<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SCHEIN PHARMACEUTICAL, INC.
AT
$19.50 NET PER SHARE
BY
WS ACQUISITION CORP.
A WHOLLY-OWNED SUBSIDIARY OF
WATSON PHARMACEUTICALS, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, JULY 3, 2000, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS BEING MADE PURSUANT TO AN AGREEMENT AND PLAN OF MERGER, DATED
AS OF MAY 24, 2000, AMONG WATSON PHARMACEUTICALS, INC. ("WATSON"), WS
ACQUISITION CORP. AND SCHEIN PHARMACEUTICAL, INC. ("SCHEIN"). THE BOARD OF
DIRECTORS OF SCHEIN HAS APPROVED AND FOUND ADVISABLE THE MERGER AGREEMENT, THE
OFFER AND THE MERGER REFERRED TO HEREIN, DETERMINED THAT THE TERMS OF THE OFFER
AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF
SCHEIN AND RECOMMENDS THAT STOCKHOLDERS OF SCHEIN ACCEPT THE OFFER AND TENDER
THEIR SHARES AND/OR ADOPT THE MERGER AGREEMENT.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
24,500,000 SHARES OF COMMON STOCK OF SCHEIN AND THE SATISFACTION OF OTHER
CUSTOMARY CLOSING CONDITIONS, INCLUDING THE EXPIRATION OF REGULATORY WAITING
PERIODS. SEE THE INTRODUCTION AND SECTIONS 1 AND 15.
------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares (as defined below) should either (1) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in the
Letter of Transmittal and (a) mail or deliver it together with the
certificate(s) evidencing tendered Shares, and any other required documents, to
the Depositary or (b) tender such Shares pursuant to the procedures for
book-entry transfer set forth in Section 3 of this Offer to Purchase, or (2)
request such stockholder's broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such stockholder. Any stockholder
whose Shares are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact such broker, dealer, commercial
bank, trust company or other nominee if such stockholder desires to tender such
Shares.
A stockholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available, or who cannot comply with
the procedures for book-entry transfer on a timely basis, may tender such Shares
by following the procedures for guaranteed delivery set forth in Section 3.
Questions or requests for assistance may be directed to D.F. King & Co.,
Inc. (the "Information Agent") or to Bear, Stearns & Co. Inc. (the "Dealer
Manager") at their respective addresses and telephone numbers set forth on the
back cover of this Offer to Purchase. Additional copies of this Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may
also be obtained from the Information Agent, the Dealer Manager or from brokers,
dealers, commercial banks or trust companies.
------------------------
THE DEALER MANAGER FOR THE OFFER IS:
BEAR, STEARNS & CO. INC.
June 6, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY TERM SHEET.......................................... 2
INTRODUCTION................................................ 6
1. TERMS OF THE OFFER..................................... 7
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.......... 9
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING
SHARES.................................................... 9
4. WITHDRAWAL RIGHTS...................................... 12
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES................ 12
6. PRICE RANGE OF SHARES; DIVIDENDS....................... 13
7. CERTAIN INFORMATION CONCERNING SCHEIN.................. 14
8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND
WATSON.................................................... 16
9. PRO FORMA FINANCIAL STATEMENTS......................... 18
10. FINANCING OF THE OFFER AND THE MERGER.................. 26
11. BACKGROUND OF THE OFFER; THE MERGER AGREEMENT;
STOCKHOLDER AGREEMENTS................................. 28
12. PURPOSE OF THE OFFER; PLANS FOR SCHEIN AFTER THE OFFER
AND THE MERGER......................................... 47
13. DIVIDENDS AND DISTRIBUTIONS............................ 48
14. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES;
EXCHANGE LISTING AND EXCHANGE ACT REGISTRATION......... 48
15. CERTAIN CONDITIONS OF THE OFFER........................ 49
16. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS......... 52
17. FEES AND EXPENSES...................................... 54
18. MISCELLANEOUS.......................................... 54
SCHEDULE I: DIRECTORS AND EXECUTIVE OFFICERS OF WATSON AND
THE PURCHASER............................................... 56
</TABLE>
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SUMMARY TERM SHEET
WS Acquisition Corp. is offering to purchase all of the outstanding shares
of common stock of Schein for $19.50 per share in cash. Through a question and
answer format, this Summary Term Sheet is designed to explain to you, the
stockholders of Schein, a number of important terms of the proposed transaction.
This Summary Term Sheet serves only as an introduction, and we urge you to
carefully read the remainder of the Offer to Purchase and the accompanying
Letter of Transmittal in order to fully educate yourself on the details of the
proposed transaction. Cross-referenced text refers to sections within the Offer
to Purchase, unless otherwise noted.
WHO IS OFFERING TO BUY THE COMMON STOCK OF SCHEIN PHARMACEUTICAL, INC.?
Our name is WS Acquisition Corp. We are a Delaware corporation formed for
the purpose of making a cash tender offer for all of the outstanding shares of
common stock of Schein. We are a wholly-owned subsidiary of Watson, a Nevada
corporation, whose shares are listed on the New York Stock Exchange. See
"Introduction."
WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER? HOW MUCH IS
WS ACQUISITION CORP. OFFERING TO PAY AND WHAT IS THE FORM OF PAYMENT?
We are offering to purchase all of the outstanding shares of common stock
of Schein for $19.50 per share, net to you, in cash. See "Introduction."
WHAT IS THE PURPOSE OF THE TENDER OFFER?
The purpose of the tender offer is to enable Watson to acquire control of,
and the entire equity interest in, Schein. Following the Offer, WS Acquisition
Corp. and Watson intend to acquire any remaining equity interest in Schein that
was not acquired during the tender offer. See "Introduction" and Section 12
("Purpose of the Offer; Plans for Schein after the Offer and the Merger").
WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
We are not obligated to purchase any shares that you validly tender unless
the number of shares validly tendered and not withdrawn before the expiration
date of the Offer represents, in the aggregate, at least 24,500,000 shares of
Schein common stock.
We are also not obligated to purchase any shares which you validly tender
if, among other things: (i) Schein does not continue to operate its business
according to ordinary and past practices, (ii) there is a material adverse
change in Schein or Schein's business, or (iii) the applicable waiting period
under applicable antitrust laws, has not expired or been terminated.
We are also not obligated to purchase any shares you validly tender if any
other conditions set forth in Section 15 ("Certain Conditions of the Offer") and
discussed in Section 1 ("Terms of the Offer") are not satisfied or waived.
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
Our offer to purchase your shares expires at 12:00 midnight, New York City
time, on Monday, July 3, 2000. This is called the initial expiration date. See
Section 1 ("Terms of the Offer").
