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.
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
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[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 August___, 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 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 COMPANY AND ITS SHAREHOLDERS.
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Attendance in person or proxy of holders of more than 50% of the
outstanding shares is necessary for a quorum. Holders of more than 50% of the
shares in attendance at the meeting is necessary to approve the Reverse Stock
Split. The officers and directors of the Company own approximately 55.4% of the
outstanding shares entitled to vote at the Special Meeting and have indicated
that each will vote his shares in favor of the proposed Reverse Stock Split. If
these shares are voted as indicated, the Reverse Stock Split will be approved.
Promptly after consummation of the Reverse Stock Split, if approved, a
Letter of Transmittal will be mailed to all holders of Common Stock of the
Company for use in surrendering their stock certificates. Please do not send in
your stock certificates until you receive your Letter of Transmittal.
Sincerely,
Don Taylor
President
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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SKLAR CORPORATION
889 SOUTH MATLACK STREET
WEST CHESTER, PA 19382
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST __, 1999
A Special Meeting of shareholders of SKLAR CORPORATION, will be held at
__________, _______________, ___________, Pennsylvania on ________, August __,
1999, at _______, local time, for the following purposes:
1. To consider and vote upon the following:
(i) an amendment to 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 June __, 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
July __, 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.
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TABLE OF CONTENTS
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......
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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...............................................
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SKLAR CORPORATION
PROXY STATEMENT
AUGUST __, 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
___________, August __, 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 July __, 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 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,
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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 June ___, 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 55.4% of the outstanding Common and
Preferred Stock (together the "Voting Stock"), will be voted in favor of the
proposal.
Adoption of the Reverse Stock Split requires the affirmative vote of a
majority of the outstanding shares of Company Voting Stock cast at the Special
Meeting. Don Taylor, President and Director of the Company, Michael Malinowski,
Executive Vice President, Chief Financial Officer and Director of the Company,
and Michael Viner, Vice President of the Company, together beneficially own and
have authority to vote 624,489 shares of Company Voting Stock or 55.4% of the
shares of Company Voting Stock which were issued and outstanding on the Record
Date. Messrs. Taylor, Malinowski and Viner plan to vote all shares of Company
Voting Stock over which they have voting authority to approve the Reverse Stock
Split. If Messrs. Taylor, Malinowski and Viner vote all of their shares of
Company Voting Stock over which they have voting authority to approve the
Reverse Stock Split, the requisite vote for
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adoption of the Reverse Stock Split will have been obtained regardless of the
vote of any other shareholder. Nevertheless, management has decided to solicit
proxies due to the potential beneficial effect shareholder approval of the
Reverse Stock Spilt could have on future litigation against the Company and
management pertaining to the proposal. In this regard, management would likely
assert shareholder approval of the transaction as a defense in any such
litigation.
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 July __, 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.
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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 (iv) to allow management and
Preferred Shareholders to own the Company at no additional expense, and (v) 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
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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 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 and therefore any future increase in the Company's
earnings will benefit management and the Preferred Shareholders. 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 64% 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 its shares, although the Company has made no
effort to disseminate financial information to the market makers or to the
media. 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 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,1 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. Most of these shareholders purchased their shares over twenty
years ago. 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
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1 The Company did not hold an Annual Meeting in 1998. In 1997, the Company
disseminated proxy materials to its shareholders and held an Annual Meeting
but incorrectly filed such materials with the SEC.
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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 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 costs of approximately $90,000 annually as
follows:
Independent Auditors: $30,000 2
SEC Counsel 30,000 3
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 which the
Company estimates to be approximately 200 hours per year. Since the Company has
relatively few executive personnel, these indirect costs can be substantial and
although there will be no direct monetary savings if the Reverse Stock Split is
effected, the time currently devoted to the public process could be devoted to
other purposes such as sales, marketing and/or operational projects to further
promote the Company's business.
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.
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2 The Company will continue to incur some accounting expenses following the
Reverse Stock Split because the Company's loan agreement requires the
Company to obtain audited financial statements.
