indemnified Party.
(b) The Surviving Corporation or the Parent shall maintain in effect (for at
least six years from the Effective Time in the case of claims made policies)
directors' and officers' liability insurance policies providing coverage in an
aggregate amount of at least $10,000,000 and with a carrier(s) having a Best
rating at least equal to the Best rating of the current carrier(s) covering
directors and officers of the Company serving as of or after December 1, 1990
with respect to claims arising from occurrences prior to or at the Effective
Time (including the transactions contemplated by or related to this Agreement).
(c) If Parent or the Surviving Corporation or any successors or assigns
shall transfer all or substantially all of its assets to any person or entity,
then and in each case, proper provision shall be made so that the assigns of
Parent or the Surviving Corporation shall assume the obligations set forth in
this Section 7.15.
(d) The provisions of this Section 7.15 are intended to be for the benefit
of and shall be enforceable by, each Indemnified Party and his or her respective
heirs and representatives.
ARTICLE VIII.
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) HSR APPROVAL. Any waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated, and no
action shall have been instituted by the Department of Justice or Federal
Trade Commission challenging or seeking to enjoin the consummation of this
transaction, which action shall have not been withdrawn or terminated.
(b) STOCKHOLDER APPROVALS. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the requisite
vote (as described in Section 4.18) of the stockholders of the Company, in
accordance with applicable law.
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(c) NASDAQ LISTING. The shares of Parent Common Stock issuable to the
holders of Company Common Stock pursuant to this Agreement in the Merger
shall have been authorized for listing on the Nasdaq National Market, upon
official notice of issuance.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceeding by the SEC seeking a stop order.
(e) NO ORDER. No Governmental Entity (including a federal or state
court) of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which materially restricts, prevents or prohibits
consummation of the Merger or any transaction contemplated by this
Agreement; provided, however, that the parties shall use their reasonable
best efforts to cause any such decree, judgment, injunction or other order
to be vacated or lifted.
(f) APPROVALS. Other than the filing of Merger documents in accordance
with the NYBCL, all authorizations, consents, waivers, orders or approvals
of, or declarations or filings with, or expirations of waiting periods
imposed by, any Governmental Entity the failure of which to obtain, make or
occur would, individually or in the aggregate, have a material adverse
effect at or after the Effective Time on Parent and its Subsidiaries
including the Surviving Corporation and its Subsidiaries, shall have been
obtained, been filed or have occurred. Parent shall have received all state
securities or "blue sky" permits and other authorizations necessary to issue
the shares of Parent Common Stock pursuant to this Agreement in the Merger.
(g) LITIGATION. No preliminary or permanent injunction or other order
shall have been issued by any court or by any governmental or regulatory
agency, body or authority which enjoins, restrains or prohibits the
transactions contemplated hereby, including the consummation of the Merger
or has the effect of making the Merger illegal and which is in effect at the
Effective Time (each party agreeing to use its best efforts to have any such
injunction or order lifted).
(h) STATUTES. No statute, rule, regulation, executive order, decree or
order of any kind shall have been enacted, entered, promulgated or enforced
by any court or governmental authority which prohibits the consummation of
the Merger or has the effect of making the Merger illegal.
(i) MARKET EVENTS. There shall not have occurred and be continuing any
general suspension or limitation of trading in Parent Common Stock
(exclusive, however, of any temporary suspension pending an ensuing public
announcement) or in securities generally on Nasdaq.
(j) TAX OPINION. The Company shall have received the opinion of
Cummings & Lockwood, counsel to the Company, which opinion shall be
reasonably satisfactory to Parent, to the effect that the Merger will be
treated for United States federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, which opinion shall be
dated on or about the date that is two business days prior to the date the
Proxy Statement is first mailed to stockholders of the Company and shall
have not have been withdrawn or modified in any material respect. Such
opinion may be based, as to the matters of fact set forth in such
certificates, on certificates of officers of the Company and Parent and of
other appropriate persons that are provided to Parent.