CAN WS ACQUISITION CORP. EXTEND THE OFFER PAST THE INITIAL EXPIRATION DATE AND
UNDER WHAT CIRCUMSTANCES?
Yes. We can and may be required to extend the Offer past the initial
expiration date. If we do so, you will be able to tender your shares until 12:00
midnight, New York City time, on the new expiration date.
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Several terms, which were negotiated by the parties, define the
circumstances in which we can extend the Offer, including: (i) if any conditions
to the Offer have not been satisfied or waived, or (ii) for ten business days if
all of the conditions to the Offer are satisfied and more than 24,500,000
shares, but less than 90% of the shares, of Schein common stock have been
validly tendered pursuant to the Offer and are not withdrawn. See Section 1
("Terms of the Offer").
HOW DO I FIND OUT IF WS ACQUISITION CORP. EXTENDS THE OFFER?
We will announce an extension no later than 9:00 a.m., New York City time,
on the business day after a scheduled expiration date by issuing a press release
to the Dow Jones News Service. See Section 1 ("Terms of the Offer").
HOW DO I GET PAID FOR MY TENDERED SHARES?
We will pay for the shares accepted for payment by depositing the purchase
price with ChaseMellon Stockholder Services, L.L.C. (who is the depositary in
the Offer). The depositary will transmit to you the payment for all shares
accepted for payment. See Section 2 ("Acceptance for Payment and Payment for
Shares").
HOW DO I TENDER MY SHARES?
To tender your shares, you must deliver your share certificates, together
with a completed letter of transmittal, to the depositary on or prior to the
expiration date. If your shares are held in street name, you can tender the
shares by your nominee through The Depository Trust Company.
If you cannot get all of the documents or instruments that you are required
to deliver to the depositary, you can still tender your shares if a bank,
broker, dealer, credit union, savings association or other entity which is a
member in good standing of a recognized Medallion Signature Guarantee Program or
any other eligible institution guarantees that the depositary will receive the
missing items within three New York Stock Exchange trading days. For the tender
to be valid, the depositary must actually receive the missing items within that
three-day period. See Section 3 ("Procedures for Accepting the Offer and
Tendering Shares").
UNTIL WHAT TIME CAN I WITHDRAW MY PREVIOUSLY TENDERED SHARES?
You can withdraw your tendered shares at any time on or prior to a
scheduled expiration date. After the Offer expires, the tender is irrevocable
unless we have not accepted for payment your shares by August 4, 2000. At and
after this date, you can withdraw your tendered shares until we accept them for
payment. See Section 4 ("Withdrawal Rights").
HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
To withdraw your shares, you must deliver to the depositary written,
telegraphic or facsimile transmission notice of withdrawal that specifies your
name, the number of shares being withdrawn and the name of the registered holder
of the shares, if different from the person who tendered the shares. See Section
4 ("Withdrawal Rights").
WHAT ARE THE TAX CONSEQUENCES OF THE SALE OF SHARES TO WS ACQUISITION CORP.
THROUGH THE OFFER?
The sale of shares to us through the Offer is a taxable transaction for
federal income tax purposes, and may also be taxable under applicable state,
local, foreign and other tax laws. In general, you will recognize gain or loss
equal to the difference between the amount of cash that you receive from us for
the shares and the tax basis of your shares.
We encourage you to consult with your own tax advisor about the particular
effect the Offer will have on you. See Section 5 ("Certain Federal Income Tax
Consequences").
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WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE?
On May 24, 2000, the last full trading day before we announced the Offer,
the closing price per share of Schein common stock on the New York Stock
Exchange was $16.812. On June 5, 2000, the last full trading day before we
commenced the Offer, the closing price per share of Schein common stock on the
New York Stock Exchange was $21.438.
Between June 4, 1999 and June 5, 2000, the closing sale price of a share of
Schein common stock ranged between $8.375 and $21.438.
We encourage you to obtain a current market quotation for your shares
before deciding whether to tender your shares. See Section 6 ("Price Range of
Shares; Dividends").
WHAT IS THE TOTAL AMOUNT OF FUNDS THAT WILL BE REQUIRED TO CONSUMMATE THE
PROPOSED TRANSACTION?
We estimate that Watson and we will require approximately $800 million (and
in any event no more than $1.1 billion) to consummate the Offer and the merger.
See Section 10 ("Financing of the Offer and the Merger").
DOES WS ACQUISITION CORP. HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
Yes. We will obtain all necessary funds through capital contributions or
advances by Watson. Watson will have sufficient funds from cash on hand and
credit agreements to fully fund the Offer and the subsequent merger. See Section
10 ("Financing of the Offer and the Merger").
IS WS ACQUISITION CORP.'S FINANCIAL CONDITION RELEVANT TO MY DECISION ON WHETHER
TO TENDER SHARES IN THE OFFER?
We do not think our financial condition is relevant to your decision
whether to tender shares and accept the Offer because: (1) the Offer consists
solely of cash, (2) the Offer is not subject to any financing condition, (3)
Watson will have adequate cash and credit facilities available, and (4) the
Offer is for all outstanding shares of Schein's common stock.
WHAT DOES THE SCHEIN BOARD OF DIRECTORS THINK OF THE TENDER OFFER AND MERGER?
On May 23, 2000, the board of directors of Schein unanimously adopted
resolutions determining that the Offer, the merger and the merger agreement were
fair to you and in your best interests.
Your board of directors recommends that you accept the Offer and tender
your shares and/or vote to adopt the merger agreement. See "Introduction" and
Section 12 ("Purpose of the Offer; Plans for Schein after the Offer and the
Merger").
HAVE ANY STOCKHOLDERS ALREADY AGREED TO TENDER THEIR SHARES?
Yes. Stockholders holding approximately 24,500,000 shares of common stock
of Schein have entered into Stockholder Agreements in which they have agreed to
tender approximately 11,508,522 shares in the Offer. The Stockholder Agreements
also contain other provisions designed to encourage those stockholders to tender
all of their shares in the Offer. See "Introduction" and Section 11 ("Background
of the Offer; the Merger Agreement; Stockholder Agreements").
IF AT LEAST 24,500,000 SHARES OF SCHEIN STOCK ARE TENDERED AND ACCEPTED FOR
PAYMENT, WHAT HAPPENS TO SCHEIN AFTER THE OFFER?