3 This amount pertains to the hiring of SEC counsel in 1998. Prior to 1998,
the Company had not incurred legal fees related to being a public company.
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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. The Company currently has credit available for the
Reverse Stock Split due to lowered inventory and its new line of credit. 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."
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. The Company did not consider redeeming the Preferred
Stock because there was no cash available for such purpose and the terms of the
Company's previous line of credit prohibited such. In light of the Company's
objectives as stated above, the Company believed a Reverse Stock Split better
accomplished its goals.
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
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interest of the common stockholders to provide 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. Thus, only management and the Preferred Shareholders will benefit
from any future increase in the Company's earnings. 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 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
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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
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.4 See "Security Ownership of Certain
- --------------
4 These outside Directors will own less than 1% of outstanding shares of
Capital Stock in the Company following the Reverse Stock Split.
9
<PAGE>
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, because it desired
to cash out all of the shareholders except for major shareholders. This would
allow the smaller shareholders 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.
10
<PAGE>
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
the Company 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. The Board believed the fair market value of the Company
to be approximately $7 million. 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, and did not
include a per share price for the Company's capital stock thus making it
virtually impossible for the Company to determine what, if anything, the
shareholders would receive as a result of the Offer. 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 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
11
<PAGE>
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. These
options were exercised to assure passage of the Reverse Stock Split Proposal.
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 35.3% to
55.4%. 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 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
12
<PAGE>
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 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.
As a result of incurred reorganizational costs paid or accrued at December
31, 1998, short-term debt increased by $344,300 rather than $400,000.
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
<S> <C>
CURRENT ASSETS:
Cash $ 12,885
Accounts receivable 2,547,506
Inventories 3,142,043
Prepaid expense 199,262
----------
Total current assets 5,901,696
----------
FIXED ASSETS, net 630,264
GOODWILL 879,830
OTHER ASSETS 106,636
----------
TOTAL ASSETS $7,518,426
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 294,816
Short-term borrowings 2,085,000
Current portion of long-term debt 218,094
Current portion of capital lease obligation 14,120
Accounts payable 2,100,424
Accrued expenses and taxes 273,303
----------
Total current liabilities 4,985,757
LONG-TERM PORTION OF NOTES AND CAPITAL
LEASE PAYABLE 90,337
Total liabilities 5,076,094
----------
CONTINGENT LIABILITIES 0
STOCKHOLDERS' EQUITY:
Series A preferred stock, par value $.01, per share,
authorized 35,000 shares, 24,825 issued and 21,954 outstanding 248
Series B subordinate preferred stock, no par value,
authorized 4,000 shares, issued and outstanding 0 0
Common stock, par value $.10 share, authorized 1,500,000
(30 proforma) shares, 1,247,952 (5 proforma) issued and
754,940 (5 proforma) outstanding 124,795
Additional paid-in capital 2,105,458
Retained earnings 362,869
----------
2,593,370
Less treasury stock 151,038
----------
Total stockholders' equity 2,442,332
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,518,426
==========
</TABLE>
14
<PAGE>
SKLAR CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
Historical Pro Forma
<S> <C> <C>
CURRENT ASSETS:
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
---------- ----------
TOTAL ASSETS $7,380,692 $7,380,692
========== ==========
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 553,650 441,542
---------- ----------
2,869,651 2,441,128
Less treasury stock 131,038 51,895
---------- ----------
Total stockholders' equity 2,738,613 2,394,233
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,380,692 $7,380,692
========== ==========
</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
------------ ------------
Basic and diluted 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 5,580,016
------------ ------------
GROSS PROFIT 4,601,650 4,601,650
Selling, general and administrative expenses 4,214,180 4,326,288
------------ ------------
INCOME FROM OPERATIONS 387,470 275,362
OTHER INCOME (EXPENSE):
Interest expense (164,689) (164,689)
------------ ------------
Other expenses - net (164,689) (164,689)
------------ ------------
INCOME BEFORE TAXES 222,781 100,673
Provision for income taxes 32,000 17,000
------------ ------------
NET INCOME 190,781 193,673
Preferred dividend requirement 206,982 206,982
------------ ------------
INCOME APPLICABLE TO COMMON SHARES $ (16,201) $ (113,309)
============ ============
PER SHARE DATA:
Weighted average common shares outstanding 823,485 6
------------ ------------
Basic and diluted loss per share $ (0.02) $ (18,885)
============ ============
</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. Messrs. Malinowski, Taylor,
Kellam and Knepshield believe the transaction is fair based on the opinion of
Woodward and the Special Committee. 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 reviewed and
considered: (1)
18
<PAGE>
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, and the
future cost savings and competitive advantages
19
<PAGE>
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 following discussion summarizes Woodward's
fairness opinion and the procedures, findings and recommendations related to it.
