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
[ ] 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
[x] Fee paid previously with preliminary materials.
[ ] 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.
<PAGE>
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 12, 1999
2
<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 June ___, 1999, at ______ A.M. local time, at
_____________________________.
At this meeting you will be asked to consider and vote upon
the following:
(i) an amendment to Article __ of the Company's
Certificate of Incorporation (the "Amendment") which would 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 12 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
Commission to private company status not subject to the reporting requirements
of the Securities Acts.
The proposed Amendment is set forth in Exhibit A to the
accompanying Proxy statement.
The Woodward Group, Ltd. ("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 B.
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 INTERESTS 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 55.9%
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 JUNE __, 1999
A Special Meeting of shareholders of SKLAR CORPORATION, will be held at
__________, _______________, ___________, Pennsylvania on ________, June __,
1999, at _______, local time, for the following purposes:
1. To consider and vote upon the following:
(i) an amendment to Article __ of the Company's Certificate of
Incorporation (the "Amendment") which would 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 issued shares of Common
Stock from 1,104,940 shares to 12 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 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 March __, 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
May __, 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>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
PURPOSE OF SPECIAL MEETING.........................................................................................
VOTING
General
Quorum And Vote Required..................................................................................
Proxies
Amendment Of Certificate Of Incorporation To Effect The Reverse Stock Split...............................
Purpose Of The Reverse Stock Split........................................................................
SPECIAL FACTORS....................................................................................................
Background Of The Proposed Reverse Stock Split............................................................
The Effects Of The Reverse Stock Split....................................................................
Potential Detriments Of The Reverse Stock Split To Shareholders; Accretion In Ownership And Control Of
Certain Shareholders.............................................................................
Financial Effect Of The Reverse Stock Split...............................................................
Recommendation Of The Special Committee And Board Of Directors;
Fairness Of The Reverse Stock Split..............................................................
Valuation Opinion.........................................................................................
Conduct Of The Company's Business After The Reverse Stock Split...........................................
THE COMPANY........................................................................................................
Selected Historical Financial Data........................................................................
Financing Of The Reverse Stock Split......................................................................
Certain Federal Income Tax Consequences...................................................................
Price Range Of Common Stock; Dividends; Trading Volume....................................................
Security Ownership Of Certain Beneficial Owners And Management............................................
i
<PAGE>
Directors, Executive Officers Of The Company..............................................................
Exchange Of Certificates And Payment For Fractional Shares Of
New Common Stock.................................................................................
Dissenters' Rights........................................................................................
Other Information Concerning The Company And Affiliates...................................................
Costs .................................................................................................
Independent Public Accountants............................................................................
Other Matters.............................................................................................
Shareholders' Proposals For The 1999 Annual Meeting.......................................................
Incorporation Of Certain Documents By Reference...........................................................
Available Information.....................................................................................
</TABLE>
ii
<PAGE>
SKLAR CORPORATION
PROXY STATEMENT
JUNE __, 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 ___________, June __, 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 May __, 1999.
PURPOSE OF SPECIAL MEETING
At the Special Meeting, shareholders of the Company will be
asked to consider and vote upon:
(i) an amendment to Article__ of the Company's Certificate of
Incorporation which would 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 12 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.
Items (i) and (ii) will be considered one proposal and shall
be referred to herein as "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 (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 outside directors of the
Board (the "Special Committee"), has determined that adoption of the proposed
Reverse Stock Split 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,
1
<PAGE>
including, among other things, the opinion of The Woodward Group Ltd., financial
advisor to the Special Committee, that the consideration to be received by the
shareholders in connection with 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 B 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 March ___, 1999 (the
"Record Date"). 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 55.9% 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 55.9% 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
2
<PAGE>
adoption of the Reverse Stock Split will have been obtained regardless of the
vote of any other shareholder. Nevertheless, management has determined to
solicit proxies because of the potential beneficial effect the approval of the
Reverse Stock Split will have on any possible future litigation against the
Company and management pertaining to the proposal.
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.
Any shareholder of Common Stock entitled to vote on the
Amendment has the right under Pennsylvania law to dissent from the transaction
and exercise his or her appraisal rights and demand "fair value" for his or her
shares. This right is subject to a number of restrictions and technical
requirements. In order to exercise appraisal rights you must not vote in favor
of the Reverse Stock Split and you must make a written demand for appraisal
before the vote on the Reverse Stock Split. See "Dissenters' Rights."
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.
3
<PAGE>
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 Company's Common Stock from 1,104,940 shares to 12 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.