Watson, Schein and we have entered into a merger agreement that provides
for us to merge with and into Schein. The merger is dependent on stockholders
owning at least a majority of the shares of Schein stock outstanding on the
record date (set to determine those persons entitled to vote on the merger)
voting in favor
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of the merger. If the Offer is successful, we will own at least 24,500,000
shares of outstanding Schein stock, which is expected to constitute more than a
majority of the outstanding shares of Schein common stock. We have agreed to
vote these shares in favor of the merger.
Therefore, if we acquire at least 24,500,000 shares of Schein stock
pursuant to the Offer, we will merge with and into Schein. Once the merger takes
place, Schein will no longer be publicly owned. Schein will become a
wholly-owned subsidiary of Watson. In such case, Schein common stock will no
longer be traded through the New York Stock Exchange or on any other securities
exchange. See "Introduction" and Section 14 ("Effect of the Offer on the Market
for the Shares; Exchange Listing and Exchange Act Registration").
IF I DECIDE NOT TO TENDER BUT THE TENDER OFFER IS SUCCESSFUL, WHAT WILL HAPPEN
TO MY SHARES?
If the Offer is successful and the subsequent merger occurs, stockholders
who do not tender will receive the merger consideration per share of Schein
common stock described below, subject to any rights of appraisal they may have,
which they properly exercise under Delaware law. See Section 14 ("Effect of the
Offer on the Market for the Shares; Exchange Listing and Exchange Act
Registration"), and Section 16 ("Certain Legal Matters and Regulatory
Approvals").
WHAT WILL BE PAID TO STOCKHOLDERS OF SCHEIN IN THE MERGER AND WHAT IS THE FORM
OF PAYMENT?
In most instances, Watson will issue its common stock in the merger in
exchange for shares of Schein common stock. The fraction of a share of Watson
common stock that will be issued for each share of Schein common stock will
depend on Watson's stock price. Stockholders of Schein who exchange their shares
of Schein common stock in the merger will receive consideration per share with a
value at least equal to the $19.50 being paid by Watson in the Offer.
STOCKHOLDERS OF SCHEIN, HOWEVER, MAY RECEIVE SUBSTANTIALLY MORE VALUABLE
CONSIDERATION FOR THEIR SHARES OF SCHEIN COMMON STOCK IN THE MERGER THAN IF THEY
TENDER THEIR SHARES IN THE OFFER.
In the merger, each share of Schein's common stock will be converted into
the right to receive a fraction of a share of Watson common stock valued at
$23.00, based upon the average closing price of a share of Watson common stock
on the New York Stock Exchange for the ten trading day period ending on the
trading day two trading days prior to the date of either the special meeting of
Schein's stockholders called to approve the merger or, if no such meeting is
required under applicable law, the date of the completion of the merger.
The value of the merger consideration per share of Schein common stock will
be increased proportionately above $23.00, if the average closing price is
greater than $54.52 per share, up to a maximum value of $26.50 where the average
closing price is greater than $62.82 per share. Conversely, the value of the
merger consideration will be decreased proportionately below $23.00, if the
average closing price is less than $44.61 per share down to a minimum value of
$19.50 where the average closing price is $37.82 per share or lower. At this
minimum value of $19.50, Watson would have the option to pay the entire merger
consideration in cash, in stock, or in a mix of cash and stock. See Section 11
("Background of the Offer; the Merger Agreement; Stockholder Agreements").
If any cash is paid in the merger (other than for fractional shares) or if
the merger is effected pursuant to the short-form merger provisions of the
Delaware General Corporation Law, Schein stockholders will have appraisal rights
under Delaware law. Otherwise, Schein stockholders will not have appraisal
rights. For a discussion of appraisal rights, see Section 16 ("Certain Legal
Matters and Regulatory Approvals").
WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
Stockholders can call D.F. King & Co., Inc. at (800) 628-8509. D.F. King &
Co., Inc. is acting as the information agent for the Offer.
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To the Holders of common stock of
SCHEIN PHARMACEUTICAL, INC.:
INTRODUCTION
WS Acquisition Corp., a Delaware corporation (the "Purchaser") and a
wholly-owned subsidiary of Watson Pharmaceuticals, Inc., a Nevada corporation
("Watson"), hereby offers to purchase all outstanding shares (the "Shares") of
common stock, par value $0.01 per share, of Schein Pharmaceutical, Inc., a
Delaware corporation ("Schein"), at $19.50 per Share (the "Offer Price"), net to
the seller in cash, without interest, upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which, together with any amendments or supplements hereto or
thereto, collectively constitute the "Offer").
Tendering stockholders whose Shares are registered in their own name and
who tender directly to the Depositary (as defined below) will not be obligated
to pay brokerage fees or commissions to the Purchaser or the Depositary or,
except as set forth in Instruction 6 of the Letter of Transmittal, U.S. Federal,
state or local transfer taxes on the purchase of Shares pursuant to the Offer.
Stockholders who hold their Shares through a bank or broker should check with
such institution as to whether they charge any service fees. The Purchaser will
pay the fees and expenses of Bear, Stearns & Co. Inc., which is acting as the
Dealer Manager (the "Dealer Manager"), ChaseMellon Shareholder Services, L.L.C.,
which is acting as the Depositary (the "Depositary"), and D.F. King & Co., Inc.,
which is acting as Information Agent (the "Information Agent"), incurred in
connection with the Offer. See Section 17.
The Offer is being made pursuant to a merger agreement, dated as of May 24,
2000, among Watson, the Purchaser and Schein, pursuant to which, following the
consummation of the Offer and the satisfaction or waiver of certain conditions,
the Purchaser will be merged into Schein, with Schein surviving the merger as a
wholly-owned subsidiary of Watson. At the effective time of the merger, each
outstanding Share not tendered in the Offer (other than Shares owned by Schein
as treasury stock or by Watson, the Purchaser or any other direct or indirect
wholly-owned subsidiary of Watson, or by stockholders, if any, who are entitled
to and who properly exercise appraisal rights under Delaware law) will be
converted into the Merger Consideration described below. See Section 11.
THE OFFER IS SUBJECT TO A NUMBER OF CONDITIONS, INCLUDING THERE HAVING BEEN
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
24,500,000 SHARES (THE "MINIMUM CONDITION") AND IS ALSO SUBJECT TO OTHER
CUSTOMARY CLOSING CONDITIONS, INCLUDING THE EXPIRATION OF REGULATORY WAITING
PERIODS. SEE SECTION 15.