SECTION 8.2 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE
MERGER. The obligations of Parent and Sub to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
additional conditions, unless waived in writing by Parent:
(a) REPRESENTATIONS AND WARRANTIES. (i) The aggregate effect of all
inaccuracies in the representations and warranties of the Company set forth
in this Agreement does not and would not reasonably be expected to have a
Company Material Adverse Effect and (ii) the representations and warranties
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of the Company that are qualified with reference to a Company Material
Adverse Effect or materiality shall, subject to such qualification, be true
and correct and the representations and warranties that are not so qualified
shall be true and correct in all material respects, in each case as of the
date hereof, and, except to the extent such representations and warranties
speak as of an earlier date, as of the Effective Time as though made at and
as of the Effective Time, and Parent shall have received a certificate
signed on behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. Each of the Company and
its Subsidiaries shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Effective Time, and Parent shall have received a certificate signed
on behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect.
(c) AFFILIATE AGREEMENTS. Parent shall have received the Affiliate
Agreements from each of the Affiliates of the Company, as contemplated in
Section 7.5.
(d) "POOLING LETTER." Parent shall have received from BDO Seidman, LLP
a letter, dated the Closing Date and addressed to Parent, to the effect
that, subject to customary qualifications, the Merger qualifies for pooling
of interests treatment for financial reporting purposes in accordance with
GAAP, and Parent shall have received from the Company, with the consent of
Miller, Ellin & Company, a copy of a letter, dated the Closing Date, of
Miller, Ellin & Company addressed to the Company to the effect that, subject
to customary qualifications, the Merger qualifies for pooling of interests
for financial reporting purposes in accordance with GAAP.
(e) LETTERS OF RESIGNATION. Parent and Sub shall have received letters
of resignation addressed to the Company from the members of the Company's
board of directors, which resignations shall be effective as of the
Effective Time.
(f) DISSENTING SHARES. The aggregate number of shares of Company
Common Stock into which all Dissenting Shares are convertible shall not
constitute more than 9% of the number of shares of Company Common Stock
outstanding as of immediately prior to the Effective Time (calculated
assuming no dilution).
(g) LEGAL OPINION. Parent shall have received opinions, dated the
Closing Date, of Otterbourg, Steindler, Houston & Rosen, P.C. and Lester
Morse, P.C. which together are substantially to the effect set forth in
Exhibit C hereto, subject to assumptions, qualifications and limitations
reasonably satisfactory to Parent, which opinions shall be reasonably
satisfactory to Parent.
(h) 1996 DIRECTORS' RETIREMENT PLAN. The Company's 1996 Directors'
Retirement Plan shall have terminated and neither the Company, Parent nor
any of their respective Subsidiaries shall have any liability or obligation
to any person arising under or in respect of such plan.
SECTION 8.3 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following additional
conditions:
(a) REPRESENTATIONS AND WARRANTIES. (i) The aggregate effect of all
inaccuracies in the representations and warranties of Parent set forth in
this Agreement does not and will not have a Parent Material Adverse Effect
and (ii) the representations and warranties of Parent contained in this
Agreement that are qualified with reference to a Parent Material Adverse
Effect or materiality shall be true and correct and the representations and
warranties that are not so qualified shall be true and correct in all
material respects as of the date hereof, and, except to the extent such
representations and warranties speak as of an earlier date, as of the
Effective Time as though made on and as of the
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Effective Time, and the Company shall have received a certificate signed on
behalf of Parent by the chief executive officer or the chief financial
officer of Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND SUB. Each of Parent and
Sub shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Effective
Time, and the Company shall have received a certificate signed on behalf of
Parent by the chief executive officer or the chief financial officer of
Parent to such effect.
(c) LEGAL OPINION. The Company shall have received an opinion, dated
the Closing Date, of Proskauer Rose Goetz & Mendelsohn LLP, reasonably
satisfactory to the Company, substantially to the effect set forth in
Exhibit D hereto.