AMENDMENT OF CERTIFICATE OF INCORPORATION TO EFFECT THE REVERSE STOCK SPLIT
The Board of Directors of the Company has unanimously
determined that it is advisable to amend the Company's Certificate of
Incorporation 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 Amendment and the Reverse Stock Split to the shareholders for
approval at the Special Meeting. The Amendment will reduce the number of issued
shares of the Company's Common Stock from 1,104,940 shares to 12 shares.
Following the Reverse Stock Split, based on the Company's shareholder records,
it is anticipated that 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 registration under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), 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 significantly
outweigh any material benefit that may be received by the Company as a result of
4
<PAGE>
such registration. To the extent to which the Reverse Stock Split is
effectuated, management will benefit in that they alone will hold Common Stock
in the Company. However, the benefit to management is somewhat speculative
because it is unlikely the Common Stock of the Company will achieve significant
value given the structure and overwhelming dividend requirements of the
Preferred Stock. Moreover, any benefit to management derived from being the sole
holders of the Company's Common Stock is minimized by the fact that management
currently owns more than 70% of the outstanding Preferred Stock of the Company.
The Company presently has approximately 769 shareholders of
record and approximately 1000 beneficial owners of its Common Stock. Of the
approximate 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 and 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. The market for the
Company's stock has been illiquid for the past twelve 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
market 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 lost contact with approximately 324 of its
shareholders. Each year the Company attempts to contact its shareholders through
dissemination of its Annual Meeting Proxy, however, each year a significant
number of the proxies are returned to the Company with addressee unknown.
Through its own internal efforts, the Company has been unable to re-establish
contact with these 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 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
5
<PAGE>
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 $90,000
annually as follows:
Independent Auditors: $30,000
SEC Counsel 30,000
Printing and Mailing 7,000
Internal Compliance Costs 16,000
Transfer Agent 4,000
Miscellaneous Costs 3,000
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.
Additionally, 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.
Although all of these factors have existed for some time, the
Company began to consider a Reverse Stock Split during the past year. A primary
reason for the timing of the Reverse Stock Split is the hiring of SEC counsel in
1998. Counsel provided a clear and detailed analysis of the Company's options,
risks and expenses relative to the public market. The Company's analysis of
these issues which is detailed in this Proxy Statement, led it to a Reverse
Stock Split decision. In addition, prior to this year, the Company had no
available cash for the Reverse Stock Split, all its working capital and all
amounts available under its line of credit were required under its commercial
lending agreement to be used to operate the business. With the exception of the
Company's second quarter financial results, the Company does not believe that
there has been any significant change in profitability of the Company in recent
years. Since the Board began considering a reverse split transaction prior to
the end of last fiscal year, there is no relationship between the Company's
recent operating results and the timing of the proposed Reverse Stock Split.
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."
6
<PAGE>
The Board has determined the reverse split ratio to be 50,000
to 1. The Board believes that it would be in the best interests of the
shareholders to maximize the number of common stockholders who would receive
fair value for their shares. Several factors were considered in reaching its
determination.
First, during the past twelve years the trading market for the
Common Stock has been illiquid. The majority of the communication from
shareholders in this period were requests for information on how to sell their
shares and to receive value. Given the lack of liquidity for common
stockholders, the Company chose to maximize the number of common stockholders
who would receive fair market value for their shares.
Second, the Board believed that it is highly speculative
whether the Common Stock would ever achieve significant market value given the
structure and overwhelming dividend requirements of the Preferred Stock. The
Company expects this "over-shadowing" of the Common Stock by the Preferred to
continue for the foreseeable future. Therefore the Board determined to provide
value, which is higher than what can be achieved in the open market, to as many
of the common stockholders as possible.
Third, although the Company's financial condition has
experienced slow improvement during the past five years, there is no assurance
that the Company's growth will continue. In addition, given the recent
consolidation in the health care industry, the Company believes there is
additional risk in the industry. The Company believes that it is in the best
interest of the common stockholders to provide an opportunity for liquidity
today to the maximum number of shareholders.
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 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 1934 Act. In connection with
the Reverse Stock Split, the Company has filed with the Commission a Schedule
13E-3 pursuant to Rule 13e-3 under the 1934 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
7
<PAGE>
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. In this regard, in July 1998, the Company filed a Form 15 to deregister its
Series A Preferred Stock. 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. For a discussion as to why the Reverse Stock Split is being
proposed at this time, see "Purpose of 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 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.
A merger transaction was not an option as the Company was
unaware of a suitable merger candidate nor did it look for one as management
believed that the expense of the required documentation and regulatory
requirement made a merger transaction prohibitive. 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. Other than as discussed below, the Company gave no consideration to
8
<PAGE>
finding a buyer for the entire Company and no third party has expressed an
interest in purchasing the entire Company. See "Fleet Foot Offer" below. To the
extent that a buyer could be found for the entire Company, all shareholders,
including the preferred stockholders, would no longer have an equity interest in
the Company.