The merger is subject to a number of conditions, including approval by
stockholders of Schein, if applicable law requires such approval. In the event
the Purchaser acquires 90% or more of the outstanding Shares pursuant to the
Offer or otherwise, the Purchaser would be able to effect the merger pursuant to
the short-form merger provisions of the Delaware General Corporation Law (the
"DGCL"), without prior notice to, or any action by, any other stockholder of
Schein. In such event, the Purchaser could, and intends to, effect the merger
without prior notice to, or any action by, any other stockholder of Schein. See
Section 11.
THE BOARD OF DIRECTORS OF SCHEIN HAS APPROVED AND FOUND ADVISABLE THE
MERGER AGREEMENT, THE OFFER AND THE MERGER, DETERMINED THAT THE TERMS OF THE
OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS
OF SCHEIN AND RECOMMENDS THAT STOCKHOLDERS OF SCHEIN ACCEPT THE OFFER AND TENDER
THEIR SHARES AND/OR VOTE TO ADOPT THE MERGER AGREEMENT.
CIBC World Markets Corp., Schein's financial advisor, has delivered to the
board of directors of Schein its written opinion dated May 24, 2000 to the
effect that, as of such date and based upon and subject to the matters set forth
therein, the consideration to be received in the Offer and the merger, taken
together, was fair, from a financial point of view, to the holders of Shares
(other than Watson, the Significant Stockholders (defined below) and their
respective affiliates, as to whom CIBC World Markets expressed no opinion). A
copy of such opinion, which sets forth the assumptions made, procedures
followed, matters considered and limitations on the review undertaken, is
attached in full as an annex to Schein's Solicitation/Recommendation
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Statement on Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to
stockholders of Schein concurrently herewith. Holders of Shares are encouraged
to read the opinion carefully and in its entirety.
The merger agreement is more fully described in Section 11. Certain Federal
income tax consequences of the sale of Shares pursuant to the Offer and the
exchange of Shares for the Merger Consideration pursuant to the merger are
described in Section 5.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
The Offer does not constitute a solicitation of proxies for any meeting of
the stockholders of Schein or any offer to sell or solicitation of offers to buy
Watson common stock or other securities. Any such solicitation will be made only
pursuant to separate proxy materials pursuant to the requirements of Section
14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and any such offer will be made only through a registration statement and
prospectus pursuant to the requirements of the Securities Act of 1933, as
amended (the "Securities Act").
1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions of the Offer, the Purchaser
will accept for payment, and pay for, all Shares validly tendered prior to the
Expiration Date and not theretofore properly withdrawn in accordance with
Section 3. The term "Expiration Date" means 12:00 Midnight, New York City time,
on Monday, July 3, 2000, unless and until the Purchaser, in its sole discretion
(but subject to the terms of the merger agreement), shall have extended the
period of time during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by the Purchaser, shall expire.
The Purchaser expressly reserves the right, in its sole discretion (but
subject to the terms of the merger agreement discussed below and the applicable
rules and regulations of the Securities and Exchange Commission (the "SEC")), at
any time and from time to time, and regardless of whether or not any of the
events set forth in Section 15 hereof shall have occurred, to (i) extend the
period of time during which the Offer is open and thereby delay acceptance for
payment of, and the payment for, any Shares, by giving oral or written notice of
such extension to the Depositary and (ii) amend the Offer in any other respect
by giving oral or written notice of such amendment to the Depositary. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID BY THE PURCHASER ON THE PURCHASE PRICE OF
THE SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT.
If by 12:00 Midnight, New York City time, on Monday, July 3, 2000 (or any
other date or time then set as the Expiration Date), any or all conditions to
the Offer have not been satisfied or waived, the Purchaser reserves the right
(but shall not be obligated), subject to the terms and conditions contained in
the merger agreement and to the applicable rules and regulations of the SEC, to
(i) terminate the Offer and not accept for payment any Shares and return all
tendered Shares to tendering stockholders, (ii) waive all the unsatisfied
conditions (other than the Minimum Condition) and, subject to complying with the
terms of the merger agreement and the applicable rules and regulations of the
SEC, accept for payment, and pay for, all Shares validly tendered prior to the
Expiration Date and not theretofore withdrawn, (iii) extend the Offer and,
subject to the right of stockholders to withdraw Shares until the Expiration
Date, retain the Shares that have been tendered during the period or periods for
which the Offer is extended, or (iv) amend the Offer.
There can be no assurance that the Purchaser will exercise its right to
extend the Offer (other than as may be required by the merger agreement or by
applicable law). Any extension, waiver, amendment or termination will be
followed as promptly as practicable by public announcement. In the case of an
extension, Rule 14e-1 under the Exchange Act requires that the announcement be
issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Subject to applicable law
(including Rules 14d-4(d) and 14d-6(c) under the Exchange Act, which require
that any material change in the information published, sent or given to
stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change), and
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without limiting the manner in which the Purchaser may choose to make any public
announcement, the Purchaser will not have any obligation to publish, advertise
or otherwise communicate any such public announcement other than by issuing a
press release to the Dow Jones News Service.
In the merger agreement, Watson and the Purchaser have agreed that if on
any scheduled Expiration Date of the Offer, all conditions set forth in Section
15 have not been satisfied or waived, the Purchaser must (unless otherwise
notified by Schein), and the Purchaser shall otherwise be entitled to, extend
the expiration date of the Offer two times in increments of up to 10 business
days each (unless otherwise agreed by Watson and Schein) until the earliest to
occur of (x) the satisfaction or waiver of each such condition, (y) the
termination of the merger agreement in accordance with its terms or (z) either
November 13, 2000, if the HSR Condition (as defined below) has not been
satisfied, or October 16, 2000 if any other condition set forth in Section 15
has not been satisfied. In addition, the Purchaser may, without the consent of
Schein, extend the expiration date of the Offer for up to 10 business days if,
on the scheduled or any extended expiration date of the Offer, the Shares
validly tendered pursuant to the Offer and not withdrawn are sufficient to
satisfy the Minimum Condition but total less than 90% of the outstanding Shares,
so long as the Purchaser waives the satisfaction of any of the conditions to the
Offer (other than the conditions set forth in the first and third paragraphs of
Section 15 following the preamble) that subsequently may not be satisfied during
any such extension of the Offer.
In addition, the Purchaser has agreed in the merger agreement that it will
not, without the express written consent of Schein, (i) amend or waive the
Minimum Condition, (ii) decrease the Offer Price, (iii) decrease the maximum
number of Shares to be purchased in the Offer or (iv) amend any other term or
condition of the Offer in any manner or impose any term or condition that is
adverse to the holders of the Shares.