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
nature of the Company's Common Stock; (ii)
20
<PAGE>
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.
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
21
<PAGE>
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.
In June 1999 Woodward reviewed its fairness opinion analysis completed as
of November 30, 1998 in light of the Company's most recent financial results.
Based on their review, by letter to the Company dated June 16, 1999, Woodward
re-affirmed their analysis that an of $.46 per share of Sklar Common Stock is
fair to shareholders. A copy of Woodward's letter is included as Exhibit C to
this Proxy Statement.
CONDUCT OF THE COMPANY'S BUSINESS AFTER THE REVERSE STOCK SPLIT
22
<PAGE>
The Company expects its business and operations to continue as they are
currently being conducted and, except as disclosed below, the Reverse Stock
Split is not anticipated to have any effect upon the conduct of such business.
If the Reverse Stock Split is consummated, all persons beneficially owning fewer
than 50,000 shares at the effective time of the Reverse Stock Split will no
longer have any equity interest in, and will not be shareholders of, the Company
and therefore will not participate in its future potential or earnings and
growth. Instead, each such beneficial owner of Common Stock will have the right
to receive $.46 per share in cash, without interest.
If the Reverse Stock Split is effected, the Company believes that, based on
the Company's shareholder records, only Don Taylor, Michael Malinowski and
Michael Viner will remain as shareholders, beneficially owning 100% of the
outstanding Common Stock. Such individuals now own approximately 55.9% 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.
23
<PAGE>
Other than as described in this Proxy Statement, neither the Company nor
its management has any current plans or proposals to effect any extraordinary
corporate transaction; such as a merger, reorganization or liquidation; to sell
or transfer any material amount of its assets; to change its Board of Directors
or management; to change materially its indebtedness or capitalization; or
otherwise to effect any material change in its corporate structure of business.
THE COMPANY
The Company was incorporated in 1938 in the State of Delaware under the
name Misdom-Frank Corporation. 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.
<TABLE>
<CAPTION>
Nine Months Ended December 31 Fiscal Year Ended March 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales $ 10,181,666 $ 10,306,783 $ 13,766,868 $ 14,325,963
Gross profit 4,460,650 2,971,270 6,126,002 6,163,193
Income before taxes 222,781 136,606 293,004 212,239
Net income (loss) 190,781 122,945 $ 253,004 $ 180,039
Preferred Dividend Requirement $ 206,982 $ 206,982 $ 275,975 $ 274,425
Income (loss) applicable to Common Shares $ (16,201) $ (84,037) $ (21,971) $ (94,386)
Weighted average number of common shares 823,485 754,940 744,423 744,423
Basic and diluted loss per common share $ (.02) $ (.11) $ (.03) $ (.13)
<FN>
- --------
1 Does not reflect the adjustment to Preferred shares in January, 1999.
</FN>
</TABLE>
<PAGE>
Summary Balance Sheet Data
<TABLE>
<CAPTION>
As of December 31 Fiscal Year Ended March 31
1998 1998 1997
<S> <C> <C> <C>
Total Assets $7,380,692 $7,518,426 $9,585,845
Working Capital 1,601,954 915,939 243,788
Long Term Obligations 19,641 90,337 798,041
Shareholders' equity (deficit)
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.