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 the Company'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 approved the creation of 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. The Board appointed these Directors
to the Special Committee because they are not employees of the Company and did
not own Common Stock in the Company. Several of these Directors do own Preferred
Stock in the Company, and thus will continue to have an equity interest in the
Company following the Reverse Stock Split.1 See "Security Ownership of Certain
Beneficial Owners And Management." 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 Special Committee selected The Woodward Group, Ltd.
("Woodward") to assist it in evaluating the fairness of the consideration to be
given to the shareholders who would 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 it was in the best interest of the Company and
the shareholders for Woodward to assist the Company in both determining the
value of the Common Stock and evaluating the fairness of the transaction. It
authorized Woodward to proceed and formally engaged Woodward on August 18, 1998.
During the five month period from July through November, Woodward 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,
- ---------------------------
1 These outside Directors will own less than 1% of outstanding shares of Capital
Stock in the Company following the Reverse Stock Split.
9
<PAGE>
because it 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. See "Purpose of the Reverse Stock
Split." 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 that
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 would be $.43 per share. 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. See "Recommendation of the Special Committee and Board of Directors;
Fairness of the Reverse Stock Split."
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 Fleet Foot Offer
On February 25, 1998, the Company received an offer from Fleet
Foot Consulting Group, Inc. ("Fleet Foot") to purchase "the assets and business"
of Sklar for approximately $5.5 million (the "Offer"). Fleet Foot's principal,
Charles Wilson, is the Company's former Chief Financial Officer. Mr. Wilson and
a corporation owned by Mr. Wilson, Endo-Surgical Systems, Inc., are defendants
and counter-claimants in litigation commenced by the Company.
The Board determined not to accept the Fleet Foot Offer for
several reasons. First, the Board believed the fair market value of the Company
exceeded the amount of the Offer. Second, the Offer lacked information regarding
funding and or financing sources for the transaction or any "earnest money"
deposit in lieu thereof. Third, the Offer was unclear with respect to the
specific balance sheet items which Fleet Foot wanted to purchase. Finally, the
Board considered the litigious nature of the relationship between Fleet Foot and
the Company and determined that it was unclear as to the true purpose for the
Offer and that it was in the best interest of the Company and its shareholders
not to pursue a transaction with Fleet Foot.
In July 1997, the Company terminated Mr. Wilson based on their
belief that he had misappropriated Company funds. On or about December 1997,
Sklar filed a writ of action against Mr. Wilson in the Court of Common Pleas of
Chester County, Pennsylvania. On May 27, 1998, the Company filed a complaint
(amended June 22, 1998) [against Mr. Wilson] alleging the following causes of
action: (i) misappropriation of trade secrets and conversion; (ii) breach of
10
<PAGE>
fiduciary duties and confidential relationship; (iii) tortuous interference with
existing contractual relationships; (iv) tortuous interference with prospective
economic advantage; (v) defamation and trade libel; (vi) breach of contract; and
(vii) fraud and misrepresentation . The Wilson action remains ongoing. On
February 19, 1998, the Company commenced an action against Endo-Surgical
Systems, Inc. ("Endo") by complaint filed in the Court of Common Pleas of
Chester County, Pennsylvania. The complaint alleges the following causes of
action: (i) misappropriation of trade secrets and conversion; (ii) tortuous
interference with existing contractual relations; and (iii) tortuous
interference with prospective economic advantage. The Endo action also remains
ongoing. Based on discovery conducted in connection with these actions, the
Company believes that Fleet Foot's motives for making the Offer were improper
and based on Fleet Foot's desire to gain access and acquire certain information
regarding the Company which, to date, Mr. Wilson and Endo have been unable to
procure through their discovery efforts in the above-described litigation.
In a letter dated January 20, 1999, Mr. Wilson, on behalf of
Fleet Foot, again expressed his desire to meet with the Board to discuss his
continued interest in purchasing the assets of the Company. The Company
responded by letter dated January 27, 1999 and requested additional information
from Fleet Foot and Mr. Wilson prior to deciding whether to meet. To date,
neither Fleet Foot nor Mr. Wilson have provided the requested information, which
included, among other things, information regarding the financing or source of
funds for a transaction and the execution of a confidentiality and
non-disclosure agreement.
Stock Grants and Option Exercises within the Past 12 Months
Within the past year the Company has granted to its executive
officers a total of 150,000 shares of Common Stock. In addition, the Company's
executive officers have exercised a total of 200,000 options to purchase Common
Stock which options had been granted to such individuals over five years ago.