If the Purchaser extends the Offer or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its acceptance for
payment of or payment for Shares or is unable to pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer, the Depositary may retain tendered Shares on behalf of the Purchaser,
and such Shares may not be withdrawn except to the extent tendering stockholders
are entitled to withdrawal rights as described in Section 4. However, the
ability of the Purchaser to delay the payment for Shares that the Purchaser has
accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which
requires that a bidder pay the consideration offered or return the securities
deposited by or on behalf of holders of securities promptly after the
termination or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(d), 14d-6(c) and 14e-1(c) under the
Exchange Act. The minimum period during which an offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in the percentage of
securities sought or any dealer solicitation fee, will depend upon the facts and
circumstances then existing, including the relative materiality of the changed
terms or information. With respect to a change in price or a change in the
percentage of securities sought, a minimum period of ten business days is
generally required to allow for adequate dissemination to stockholders.
The Purchaser does not expect to provide a subsequent offering period
during which Schein stockholders who do not tender in the Offer would have
another opportunity to tender at the same price. Those Schein stockholders who
do not tender will have to wait until completion of the merger to receive the
Merger Consideration.
Schein has provided the Purchaser with Schein's stockholder lists and
security position listings for the purpose of disseminating the Offer to holders
of the Shares. This Offer to Purchase, the related Letter of Transmittal and
other relevant materials will be mailed to record holders of Shares and
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
lists or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
8
<PAGE> 10
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment, and will pay for, all
Shares validly tendered on or prior to the Expiration Date and not properly
withdrawn promptly after the later to occur of (i) the Expiration Date, (ii) the
expiration or termination of any applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (iii) the satisfaction or waiver of the other conditions to the Offer
set forth in Section 15. Subject to applicable rules of the SEC and to the terms
of the merger agreement, the Purchaser expressly reserves the right to delay
acceptance for payment of, or payment for, Shares pending receipt of any
regulatory approvals specified in Section 15 or in order to comply in whole or
in part with any other applicable law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of:
- the certificates evidencing such Shares (the "Share Certificates") or
timely confirmation (a "Book-Entry Confirmation") of a book-entry
transfer of such Shares into the Depositary's account at The Depositary
Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in Section 3;
- the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an Agent's
Message (as defined below) in connection with a book-entry transfer; and
- any other documents required by the Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, that states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares, that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against such participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when the Purchaser gives oral or written notice to the
Depositary of the Purchaser's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from the Purchaser
and transmitting such payments to tendering stockholders whose Shares have been
accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE
FOR SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN
MAKING SUCH PAYMENT.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, Share Certificates evidencing
unpurchased Shares will be returned, without expense to the tendering
stockholder (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility pursuant to the
procedures set forth in Section 3, such Shares will be credited to an account
maintained at such Book-Entry Transfer Facility), as promptly as practicable
following the expiration or termination of the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES.
In order for a holder of Shares validly to tender Shares pursuant to the
Offer, the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees, or an
Agent's Message in connection with a book-entry transfer of Shares, and any
other
9
<PAGE> 11
documents required by the Letter of Transmittal, must be received by the
Depositary at its address set forth on the back cover of this Offer to Purchase
and either:
- the Share Certificates evidencing tendered Shares must be received by the
Depositary at such address or such Shares must be tendered pursuant to
the procedures for book-entry transfer described below and a Book-Entry
Confirmation must be received by the Depositary, in each case on or prior
to the Expiration Date, or
- the tendering stockholder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may make a book-entry delivery of Shares by causing such Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account at such
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at the Book-Entry Transfer Facility,
the Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, together with any required signature guarantees, or an Agent's Message
in connection with a book-entry transfer, and any other required documents,
must, in any case, be received by the Depositary at its address set forth on the
back cover of this Offer to Purchase on or prior to the Expiration Date, or the
tendering stockholder must comply with the guaranteed delivery procedures
described below. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a member of the Securities Transfer Agents
Medallion Program, or by any other "eligible guarantor institution," as such
term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing
being referred to as an "Eligible Institution"), except in cases where Shares
are tendered (i) by a registered holder of Shares who has not completed either
the box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. If a Share Certificate is registered in the name of a
person other than the person who or that signs the Letter of Transmittal, or if
payment is to be made, or a Share Certificate not accepted for payment or not
tendered is to be returned, to a person other than the registered holder(s),
then the Share Certificate must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the registered holder(s)
appear on the Share Certificate, with the signature(s) on such Share Certificate
or stock powers guaranteed by an Eligible Institution. See Instructions 1 and 5
of the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates evidencing such Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedures for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered, provided that all the following conditions are satisfied:
- such tender is made by or through an Eligible Institution;
- a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by the Purchaser, is received by
the Depositary on or prior to the Expiration Date as provided below; and
- the Share Certificates (or a Book-Entry Confirmation) evidencing all
tendered Shares, in proper form for transfer, in each case together with
the Letter of Transmittal (or a facsimile thereof), properly
10
<PAGE> 12
completed and duly executed, with any required signature guarantees (or,
in the case of a book-entry transfer, an Agent's Message), and any other
documents required by the Letter of Transmittal, are received by the
Depositary within three New York Stock Exchange ("NYSE") trading days
after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the form
of Notice of Guaranteed Delivery made available by the Purchaser.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the
delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message), and any other
documents required by the Letter of Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Purchaser in its sole discretion, which
determination will be final and binding on all parties. The Purchaser reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. The Purchaser also reserves the absolute right to waive
any condition of the Offer or any defect or irregularity, in the tender of any
Shares of any particular stockholder (other than the Minimum Condition), whether
or not similar defects or irregularities are waived in the case of other
stockholders. No tender of Shares will be deemed to have been validly made until
all defects and irregularities have been cured or waived. None of the Purchaser,
Watson, the Dealer Manager, the Depositary, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. The Purchaser's interpretation of the terms and conditions of the
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding.
Appointment. By executing the Letter of Transmittal as set forth above, a
tendering stockholder irrevocably appoints designees of the Purchaser as such
stockholder's proxies, each with full power of substitution, in the manner set
forth in the Letter of Transmittal, to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by the Purchaser (and with respect to any and all other Shares or other
securities issued or issuable in respect of such Shares). All such proxies will
be considered coupled with an interest in the tendered Shares. Such appointment
will be effective when, and only to the extent that, the Purchaser accepts such
Shares for payment. Upon such acceptance for payment, all prior proxies given by
such stockholder with respect to such Shares (and such other Shares and
securities) will be revoked without further action, and no subsequent proxies
may be given nor any subsequent written consent executed by such stockholder
(and, if given or executed, will not be deemed to be effective) with respect
thereto. The designees of the Purchaser will, with respect to the Shares (and
such other Shares and securities) for which the appointment is effective, be
empowered to exercise all voting and other rights of such stockholder as they in
their sole discretion may deem proper at any annual or special meeting of
Schein's stockholders or any adjournment or postponement thereof, by written
consent in lieu of any such meeting or otherwise. The Purchaser reserves the
right to require that, in order for Shares to be deemed validly tendered,
immediately upon the Purchaser's payment for such Shares, the Purchaser must be
able to exercise full voting rights with respect to such Shares (and such other
Shares and securities).