26
<PAGE>
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 June ___, 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.
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 64.6% 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 June___, 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
June ___, 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
Name and Addresses Title of At March ___, Shares Owned prior to Following Reverse Shares Owned Following
of Beneficial Owners Class 1999 Reverse Stock Split Stock Split Reverse Stock Split
<S> <C> <C> <C> <C> <C>
Don Taylor 1 Preferred 10,575 40.6% 10,575 40.6%
Common 303,715 27.5% 6 50.0%
Michael Malinowski Preferred 6,199 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 Preferred --- ---
Common 50,000 4.5% 1 8.3%
All directors and officers Preferred 16,844 64.6% 16,844 64.6%
Common 611,715 55.9% 12 100%
<FN>
* less than 1%
1 Includes options to purchase 4000 shares of Series B subordinated Preferred
Stock currently exercisable.
</FN>
</TABLE>
DIRECTORS, EXECUTIVE OFFICERS OF THE COMPANY.
The directors and executive officers of the Company, their ages, their
principal occupations during the past five years or more, and directorships of
each in public companies in addition to the Company are as follows:
Don Taylor. Mr. Taylor, age 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, age 51, 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 currently outstanding Common
Stock in lieu of receiving fractional shares of new Common Stock following the
Reverse Stock Split.
29
<PAGE>
Shareholders owning fewer than 50,000 shares on the Effective Date will receive
in exchange a cash payment in the amount of $.46 per share.
For purposes of the operation of the Reverse Stock Split (i.e., for
determining whether and to what extent shareholders will receive new Common
Stock and/or cash in lieu of fractional shares), and for no other purpose, the
Company will treat the person who is the underlying beneficial owner of shares
held by a nominee as the shareholder.
If the Reverse Stock Split is effected, any shareholder beneficially owning
fewer than 50,000 shares of the currently outstanding Common Stock will cease to
have any rights with respect to the Common Stock of the Company, except to be
paid in cash, as described in this Proxy Statement. No interest will be paid or
accrued on the cash payable to shareholders after the Reverse Stock Split is
effected.
No service charges will be payable by shareholders in connection with the
exchange of certificates or the payment of cash in lieu of issuing fractional
shares, all expenses of which will be borne by the Company.
DISSENTERS' RIGHTS
In the event the 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, 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
30
<PAGE>
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 D 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
6.9% to 23.4%.
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, 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.
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.
31
<PAGE>
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>
Before 6/98 6/98 to 11/98 11/98 to Reverse After Reverse
Split Split
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common 261,715 (34.7%) 311,715 (38.7%) 611,715 (55.4%) 12 (100%)
Preferred 12,844 (58.2%) 12,844 (58.2%) 12,844 (58.2%) 12,844 (58.2%)
Total Ownership 278,559 (35.3%) 328,559 (39.2%) 628,559 (56.3%) 12,856 (58.2%)
(Common and
Preferred)
</TABLE>
In early 1998, the Company undertook an evaluation of its internal
processes and procedures. As a part of the process, the Company with the
assistance of its newly hired SEC counsel, reviewed all previous Company filings
with the SEC. The Company found that in certain cases its books and records were
inconsistent with the records of their transfer agent and undertook a study of
all Company and management stock transactions over a ten year period. The
Company believes all discrepancies have been corrected. In addition, certain
reporting documents, such as Schedule 13D and Forms 3, 4 and 5, were filed and
corrected in late 1998 and early 1999. The Company's Form 10-KSBs for the fiscal
years ended March 31, 1997 and 1998 also inadvertently omitted information
relating to the stock options granted to Messrs. Malinowski and Taylor.
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
32
<PAGE>
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 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 Reports on Form 10-QSB for the
quarters ended September 30 and December 31, 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.
33
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Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein (or in any other subsequently filed documents which also is deemed to be
incorporated by reference herein) modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE TO
SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON WRITTEN OR ORAL
REQUESTS OF SUCH PERSON AND BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS
WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST, TO SKLAR CORPORATION, 889
South Matlack Street, West Chester, Pa 19382, ATTN: Michael Malinowski, CHIEF
FINANCIAL OFFICER (telephone: (610) 430-3200). in order to ensure delivery of
the 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.)