See "Other Information Concerning the Company and Affiliates." As a result of
these recent stock transactions, the total equity ownership in the Company by
the Company's executive officers and directors has increased from 39.5% to
55.9%. Passage of the Reverse Stock Split proposal is assured if all the
Company's executive officers and directors vote in favor of such proposal.
However, these stock grants and option exercises had no effect on the
consideration offered of $.46 per share as these transactions were excluded from
the calculation of shares outstanding in determining the fair market value of
the Common Stock. This was done so that non-management shareholders would not be
impacted by the effect of the stock grants or option exercises by management.
See "Recommendation of the Special Committee and Board of Directors; Fairness of
the Reverse Stock Split;" and "Valuation Opinion."
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 12.
The Company also believes that completion of the Reverse Stock Split will cause
11
<PAGE>
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 by 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 $90,000 on an annual basis. The Company intends to apply
for such termination as soon as practicable following completion of the Reverse
Stock Split.
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 re-acquire an equity interest in the Company
unless they purchase an interest from the remaining shareholders. Transfers by
the remaining shareholders 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, which includes legal costs and other
expenses related to the transaction 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 for all fractional shares which represents the
total cash outlay attributable to all post reverse split fractional shares. The
unaudited pro forma balance sheets reflect the transaction as if it occurred on
12
<PAGE>
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."
13
<PAGE>
SKLAR CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS
Historical Pro Forma
CURRENT ASSETS:
<S> <C> <C>
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 106,636 274,364
---------- ----------
TOTAL ASSETS $7,518,426 $7,686,154
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 294,816 $ 294,816
Short-term borrowings 2,085,000 2,485,000
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 5,385,757
LONG-TERM PORTION OF NOTES AND CAPITAL
LEASE PAYABLE 90,337 90,337
Total liabilities 5,076,094 5,476,094
---------- ----------
CONTINGENT LIABILITIES 0 0
STOCKHOLDERS' EQUITY:
Series A preferred stock, par value $.01, per share,
authorized 35,000 shares, 24,825 issued and 21,954 outstanding 248 248
Series B subordinate 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, 1,247,952 (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 $7,686,154
========== ==========
</TABLE>
14
<PAGE>
SKLAR CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
Historical Pro Forma
CURRENT ASSETS:
<S> <C> <C>
Cash $ 254,872 $ 254,872
Accounts receivable 2,234,935 2,234,935
Inventories (Note 5) 3,459,024 3,459,024
Prepaid expense 275,561 275,561
---------- ----------
Total current assets 6,224,392 6,224,392
---------- ----------
EQUIPMENT AND IMPROVEMENTS (Note 6) 619,933 619,933
GOODWILL (Note 7) 536,367 536,367
OTHER ASSETS 55,620 167,728
---------- ----------
TOTAL ASSETS $7,436,312 $7,548,420
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 12,648 $ 12,648
Short-term borrowings (Note 2) 1,098,000 1,442,380
Current portion of long-term debt and
current portion of capital lease obligation 131,250 131,250
Accounts payable 3,128,694 3,128,694
Accrued expenses 226,844 226,844
Accrued income taxes 25,002 25,002
---------- ----------
Total current liabilities 4,622,438 4,966,818
LONG-TERM PORTION OF NOTES AND CAPITAL LEASE
PAYABLE 19,641 19,641
Total liabilities 4,642,079 4,986,459
---------- ----------
CONTINGENT LIABILITIES 0 0
STOCKHOLDERS' EQUITY: (Note 9)
Series A preferred stock, par value $.01, per share, authorized
35,000 shares, 24,825 issued and 22,078 outstanding 248 248
Series B subordinate 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
shares, 1,497,952 issued 1,104,940 outstanding 149,795 1
Additional paid-in capital 2,165,958 2,004,337
Retained earnings 609,270 609,270
---------- ----------
2,925,271 2,613,859
Less treasury stock 131,038 51,895
---------- ----------
Total stockholders' equity 2,794,233 2,561,961
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,436,312 $7,548,420
========== ==========
</TABLE>
15
<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 $ (21,971) $ (22,971)
============ ============
PER SHARE DATA:
Weighted average common shares outstanding 744,423 5
------------ ------------
Loss per share $ (.03) $ (4,594)
============ ============
</TABLE>
16
<PAGE>
SKLAR CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
<S> <C> <C>
NET SALES $ 10,181,666 $ 10,181,666
Cost of goods sold 5,580,016 5,730,016
------------ ------------
GROSS PROFIT 4,451,650 4,451,650
Selling, general and administrative expenses 4,158,560 4,158,560
------------ ------------
INCOME FROM OPERATIONS 293,090 293,090
OTHER INCOME (EXPENSE):
Interest expense (164,689) (164,689)
------------ ------------
Other expenses - net (164,689) (164,689)
------------ ------------
INCOME BEFORE TAXES 278,401 128,401
Provision for income taxes 32,000 14,000
------------ ------------
NET INCOME 246,401 114,401
Preferred dividend requirement 206,982 206,982
------------ ------------
INCOME APPLICABLE TO COMMON SHARES $ 39,419 $ (92,581)
============ ============
PER SHARE DATA:
Weighted average common shares outstanding 823,485 6
------------ ------------
Earnings per share $ (0.05) $ (15.430)
============ ============
</TABLE>
17
<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 and those who will receive both cash and shares. 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.