The acceptance for payment by the Purchaser of Shares pursuant to any of
the procedures described above will constitute a binding agreement between the
tendering stockholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
UNDER U.S. FEDERAL INCOME TAX LAWS, THE DEPOSITARY WILL BE REQUIRED TO
WITHHOLD 31% OF THE AMOUNT OF ANY PAYMENTS MADE TO CERTAIN STOCKHOLDERS PURSUANT
TO THE OFFER ("BACKUP WITHHOLDING") UNLESS SUCH STOCKHOLDER PROVIDES THE
DEPOSITARY WITH APPROPRIATE CERTIFICATION SUCH AS THE STOCKHOLDER'S CORRECT
TAXPAYER IDENTIFICATION NUMBER AND A CERTIFICATION THAT SUCH STOCKHOLDER IS NOT
SUBJECT TO BACKUP WITHHOLDING BY
11
<PAGE> 13
COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION
9 OF THE LETTER OF TRANSMITTAL.
4. WITHDRAWAL RIGHTS.
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for payment by the Purchaser pursuant to the Offer,
may also be withdrawn at any time after August 4, 2000. If the Purchaser extends
the Offer, is delayed in its acceptance for payment of Shares or is unable to
accept Shares for payment pursuant to the Offer for any reason, then, without
prejudice to the Purchaser's rights under the Offer, the Depositary may,
nevertheless, on behalf of the Purchaser, retain tendered Shares, and such
Shares may not be withdrawn except to the extent that tendering stockholders are
entitled to withdrawal rights as described in this Section 4. Any such delay
will be by an extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
its address set forth on the back cover page of this Offer to Purchase. Any such
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder of such Shares, if different from that of the person who
tendered such Shares. If Share Certificates evidencing Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such Share Certificates, the serial numbers shown on
such Share Certificates must be submitted to the Depositary and the signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution,
unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedures for
book-entry transfer as set forth in Section 3, any notice of withdrawal must
also specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Shares, in which case a notice of
withdrawal will be effective if delivered to the Depositary by any method
described in the first sentence of this paragraph.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. None of the
Purchaser, Watson, the Dealer Manager, the Depositary, the Information Agent or
any other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in Section 3.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
Sales of Shares pursuant to the Offer (and the receipt of stock and/or cash
by stockholders of Schein pursuant to the merger) will be taxable transactions
for Federal income tax purposes under the Internal Revenue Code of 1986, as
amended (the "Code"), and may also be taxable transactions under applicable
state, local, foreign and other tax laws. For Federal income tax purposes, a
tendering stockholder will generally recognize gain or loss equal to the
difference between the amount of cash received by the stockholder pursuant to
the Offer (or the fair market value of the stock and/or the amount of cash
received pursuant to the merger) and the aggregate tax basis in the Shares
tendered by the stockholder and purchased pursuant to the Offer (or cancelled
pursuant to the merger). Gain or loss will be calculated separately for each
block of Shares tendered and purchased pursuant to the Offer (or cancelled
pursuant to the merger).
If tendered Shares are held by a tendering stockholder as capital assets,
gain or loss recognized by the tendering stockholder will be capital gain or
loss, which will be long-term capital gain or loss if the tendering
stockholder's holding period for the Shares exceeds one year. Long-term capital
gains recognized by a tendering individual stockholder will generally be taxed
at a maximum Federal marginal tax rate of 20%, and long-term capital gains
recognized by a tendering corporate stockholder will be taxed at a maximum
Federal marginal tax rate of 35%.
12
<PAGE> 14
A stockholder (other than certain exempt stockholders including, among
others, all corporations and certain foreign individuals) that tenders Shares
may be subject to 31% backup withholding unless the stockholder provides its
taxpayer identification number ("TIN") and certifies that such number is correct
or properly certifies that it is awaiting a TIN and certifies as to no loss of
exemption from backup withholding and otherwise complies with the applicable
requirements of the backup withholding rules. A stockholder that does not
furnish its correct TIN or that does not otherwise establish a basis for an
exemption from backup withholding may be subject to a penalty imposed by the
Internal Revenue Service. Each stockholder should complete and sign the
Substitute Form W-9 included as part of the Letter of Transmittal so as to
provide the information and certification necessary to avoid backup withholding.
If backup withholding applies to a stockholder, the Depositary is required
to withhold 31% from payments to such stockholder. Backup withholding is not an
additional tax. Rather, the amount of the backup withholding can be credited
against the Federal income tax liability of the person subject to the backup
withholding, provided that the required information is given to the Internal
Revenue Service. If backup withholding results in an overpayment of tax, the
stockholder upon filing an income tax return can obtain a refund.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES
RECEIVED AS COMPENSATION OR WITH RESPECT TO HOLDERS OF SHARES WHO ARE SUBJECT TO
SPECIAL TAX TREATMENT UNDER THE CODE, SUCH AS NON-U.S. PERSONS, LIFE INSURANCE
COMPANIES, TAX-EXEMPT ORGANIZATIONS AND FINANCIAL INSTITUTIONS, AND MAY NOT
APPLY TO A HOLDER OF SHARES IN LIGHT OF ITS INDIVIDUAL CIRCUMSTANCES, SUCH AS
PERSONS WHO HOLD THEIR SHARES AS A HEDGE OR AS PART OF A HEDGING, STRADDLE,
CONVERSION OR OTHER RISK REDUCTION TRANSACTION. STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO
THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME
AND OTHER TAX LAWS) OF THE OFFER AND THE MERGER.
6. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares have been listed and traded principally on the NYSE since April
9, 1998 under the symbol "SHP." As of March 20, 2000, the Shares were held by
137 holders of record. The following table reflects the high and low sales
prices per Share for fiscal years 2000 (through June 5, 2000), 1999 and 1998.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
2000:
Second Quarter (through June 5, 2000)................... $ 21.438 $13.813
First Quarter........................................... 16.9375 7.625
1999:
Fourth Quarter.......................................... 12.000 8.188
Third Quarter........................................... 17.000 11.500
Second Quarter.......................................... 16.000 10.875
First Quarter........................................... 14.625 10.000
1998:
Fourth Quarter.......................................... 16.750 6.000
Third Quarter........................................... 31.750 11.688
Second Quarter.......................................... 32.438 20.500
First Quarter........................................... -- --
</TABLE>
Since the commencement of fiscal year 1998, Schein has not paid any cash
dividends. Schein does not expect to begin paying any cash dividends in the
foreseeable future.
