UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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:
[ x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e) (2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SKLAR CORPORATION
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment
of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] 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:
Common Stock, par value $.10 per share
(2) Aggregate number of securities to which transaction applies:
1,104,940
(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):
$232,272
(4) Proposed maximum aggregate value of transaction: $232,272
(5) Total fee paid: $46.45
[ ] Fee paid previously with preliminary materials.
[X] 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: $46.45
2) Form, Schedule or Registration Statement No.: Sch. 13E-3
3) Filing Party: Sklar Corporation
4) Date Filed: January 14, 1999
<PAGE>
[Sklar Letterhead]
Dear Shareholder:
You are invited to attend a Special Meeting of Shareholders (the "Special
Meeting") of Sklar Corporation, a Pennsylvania corporation (the "Company"), to
be held on March ____, 1999, at ________ A.M. local time, at
_____________________________.
At this meeting you will be asked to consider and vote upon the following:
(i) a proposal to effect a 1 for 50,000 reverse split of the Company's
Common Stock, $.10 par value (the "Common Stock"), by reducing the number of
shares of Common Stock issued and outstanding from 1,104,940 shares to ___
shares, and
(ii) a cash payment of $.46 per share of the currently outstanding
Common Stock, in lieu of the issuance of any resulting fractional shares of
Common Stock following the reverse split.
Items (i) and (ii) will be considered one proposal and shall be referred to
herein as the "Reverse Stock Split." If effected, the Reverse Stock Split will
enable the Company to change from public company status subject to the reporting
requirements of the Securities Acts as administered by the Securities and
Exchange Commission to private company status not subject to the reporting
requirements of the Securities Acts.
The Woodward Group, Inc. ("Woodward") has been engaged by the Company in
connection with the proposed Reverse Stock Split to provide its opinion with
respect to the fairness, from a financial point of view, of the $.46 cash
payment for fractional shares to be made in the proposed Reverse Stock Split.
Woodward has rendered an opinion to the effect that the cash consideration to be
received by shareholders in lieu of fractional shares is fair from a financial
point of view. You are urged to read the opinion of Woodward, which is attached
to the accompanying Proxy Statement as Exhibit A. You are also urged to read
carefully the accompanying Proxy Statement in its entirety, including the
section entitled "Special Factors" for important information concerning the
proposed Reverse Stock Split.
THE BOARD OF DIRECTORS HAS FULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE PROPOSED REVERSE STOCK SPLIT AND HAS UNANIMOUSLY DETERMINED
THAT THE PROPOSED REVERSE STOCK SPLIT, TAKEN AS A WHOLE, IS FAIR TO, AND IN THE
BEST INTEREST OF, THE CORPORATION AND ITS SHAREHOLDERS.
<PAGE>
Attendance in person or proxy of holders of more than 50% of the
outstanding shares is necessary for a quorum. Holders of more than 50% of the
shares in attendance at the meeting is necessary to approve the Reverse Stock
Split. The officers and directors of the Company own approximately 55.4% of the
outstanding shares entitled to vote at the Special Meeting and have indicated
that each will vote his shares in favor of the proposed Reverse Stock Split. If
these shares are voted as indicated, the Reverse Stock Split will be approved.
Promptly after consummation of the Reverse Stock Split, if approved, a
Letter of Transmittal will be mailed to all holders of Common Stock of the
Company for use in surrendering their stock certificates. Please do not send in
your stock certificates until you receive your Letter of Transmittal.
Sincerely,
Don Taylor
President
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
2
<PAGE>
SKLAR CORPORATION
889 SOUTH MATLACK STREET
WEST CHESTER, PA 19382
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD _______ __, 1999
A Special Meeting of Shareholders of SKLAR CORPORATION, will be held
at __________, _______________, ___________, Pennsylvania on ________, ________
__, 1999, at _______, local time, for the following purposes:
1. To consider and vote upon the following:
(i) a proposal to effect a 1 for 50,000 reverse split of the Company's
Common Stock, $.10 (the "Common Stock"), by reducing the number of issued
shares of Common Stock from 1,104,940 shares to __ shares and which will
enable the Company to change from public company status subject to the
reporting requirements of the Securities Acts as administered by the
Securities and Exchange Commission to private company status not subject to
the Securities Acts, and
(ii) a cash payment of $.46 per share of the currently outstanding
Common Stock, in lieu of the issuance of any resulting fractional shares of
Common Stock following the reverse split.
2. To transact such other business pertaining or related to the foregoing as
may properly come before the Special Meeting.
Information relating to the above matters is set forth in the attached
Proxy Statement. The close of business on January __, 1999, has been set by the
directors as the record date for determination of shareholders eligible to
receive notice of and to vote at the meeting.
By Order of the Board of Directors,
Don Taylor
President
Pennsylvania
February __, 1999
PLEASE READ THE ATTACHED PROXY STATEMENT AND THEN PROMPTLY COMPLETE, EXECUTE AND
RETURN THE ENCLOSED PROXY CARD. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY
REVOKE THE PROXY AND VOTE IN PERSON IF YOU SO DESIRE.
3
<PAGE>
TABLE OF CONTENTS
Page
PURPOSE OF SPECIAL MEETING....................................................1
VOTING .......................................................................2
General .............................................................2
Quorum And Vote Required.............................................2
Proxies .............................................................3
Purpose Of The Reverse Stock Split...................................4
SPECIAL FACTORS...............................................................6
Background Of The Proposed Reverse Stock Split.......................6
The Effects Of The Reverse Stock Split...............................8
Potential Detriments Of The Reverse Stock Split To Shareholders;
Accretion In Ownership And Control Of
Certain Shareholders........................................9
Financial Effect Of The Reverse Stock Split..........................9
Recommendation Of The Special Committee And Board Of Directors;
Fairness Of The Reverse Stock Split........................14
Valuation Opinion...................................................15
Conduct Of The Company's Business After The Reverse Stock Split.....17
THE COMPANY..................................................................18
Selected Historical Financial Data..................................19
Financing Of The Reverse Stock Split................................20
Certain Federal Income Tax Consequences.............................20
Price Range Of Common Stock; Dividends; Trading Volume..............20
Security Ownership Of Certain Beneficial Owners And Management......21
Directors, Executive Officers Of The Company........................22
i
<PAGE>
Exchange Of Certificates And Payment For Fractional Shares Of
New Common Stock...........................................23
Dissenters' Rights..................................................24
Other Information Concerning The Company And Affiliates.............24
Costs ...........................................................25
Independent Public Accountants......................................25
Other Matters.......................................................25
Shareholders' Proposals For The 1999 Annual Meeting.................26
Incorporation Of Certain Documents By Reference.....................26
Available Information...............................................27
ii
<PAGE>
SKLAR CORPORATION
PROXY STATEMENT
____________ __, 1999
This Proxy Statement is furnished to the Shareholders of SKLAR CORPORATION
(the "Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company to be voted at the Special Meeting of Shareholders and
at any adjournments thereof (the "Special Meeting"). The Special Meeting will be
held at ________________, _____________, ______________, Pennsylvania, on
___________, __________ __, 1999, at ______ local time.
The approximate date on which this Proxy Statement and form of proxy card
are first being sent or given to Shareholders is February __, 1999.
PURPOSE OF SPECIAL MEETING
At the Special Meeting, shareholders of the Company will be asked to
consider and vote upon:
(i) a proposal to effect a 1 for 50,000 reverse split of the Company's
Common stock, and reduce the number of issued and outstanding shares of Common
Stock from 1,104,940 shares to __ shares.
(ii) a payment of $.46 per share of the currently outstanding Common
Stock, in lieu of the issuance of any resulting fractional shares of Common
Stock following the reverse split.
If effected, the Reverse Stock Split will enable the Company to change from
public company status subject to the reporting requirements of the Securities
Acts as administered by the Securities and Exchange Commission (the
"Commission") to private company status not subject to the Securities Acts. The
Company does not know of any other matters to come before the Special Meeting.
In the event any such matters properly are raised for consideration and vote,
the proxies will vote such shares in their discretion, for or against such
matters.
The proposed Reverse stock Split is described in more detail in subsequent
sections of this Proxy Statement.
The Board of Directors of the Company, based upon the unanimous
recommendation of a special committee of independent directors of the Board (the
"Special Committee"), has determined that adoption of the Reverse Stock Split
Proposal is fair to and in the best interest of the Shareholders of the Company
and recommends that the Shareholders approve the Reverse Stock Split. See
"Special Factors" - "Accretion of Ownership and Control of Certain
Shareholders." In arriving at its recommendation with respect to the Reverse
Stock Split, the Special Committee considered a number of factors described in
the Proxy Statement, including, among other things, the opinion of The Woodward
Group Ltd., Inc., financial advisor to the Special Committee, that the
consideration to be received by the Shareholders in connection with
1
<PAGE>
the Reverse Stock Split is fair to such holders from a financial point of view.
The full text of such opinion, which sets forth, among other things, the opinion
expressed, procedures followed, matters considered and limitations on review
undertaken in connection with such opinion, is attached as Exhibit A to this
Proxy Statement. Shareholders are urged to read the opinion in its entirety. The
Board of Directors has unanimously adopted the recommendation of the Special
Committee as its own.