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."
The Board of Directors established the Special Committee to
evaluate the fairness of the Reverse Stock Split. 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 had absolute authority to reject the Reverse
Stock Split if it determined the Reverse Stock Split was unfair or not in the
best interest of the Company and its shareholders. The Special Committee
retained The Woodward Group, Ltd., an independent financial advisory firm to
assist it in determining the value of the Common Stock and the fairness of the
transaction. The Special Committee unanimously approved the Reverse Stock Split
and recommended that the full Board of Directors recommend the Reverse Stock
Split to the Company's shareholders for approval. The Board has unanimously
adopted the recommendation of the Special Committee as its own.
The Special Committee believes that the Reverse Stock Split is
fair to all shareholders of the Company, including the unaffiliated shareholders
who will receive cash in lieu of shares in the transaction. The Special
Committee's conclusion is based, in part, upon the fairness opinion issued to
the Company by Woodward. 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 Special Committee has given
significant weight to the views of Woodward.
In determining to recommend the Reverse Stock Split to the
shareholders, the Board determined that only the Special Committee would vote on
and approve the transaction. All members of the Special Committee voted in favor
of the Reverse Stock Split.
In determining the cash consideration to be paid in lieu of
the issuance of fractional shares of the new Common Stock, the Special Committee
18
<PAGE>
reviewed and considered: (1) the valuation and fairness opinion of Woodward; (2)
the current market price of the Common Stock and the lack of liquidity thereof;
(3) historical market prices of the Common Stock over the last five years; (4)
the purchase prices paid in previous purchases of the Common Stock by the
Company and its affiliates; (5) the lack of dividends declared or paid on the
Common Stock, the restriction on payment of dividends in light of the Preferred
Stock and the Bank's restriction on the payment of dividends in the future; and
(6) the Fleet Foot Offer and the absence of any other offers during the
preceding eighteen months for any type of merger or consolidation with or into
another corporation or the sale of all or part of the Company's assets. The
Special Committee did not assign any specific weight to the foregoing factors,
however in their considerations individual members of the Special Committee may
have given differing weights to different factors.
Neither the Special Committee nor Woodward gave any material
weight in determining the fairness of the transaction to the book value of
Common Stock or the liquidation value of the Company's 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 and Woodward believe
that the Company is considerably more valuable as a going concern.
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 at the December 11, 1998 Board meeting that a price of at least $.43
per share of Common Stock to be fair consideration for fractional shares in this
transaction, the Special Committee set the consideration for fractional shares
in this transaction to be $.46 per share of outstanding Common Stock and
determined that that price would be fair to the shareholders.
The Special Committee increased the consideration to be paid
from the $.43 indicated as fair by Woodward to $.46 because it wanted to be
certain that the transaction was fair to all shareholders, including both
affiliated and unaffiliated shareholders. The Special Committee arrived at the
price of $.46 per share by using the $.43 price determined by Woodward and
adjusting it by also excluding from the calculation of fair market value of
Common Stock shares issued to Mr. Viner, an affiliate of the Company, during
1998. The material factors considered by the Special Committee regarding the
fairness of transaction at $.46 per share include: (i) the current market price
of the Company's Common Stock of $0.125; (ii) the fact that in determining a
fair per share value the calculation excluded the 350,000 shares of management
stock issued during 1998, thus increasing the per share value to common
stockholders; (iii) the fact that the forecasted results, in all cases, provided
by the Company to Woodward and utilized, in part, in determining the value of
the Company, indicated greater forecasted operating profits than has ever been
the case historically; and (iv) the fact that in the comparable analysis
valuation ratios that were applied to the Company's financial results were
developed from comparable businesses which possess significantly greater
financial and other resources relative to the Company.
In addition to that discussed above, the Board considered 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,
19
<PAGE>
and 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. The Board further
considered the competitive disadvantage the Company suffers from being required
to disclose certain information that its competitors do not disclose in 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 lack of
materiality of such information in relation to the larger corporations'
performance.
The Special Committee also believes that the transaction is
being effected in a manner that is fair procedurally to the shareholders who
will be cashed out in the transaction and cease being shareholders of the
Company. The Reverse Stock Split is being effected in accordance with all
requirements under Pennsylvania Law. The Board also determined to grant common
shareholders the right to exercise dissenters' rights under ss. 1571 of the
Pennsylvania Associations Code.