On May 24, 2000, the last full trading day prior to the announcement of the
execution of the merger agreement and of the Purchaser's intention to commence
the Offer, the closing price per Share as reported on the NYSE was $16.812. On
June 5, 2000, the last full trading day prior to the date of this Offer to
Purchase, the closing price per Share as reported on the NYSE was $21.438.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
13
<PAGE> 15
7. CERTAIN INFORMATION CONCERNING SCHEIN.
Except as otherwise set forth herein, the information concerning Schein
contained in this Offer to Purchase, including financial information, has been
furnished by Schein or has been taken from or based upon publicly available
documents and records on file with the SEC and other public sources. None of the
Purchaser, Watson or the Dealer Manager assumes any responsibility for the
accuracy or completeness of the information concerning Schein, furnished by
Schein or contained in such documents and records or for any failure by Schein
to disclose events that may have occurred or may affect the significance or
accuracy of any such information.
Schein is a corporation organized and existing under the laws of the State
of Delaware with its principal executive offices located at 100 Campus Drive,
Florham Park, NJ 07932. According to Schein's Annual Report on Form 10-K for the
year ended December 25, 1999, Schein develops, manufactures and markets a broad
line of generic products and has a significant branded business. The Schein
product line includes both solid dosage and sterile dosage generic products, and
Schein is also developing a line of specialty branded pharmaceuticals. The brand
products group at Schein is focused on developing and commercializing
proprietary pharmaceutical products in niche therapeutic areas, and has
developed an expertise in the management of iron deficiency and pharmaceutical
products related to the management of anemia in nephrology.
Set forth below is certain selected consolidated financial information
relating to Schein and its subsidiaries that has been excerpted or derived from
the financial statements contained in Schein's Annual Report on Form 10-K for
the year ended December 25, 1999 and from the unaudited financial statements
contained in Schein's Quarterly Report on Form 10-Q for the quarter ended March
25, 2000 in each case filed by Schein with the SEC. More comprehensive
information is included in Schein's Form 10-K, Schein's Form 10-Q and other
documents filed by Schein with the SEC. The financial information that follows
is qualified in its entirety by reference to such reports and other documents,
including the financial statements and related notes contained therein. Such
reports and other documents may be examined and copies may be obtained from the
offices of the SEC in the manner set forth below under "-- Available
Information".
14
<PAGE> 16
SCHEIN PHARMACEUTICAL, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
---------------------------- ----------------------
DECEMBER 25, DECEMBER 26, MARCH 25, MARCH 27,
STATEMENT OF OPERATIONS DATA: 1999(1) 1998(1) 2000 1999
----------------------------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Net revenues................................ $477,161 $ 523,229 $87,898 $105,863
Cost of sales............................... 306,019 349,140 68,782 69,580
-------- --------- ------- --------
Gross profit................................ 171,142 174,089 19,116 36,283
Total operating expenses.................... 213,382 286,361 28,736 27,664
-------- --------- ------- --------
Operating income (loss)..................... (42,240) (112,272) (9,620) 8,619
======== ========= ======= ========
Total other income (expense), net........... (19,929) (18,380) (5,250) (4,973)
======== ========= ======= ========
Income (loss) before extraordinary item..... (34,388) (116,366) (8,922) 2,224
Extraordinary item: loss on early
extinguishment of debt.................... -- (1,660) -- --
-------- --------- ------- --------
Net income (loss)........................... $(34,388) $(118,026) $(8,922) $ 2,224
======== ========= ======= ========
Earnings (loss) per share, basic and
diluted:
Income (loss) before extraordinary item... $ (1.05) $ (3.72) $ (0.27) $ 0.07
Extraordinary item........................ -- (0.05) -- --
-------- --------- ------- --------
Net income (loss)......................... $ (1.05) $ (3.77) $ (0.27) $ 0.07
======== ========= ======= ========
Weighted average shares:
Basic and diluted......................... 32,640 31,330 32,960 32,595
======== ========= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 25, AT DECEMBER 26, AT MARCH 25,
BALANCE SHEET DATA: 1999 1998 2000
------------------- --------------- --------------- ------------
<S> <C> <C> <C>
Current assets................................... $224,195 $220,010 $210,608
Long-term assets................................. 179,306 232,986 171,276
Total assets..................................... 403,501 452,996 381,884
Current liabilities.............................. 241,014 211,723 243,370
Long-term debt................................... 92,738 124,482 84,428
Other long-term liabilities...................... 12,631 38,306 9,003
Total stockholders' equity....................... 57,118 78,485 45,083
</TABLE>
---------------
(1) The results of operations for the years ended December 25, 1999 and December
26, 1998 include a pre-tax charge of $87.0 million and $161.2 million,
respectively, relating to the restructuring of certain facilities of Schein.
Available Information. The Shares are registered under the Exchange Act and
Schein is therefore subject to the reporting requirements of the Exchange Act
and, in accordance therewith, is required to file periodic reports, proxy
statements and other information with the SEC relating to its business,
financial condition and other matters. Information concerning Schein's directors
and officers, their remuneration, stock options granted to them, the principal
holders of Schein's securities and any material interest of such persons in
transactions with Schein is required to be disclosed in proxy statements
distributed to Schein's stockholders and filed with the SEC. Such reports, proxy
statements and other information should be available for inspection at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the SEC: New York Regional Office, Seven World Trade Center, 3rd Floor, New
York, New York 10048; and Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained by mail, upon payment of the SEC's customary fees, by writing to
its principal office at 450 Fifth Street, N.W.,
15
<PAGE> 17
Washington, D.C. 20549. The SEC also maintains a website (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. In addition, reports,
proxy statements and other information concerning Schein can be inspected and
copied at the NYSE, 20 Broad Street, New York, New York 10005, on which the
Shares are listed.
8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND WATSON.
The Purchaser is a newly incorporated corporation organized and existing
under the laws of the State of Delaware. The Purchaser was organized in
connection with the Offer and the merger and has not carried out any activities
other than in connection with the Offer and the merger. The principal offices of
the Purchaser are located at 311 Bonnie Circle, Corona, CA 92880. The Purchaser
is a wholly-owned subsidiary of Watson.