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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:
B-1
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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.
B-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.
B-3
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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
B-4
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of our valuation opinion, that they accurately reflect the best
currently available estimates and judgments made by Sklar
management of the future financial performance of Sklar.
Conclusion
In preparing our valuation opinion, we have relied on the completeness and
accuracy of the information and data furnished to us by Sklar as of November 30,
1998. We have not independently verified such data nor data obtained from
regularly published sources.
We are not aware of any present or contemplated relationship between Sklar and
Woodward Group, Ltd. that, in our opinion, would affect our ability to render a
fair and independent valuation opinion in this matter. Our valuation opinion
pertains only to the financial consideration of the proposed transaction as of
November 30, 1998 and does not constitute a recommendation to Sklar shareholders
as to how they should vote or act with respect to the contemplated transactions
referenced herein.
Based on the foregoing analysis and review, other matters we considered
relevant, our general knowledge and experience in the valuation of companies,
and subject to the assumptions and limitations detailed above, we believe that
the proposed offer to purchase fractional shares resulting from the contemplated
Reverse Stock Split at a price of $0.46 per share is fair from a financial point
of view as of November 30, 1998.
Sincerely,
The Woodward Group, Ltd.
B-5
<PAGE>
EXHIBIT C
The Woodward Group Ltd.
Investment-Merchant Banking Services (letterhead)
June 16, 1999
Mr. Michael Malinowski
Chief Financial Officer
Sklar Instruments Corporation
889 South Matlack Street
West Chester, PA 19382
Dear Mr. Malinowski:
Sklar Instruments Corporation ("Sklar") has asked The Woodward Group, Ltd.
("Woodward") to review its fairness opinion analysis completed as of November
30, 1998, in light of Sklar's most recent financial results. In that regard, you
provided on June 3, 1999 to Woodward an unaudited, draft profit and loss
statement and balance sheet for the fiscal year end March 31, 1999. In addition,
since providing us with these draft statements, you and Sklar's auditors,
Stockton Bates, informed us that Sklar's current estimates of net income, EBIT
and EBITDA for the fiscal year ended March 31, 1999 are $290,000, $493,000 and
$782,000, respectively. All other financial data for the fiscal year ended March
31, 1999 relevant to Woodward's analysis are still estimated at the levels
indicated in the materials provided to us on June 3, 1999.
The results of analyzing the above data are included as attachments hereto and
are summarized below:
Methodology November 1998 Analysis June 1999 Analysis
Discounted Cashflow $7.4 million $7.4 million
"Comparable" Publicly $7.2-$8.2 million $6.0-$8.8 million
Traded Companies
"Comparable" Merger and $4.7-$7.6 million $4.7-$7.2 million
Acquisition Transactions
Implied Value: $7.1 million $6.9 million
1
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The Woodward Group Ltd. (letterhead)
As shown above, the discounted cashflow analysis has not changed, given your
indication to us that the forecasted financial results provided by Sklar to
Woodward, as included in the discounted cashflow analysis, have not changed
since those materials were provided by you to Woodward in 1998.
While Sklar's net income has increased relative to historical results, revenues,
EBIT and EBITDA have declined and Sklar has not achieved either of the
forecasted results included in the discounted cashflow analyses. Accordingly, we
believe that the value indicated through the discounted cashflow analyses may
have in fact declined since completion of the November 1998 analysis.
Please keep in mind that in reviewing Sklar's most recent, estimated financial
performance, we have applied these results to the valuation ratios generated
through the analyses performed in November 1998. We have not updated those
calculations to take into account additional, possible comparable merger and
acquisition transactions nor implied market values and financial results of the
indicated comparable companies since the completion of our analysis as of
November 1998.
In addition, Woodward assumes that no material changes to Sklar, its business
and its prospects have occurred since the completion of our analysis as of
November 1998.