VOTING
GENERAL
The securities that can be voted at the Special Meeting consist of (i)
Common Stock of the Company, $.10 par value, with each share entitling its owner
to one vote on each matter submitted to the Shareholders and (ii) Preferred
Stock, stated value $.01 per share, with each share entitling its owner to one
vote on each matter submitted to the Shareholders. The record date for
determining the holders of Common Stock and Preferred Stock who are entitled to
receive notice of and to vote at the Special Meeting is January ___, 1999. On
the record date, 1,104,940 shares of Common Stock and 22,078 shares of Preferred
Stock were outstanding and eligible to be voted at the Special Meeting.
QUORUM AND VOTE REQUIRED
The presence, in person or by proxy, of a majority of the total number of
outstanding shares of the Company's stock, including Common Stock and Preferred
Stock is necessary to constitute a quorum at the Special Meeting. In counting
the votes to determine whether a quorum exists at the Special Meeting, the
proposal receiving the greatest number of all votes "for", "against", or
"withheld" and abstentions (including instructions to withhold authority to
vote) will be used.
The Company believes that approximately 624,559 voting shares owned or
controlled on the record date by directors and executive officers of the
Company, constituting approximately 55.4% of the outstanding Common and
Preferred Stock (together the "Voting Stock"), will be voted in favor of the
proposal.
Adoption of the Reverse Stock Split requires the affirmative vote of a
majority of the outstanding shares of Company Voting Stock cast at the Special
Meeting. Don Taylor, President and Director of the Company, Michael Malinowski,
Executive Vice President, Chief Financial Officer and Director of the Company,
and Michael Viner, Vice President of the Company, together beneficially own and
have authority to vote 624,559 shares of Company Voting Stock or 55.4% of the
shares of Company Voting Stock which were issued and outstanding on the Record
Date. Messrs. Taylor, Malinowski and Viner plan to vote all shares of Company
Voting Stock over which they have voting authority to approve the Reverse Stock
Split. If Messrs. Taylor, Malinowski and Viner vote all of their shares of
Company Voting Stock over which they have voting authority to approve the
Reverse Stock Split, the requisite vote for adoption of the Reverse Stock Split
will have been obtained regardless of the vote of any other shareholder.
2
<PAGE>
The Reverse Stock Split does not require the approval of a majority of the
unaffiliated shareholders or of the majority of the shareholders who will
receive payment of $.46 per share in lieu of fractional shares. The Board
believes the Reverse Stock Split should and will be favored by non-affiliates
and by those receiving cash in lieu of fractional shares. However, the Company
has not historically attained a high level of participation among its
unaffiliated holders at meetings for which their proxies have been solicited.
Because the likelihood of significant participation in the Special Meeting by
unaffiliated holders of Common Stock is so low, the Board does not believe that
it makes sense to require a majority vote of unaffiliated holders in order for
the Reverse Stock Split to be consummated. Further, the Board anticipates, based
on previous votes taken at annual meetings, that the vote of non-affiliates who
do decide to participate may not be of sufficient size to be meaningful.
Therefore the Board has decided not to condition the approval of the Reverse
Stock Split on approval by unaffiliated holders.
The Company's principal executive offices are located at 889 South Matlack
Street, West Chester, Pennsylvania, 19382 and its telephone is (610) 430-3200.
The date of this Proxy Statement is ____________ __, 1999.
PROXIES
Shareholders should specify their choices with regard to the proposal on
the enclosed proxy card. All properly executed proxies delivered by Shareholders
to the Company in time to be voted at the Special Meeting and not revoked will
be voted at the Special Meeting in accordance with directions given. IN THE
ABSENCE OF SUCH INSTRUCTION, THE SHARES REPRESENTED BY A SIGNED AND DATED PROXY
CARD WILL BE VOTED "FOR" THE PROPOSAL LISTED ON THE PROXY CARD AND DESCRIBED
HEREIN. If any other matters properly come before the Special Meeting, the
persons named as proxies will vote upon such matters according to their
judgement.
Any Shareholder delivering a proxy has the power to revoke it any time
before it is voted by giving written notice to the President of the Company at
889 South Matlack Street, West Chester, Pennsylvania, 19382, by executing and
delivering to the President a proxy card bearing a later date or by voting in
person at the Special Meeting.
In addition to soliciting proxies through the mail, the Company may solicit
proxies through its directors, officers and employees in person and by
telephone. Brokerage firms, nominees, custodians and fiduciaries also may be
requested to forward proxy material to the beneficial owners of shares held of
record by them. All expenses incurred in connection with the solicitation of
proxies will be borne by the Company.
The Board of Directors of the Company has unanimously determined that it is
advisable to effect a 1 for 50,000 reverse split of the Company's Common Stock,
and to provide for the cash payment of $.46 per share of the currently
outstanding Common Stock in lieu of the issuance of any resulting fractional
shares of new Common Stock following the Reverse Stock Split. The Board has
proposed the Reverse Stock Split to the shareholders for approval at the Special
Meeting. The Reverse Stock Split will reduce the number of issued shares of the
3
<PAGE>
Company's Common Stock from 1,104,940 shares to __ shares. Following the Reverse
Stock Split, the Company believes that, based on its shareholder records, only
Don Taylor, Michael Malinowski and Michael Viner will continue to be
shareholders of the Company.
PURPOSE OF THE REVERSE STOCK SPLIT
The purpose of the Reverse Stock Split is to terminate the equity interests
in the Company of the approximately 766 record holders of Common Stock that own
fewer than 50,000 shares of Common Stock, at a price determined to be fair by
both the Special Committee as well as the entire Board of Directors in order (i)
to eliminate the cost of maintaining small shareholder accounts, (ii) to permit
small shareholders to receive a fair price for their shares without having to
pay brokerage commissions, (iii) to determine a set monetary value of the shares
of most lost shareholders, whose interests may eventually have to be turned over
to the states under abandoned property laws, and (iv) to relieve the Company of
the administrative burden and cost and competitive disadvantages associated with
filing reports and otherwise complying with the requirements of 1934 Act
registration by deregistering its Common Stock under the 1934 Act. The Board
believes that the Company derives no benefit from the continued registration of
the Common Stock under the 1934 Act and that the monetary expense and burden to
management of continued registration and the threat of a hostile acquisition of
the Company while it is publicly traded significantly outweigh any material
benefit that may be received by the Company or its shareholders as a result of
such registration.
The Company presently has approximately 769 shareholders of record and
approximately 1000 beneficial owners of its shares. Of the 769 record
shareholders, approximately 702 own fewer than 500 shares. In the aggregate, the
shares held by these small holders comprise less than 3% of the outstanding
Common Stock. The administrative burden and cost to the Company of maintaining
records in respect of these numerous small accounts and the associated cost of
printing an mailing information to them is, in the Board's view, excessive given
the Company's size. These expenditures result in no material benefit to the
Company. The Reverse Stock Split will enable the Company to eliminate much of
this cost.
Management had determined to remain a public corporation in the past to
help facilitate a public market for the shares. That market for the Company's
stock has not been active or liquid in recent years. Although the Company has
numerous shareholders, its stock is thinly traded. Because the stock is so
thinly traded, small shareholders lack opportunities to realize the fair value
of their shares. Through the Reverse Stock Split, small holders will have the
opportunity to liquidate their interest. See "Price Range of Common Stock;
Dividends; Trading Volume."
The Company has lost contact with approximately 324 of its shareholders. Of
the approximately 324 holders with whom the Company has lost contact, nearly all
hold less than 500 shares; 266 of such holders hold less than 100 shares. The
Company will be entitled to retain the cash proceeds to which such shareholders
are entitled in the Reverse Stock Split until such shareholders deliver to the
Company certificates for their shares of Common Stock and claim such proceeds.
Eventually, the company may be required to turn the interest of those holders
over to the states pursuant to abandoned property laws. The Board believes it is
in the Company's best interest to fix at a fair price the value of the Company's
obligation to lost
4
<PAGE>
holders. This will avoid having the states become equity holders in the Company.
Of course, the Reverse Stock Split will eliminate these small inactive accounts
as shareholders of record.
The Board believes that the disadvantages to being a public company
outweigh any advantages. The Board has no present intention to raise capital
through sales of securities in a public offering in the future or to acquire
other business entities using stock as the consideration for any such
acquisition. Accordingly, the Company is not likely to make use of any advantage
(for raising capital, effecting acquisitions or other purposes) that the
Company's status as a reporting company may offer.
The Company incurs direct and indirect costs associated with compliance
with the Commission's filing and reporting requirements imposed on public
companies. The Company incurs direct cost of approximately $ 85,000 annually.
The Company incurs substantial indirect costs as a result of, among other
things, the executive time expended to prepare and review such filings. Since
the Company has relatively few executive personnel, these indirect cost can be
substantial. In light of the company's size and resources, the Board does not
believe such costs are justified.
In addition, to the Company's knowledge, most of the Company's competitors
are private and those that are public are small divisions of large Fortune 500,
multi-national corporations in which their individual performance is not
reported due to the financial size of the division in relation to the
corporation. The Company believes it suffers a competitive disadvantage from
being required to disclose certain information that these other companies are
not required to disclose.
Moreover, because of its status as a publicly-traded company with numerous
small shareholders, the Company believes that the Company's business strategy
could be interfered with by an attempted hostile takeover or similar acquisition
that the Board of Directors believe is not in the best interests of its
shareholders.