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 arriving at its opinion, Woodward (i) reviewed certain
business and financial information relating to the Company, including the
Company's last eight 10-Q's of unaudited financial statements, the last five
years of 10-K's, the fiscal year 1999 budget and the Company's five year
forecast; (ii) discussed current and historical operations, the financial
condition and prospects of the Company with senior executives and toured the
Company's facilities; (iii) reviewed the current and historical market value of
the Company's common stock; (iv) reviewed and compared the Company's financial
performance to that of comparable, publicly traded companies; and (v) reviewed
and compared the Company's financial performance to the values achieved by
comparable merger and acquisition transactions.
In arriving at its opinion, Woodward performed a variety of
financial analyses. These analyses must be considered in their entirety;
considering only a portion of these analyses without considering all the factors
and analyses would create an incomplete view of the analyses and the process
underlying the Woodward opinion. The following is a summary of selected analyses
considered by Woodward in connection with its opinion letter.
In arriving at its opinion Woodward analyzed: (i) the current
market value of the Company's Common Stock in addition to the accrued preferred
stock dividends, the preferred stock redemption provisions and the thinly traded
20
<PAGE>
nature of the Company's Common Stock; (ii) comparable, publicly traded
businesses and their market values relative to such businesses' revenues,
earnings-before-interest-and-taxes ("EBIT"),
earnings-before-interest-and-taxes-and-depreciation-and-amortization ("EBITDA"),
net income and book values; (iii) comparable merger and acquisition transactions
and the implied values of comparable acquired businesses relative to such
businesses' revenues, net income and book values; and (iv) discounted cashflow
analyses utilizing the Company's management forecasts under the best and most
likely case scenarios.
The market value per common share of stock was determined to
be $0.125 or approximately $140,000 in the aggregate for the entire class of
Common Stock. Preferred stock accrued dividends and the preferred stock
redemption value aggregated approximately $6,040,000. This market analysis
implied a total Company value of approximately $6.18 million.
Comparable, publicly traded company analysis wherein such
companies' ratios of market values relative to revenues,
earnings-before-interest-and-taxes ("EBIT"),
earnings-before-interest-and-taxes-and-depreciation-and-amortization ("EBITDA"),
net income and book values were applied to the Company's financial results. In
the opinion of Woodward, no publicly traded companies analyzed in the Company's
industry are truly comparable to the Company. This analysis indicated relevant,
comparable multiples of EBIT and EBITDA of 12.26x and 9.17x, implying a total
Company value of $7.2 million to $8.2 million.
Comparable merger and acquisition transactions that occurred
in the Company's industry were analyzed wherein consideration paid was reviewed
relative to such businesses' revenues, net incomes and book values. This
analysis indicated relevant, comparable multiples of net income and revenues of
18.73x and .54x, respectively, implying a total Company value of $4.7 million to
$7.6 million.
The discounted cashflow analysis utilized the Company's
forecasted free cashflows under both the best and most likely case scenarios
which were provided by the Company's management for the fiscal years 1999-2003
and computed the present value of these cashflows. The computation of the
present value utilized a weighted average cost of capital of 11.02%. In both
scenarios the revenue growth rate exceeded growth rates for the fiscal years
1998 and as expected in 1999 and in both cases the forecasted operating profits
exceed historical levels achieved by the Company. This analysis implied a total
Company value of $6.4 to $8.4 million.
Utilizing the above analyses and implied values, Woodward
determined the aggregate fair market value of the Company was $7,100,000 and
that a price of at least $0.43 per share of Common Stock was fair consideration.
In this analysis, Woodward excluded shares issued to management during 1998,
given the assumed knowledge which management would have had with respect to a
potential transaction. If such shares were included in the per share
calculation, the resultant implied per share fair market value of all issued and
outstanding common stock would have been $0.31.
21
<PAGE>
Woodward was engaged by the Special Committee of Directors to
determine a 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. Woodward believes the impact of the proposed transaction on
unaffiliated shareholders owning 34.4% of the preferred stock will be
negligible. Given that the Company expects to conserve funds by no longer filing
with the SEC, presumably such funds would then be available for payment of
accrued, but unpaid dividends. However, such savings being realized and utilized
in this manner are not assured. 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, Woodward had no prior business relationships with the Company or
any of its officers or directors. The fee received by Woodward for its services
was not contingent upon the conclusions reached by Woodward 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 B 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.
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
22
<PAGE>
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
55.9% 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 ($0.46 per share), 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.