ARTICLE IX
TERMINATION
SECTION 9.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the stockholders of
the Company:
(a) by mutual consent of Parent and the Company;
(b) by either Parent or the Company, if (i) the Merger shall not have
been consummated before September 30, 1997, or (ii) the approval of the
stockholders of the Company required by Section 4.18 shall not have been
obtained at a meeting duly convened therefor or any adjournment thereof
(unless, in the case of any such termination pursuant to this Section
9.1(b), the failure to so consummate the Merger by such date or to obtain
such stockholder approval shall have been caused by the action or failure to
act of the party (or its Subsidiaries) seeking to terminate this Agreement,
which action or failure to act constitutes a breach of this Agreement);
(c) by either Parent or the Company, if any permanent injunction or
action by any Governmental Entity of competent jurisdiction preventing the
consummation of the Merger shall have become final and nonappealable;
provided, however, that the party seeking to terminate this Agreement
pursuant to this Section 9.1(c) shall have used all reasonable efforts to
remove such injunction or overturn such action;
(d) by Parent, if (i) there has been a breach of any representations or
warranties of the Company set forth herein the effect of which, individually
or together with all other such breaches, is a Company Material Adverse
Effect, (ii) there has been a breach in any material respect of any of the
covenants or agreements set forth in this Agreement on the part of the
Company, which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by Parent to the Company,
(iii) the Board of Directors of the Company (x) withdraws or amends or
modifies in a manner materially adverse to Parent or Sub its recommendation
or approval in respect of this Agreement or the Merger, (y) makes any
recommendation with respect to an Acquisition Transaction (including making
no recommendation or stating an inability to make a recommendation), other
than a recommendation to reject such Acquisition Transaction, or (z) takes
any action that would be prohibited by Section 7.2, (iv) any corporation,
partnership, person or other entity or group ("Acquiring Person") other than
Parent, or any affiliate or Subsidiary of Parent, shall have become the
beneficial owner of more than 20% of the outstanding voting equity of the
Company (either on a primary or a fully diluted basis); provided, however
that "Acquiring Person" shall not include any corporation, partnership,
person, other entity or group which beneficially owns as of the date hereof
(either on a primary or a fully diluted basis) more than 20% of the
outstanding voting equity of the Company (either on a primary or a fully
diluted basis) and which has not after the date hereof increased such
ownership percentage by more than an additional 1% of the outstanding voting
equity of the Company (either on a primary or a fully diluted basis), or (v)
any other Acquisition Transaction
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shall have occurred with any Acquiring Person other than Parent, or any
affiliate or Subsidiary of Parent;
(e) by the Company, if (i) there has been a breach of any
representations or warranties of Parent set forth herein the effect of
which, individually or together with all other such breaches, is a Parent
Material Adverse Effect, (ii) there has been a breach in any material
respect of any of the covenants or agreements set forth in this Agreement on
the part of Parent, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by the Company
to Parent or (iii) such termination is necessary to allow the Company to
enter into an Acquisition Transaction in accordance with Section 7.2(b); and
(f) by Parent, if the meeting of stockholders of the Company to vote
upon this Agreement is canceled or is otherwise not held prior to August 31,
1997 except as a result of a judgment, injunction, order or decree of any
competent authority or events or circumstances beyond the reasonable control
of the Company.
SECTION 9.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement pursuant to this Article
IX, the Merger shall be deemed abandoned and this Agreement shall forthwith
become void, without liability on the part of any party hereto, except as
provided in this Section 9.2, Section 7.1, Section 7.10 and Section 7.14.