Presently management's long-term plans are to remain independent. The Board
believes that it is in the best interests of the Company to continue its present
operations, marketing strategy, development plans and management structure.
Obligations imposed on management of public companies may eventually prevent the
Company from remaining independent if the Company becomes the subject of a
hostile takeover bid.
The Board has determined that the Reverse Stock Split is the most
expeditious and economical way of liquidating small shareholders and changing
the Company's status from that of a reporting company to that of a more closely
held, non-reporting company. See "Special Factors -- Recommendations of the
Special Committee and Board of Directors; Fairness of the Reverse Stock Split."
Shareholders owning fewer than 50,000 shares of Common Stock will no longer
have any equity interest in the Company and will not participate in any future
earnings of the Company or any increases in the value of the Company's assets or
operations. Further, the three shareholders that will continue to have an equity
interest in the Company after the Reverse Stock Split will
5
<PAGE>
own a security; the liquidity of which will be restricted. The Fractional Share
Price offered by the Company for fractional share interests was not determined
in arms length negotiations or on the basis of over the counter trading of the
Common Stock and therefore does not necessarily reflect an actual market value
of the Common Stock. (See "SPECIAL FACTORS" -- "Recommendation of the Special
Committee and Board of Directors; Fairness of the Reverse Stock Split" and
"Valuation Opinion. ")
The Reverse Stock Split is structured to be a "going private" transaction
as defined in Rule 13e-3 promulgated under the Exchange Act because it is
intended to, and, if completed, will likely terminate the Company's reporting
requirements under Section 12(g) of the Exchange Act. In connection with the
Reverse Stock Split, the Company has filed with the Securities and Exchange
Commission a Schedule 13E-3 pursuant to Rule 13e-3 under the Exchange Act.
The Reverse Stock Split will (i) cause the Company to redeem shares held by
approximately 766 holders of record of Common Stock, (ii) not eliminate three
record holders who hold 50,000 or more shares of Common Stock, (iii) reduce the
number of shares, on a pro-rata basis, held by the holders of record who hold
50,000 more shares of Common Stock, and (iv) change the percent of Common Stock
held by the remaining three shareholders to 100%.
SPECIAL FACTORS
BACKGROUND OF THE PROPOSED REVERSE STOCK SPLIT
Of the Company's approximately 769 record shareholders, 708 hold 500 or
fewer shares and represent less than 3% of the outstanding Common Stock. The
Board and the Company's management have long held the view that the continued
expense and burden of maintaining so many small shareholder accounts is not cost
efficient for a business the size of the Company. Many of the Company's
shareholders have lost contact, making it impossible for the Company to
communicate with them. Some others' interests are so small that brokerage
commissions or administrative inconvenience deter them from selling shares. The
Board also holds the view that the Company generally derives no material benefit
from continued registration under the 1934 Act, and in certain respects
registration under the 1934 Act places the Company at a competitive disadvantage
vis-a-vis its competitors who are not required to file reports under the 1934
Act. Management has remained a public corporation in the past to help facilitate
a public market for the shares. That market has not been as active or liquid as
management had desired. The Board decided to consider a Reverse Stock Split as a
means to liquidate the interest of lost shareholders and its many small
shareholder accounts at a fair price and then to deregister under the 1934 Act.
The reverse stock split was chosen because its outcome was certain,
expenses incurred by the Company were moderate, and shareholders would receive
cash for their fractional shares as opposed to corporate reorganization where
shareholders would receive no cash. Further, from a timing standpoint, the other
alternatives would have delayed the Company's deregistration under the 1934 Act
as compared to the Reverse Stock Split.
In December, 1997, management began considering options that could
accomplish the Board's objectives. The Board considered establishing a stock
repurchase program. A stock
6
<PAGE>
repurchase program would be expected to cash out some shareholders and increase
earnings per share; however, the Board rejected this alternative because it
would not relieve the administrative inconvenience of having such a large number
of small shareholders or eliminate the costs associated with being a public
company. The Board also considered a tender offer, various types of mergers, a
corporate reorganization, and a Reverse Stock Split.
As management continued to consider its options, it became apparent that
the Reverse Stock Split was the best alternative for the shareholders and the
Company. The lack of assurance that a significant number of shareholders would
tender or exchange their shares made a tender offer and the costs associated
with such something the Board could not justify. The expense of the required
documentation and regulatory requirement made a merger transaction expensive.
The Reverse Stock Split was chosen because its outcome was certain, expenses
incurred by the Company were moderate, and shareholders would receive cash for
their factional shares as opposed to corporate reorganization where shareholders
would receive no payment. Further, from a timing standpoint, the other
alternatives would have delayed the Company's deregistration under the 1934 Act
as compared to the Reverse Stock Split.
In March, 1998, Don Taylor and Michael Malinowski, the Company's President
and Vice President met with counsel regarding the different options available in
light of the composition of Sklar's shareholders. After several discussions
concerning the legal and technical aspects, management presented pertinent
considerations and a proposal of the Reverse Stock Split to the Board in April,
1998. The Board of Directors then appointed a Special Committee of Directors,
composed of all Board members except Don Taylor and Michael Malinowski, to
represent the interest of the shareholders who would receive cash in lieu of the
issuance of fractional shares of the new Common Stock in the proposed Reverse
Stock Split. During April and May of 1998, the Special Committee headed by
William Knepshield interviewed investment bankers in the healthcare industry for
the purpose of evaluating the market value of the common stock. In May, 1998,
the committee selected the Woodward Group, Ltd. to assist the Special Committee
in evaluating the fairness of the consideration to be given to the shareholders
who receive cash in lieu of fractional shares pursuant to the proposed Reverse
Stock Split.
After contacting Woodward regarding its retention, representatives of
Woodward visited the Company on numerous occasions, discussed the business of
the Company with management, spoke with the Company's counsel and its
independent auditors. During July, 1998, the Board discussed the relative merits
of Woodward providing either a Valuation or a full Fairness Opinion. The Board
concluded that a full Fairness Opinion was in the best interest of the Company
and the shareholders. It authorized Woodward to proceed and formally engaged
Woodward on August 18, 1998. During the five month period from July through
November, the Woodward Group conducted financial analysis, studies,
investigations and interviews as they deemed necessary so as to form the basis
for their recommendation of fair market value for the Common Stock.
On November 30, 1998, the Board determined to pursue the Reverse Stock
Split at a ratio of 1 for 50,000 and cause the Company to purchase any
fractional shares resulting therefrom, subject to receipt of a written report by
Woodward with respect to the fairness of the transaction to the shareholders.
The Board determined the reverse split ratio of 50,000 to 1, because it
7
<PAGE>
desired to cash out all of the shareholders except for major shareholders. This
would give the smaller shareholders the opportunity to liquidate their shares at
a fair price rather than remaining minority shareholders in a private company.
The ratio of 50,000 to 1 would have the effect of cashing out all shareholders
except the major shareholders, Don Taylor, Michael Malinowski and Michael Viner.
Woodward did not assist the Board in setting the ratio.
At the December 11, 1998 Board meeting, Woodward presented its written
analysis of the Company's value and advised the Special Committee of an
appropriate fair value of the Company's Common Stock with respect to determining
the cash consideration to be paid to shareholders to be cashed out in the
Reverse Stock Split. After the presentation by Woodward, the Special Committee
met and determined that a price of $.46 per share would be fair from a financial
point of view to the shareholders receiving cash in lieu of fractional shares in
the transaction. The price of $.46 per share was communicated to Woodward and
Woodward rendered an oral fairness opinion with respect to the cash
consideration to be paid to the shareholders cashed out in the Reverse Stock
Split which was followed up in writing after the meeting.
On December 16, 1998, the Special Committee determined to proceed with the
transaction and to submit the Reverse Stock Split to the shareholders for
approval. On December 16, 1998, the entire Board voted to adopt the
recommendation of the Special Committee as its own.
THE EFFECTS OF THE REVERSE STOCK SPLIT
The Company believes that the Reverse Stock Split will reduce the number of
record shareholders from approximately 769 to 3. The number of shares which
might otherwise trade publicly will change from 1,104,940 to __. The Company
also believes that completion of the Reverse Stock Split will cause the public
market for shares of Common Stock, which at present is virtually nonexistent, to
be eliminated.
The Common Stock is currently registered under the 1934 Act. Such
registration may be terminated by the Company if the Common Stock is no longer
held by 300 or more shareholders of record. Termination of registration of the
Common Stock under the 1934 Act would substantially reduce the information
required to be furnished by the Company to its shareholders and to the
Commission and would make certain provisions of the 1934 Act, such as the
short-swing profit recovery provisions of Section 16(b) of the 1934 Act in
connection with shareholders meetings and the related requirement of an annual
report to shareholders, no longer applicable to the Company. Accordingly, for a
total expenditure to the Company of approximately $400,000, the Company will
eliminate the cost and expense to the Company of the 1934 Act registration,
which is approximately $85,000 on an annual basis. The Company intends to apply
for such termination as soon as practicable following completion of the Reverse
Stock Split.