Based on the foregoing, and subject to the limitations indicated above, we
reaffirm our analysis that an offer of $0.46 per share of Sklar common stock is
fair from a financial point of view to all Sklar shareholders as of November 30,
1998, taking into account Sklar's most recent financial performance.
Sincerely,
/s/ The Woodward Group, Ltd.
The Woodward Group, Ltd.
2
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Exhibit C
Page 1
SKLAR Corporation
"Comparable" Transaction Analysis
Distributors & Manufacturers Blended
($ thousands, except per share data)
<TABLE>
<CAPTION>
Multiples Paid (x)
of
------------------------------
Net Book
Revenues Income Value
<S> <C> <C> <C>
Average 1.29 43.05 2.78
Median 1.04 36.26 2.20
Small Trans. Average 0.54 18.73 2.29
</TABLE>
<TABLE>
<CAPTION>
Net Book SKLAR Results Applied to Average Statistics
Revenues Income Value
<S> <C> <C> <C> <C> <C> <C> <C>
1997 $14,326 $ 180 $ 2,189 1997 $18,457 $ 7,750 $ 6,082
1998 $13,767 $ 253 $ 2,442 1998 $17,736 $10,892 $ 6,786
98/97 Average $14,046 $ 217 $ 2,316 98/97 Average $18,096 $ 9,321 $ 6,434
1999 Est. $13,292 $ 290 $ 2,911 1999 $17,125 $12,485 $ 8,088
SKLAR Results Applied to Median Statistics
1997 $14,827 $8,527 $4,816
1998 $14,249 $9,174 $5,373
98/97 Average $14,538 $7,850 $5,094
1999 $13,757 $10,515 $6,404
SKLAR Results Applied to Small Trans. Statistics
1997 $7,736 $3,371 $5,013
1998 $7,434 $4,739 $5,593
98/97 Average $7,585 $4,055 $5,303
1999 $7,178 $5,432 $6,666
</TABLE>
<PAGE>
EXHIBIT D
DISSENTER'S RIGHTS STATUTE
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
ss. 1571. Application and effect of subchapter
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter.
ss. 1572. Definitions
The following words and phrases when used in this subchapter, shall
have the meanings given to them in this section unless the context clearly
indicates otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately' before the
effectuation of the corporate action to which the dissenter objects, taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid the corporation on its principal bank loans.
ss. 1573. Record and beneficial holders and owners
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one
D-1
<PAGE>
person and discloses the name and address of the person or persons on whose
behalf he dissents. In that event, his rights shall be deter-mined as if the
shares as to which he has dissented and his other shares were registered in the
names of different shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
ss. 1574. Notice of intention to dissent
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
ss. 1575. Notice to demand payment
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters A-ho gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed corporate
action is to be taken without a vote of shareholders, the corporation shall send
to all shareholders who are entitled to dissent and demand payment of the fair
value of their shares a notice of the adoption of the plan or other corporate
action. in either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificates shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent
transfer of shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding, payment that includes a
request for certification of the date on which the shareholder, or the person on
whose behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
D-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
D-3
<PAGE>
certificates that have been deposited and release uncertificated shares from any
transfer restrictions imposed by reason of the demand for payment. The
corporation may make a notation on any such certificate or on the records of the
corporation relating to any such uncertificated shares that such demand has been
made . if shares with respect to which notation has been so made shall be
transferred, each new certificate issued therefor or the records relating to any
transferred uncertificated shares shall bear a similar notation, together with
the name of the original dissenting holder or owner of such shares. A transfer
of such shares shall not acquire by such transfer any rights in the corporation
other than those that the original dissenter had after making demand for payment
of their fair value.
ss. 1578. Estimate by dissenter of fair value of shares
(a) General rule. If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
ss. 1579. Valuation proceedings generally
(a) General rule. Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely, receipt of any demands for payment under section
1575 (relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1378
(relating to estimate by dissenter of fair value of shares);
if and demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the Court.
(b) Mandatory 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
and recommend a decision on
D-4
<PAGE>
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.
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