(b) If (x) Parent shall have terminated this Agreement pursuant to Sections
9.1(d)(iii), 9.1(d)(iv) or 9.1(d)(v) or (y) either (1) Parent or the Company
shall have terminated this Agreement pursuant to Section 9.1(b) or (2) Parent
shall have terminated this Agreement pursuant to Section 9.1(d)(i), 9.1(d)(ii)
or 9.1(f) and, prior to or within one (1) year after any termination described
in this clause (y), the Company (or any of its Subsidiaries) shall have directly
or indirectly entered into a definitive agreement for, or shall have
consummated, an Acquisition Transaction or (z) the Company shall have terminated
this Agreement pursuant to Section 9.1(e)(iii), then, in any of such cases, the
Company shall pay Parent (A) a termination fee of five million dollars
($5,000,000), plus (B) an amount equal to Parent's actual, documented
out-of-pocket expenses incurred in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, legal,
professional and service fees and expenses; provided, however, that any
liquidated damage amounts previously paid by the Company to Parent pursuant to
Section 9.2(c) shall be credited against the termination fee payable under this
Section 9.2(b). Any fees or amounts payable under this Section 9.2(b) shall be
paid in same day funds no later than: (i) two business days after a termination
described in clause (x) of this Section 9.2(b); (ii) concurrently with or prior
to the entering into of the definitive agreement for, or the consummation of,
such Acquisition Transaction, in the case of a termination described in clause
(y) of this Section 9.2(b); or (iii) concurrently with or prior to a termination
described in clause (z) of this Section 9.2(b).
(c) If Parent shall have terminated this Agreement pursuant to Sections
9.1(d)(i), 9.1(d)(ii) or 9.1(f), then, in any of such cases, the Company shall
pay to Parent as liquidated damages and not as a penalty, three million dollars
($3,000,000). Such liquidated damage amount shall be payable no later than two
business days after such termination.
(d) If the Company shall have terminated this Agreement pursuant to Section
9.1(e)(i) or 9.1(e)(ii), then, in either such case, Parent shall pay to the
Company as liquidated damages and not as a penalty, three million dollars
($3,000,000). Such liquidated damage amount shall be payable no later than two
business days after such termination.
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ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 AMENDMENT AND MODIFICATION. At any time prior to the Effective
Time, this Agreement may be amended, modified or supplemented only by written
agreement (referring specifically to this Agreement) of Parent, Sub and the
Company with respect to any of the terms contained herein; provided, however,
that after any approval and adoption of this Agreement by the stockholders of
the Company, no such amendment, modification or supplementation shall be made
which under applicable law requires the approval of such stockholders, without
the further approval of such stockholders.
SECTION 10.2 WAIVER. At any time prior to the Effective Time, Parent and
Sub, on the one hand, and the Company, on the other hand, may (i) extend the
time for the performance of any of the obligations or other acts of the other,
(ii) waive any inaccuracies in the representations and warranties of the other
contained herein or in any documents delivered pursuant hereto and (iii) waive
compliance by the other with any of the agreements or conditions contained
herein which may legally be waived. Any such extension or waiver shall be valid
only if set forth in an instrument in writing specifically referring to this
Agreement and signed on behalf of such party.
SECTION 10.3 SURVIVABILITY; INVESTIGATIONS. The respective representations
and warranties of Parent and the Company contained herein or in any certificates
or other documents delivered prior to or as of the Effective Time (i) shall not
be deemed waived or otherwise affected by any investigation made by any party
hereto and (ii) shall not survive beyond the Effective Time. The covenants and
agreements of the parties hereto (including the Surviving Corporation after the
Merger) shall survive the Effective Time without limitation (except for those
which, by their terms, contemplate a shorter survival period).
SECTION 10.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be delivered personally or by next-day courier or
telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof. Any such notice shall be effective upon receipt, if
personally delivered or telecopied, or one day after delivery to a courier for
next-day delivery.
(a) If to Parent or Sub, to:
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
Fax: (516) 843-5675
Attention: Mark E. Mlotek, Esq.
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Fax: (212) 969-2900
Attention: Robert A. Cantone
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(b) if to the Company, to:
Micro Bio-Medics, Inc.
864 Pelham Parkway
Pelham Manor, New York 10803
Fax: (914) 738-9538
Attention: Bruce J. Haber, Esq.
with a copy to:
Otterbourg, Steindler, Houston & Rosen, P.C.
230 Park Avenue
New York, New York 10169
Fax: (212) 682-6104
Attention: Donald N. Gellert, Esq.