8
<PAGE>
POTENTIAL DETRIMENTS OF THE REVERSE STOCK SPLIT TO SHAREHOLDERS; ACCRETION IN
OWNERSHIP AND CONTROL OF CERTAIN SHAREHOLDERS
Shareholders owning fewer than 50,000 shares immediately prior to the
effective time of the Reverse Stock Split will, after the Reverse Stock Split
takes place, no longer have any equity interest in the company and therefore
will not participate in its future potential earnings or growth. It is expected
that all owners, except Don Taylor, Michael Malinowski and Michael Viner, will
be cashed out in the Reverse Stock Split. It will not be possible for cashed out
shareholders to reacquire an equity interest in the Company unless they purchase
an interest from the remaining shareholders. Transfers by them of their shares
to third parties are not anticipated.
Potential detriments to Company shareholders who remain as shareholders if
the Reverse Stock Split is effected include decreased access to information and
decreased liquidity. If the Reverse Stock Split is effected, the Company intends
to terminate the registration of its Common Stock under the 1934 Act. As a
result of such termination, the Company will no longer be subject to the
periodic reporting requirements and the proxy rules of the 1934 Act.
FINANCIAL EFFECT OF THE REVERSE STOCK SPLIT
The Reverse Stock Split and the use of approximately $400,000 cash to
complete the Reverse Stock Split are not expected to have any material effect on
the Company's capitalization, liquidity, results of operations or cash flow.
The following pro forma financial information presents the effect on the
Company's historical financial position of the Reverse Stock Split and the cash
payment of $232,272 per share for all fractional shares. The unaudited pro forma
balance sheets reflect the transaction as if it occurred on the balance sheet
dates. The unaudited pro forma statements of operations reflect the transaction
as if it occurred at the beginning of the periods presented.
The unaudited pro forma balance sheets are not necessarily indicative of
what the Company's financial position would have been if the Reverse Stock Split
had been effected on the dates indicated, or will be in the future. The
information shown on the unaudited pro forma statements of operations is not
necessarily indicative of the results of future operations.
The unaudited pro forma financial statements should be read in conjunction
with the historical financial statements and accompanying footnotes of the
Company which are incorporated by reference into this Proxy Statement. See
"Incorporation of Certain Documents by Reference."
9
<PAGE>
SKLAR CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS
Historical Pro Forma
<S> <C> <C>
CURRENT ASSETS:
Cash $ 12,885 $ 12,885
Accounts receivable 2,547,506 2,547,506
Inventories 3,142,043 3,142,043
Prepaid expense 199,262 199,262
---------- ----------
Total current assets 5,901,696 5,901,696
---------- ----------
FIXED ASSETS, net 630,264 630,264
GOODWILL 879,830 879,830
OTHER ASSETS 106,636 106,636
---------- ----------
TOTAL ASSETS $7,518,426 $7,518,426
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 294,816 $ 294,816
Short-term borrowings 2,085,000 2,085,000
Current portion of long-term debt 218,094 218,094
Current portion of capital lease obligation 14,120 14,120
Accounts payable 2,100,424 2,100,424
Accrued expenses and taxes 273,303 273,303
---------- ----------
Total current liabilities 4,985,757 4,985,757
LONG-TERM PORTION OF NOTES AND CAPITAL
LEASE PAYABLE 90,337 90,337
FRACTIONAL SHARE LIABILITY 0 232,272
---------- ----------
Total liabilities 5,076,094 5,308,366
---------- ----------
CONTINGENT LIABILITIES 0 0
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, par value $.01, per share,
authorized 35,000 shares, 24,825 issued and 22,078 outstanding 248 248
Series A subordinate convertible preferred stock, no par value,
authorized 4,000 shares, issued and outstanding 0 0
Common stock, par value $.10 share, authorized 1,500,000
(30 proforma) shares, 1,247,952 (5 proforma) issued and
754,940 (5 proforma) outstanding 124,795 1
Additional paid-in capital 2,105,458 1,898,837
Retained earnings 362,869 362,869
---------- ----------
2,593,370 2,261,955
Less treasury stock 151,038 51,895
---------- ----------
Total stockholders' equity 2,442,332 2,210,060
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,518,426 $7,518,426
========== ==========
</TABLE>
10
<PAGE>
SKLAR CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Historical Pro Forma
CURRENT ASSETS:
Cash $ 71,910 $ 71,910
Accounts receivable 2,240,804 2,240,804
Inventories (Note 5) 3,167,605 3,167,605
Prepaid expense 218,799 218,799
---------- ----------
Total current assets 5,699,118 5,699,118
---------- ----------
EQUIPMENT AND IMPROVEMENTS (Note 6) 632,284 632,284
GOODWILL (Note 7) 558,468 558,468
OTHER ASSETS 54,714 54,714
---------- ----------
TOTAL ASSETS $6,944,584 $6,944,584
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 74,028 $ 74,028
Short-term borrowings (Note 2) 1,144,000 1,144,000
Current portion of long-term debt and
current portion of capital lease obligation 131,250 131,250
Accounts payable 2,617,187 2,617,187
Accrued expenses 265,820 265,820
Accrued income taxes 46,405 46,405
---------- ----------
Total current liabilities 4,278,690 4,278,690
LONG-TERM PORTION OF NOTES AND CAPITAL LEASE
PAYABLE 23,172 23,172
FRACTIONAL SHARE LIABILITY 0 232,272
---------- ----------
Total liabilities 4,301,862 4,534,134
---------- ----------
CONTINGENT LIABILITIES 0 0
STOCKHOLDERS' EQUITY: (Note 9)
Series A convertible preferred stock, par value $.01, per share, authorized
35,000 shares, 24,825 issued and 22,078 outstanding 248 248
Series A subordinate convertible preferred stock, no par value, authorized
4,000 shares, issued and outstanding 0 0 0
Common stock, par value $.10 share, authorized 1,500,000
(30 proforma)shares, 1,297,952 (6 proforma) issued and
804,940 (6 proforma) outstanding 129,795 1
Additional paid-in capital 2,114,958 1,913,337
Retained earnings 548,759 548,759
---------- ----------
2,793,760 2,462,345
Less treasury stock 151,038 51,895
---------- ----------
Total stockholders' equity 2,642,722 2,410,450
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,944,584 $6,944,584
========== ==========
</TABLE>
11
<PAGE>
SKLAR CORPORATION
CONSOLIDATED STATEMENT OF INCOME
MARCH 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
<S> <C> <C>
NET SALES $ 13,766,868 $ 13,766,868
Cost of goods sold 7,640,866 7,640,866
------------ ------------
GROSS PROFIT 6,126,002 6,126,002
Selling, general and administrative expenses 5,508,841 5,508,841
------------ ------------
INCOME FROM OPERATIONS 617,161 617,161
OTHER INCOME (EXPENSE):
Other (31,931) (31,931)
Interest expense (309,452) (309,452)
Settlement gain ( See Note B ) 17,226 17,226
------------ ------------
Other expenses - net (324,157) (324,157)
------------ ------------
INCOME BEFORE TAXES 293,004 293,004
Provision for income taxes 40,000 40,000
------------ ------------
NET INCOME 253,004 253,004
Preferred dividend requirement 275,975 275,975
------------ ------------
LOSS APPLICABLE TO COMMON SHARES $ (22,971) $ (22,971)
============ ============
PER SHARE DATA:
Weighted average common shares outstanding 754,940 5
------------ ------------
Loss per share $ (.03) $ (4,594)
============ ============
</TABLE>
12
<PAGE>
SKLAR CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
Historical Pro Forma
NET SALES $6,651,867 $6,651,867
Cost of goods sold 3,553,023 3,553,023
---------- ----------
GROSS PROFIT 3,098,844 3,098,844
Selling, general and administrative expenses 2,778,314 2,778,314
---------- ----------
INCOME FROM OPERATIONS 320,530 320,530
OTHER INCOME (EXPENSE):
Interest expense 105,744 105,744
---------- ----------
Other expenses - net 105,744 105,744
---------- ----------
INCOME BEFORE TAXES 214,786 214,786
Provision for income taxes 28,896 28,896
---------- ----------
NET INCOME 185,890 185,890
Preferred dividend requirement 137,988 137,988
---------- ----------
INCOME APPLICABLE TO COMMON SHARES $ 47,902 $ 47,902
========== ==========
PER SHARE DATA:
Weighted average common shares outstanding 783,629 6
---------- ----------
Earnings per share $ 0.06 $ 7,984
========== ==========
13
<PAGE>
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS OF THE
REVERSE STOCK SPLIT
The Board believes that the Reverse Stock Split, taken as a whole, is fair
to, and in the best interests of, the shareholders of the Company who will
receive cash in lieu of fractional shares, those who will receive shares of new
Common Stock. The Board also believes that the process by which the transaction
is to be approved is fair. The Board recommends that the shareholders vote for
approval and adoption of the Amendment and the payment of cash in lieu of
fractional shares as described above. Each member of the Board and each officer
of the Company who owns shares of Common Stock has advised the Company that he
intends to vote his shares in favor of the Reverse Stock Split. Don Taylor and
Michael Malinowski will also receive a cash payment for their fractional share
interests in the amount of $1,709 and $4,611, respectively, in the Reverse
Stock Split.
In determining to recommend the Reverse Stock Split to the shareholders,
only those members of the Board who do not have a Common Stock ownership
interest in the Company, including Board members who are not employees of the
Company, voted on and approved the transaction.