The Amendment will decrease the number of issued and
outstanding shares of Common Stock from 1,104,940 to 12 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 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
23
<PAGE>
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. The Company became a reporting company
in 1972. 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
Commonwealth 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 instruments 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.
24
<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
nine-month periods ended December 31, 1998 and 1997.
Selected Statement of Operations Data
<TABLE>
<CAPTION>
Nine Months Ended December 31 Fiscal Year Ended March 31
1998 1997 1998 1997 (1)
<S> <C> <C> <C> <C>
Net Sales $ 10,181,666 $ 10,306,783 $ 13,766,868 $ 14,325,963
Gross profit 4,451,650 2,971,270 6,126,002 6,163,193
Income before taxes 278,401 136,606 293,004 212,239
Net income (loss) $ 246,401 $ 122,945 $ 253,004 $ 180,039
Preferred Dividend
Requirement $ 206,982 $ 206,982 $ 275,975 $ 274,425
Income (loss)
applicable to Common
Shares $ 39,419 $ (84,037) $ (21,971) $ (94,386)
Weighted average number
of common shares 823,485 754,940 744,423 744,423
Loss per common share $ (.05) $ (.11) $ (.03) $ (.13)
</TABLE>
Summary Balance Sheet Data
<TABLE>
<CAPTION>
As of December 31 Fiscal Year Ended March 31
1998 1998 1997
<S> <C> <C> <C>
Total Assets $7,436,312 $7,518,426 $9,585,845
Working Capital 1,469,954 915,939 243,788
Long Term Obligations 19,641 90,337 798,041
Shareholders' equity (deficit) 2,794,233 2,442,332 2,189,328
- --------------------
(1) Does not reflect the adjustment to Preferred shares in January, 1999.
25
<PAGE>
Book value per share $ 0 $ 0 $ 0
Ratio of earnings to fixed charges 2.52 1.78 1.51
</TABLE>
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 approximately $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. This line of
credit was established on December 1, 1998 to replace its existing line of
credit and provides the company with better terms. It was not established to pay
the cost of this transaction.
The terms of the credit arrangements with PNC Bank. N.A.
provide the Company with a credit line up to $2,000,000 based on 80% of the
Company's eligible accounts receivables and/or 50% of the Company's eligible
inventory at an interest rate equal to the Bank's Prime Rate. The term of the
credit line is one year with an additional year extension at the discretion of
the bank.
.
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 March ___, 1999 the Company had approximately 769
holders of record of its Common Stock. The Company believes there are
approximately 1000 beneficial owners of the Company's Common Stock.
26
<PAGE>
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 Preferred Stock, 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 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.
Under the terms of the Preferred Stock, if there exists
cumulative unpaid preferred dividends, the holders of the Series A 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 76.3% of the outstanding preferred
stock. 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 March
___, 1999 regarding the beneficial ownership, as defined in regulations of the
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 March ___, 1999, there were 1,104,940 shares of the Company's Common
Stock, 22,078 Shares of Series A 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
Commission and is not to be construed as a representation that any of such
shares are in fact beneficially owned by any person.
27
<PAGE>
<TABLE>
<CAPTION>
Shares Owned Percentage of Total Shares Owned Percentage of Total Shares
Name and Addresses Title of At March ___, 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 47.9% 10,575 47.9%
Common 303,715 27.5% 6 50.0%
Michael Malinowski Preferred 6,199 28.1% 6,199 28.1%
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 76.3% 16,844 76.3%
as a group 1 2 3 Common 611,715 55.9% 12 100%
* less than 1%
(1) Includes options to purchase 4000 shares of Series A subordinated Preferred
Stock currently exercisable.
(2) As of March __, 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.
</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 53, 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 45, 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.
28
<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 59, 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 64, 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 52, 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 proposed Reverse
Stock Split, the Company will file a Certificate of Amendment to its Certificate
of Incorporation with the Secretary of State of Pennsylvania. The Reverse Stock
Split will become effective on the date of that filing (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
29
<PAGE>
currently outstanding Common Stock in lieu of receiving fractional shares of new
Common Stock following the Reverse Stock Split. 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 Reverse Stock Split is approved, shareholders
of Common Stock would have certain rights to dissent and demand appraisal of
their shares under Section 1571 of the Pennsylvania Associations Code.
Dissenters who oppose the proposed Reverse Stock Split must file with the
Company, prior to a vote, a notice of intention to demand payment for his/her
shares. If the transaction is approved, such payment shall be for the fair value
of the shares. Fair value means the fair value of the shares immediately prior
to the vote on the Reverse Stock Split. The value so determined could be more or
less than the consideration offered pursuant to the amount disclosed in this
Proxy Statement.
The dissenter may not change the beneficial ownership in the
shares from the time of filing through the effective date of the Reverse Stock
Split. The dissenter shareholder may not participate in the vote to approve the
proposed Reverse Stock Split. If he does, he waives his right to payment for his
shares.