SECTION 10.5 DESCRIPTIVE HEADINGS; INTERPRETATION. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. References in this Agreement to
Sections, Schedules, Exhibits or Articles mean a Section, Schedule, Exhibit or
Article of this Agreement unless otherwise indicated. The term "person" shall
mean and include an individual, a partnership, a joint venture, a limited
liability company, a corporation, a trust, a Governmental Entity or an
unincorporated organization.
SECTION 10.6 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including the
Schedules and other documents and instruments referred to herein), together with
the Proxy and Option Agreement and the Confidentiality Agreement, constitute the
entire agreement, and supersede all other prior agreements and understandings,
both written and oral, among the parties or any of them, with respect to the
subject matter hereof. This Agreement is not intended to confer upon any person
not a party hereto any rights or remedies hereunder. This Agreement shall not be
assigned by operation of law or otherwise; provided that Parent or Sub may
assign its rights and obligations hereunder to a direct or indirect subsidiary
of Parent, but no such assignment shall relieve Parent or Sub, as the case may
be, of its obligations hereunder.
SECTION 10.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the provisions thereof relating to conflicts of law, except to the
extent relating to matters governed by the General Corporation Law of the State
of Delaware.
SECTION 10.8 SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect against a party hereto, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby and such invalidity, illegality or unenforceability shall only
apply as to such party in the specific jurisdiction where such judgment shall be
made.
SECTION 10.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREFORE, each of Parent, Sub and the Company has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
HENRY SCHEIN, INC.
By:___________________________________
Name:
Title:
MICRO BIO-MEDICS, INC.
By:___________________________________
Name:
Title:
HSI ACQUISITION CORP.
By:___________________________________
Name:
Title:
I-36
<PAGE>
ANNEX II
OPINION OF HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
March 7, 1997
The Board of Directors
Micro Bio-Medics, Inc.
846 Pelham Parkway
Pelham Manor, NY 10803
Gentlemen:
We understand that Henry Schein, Inc. ("HSI"), HSI Acquisition Corp.
("HSIAC") and Micro Bio-Medics, Inc. (the "Company") are considering entering
into a transaction whereby HSIAC, a wholly-owned subsidiary of HSI, would be
merged (the "Merger") with and into the Company and the Company would be the
surviving corporation. We further understand that each share of Company common
stock issued and outstanding immediately prior to date and time at which the
Merger becomes effective would be converted into the right to receive 0.62 of a
share of the common stock of HSI. Such transaction and all related transactions
are referred to collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the matter set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. Additionally, you have advised us that the Company
has indicated that it has no intention of engaging in any alternative to the
Transaction. We have not been requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders and on Form
10-K for the five fiscal years ended 1995, draft Form 10-K for the fiscal
year ended 1996, and quarterly reports on Form 10-Q for the three quarters
ended August 31, 1996, and Company-prepared interim financial statements for
the fiscal year ended 1996, which the Company's management has identified as
being the most current financial statements available;
2. reviewed HSI's annual reports to shareholders and on Form 10-K for
the fiscal year ended 1995, quarterly reports on form 10-Q for the three
quarters ended September 28, 1996, prospectus dated June 21, 1996, and the
draft financial statements for the fiscal year ended December 28, 1996,
which HSI's management has identified as being the most current financial
statements available;
3. reviewed copies of the following agreements:
a. February 26, 1997 draft of Agreement and Plan of Merger by and
among Henry Schein, Inc., HSI Acquisition Corp. and the Company;
b. January 27, 1997 draft of Option and Proxy Agreement;
c. January 27, 1997 draft of Affiliate Agreement;
II-1
<PAGE>
d. February 26, 1997 draft of Employment Agreement;
e. February 5, 1997 draft of Henry Schein, Inc. Class B Option
Agreement Pursuant to the 1994 Stock Option Plan; and
f. February 5, 1997 draft of Agreement among Henry Schein, Inc. and
Bruce Haber;
4. met with certain members of the senior management of the Company to
discuss the Transaction, the operations, financial condition, future
prospects and projected operations and performance of the Company, and had
discussions with representatives of the Company's investment bankers and
counsel to discuss certain matters;
5. met with certain members of the senior management of HSI to discuss
the Transaction, the operations, financial condition, future prospects and
projected operations and performance of HSI;
6. visited certain facilities and business offices of the Company and
HSI;
7. reviewed forecasts and projections prepared by the Company's
management with respect to the Company for the fiscal year ending November
30, 1997;
8. reviewed forecasts and projections prepared by HSI's management with
respect to HSI for the fiscal year ending December 27, 1997;
9. reviewed the historical market prices and trading volume for the
Company's and HSI's publicly traded securities;
10. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company and HSI, and publicly
available prices and premiums paid in other transactions that we considered
similar to the Transaction; and
11. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company an HSI, and that there has been no material
change in the assets, financial condition, business or prospects of the Company
and HSI since the date of the most recent financial statements made available to
us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and HSI and do not assume
any responsibility with respect to it. We have not made any physical inspection
or independent appraisal of any of the properties or assets of the Company or
HSI. Our opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the consideration to be received by the public stockholders of the Company in
connection with the Transaction is fair to them from a financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
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<PAGE>
OPINION OF HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
April 18, 1997
The Board of Directors
Micro Bio-Medics, Inc.