In reaching its determination that the Reverse Stock Split, taken as a
whole, is fair to and in the best interests of the shareholders and in reaching
its recommendation that the shareholders vote for approval and adoption of the
Amendment and the payment of cash in lieu of fractional shares, the Board of
Directors considered, among other things (i) the analysis and opinion of
Woodward. See "Special Factors -- Opinion of Woodward," (ii) each of the
director's knowledge and familiarity with the Company's business prospects,
financial condition and current business strategy, (iii) information with
respect to the financial condition, results of operations, assets, liabilities,
business and prospects of the Company, and current industry, economic and market
conditions (iv) the opportunity presented by the Reverse Stock Split for the
shareholders owning fewer than 50,000 shares to liquidate their holdings without
incurring brokerage costs, particularly, given the relatively illiquid market of
the Common Stock, and (iv) the future cost savings and competitive advantages
that will inure to the benefit of the Company and its continuing shareholders as
a result of the Company deregistering its Common Stock under the 1934 Act.
In addition to that discussed above, the Board considered that, to its
knowledge, most of the Company's competitors are privately held, and that those
that are publicly held are small divisions of large corporations and are not
required to disclose specific performance information due to the
non-materialness of such information in relation to the larger corporations
performance. The Board further considered the competitive disadvantage the
Company suffers from being required to disclose certain information that its
competitors do not disclose.
Before proposing the Reverse Stock Split, the Board considered alternative
means of achieving its objectives for the Company. See "Background of the
Proposed Stock Split."
14
<PAGE>
The Special Committee engaged an independent appraiser to assist in
evaluating the fairness of the transaction. The Special Committee was composed
of the Company's three outside directors, George Kellam, William Knepshield and
Albert Wicks, none of whom own shares of Common Stock in the Company. The
Special Committee and Woodward have independently considered the fairness of the
transaction to holders receiving only cash in lieu of the issuance of fractional
shares. The Special Committee unanimously approved the Reverse Stock Split and
recommended it for consideration by the full Board. The Board has unanimously
adopted the recommendation of the Special Committee as its own.
Part of the Special Committee's purpose in engaging Woodward was to obtain
an independent estimate of the fair value of the Company's Common Stock on a
going concern basis. The Board has given significant weight to the views of
Woodward.
The Special Committee gave no material weight in determining the fairness
of the transaction to the book value of Common Stock or the liquidation value of
Company assets. Based on the Company's unaudited balance sheet at September 30,
1998, the book value of the Common Stock would be $0 per share. The Special
Committee believes that the Company is considerably more valuable as a going
concern. In reaching its recommendation, the Special Committee considered the
market price of the Company's Common Stock over the last five years, the lack of
dividends paid, the restriction on payment of dividends in light of the
Preferred Stock and the Banks restriction on the payment of dividends in the
future.
Because of its expertise and independence, the Special Committee has placed
particular weight on the opinion of Woodward. After considering the factors
discussed above and, in particular, the views expressed by Woodward and the
nature and amount of continuing ownership interest of the Company by certain
affiliates, the Special Committee identified the stated consideration for
fractional shares in this transaction to be $.46 per share of outstanding Common
Stock as fair to the Shareholders. In arriving at the price of $.46, all shares
of Common Stock purchased by or granted to affiliates of the Company during the
last two full fiscal years were removed from the calculation. Woodward indicated
its willingness to deliver the opinion accompanying this proxy statement to the
effect that the $.46 price per share is fair to those holders of Common Stock
who will receive only cash in the Reverse Stock Split.
VALUATION OPINION
The Special Committee considered the opinion of The Woodward Group, Ltd.
(the "Valuation Opinion") that the consideration offered to the shareholders
(i.e., the "Fractional Share Price" of $.46 per share) was fair to such holders
from a financial point of view. The Valuation Opinion [states that the
Fractional Share Price is a fair market value for the shares of the Company,
where fair market value is defined as: The price at which the property would
change hands between a willing buyer and a willing seller, neither being under
any compulsion to buy or sell, and both having reasonable knowledge of the
relevant facts. (This definition, used for federal estate and gift tax purposes,
has taken on universal application in the valuation of closely held
securities.)] In reaching this conclusion, The Woodward Group, Ltd. considered,
among other things, (i) the history and management of the Company (ii) the
nature of the business operated by the Company and the future prospects of the
Company (iii) the historical
15
<PAGE>
and current operating results of the Company and the factors affecting these
results, including the current and anticipated customer base of the Company and
the Company's product line offering (iv) the historical and current financial
condition of the Company (v) the historical and current book value of the
Company's assets and liabilities (vi) financial forecast and budget assumptions
provided by the Company's management for the years ending March 31, 1999-2004
(vii) available information on "comparable," publicly traded companies and
merger and acquisition transactions which were not, in their opinion, directly
comparable (viii) conditions in the general economy and the industry in which
the Company operates (ix) the financial terms of the Reverse Stock Split; the
terms and shareholdings of the Company's Series A Convertible Preferred Stock;
the composition of the Board of Directors of the Company; and the historical
trading of all classes of the Company's stock. Woodward was engaged by the
Special Committee of Directors to determine a range of fair value of the Common
Stock, and, depending on the price determined by the Board, to render an opinion
on the fairness of the price to be paid to shareholders receiving cash in lieu
of fractional shares in the Reverse Stock Split . The Company imposed no
limitations on Woodward with respect to the scope of its investigation of the
Company, the preparation of its valuation report or its opinion as to the
fairness of the amount of consideration to be paid to holders of fewer than
50,000 shares.
The Woodward Group, Ltd. is a professional financial advisory firm
specializing in the valuation of closely held entities. At the time of its
selection, The Woodward Group, Ltd. had no prior business relationships with the
Company or any of its officers or directors. The fee received by The Woodward
Group, Ltd. for its services was not contingent upon the conclusions reached by
The Woodward Group, Ltd. in the Valuation Opinion.
Prior to engaging Woodward, on behalf of the Special Committee, William
Knepshield contacted four appraisers. Mr. Knepshield interviewed these
appraisers to determine, among other factors, how much experience each appraiser
had with valuing similar businesses of a comparable size and nature to the
Company and the approximate time table required to complete an appraisal. After
interviewing the potential appraisers, the Special Committee selected Woodward,
because its expertise and experience in valuing businesses, including
familiarity with similar businesses, and its familiarity with valuing privately
held and thinly traded public companies, its willingness to make a thorough
examination of the Company, its reputation for high quality and thorough work,
and the cost Woodward would charge for such services.
For its services, including rendering its opinion, the Special Committee
contracted to pay a fee of approximately $30,000 to Woodward.
A copy of Woodward's fairness opinion, dated December 11, 1998, is included
as Exhibit A to this Proxy Statement. Copies of Woodward's valuation report to
the Board of Directors, dated November 30, 1998, will be made available for
inspection and copying at the principal executive offices of the Company during
regular business hours by any interested shareholder of the company or his
representative, who has been so designated in writing. The summary set forth
above does not purport to be a complete description of Woodward's written
analysis.
16
<PAGE>
CONDUCT OF THE COMPANY'S BUSINESS AFTER THE REVERSE STOCK SPLIT
The Company expects its business and operations to continue as they are
currently being conducted and, except as disclosed below, the Reverse Stock
Split is not anticipated to have any effect upon the conduct of such business.
If the Reverse Stock Split is consummated, all persons beneficially owning fewer
than 50,000 shares at the effective time of the Reverse Stock Split will no
longer have any equity interest in, and will not be shareholders of, the Company
and therefore will not participate in its future potential or earnings and
growth. Instead, each such beneficial owner of Common Stock will have the right
to receive $.46 per share in cash, without interest.
If the Reverse Stock Split is effected, the Company believes that, based on
the Company's shareholder records, only Don Taylor, Michael Malinowski and
Michael Viner will remain as shareholders, beneficially owning 100% of the
outstanding Common Stock. Such individuals now own approximately 55.4% of the
fully diluted Common Stock. See "Security Ownership of certain Beneficial Owners
and Management." If the Company's shareholder records are incomplete or
inaccurate and there are presently shareholders other than Don Taylor, Michael
Malinowski and Michael Viner who hold 50,000 shares or more, or if prior to the
effective date of the Reverse Stock Split another person becomes a shareholder
of 50,000 shares or more, then the Company is willing to purchase the shares of
such shareholder(s) for the price per share to shareholders who receive cash in
lieu of fractional shares, at the request of such shareholder.
The Company plans, as a result of the Reverse Stock Split, to become a
privately held company. The registration of the Common Stock under the 1934 Act
will be terminated. In addition, because the Common Stock will no longer be
publicly held, the Company will be relieved of the obligation to comply with the
proxy rules of Regulation 14A under Section 14 of the 1934 Act, and its officers
and directors and shareholders owning more than 10% of the Common Stock will be
relieved of the stock ownership reporting requirements and "short swing" trading
restrictions under Section 16 of the 1934 Act. Further, the Company will no
longer be subject to the periodic reporting requirements of the 1934 Act and
will cease filing information with the Commission. Among other things, the
effect of this change will be a savings to the Company in not having to comply
with the requirements of the 1934 Act.