In general, if the transaction is approved notice shall be
sent to dissenters who have complied with the filing of a notice of intention.
If the Company does not take the proposed action within 60
days of the date set for demanding payment, the Company must return the
certificates and release the transfer restrictions. The Company may at a later
time, send a new notice and follow steps delineated above, infra.
After effectuation of the Reverse Stock Split, or after the
receipt of demand for payment, the Company shall send a remittance, or notice,
30
<PAGE>
that no remittance will be forthcoming. Either of these shall be sent with a
closing balance sheet and statement of income of Sklar for the fiscal year
ending no more than sixteen months prior, with the latest available financial
statements. An estimate of the fair value of the shares, and a notice of the
dissenter's right to demand payment, or a supplemental payment shall also be
sent.
A dissenter who disagrees with the Company's estimate of the
fair value of its Common Stock may send his/her own estimate, which is a demand
for the deficiency. When a dissenter does not do so within 30 days after mailing
of the corporate notice or remittance, the dissenter is limited to the amount of
the notice.
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. At such time, Mr.
Malinowski also exercised 100,000 options to purchase Common Stock of the
Company he had received in 1993 under the Company's Incentive Stock Option Plan.
Such options were exercisable at a price of $.20 per share. As a result of these
stock transactions, Mr. Malinowski's ownership interest in the Company increased
from -----% to -----%.
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. Mr. Viner joined
the Company as Vice President on January 1, 1999. Although these shares were
granted to Mr. Viner subsequent to the Company's hiring of Woodward in this
transaction, the Company made the offer of employment, which included as part of
the offer, the commitment to grant stock to Mr. Viner, in January of 1998, well
before the hiring of Woodward in this transaction. Prior to this stock grant,
the Mr. Viner had no equity interest in the Company. Upon the effectiveness of
the Reverse Stock Split, Mr. Viner will own 8.3% of the Common Stock and will
have a total equity interest in the Company of less than one percent.
The Company's arrangements with Messrs. Malinowski and Viner
were approved by the majority of disinterested members of the Board.
On November 30, 1998, Mr. Taylor exercised 100,000 of his
options to purchase Common Stock of the Company. The stock options exercised
were granted to Mr. Taylor's in 1993 as consideration for services provided to
the Company and were exercisable at a price of $.25 per share. The Company
believes that the exercise price of the 1993 options equaled or exceeded the
fair value of the stock at the time of grant.
31
<PAGE>
As discussed above, none of the shares acquired by grant or
exercise by management were included in the calculation to determine the per
share fair value of the Common Stock.
The following table illustrates the total ownership interest
of all executive officers and directors of the Company as a group prior to the
June and November stock and after the June and November stock grants.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------- --------------------- -------------------- --------------------- --------------------
Before 6/98 6/98 to 11/98 11/98 to Reverse After Reverse
Split Split
- ----------------------- --------------------- -------------------- --------------------- --------------------
Common 261,715 (35.1%) 311,715 (39.2%) 611,715 (55.9%) 12 (100%)
- ----------------------- --------------------- -------------------- --------------------- --------------------
Preferred 16,844 (76.3%) 16,844 (76.3%) 16,844 (76.3%) 16,844 (76.3%)
- ----------------------- --------------------- -------------------- --------------------- --------------------
Total Ownership 278,559 (36.3%) 328,559 (40.6%) 628,559 (56.3%) 16,856 (76.3%)
(Common & Preferred)
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
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 $ 60,000
Transfer and exchange agent fees 5,000
Fees for valuation 30,000
Printing and mailing costs 15,000
Commission filing fees 50
Accounting fees 45,000
Misc. 15,000
------
Total $ 170,050
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Stockton Bates LLP, 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 come before the Special Meeting, the persons named in the
32
<PAGE>
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.
SHAREHOLDERS' PROPOSALS FOR THE 1998 ANNUAL MEETING
If the Reverse Stock 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
fiscal 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 Commission 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 Reports on Form 10-QSB for the quarters ended September
30 and December 31, 1998.
All documents and reports filed by the Company with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 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
33
<PAGE>
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 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 1934 Act and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the regional offices of the Commission 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 Commission 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 Commission Internet Website (http://ww.sec.gov.)
34
<PAGE>
EXHIBIT B
DRAFT OPINION OF WOODWARD GROUP, LTD.
______________, 1999
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 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 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 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.
A-4
<PAGE>
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 C
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
C-1
<PAGE>
same class or series beneficially owned by any one 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.
C-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 certificates that have been deposited and
C-3
<PAGE>
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 jointer 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).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
C-4
<PAGE>
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.
C-5