846 Pelham Parkway
Pelham Manor, NY 10803
Gentlemen:
On March 7, 1997 (the "Opinion Date"), we issued a written opinion (the
"Opinion") regarding a transaction involving Henry Schein, Inc., HSI Acquisition
Corp., and Micro Bio-Medics, Inc. (the "Company"). The Opinion contains detailed
documentation of the premises, analyses, and logic upon which our conclusions
were founded and should be read in conjunction with this letter. In rendering
the Opinion, we reviewed among other things, copies of the following agreements:
a. February 26, 1997 draft of Agreement and Plan of Merger by and among
Henry Schein, Inc., HSI Acquisition Corp. and the Company;
b. January 27, 1997 draft of Option and Proxy Agreement;
c. January 27, 1997 draft of Affiliate Agreement;
d. February 26, 1997 draft of Employment Agreement;
e. February 5, 1997 draft of Henry Schein, Inc. Class B Option
Agreement Pursuant to the 1994 Stock Option Plan; and
f. February 5, 1997 draft of Agreement among Henry Schein, Inc. and
Bruce Haber.
The above agreements were the most recent drafts available to us as of the
Opinion Date.
At your request, we have subsequently reviewed the following agreements:
a. Agreement and Plan of Merger dated as of March 7, 1997, as revised,
by and among Henry Schein, Inc., HSI Acquisition Corp. and the
Company;
b. Option and Proxy Agreement dated as of March 7, 1997, as revised, by
and among Henry Schein, Inc. and the persons listed on Schedule A
thereto;
c. Form of Affiliate Agreement to be executed by affiliates of MBM, as
revised;
d. Employment Agreement dated as of March 7, 1997 between Bruce J.
Haber and Henry Schein, Inc.;
e. Form of Option Agreement between Bruce J. Haber and Henry Schein,
Inc. pursuant to Henry Schein Inc.'s 1994 Stock Option Plan, as
revised;
f. Agreement dated as of March 7, 1997, as revised, between Henry
Schein, Inc. and Bruce J. Haber relating to the termination of his
prior employment agreement with MBM;
g. Restricted Stock Agreement dated as of March 7, 1997, as revised,
between Bruce J. Haber and Henry Schein, Inc.; and
h. Form of Agreement between Bruce J. Haber and Schein with respect to
termination of his employment under certain circumstances.
(collectively referred to as the "Agreements").
II-3
<PAGE>
You have asked us whether if, had we reviewed the Agreements on or before
the Opinion Date, the conclusions reached in the Opinion would have been
different. After our review of the Agreements (and only the Agreements), we have
concluded that the conclusions reached in the Opinion would not have been
different as of March 7, 1997 if we had reviewed the Agreements on or before the
Opinion Date.