If effected, the Reverse Stock Split will decrease the number of issued and
outstanding shares of Common Stock from 1,104,940 to __ shares. With the
exception of the number of outstanding shares, the terms of the Common Stock
before and after the Reverse Stock Split will remain the same. As stated
throughout this Proxy Statement, the Company believes that there are significant
advantages in effecting the Reverse Stock Split and "going private" and the
Company plans to avail itself of any opportunities it has as a private Company,
including, but not limited to, making itself a more viable candidate with
respect to a merger or acquisition transaction with any one of its competitors
or entering into some type of joint venture or other arrangement. Although
management does not presently have an interest in any such transaction nor is
management currently in negotiations with respect to any such transaction, there
is always a possibility that the Company may enter into such an arrangement in
the future and the remaining shareholders of the Company may receive payment for
their shares in any such
17
<PAGE>
transaction in excess of the $.46 which will be paid to shareholders in lieu of
fractional shares in the Reverse Stock Split.
Other than as described in this Proxy Statement, neither the Company nor
its management has any current plans or proposals to effect any extraordinary
corporate transaction; such as a merger, reorganization or liquidation; to sell
or transfer any material amount of its assets; to change its Board of Directors
or management; to change materially its indebtedness or capitalization; or
otherwise to effect any material change in its corporate structure of business.
THE COMPANY
The Company was incorporated in 1938 in the State of Delaware under the
name Misdom-Frank Corporation. In 1983, the Company merged with Medco Jewelry
Corporation and the Company's name was changed to Medco Group Incorporated
("Medco"). In 1985, Medco purchased substantially all of the assets (other than
real estate) and certain liabilities of the J. Sklar Manufacturing Co., Inc., a
well respected manufacturer and distributor of surgical instruments that had
been in continuous operation since 1892. In 1986, the Company's operations were
moved to West Chester, Pennsylvania and, in 1990, the Company was reincorporated
in the State of Pennsylvania. In 1993, the Company changed its name to Sklar
Corporation. The Company imports and distributes high quality surgical
instruments, including dental and veterinary instruments in the United States.
Between 1986 and 1996, the Company made numerous additional acquisitions in the
medical instrument industry in order to strengthen its strategic position in its
industry.
The Company currently has two divisions, the surgical instrument division
and the orthodontics division. The surgical instrument division is made up of
product lines that are primarily hand held surgical instruments, products that
are complementary such as the instrument care and cleaning line, line extensions
such as sterile procedure kits, and new low cost/low margin disposable such as
scalpels and blades. The surgical instrument division accounts for 95% of the
Company's revenues. The orthodontics division accounts for 5% of the Company's
revenue as a "direct seller" to a niche market of orthodontics.
18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table summarizes certain historical financial data which have
been derived from the audited consolidated financial statements of the Company
for each of the two most recent fiscal years ended March 31, 1998 and March 31,
1997 and the unaudited consolidated financial statements for the six-month
periods ended September 30, 1998 and 1997.
Selected Statement of Operations Data
<TABLE>
<CAPTION>
Six Months Ended September 30 Fiscal Year Ended March 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales $ 6,651,867 $ 6,903,869 $ 13,766,868 $ 14,325,963
Gross profit 3,098,844 2,971,270 6,126,002 6,163,193
Income before taxes
214,786 32,614 293,004 212,239
Net income (loss)
$ 185,890 $ 29,353 $ 253,004 $ 180,039
Preferred Dividend
Requirement
$ 137,988 $ 137,988 $ 275,975 $ 275,975
Earnings (loss) $ 47,902 $ (108,635) $ (22,971) $ (95,936)
Weighted average number
of common shares
783,629 754,940 754,940 754,940
Loss per common share
$ .06 $ (.14) $ (.03) $ (.13)
</TABLE>
Summary Balance Sheet Data
<TABLE>
<CAPTION>
September 30, 1998 Fiscal Year Ended March 31
1998 1997
<S> <C> <C> <C>
Total Assets $6,944,584 $7,518,426 $9,585,845
Working Capital 1,420,428 915,939 243,788
Long Term Obligations 23,172 90,337 798,041
Shareholders' equity (deficit)
2,642,722 2,442,332 2,189,328
Book value per share $ 0 $ 0 $ 0
Ratio of earnings to fixed charges 2.52 1.78 1.51
</TABLE>
19
<PAGE>
FINANCING OF THE REVERSE STOCK SPLIT
The Board estimates that the total cost to the Company of the Reverse Stock
Split for payment of the fractional share interests and the estimated
transactional fees and expenses will be $400,000. The Company intends to finance
the Reverse Stock Split by using funds available to it under its line of credit
facility at PNC Bank, N.A. Available borrowing under this line of credit
amounted to $836,260 at December 21, 1998.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The payment for fractional shares for the Company's Common Stock pursuant
to the Reverse Stock Split is expected to be a fully taxable transaction.
Accordingly, each exchanging shareholder will recognize gain or loss for federal
income tax purposes measured by the difference between such shareholder's basis
in the Shares exchanged and the cash received by the Shareholder for the
fractional shares. Such gain or loss will be capital gain or loss if the Shares
were held as a capital asset. All shareholders are urged to consult with their
own tax advisors as to the tax consequences of the Reverse Stock Split.
PRICE RANGE OF COMMON STOCK; DIVIDENDS; TRADING VOLUME
Except for limited or sporadic transactions, there is no established public
trading market for the Common Stock of the Company.
The Company is not aware of any purchases or sales involving its Common
Stock since April, 1996 other than one transaction in June, 1996 in which Don
Taylor purchased from another stockholder 800 shares of Common Stock at a price
of $.20 per share.
As of January ___, 1999 the Company had 769 holders of record of its
Common Stock. The Company believes there are approximately 1000 beneficial
owners of the Company's Common Stock.
The Company has not paid any dividends on its Common Stock and does not
foresee that it will pay dividends on its Common Stock in the near future. Under
the terms of the Company's bank agreements, the Company may not pay any
dividends without the consent of the bank. Additionally, under the terms of the
Company's Series A Convertible Preferred Stock issue, no dividends may be paid
on the Common Stock until full cumulative dividends have been paid upon the
Preferred Stock. Under the terms of the Company's Series A Convertible Preferred
Stock, an annual dividend of $12.50 per share accrues cumulatively on June 30.
No dividends are payable unless declared by the Board of Directors. On June 17,
1985 the Board of Directors voted not to declare the first such dividend (which
would have been paid June 30, 1985). Due to operating cash requirements and bank
restrictions, the Board of Directors has continued to decline to declare
dividends in all subsequent years.
20
<PAGE>
Under the terms of the Preferred Stock, if there exists cumulative unpaid
preferred dividends, the holders of the Series A Convertible Preferred Stock,
voting separately as a class, are entitled to elect a number of additional
directors to the Board of Directors of the Company sufficient to cause such
directors to be a majority of the Board. Currently of the five Board members
four are holders of Preferred Stock. These Board members and Preferred
Stockholders own or control approximately 58.2% of the outstanding preferred
stock. In addition, the market for the Common Stock, already thin, will
disappear. The Company has no current plans to pay dividend in arrears or to
declare dividends of the Preferred Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information as of January 1, 1999
regarding the beneficial ownership, as defined in regulations of the Securities
and Exchange Commission, of (i) each person who is known to the Company to be
the beneficial owner of more than 5% of any class of the Company's voting
securities, (ii) each director of the Company, and (iii) all directors and
executive officers as a group. On January ___, 1999, there were 1,104,940
shares of the Company's Common Stock, 22,078 Shares of Series A Convertible
Preferred Stock and no shares of Series B subordinated Preferred Stock
outstanding. Unless otherwise specified, the named beneficial owner has sole
voting and investment power. The information in the table below was furnished by
the persons listed. "Beneficial Ownership" as used herein has been determined in
accordance with the rules and regulations of the Securities and Exchange
Commission and is not to be construed as a representation that any of such
shares are in fact beneficially owned by any person.
21
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Owned Percentage of Shares Owned Percentage of Shares
Name and Addresses Title of At January Shares Owned prior to Following Reverse Owned Following Reverse
of Beneficial Owners Class ___, 1999 Reverse Stock Split Stock Split Stock Split
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Don Taylor 1 Preferred 10,575 40.6% 10,575 40.6%
Common 303,715 27.5% 6 50.0%
Michael Malinowski Preferred 6,199 23.8% 6,199 23.8%
Common 258,000 23.3% 5 41.7%
George Kellam Preferred 20 * 20 *
Common --- ---
William R. Knepshield Preferred 50 * 50 *
Common --- ---
Albert Wicks Preferred --- ---
Common --- ---
Michael Viner 2 Preferred --- ---
Common 50,000 4.5% 1 8.3%
All directors and officers Preferred 16,844 64.6% 16,844 64.6%
as a group 1 2 3 Common 611,715 55.4% 12 100%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* less than 1%
1 Includes 4,000 options to purchase Series A Subordinated Convertible
Preferred Stock currently exercisable.
2 As of _____________, 1999, the record date, Mr. Viner was a consultant to
the Company. As of January 1, 1999, Mr. Viner became an employee and Vice
President of the Company.
3 Does not include shares held by Mr. Viner.
</FN>
</TABLE>
DIRECTORS, EXECUTIVE OFFICERS OF THE COMPANY
The Directors and Executive Officers of the Company, their ages, their
principal occupations during the past five years or more, and directorships of
each in public companies in addition to the Company are as follows:
Don Taylor. Mr. Taylor, age 52, was appointed to the Board in November 1988
and was elected President of the Company in January 1989. From 1986 to 1989 he
was retained as a "turn around" consultant to the Company. From 1969 to 1982 he
owned and operated a chain of drug stores. Additionally, from 1981 until 1986 he
owned a consulting firm specializing in the turn around of financially troubled
companies. His experience includes operations, sales and marketing.
Michael Malinowski. Mr. Malinowski, age 44, was appointed to the Board in
April, 1991, and has served as Executive Vice President since 1994 and Chief
Financial Officer since 1998. He has been employed by the company since 1986 in
the positions of General Manager and Vice President of Operations. Mr.
Malinowski has a background in computer systems management and operations. His
responsibilities as Chief Financial Officer include oversight of the financial
department and Information Systems.
22
<PAGE>
Michael Viner. Mr. Viner has been Vice President of Operations since
January, 1999. Prior to joining the Company and for the past four years, Mr.
Viner was engaged by the Company as a Consultant to advise the Company on
various operations matters, including warehouse and regulatory systems. Mr.
Viner's background includes 30 years with consulting firms specializing in
productivity improvement and cost reduction for Fortune 500 companies.
George Kellam. Mr. Kellam, age 58, was appointed to the Board in December,
1992. Mr. Kellam has been the owner and President of G&M Enterprises, Inc., a
company which specializes in the advertising and promotional business, for
twenty years. Mr. Kellam has extensive experience in retail, warehousing and
distribution. Mr. Kellam has a background in the pharmaceutical industry.
William R. Knepshield. Mr. Knepshield, age 63, was appointed to the Board
in December, 1990. Mr. Knepshield has twenty-one years experience as the Chief
Executive of several publicly held companies involved with the medical
technology field and the inventions of innovative medical devices. From 1989 to
1993, Mr. Knepshield was president and Chief Executive Officer of KMI, Inc. a
company involved in the development and sale of sophisticated microsurgical
instruments for ophthalmology. Currently, Mr. Knepshield is president and Chief
Executive Officer of WBSK, Inc. which has developed and owns numerous patents
pertaining to needles and the protection of healthcare workers.
Albert Wicks. Mr. Wicks, age 51, was appointed to the Board in December,
1989. Mr. Wicks has been the owner, President and Chairman of C&S Medical
Supply, a company specializing in the distribution of medical supplies to the
physician market, for sixteen years. Prior to founding C&S Medical supply, he
spent thirteen years in sales and management of Foster Medical, a company that
specializes in sales of supplies to physicians.
EXCHANGE OF CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES OF NEW COMMON STOCK
Upon the approval of the shareholders of the Reverse Stock Split Proposal,
the Company will by corporate action effect a 1 for 50,000 reverse split of its
Common Stock outstanding (the "Effective Date"). American Stock Transfer & Trust
Company has been appointed exchange agent (the "Exchange Agent") to carry out
the exchange of certificates for new Common Stock and/or cash.
As soon as practicable after the Effective Date, the shareholders will be
notified and asked to surrender their certificates representing shares of Common
Stock to the Exchange Agent. Those shareholders beneficially owning 50,000
shares or more will receive in exchange certificates representing shares of new
Common Stock on the basis of one share of new Common Stock for each 50,000
shares of Common Stock held prior to the reverse Stock Split, and in cases where
a shareholder does not beneficially own a number of shares evenly divisible by
50,000, cash in the amount of $.46 per share of the currently outstanding Common
Stock in lieu of receiving fractional shares of new Common Stock following the
Reverse Stock Split.
23
<PAGE>
Shareholders owning fewer than 50,000 shares on the Effective Date will receive
in exchange a cash payment in the amount of $.46 per share.
For purposes of the operation of the Reverse Stock Split (i.e., for
determining whether and to what extent shareholders will receive New Common
Stock and/or cash in lieu of fractional shares), and for no other purpose, the
Company will treat the person who is the underlying beneficial owner of shares
held by a nominee as the shareholder.
If the Reverse Stock Split is effected, any shareholder beneficially owning
fewer than 50,000 shares of the currently outstanding Common Stock will cease to
have any rights with respect to the Common Stock of the Company, except to be
paid in cash, as described in this Proxy Statement. No interest will be paid or
accrued on the cash payable to shareholders after the Reverse Stock Split is
effected.
No service charges will be payable by shareholders in connection with the
exchange of certificates or the payment of cash in lieu of issuing fractional
shares, all expenses of which will be borne by the Company.
DISSENTERS' RIGHTS
In the event the Proposal is approved, shareholders would have certain
rights to dissent and demand appraisal of their Shares under Section 1571 of the
Pennsylvania Associations Code. Under Pennsylvania Law, dissenting shareholders
who comply with the requisite statutory procedures would be entitled to receive
the payment of "fair value" of their Shares. "Fair value" means the fair value
of the shares immediately prior to the vote on such Proposal. The value so
determined could be more or less than the consideration offered pursuant to the
amount disclosed in this Proxy Statement. A copy of the Dissenters' Rights
statute is attached hereto as Exhibit B as a complete description of the rights
and obligations of the Company and any shareholder who desires to exercise
dissenters' rights. EACH STEP MUST BE TAKEN IN STRICT COMPLIANCE WITH THE
APPLICABLE PROVISIONS OF THE DISSENTERS' RIGHTS STATUTE IN ORDER FOR
SHAREHOLDERS TO PERFECT DISSENTERS' RIGHTS.
OTHER INFORMATION CONCERNING THE COMPANY AND AFFILIATES
On November 30, 1998, the Company granted to Michael Malinowski 100,000
shares of Common Stock in connection with Mr. Malinowski's personal guarantee of
a $2,000,000 credit line with PNC Bank.
On June 18, 1998, the Company granted to Michael Viner, a consultant of the
Company, 50,000 shares of Common Stock as an inducement to Mr. Viner to become
an employee and Vice President of the Company.
The Company's arrangements with Messrs. Malinowski and Viner were approved
by the majority of disinterested members of the Board.
24
<PAGE>
Messrs. Taylor and Malinowski each exercised 100,000 of their options to
purchase Common Stock of the Company on November 30, 1998. The options were
granted to Messrs. Taylor and Malinowski in 1993. Mr. Taylor's options were
granted in consideration for services provided to the Company and were
exercisable at a price of $.25 per share. Mr. Malinowski's options were granted
under the Company's Incentive Stock Option Plan and were exercisable at a price
of $.20 per share.
COSTS
The following is an estimate of the costs incurred or expected to be
incurred by the Company in connection with the Reverse Stock Split. Amounts
shown below exclude the cost of paying for fractional shares after the Reverse
Stock Split is effected. Final costs of the transaction may be more or less than
the estimates shown below.
Legal Fees $ [55,000]
Transfer and exchange agent fees [5,000]
Fees for valuation [30,000]
Printing and mailing costs [15,000]
Commission filing fees [50]
Accounting fees [40,000]
Misc [5,000]
----------
Total $ 150,050
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Stockton Bates & Company, P.C., the Company's
independent accountants are not expected to be present at the Special Meeting.
other matters
The Board does not know of other matters which are likely to be brought
before the Special Meeting. However, in the event that any other matters
properly came before the Special Meeting, the persons named in the enclosed
proxy are expected to vote the Shares represented by such proxy on such matters
in accordance with their best judgment.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Meeting and the enclosed proxy is to be borne by the Company.
25
<PAGE>
SHAREHOLDERS' PROPOSALS FOR THE 1998 ANNUAL MEETING
If the Reverse Split is not effected, or if it is not effected within the
time period currently contemplated, the Company will hold a 1998 Annual Meeting
of the Shareholders in May 1999. In order for proposals of the Company's
shareholders to be considered for inclusion in the proxy statement relating to
its 1998 Annual Meeting of Shareholders, such proposals must have been received
at the Company's executive office not later than March 15, 1999.
The Company will provide the Shareholders, without charge, a copy of the
Company's Annual Report on Form 10-KSB filed with the SEC for the year ended
March 31, 1998 and the Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998, including the financial statements and schedules
attached thereto, upon written request to Michael Malinowski, Chief Financial
Officer, at Sklar Corporation, 889 South Matlack Street, West Chester, Pa 19382.
incorporation of certain documents by reference
The following documents filed with the SEC by the Company File No. 1-6107
are incorporated by reference in this Proxy Statement: (i) the Annual Report of
Form 10-KSB for the fiscal year ended March 31, 1998 and; (ii) the Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1998.
All documents and reports filed by the Company with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement and prior to the date of the Special Meeting shall be deemed to
be incorporated by reference in this Proxy Statement and prior to be a part
hereof from the respective dates of the filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein (or in any other subsequently filed documents which also is deemed to be
incorporated by reference herein) 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.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE TO
SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON WRITTEN OR ORAL
REQUESTS OF SUCH PERSON AND BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS
WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST, TO SKLAR CORPORATION, 889
SOUTH MATLACK STREET, WEST CHESTER, PA 19382, ATTN: MICHAEL MALINOWSKI, CHIEF
FINANCIAL OFFICER (TELEPHONE: (610) 430-3200). IN ORDER TO ENSURE DELIVERY OF
THE
26
<PAGE>
DOCUMENTS PRIOR TO THE SPECIAL MEETING, REQUESTS MUST BE RECEIVED NO LATER
THAN FIVE BUSINESS DAYS PRIOR TO THE SPECIAL MEETING.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
can be inspected and copied at the public reference facilities of the SEC at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and
at the regional offices of the SEC located at 7 World Trade Center, 13th Floor,
Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th
Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material
can also be obtained at prescribed rates by writing to the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. In addition, such reports, proxy statements and other information are
available from the Edgar filings obtained through the SEC internet website
(http://ww.sec.gov.)