We have not conducted any investigations, analyses, or inquiries regarding
the Transaction (as defined in the Opinion) since the Opinion Date other than
the review of the Agreements. This letter does not purport to consider the
fairness of the Transaction at any time other than March 7, 1997 and should not
be viewed or construed as doing so. This letter only considers the impact of the
Agreement upon our Opinion as of the Opinion Date. Unanticipated events and
circumstances may have occurred and actual results may have varied from those
assumed since the Opinion Date, we have not considered the impact of any such
events, circumstances or results in this letter.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
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<PAGE>
ANNEX III
SECTION 623 OF THE NEW YORK BUSINESS CORPORATION LAW
(a) A Shareholder intending to enforce his right under a section of this
chapter to receive payment for 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 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 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 dissenters' 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
III-1
<PAGE>
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 proceeding 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 therefor 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 transfer.
(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 if 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 therefor shall be made within sixty 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.
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<PAGE>
(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, except 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 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
laws 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 of his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
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<PAGE>
(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 corporation; (C) that the corporation failed to
institute the special proceeding within the period specific therefor; 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.
(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 certificates for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be canceled 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 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 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).
(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 L. 1986, Ch 117, Section3.)
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<PAGE>
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
MICRO BIO-MEDICS, INC.
PROXY
SPECIAL MEETING OF SHAREHOLDERS
AUGUST 1, 1997
This Proxy is solicited on behalf of the Board of Directors for the Special
Meeting on August 1, 1997.
Unless otherwise specified below, the undersigned, a holder of record of
shares of common stock, par value $0.03 (the "MBM Common Stock"), of Micro
Bio-Medics, Inc., ("MBM") at the close of business on June 24, 1997, (the
"Record Date"), hereby appoints Bruce J. Haber and K. Deane Reade, Jr., or
either of them, the proxy or proxies of the undersigned, each with full power
of substitution, to attend the special meeting of shareholders of MBM (the
"Special Meeting") to be held on August 1, 1997 and any adjournments or
reschedulings thereof at which holders of MBM Common Stock will be voting on
whether to adopt the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of March 7, 1997, by and among Henry Schein, Inc. ("Schein"), HSI
Acquisition Corp. ("Merger Sub") and MBM, as revised, providing for the
merger of Merger Sub with and into MBM and the conversion of each outstanding
share of MBM Common Stock into the right to receive 0.62 shares of the common
stock, par value $0.01, of Schein (the "Schein Common Stock") and to approve
the other transactions contemplated by the Merger Agreement, and to vote as
specified in this proxy all the shares of MBM Common Stock which the
undersigned would otherwise be entitled to vote if personally present. The
undersigned hereby revokes any previous proxies with respect to the matters
covered in this proxy.
(Continued, and to be dated and signed on other side)
<PAGE>
<TABLE>
<S> <C> <C>
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE USING
DARK INK ONLY.
FOR AGAINST ABSTAIN
/ / / / / /
THE BOARD OF DIRECTORS OF MBM RECOMMENDS A VOTE FOR ADOPTION 1. The adoption of the Merger Agreement providing for
OF THE MERGER AGREEMENT AND APPROVAL OF THE TRANSACTIONS the Merger of Merger Sub with and into MBM and the
CONTEMPLATED THEREBY conversion of each outstanding share of MBM Common
Stock into 0.62 shares of Schein Common Stock, and
approval of the other transactions comtemplated thereby.
IF RETURNED CARDS ARE SIGNED AND DATED BUT NOT MARKED YOU WILL In their discretion, the proxies are authorized to vote
BE DEEMED TO HAVE VOTED TO ADOPT THE MERGER AGREEMENT AND TO upon such other business as may properly come before
APPROVE THE TRANSACTIONS CONTEMPLATED THEREBY. the Special Meeting or any adjournments or
reschedulings thereof.
IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE, PLEASE
CONTACT D.F. KING & CO., INC. at 1-800-431-9642
Proxies can only be given by shareholders of record on
the Record Date. Please sign your name below exactly
as it appears hereon. When shares of MBM Common Stock
are held of record by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name
by president or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
________________________ ____________________________ Dated:___________ , 1997
Signature (Title, if any) Signature if held jointly
</TABLE>
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