27
<PAGE>
EXHIBIT A
DRAFT OPINION OF WOODWARD GROUP, LTD.
______________, 1998
Board of Directors
Sklar Corporation
889 South Matlack Street
West Chester, PA 19382
Ladies and Gentlemen:
You have requested the valuation opinion of The Woodward Group, Inc.
("Woodward") as to the fairness, from a financial point of view, of the
financial terms of the proposed transaction whereby Sklar Corporation ("Sklar"
or the "Company") proposes to effect a Reverse Stock Split, as defined in the
Company's Preliminary Proxy Statement, and purchase any resulting fractional
shares at a price of $0.46 per existing share.
Woodward, as part of its transaction advisory business, is engaged in the
valuation of assets, securities and companies in various types of asset and
security transactions, including the valuation of assets, securities and
companies in mergers, acquisitions divestitures and leveraged buyouts and in the
determination of adequate consideration in such transactions.
In accordance with the terms of our engagement letter dated August 18, 1998, we
submit this letter which sets forth our valuation opinion and summarizes the
procedures used in arriving at our valuation.
Documentation and Information Examined
As background for our analysis, we reviewed the history, current operations and
future prospects of Sklar with certain of Sklar's management. Our financial
analysis is based upon the review of Sklar audited financial statements,
internal worksheets, and internal operating reports. Specifically, the following
were among the documents and information we examined during the course of our
analysis:
A-1
<PAGE>
1. Sklar audited financial statements for the fiscal years ended March
31, 1994-1998 and annual 10-KSB for the fiscal years ended March 31,
1994-1998 and quarterly 10-QSB reports filed with the U.S. Securities
and Exchange Commission for the quarters ended December 31, 1995
through and including June 30, 1998.
2. Financial forecast and budget assumptions provided by Sklar management
for the years ending March 31, 1999-2004.
3. Schedules of receivables aging and payables aging.
4. Sales history analysis by customer.
5. Purchases history by vendor.
6. Sklar organization charts.
7. Sklar pending litigation.
8. Sklar historical and current stock market performance.
9. Current and proposed customer contracts, loan agreements and leases.
10. Federal and state tax returns for the fiscal years 1995-1997.
Persons Interviewed
During the course of our analysis, we conducted meetings and interviews with
persons who, in our judgment, were capable of providing us with information
necessary to complete the analysis. These interviews and meetings included
Donald Taylor, Michael Malinowski and Michael Viner of Sklar and John Gallagher
of the accounting firm Stockton Bates.
A-2
<PAGE>
Facilities Visited
As part of the development of information and our valuation, we visited the
Sklar facilities located in West Chester, Pennsylvania.
Factors Considered
In arriving at our valuation, we considered the following factors, among others,
which we deemed relevant.
1. The history and management of Sklar.
2. The nature of and business operated by Sklar and the future prospects
of the business.
3. The historical and current operating results of Sklar and the factors
affecting these results, including the current and anticipated
customer base of Sklar and Sklar's product line offering.
4. The historical and current financial condition of Sklar.
5. The historical and current book value of Sklar's assets and
liabilities.
6. Financial forecast and budget assumptions provided by Sklar management
for the years ending March 31, 1999-2004.
7. Available information on "comparable", publicly traded companies and
merger and acquisition transactions which were not, in our opinion,
directly comparable.
8. Conditions in the general economy and the industry in which Sklar
operates.
9. The terms and shareholdings of Sklar's Series A Convertible Preferred
Stock; the composition of management and the majority shareholders and
Board of Directors of Sklar; and the historical trading of all classes
of Sklar stock.
A-3
<PAGE>
In addition, Woodward conducted other such financial analyses, studies and
investigations as we deemed appropriate.
Access to Information and Personnel
During our analysis, we received access to all materials and personnel which we
deemed necessary and adequate for the purpose of formulating the valuation
expressed in this letter, and no limitations were placed upon our
investigations.
Assumptions and Limitations
Our valuation is subject to the following assumptions and limitations.
1. We express no opinion as to the tax consequences, if any, to Sklar,
its management and/or shareholders.
2. We have made no independent verification of the financial and
operating data contained in Sklar's internal and audited financial
statements and other data provided to us by Sklar management, and have
accepted the information as presented. In addition, Woodward has
relied on the representations of Sklar management that there are no
known contingent or other liabilities to the corporation, including
environmental, warranty, or legal which have not been disclosed to
Woodward and/or represented in Sklar's financial statements.
Additionally, Woodward has relied on the representations of Sklar
management that there are no known assets in which the corporation has
a direct or indirect interest which are not represented in Sklar's
financial statements.
3. Our valuation opinion is based on market, economic, financial and
other conditions as they exist and can be evaluated as of November 30,
1998 and speaks to no other time period.
4. We assume that the proposed transactions referenced herein are, in all
respects, lawful under applicable corporate law.
5. We have assumed and relied upon the accuracy and completeness of the
information provided to Woodward by Sklar and its advisors without
independent investigation. With respect to financial projections, we
have assumed, for purposes
A-4
<PAGE>
of our valuation opinion, that they accurately reflect the best
currently available estimates and judgments made by Sklar management
of the future financial performance of Sklar.
Conclusion
In preparing our valuation opinion, we have relied on the completeness and
accuracy of the information and data furnished to us by Sklar as of November 30,
1998. We have not independently verified such data nor data obtained from
regularly published sources.
We are not aware of any present or contemplated relationship between Sklar and
Woodward Group, Ltd. that, in our opinion, would affect our ability to render a
fair and independent valuation opinion in this matter. Our valuation opinion
pertains only to the financial consideration of the proposed transaction as of
November 30, 1998 and does not constitute a recommendation to Sklar shareholders
as to how they should vote or act with respect to the contemplated transactions
referenced herein.
Based on the foregoing analysis and review, other matters we considered
relevant, our general knowledge and experience in the valuation of companies,
and subject to the assumptions and limitations detailed above, we believe that
the proposed offer to purchase fractional shares resulting from the contemplated
Reverse Stock Split at a price of $0.46 per share is fair from a financial point
of view as of November 30, 1998.
Sincerely,
The Woodward Group, Ltd.
A-5
<PAGE>
EXHIBIT B
DISSENTER'S RIGHTS STATUTE
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
ss. 1571. Application and effect of subchapter
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter.
ss. 1572. Definitions
The following words and phrases when used in this subchapter, shall have
the meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately' before the effectuation
of the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in anticipation
of the corporate action.
"Interest." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid the corporation on its principal bank loans.
ss. 1573. Record and beneficial holders and owners
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one
B-1
<PAGE>
person and discloses the name and address of the person or persons on whose
behalf he dissents. In that event, his rights shall be deter-mined as if the
shares as to which he has dissented and his other shares were registered in the
names of different shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
ss. 1574. Notice of intention to dissent
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
ss. 1575. Notice to demand payment
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters A-ho gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed corporate
action is to be taken without a vote of shareholders, the corporation shall send
to all shareholders who are entitled to dissent and demand payment of the fair
value of their shares a notice of the adoption of the plan or other corporate
action. in either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificates shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is received.
(3) Supply a form for demanding, payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
B-2
<PAGE>
(b) Time for receipt of demand for payment. The time set receipt of the
demand and deposit of certificated shares shall be less than 30 days from the
mailing of the notice.
ss. 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1375 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of section
1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all or other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
ss. 1577. Release of restrictions or payment for shares
(a) Failure to effectuate corporate action. Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
an transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more than
16 months before the date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy), of this
subchapter.
(d) Failure to make payment. If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by, subsection (c),
it shall return any
B-3
<PAGE>
certificates that have been deposited and release uncertificated shares from any
transfer restrictions imposed by reason of the demand for payment. The
corporation may make a notation on any such certificate or on the records of the
corporation relating to any such uncertificated shares that such demand has been
made . if shares with respect to which notation has been so made shall be
transferred, each new certificate issued therefor or the records relating to any
transferred uncertificated shares shall bear a similar notation, together with
the name of the original dissenting holder or owner of such shares. A transfer
of such shares shall not acquire by such transfer any rights in the corporation
other than those that the original dissenter had after making demand for payment
of their fair value.
ss. 1578. Estimate by dissenter of fair value of shares
(a) General rule. If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall entitled to no more
than the amount stated in the notice or remitted to him by the corporation.
ss. 1579. Valuation proceedings generally
(a) General rule. Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely, receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1378 (relating
to estimate by dissenter of fair value of shares);
if and demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the Court.
(b) Mandatory joinder of dissenters. All dissenters, wherever
residing, whose demands have not been settled shall be made parties to the
proceeding as in an action against their shares. A copy of the application shall
be served on each such dissenter. If a dissenter is a nonresident, the copy may
be served on him in the manner provided or prescribed by or pursuant to 42
Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).
B-4
<PAGE>
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring, an action to recover any amount not
previously remitted.
ss. 1580. Costs and expenses of valuation proceedings
(a) General rule. The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective par-ties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other part), if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary, or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