Until immediately prior to the time that the Purchaser will purchase Shares
pursuant to the Offer, it is not anticipated that the Purchaser will have any
significant assets or liabilities or engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Offer and the merger. Because the Purchaser is newly formed and has
minimal assets and capitalization, no meaningful financial information regarding
the Purchaser is available.
Watson is a corporation organized and existing under the laws of the State
of Nevada. Its principal offices are located at 311 Bonnie Circle, Corona, CA
92880. Watson is a pharmaceutical company primarily engaged in the development,
production, marketing and distribution of both branded and off-patent
pharmaceutical products. It was incorporated in January 1985, and has grown,
through internal product development and synergistic acquisitions of products
and businesses, into a diversified specialty pharmaceutical company that
currently markets over 100 branded and off-patent products. Watson is also
engaged in the development of advanced drug delivery systems primarily designed
to enhance therapeutic benefits of pharmaceutical products, both to expand its
product line and under collaborative agreements with other parties.
The name, citizenship, business address, principal occupation or
employment, and five-year employment history of each of the directors and
executive officers of Watson and the Purchaser and certain other information are
set forth in Schedule I hereto.
The Watson common stock is listed and traded on the NYSE under the symbol
"WPI."
Set forth below is certain selected financial information relating to
Watson and its subsidiaries that has been excerpted or derived from the audited
financial statements contained in Watson's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 and from the unaudited financial statements
contained in Watson's Quarterly Report on Form 10-Q for the quarter ended March
31, 2000, in each case filed by Watson with the SEC. More comprehensive
financial information is included in such reports and other documents filed by
Watson with the SEC, and the following financial information is qualified in its
entirety by reference to such reports and other documents, including the
financial information and related notes contained therein. Such reports and
other documents may be inspected and copies may be obtained from the offices of
the SEC in the same manner as set forth with respect to information about Schein
in Section 7 under "-- Available Information".
16
<PAGE> 18
WATSON PHARMACEUTICALS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------- ---------------------------------
1999(1)(3)(5) 1998(2) 2000(3)(5) 1999
---------------------- -------- ---------------------- --------
(PRO FORMA) (ACTUAL) (ACTUAL) (PRO FORMA) (ACTUAL) (ACTUAL)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues.................... $1,166,393 $689,232 $596,193 $267,530 $179,632 $159,243
Cost of sales................... 536,652 230,633 210,405 131,860 63,078 49,997
---------- -------- -------- -------- -------- --------
Gross profit.................... 629,741 458,599 385,788 135,670 116,554 109,246
Total operating expenses........ 465,188 221,167 195,522 87,547 51,151 64,771
---------- -------- -------- -------- -------- --------
Operating income................ 164,553 237,432 190,266 48,123 65,403 44,475
========== ======== ======== ======== ======== ========
Total other income (expense),
net........................... (34,135) 35,112 6,663 147,462 165,042 (1,828)
========== ======== ======== ======== ======== ========
Net income...................... $ 82,784 $178,881 $118,682 $120,370 $144,720 $ 22,971
========== ======== ======== ======== ======== ========
Basic earnings per share........ $ 0.81 $ 1.87 $ 1.25 $ 1.17 $ 1.50 $ 0.24
========== ======== ======== ======== ======== ========
Diluted earnings per share...... $ 0.78 $ 1.83 $ 1.22 $ 1.14 $ 1.48 $ 0.23
========== ======== ======== ======== ======== ========
Weighted average shares:
Basic......................... 102,380 95,760 94,745 102,910 96,290 95,520
========== ======== ======== ======== ======== ========
Diluted....................... 105,805 97,780 97,425 105,930 97,905 98,160
========== ======== ======== ======== ======== ========
OTHER DATA:
Ratio of earnings to fixed
charges(4).................... 2.6 21.4 20.1 10.5 71.2 13.6
========== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
------------------------ ----------------------------
1999 1998 2000 2000
---------- ---------- -------------- ----------
(ACTUAL) (ACTUAL) (PRO FORMA)(5) (ACTUAL)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets......................... $ 434,711 $ 322,794 $ 721,158 $ 627,508
Long-term assets....................... 1,004,039 808,549 1,919,403 1,123,971
Total assets........................... 1,438,750 1,131,343 2,640,561 1,751,479
Current liabilities.................... 129,186 102,953 304,456 154,709
Long-term debt......................... 149,503 151,083 639,041 149,346
Other long-term liabilities............ 105,509 77,952 165,653 156,650
Total stockholders' equity............. 1,054,552 799,355 1,531,411 1,290,774
Book value per share................... $ 14.86 $ 13.38
========== ==========
</TABLE>
---------------
(1) Watson merged with TheraTech, Inc. in 1999. This transaction was accounted
for under the pooling of interests accounting method, and accordingly, the
consolidated financial data includes the results of TheraTech, Inc. for all
periods presented. The results of operations for the year ended December 31,
1999 include merger and related expenses of $20.5 million related to
Watson's acquisition of TheraTech.
(2) The results of operations for the year ended December 31, 1998 include a $13
million charge for acquired in-process research and development related to
Watson's February 1998 acquisition of The Rugby Group, Inc.
(3) In November 1999, Watson sold 2.2 million shares of Andrx Corporation
(adjusted to reflect Andrx' April 2000 two-for-one stock split) and recorded
a pretax gain of $44.3 million from this sale. During the first quarter of
2000, Watson sold an additional 4.2 million shares of Andrx' stock, as
adjusted to reflect the stock split, recording a pretax gain of $166.9
million.
17
<PAGE> 19
(4) The ratio of earnings to fixed charges is computed by dividing the sum of
earnings from continuing operations, before the provision for income taxes
and fixed charges, by total fixed charges. Total fixed charges consist of
interest expense and the interest factor of all rentals, assumed to be
one-third of consolidated rental expense.
(5) Refer to Section 9 "Pro Forma Financial Statements."
Except as described in this Offer to Purchase: (i) neither the Purchaser
nor Watson nor, to the best knowledge of the Purchaser or Watson, any of the
persons listed in Schedule I to this Offer to Purchase or any affiliate or
majority-owned subsidiary of the Purchaser or Watson or any of the persons so
listed beneficially owns or has any right to acquire, directly or indirectly,
any Shares and (ii) none of the Purchaser or Watson nor, to the best knowledge
of the Purchaser and Watson, any of the persons or entities referred to above,
nor any director, executive officer or subsidiary of any of the foregoing, has
effected any transaction in the Shares during the past 60 days. Allen Chao,
Chairman of the Board, Chief Executive Officer and President of Watson,
beneficially owns 50,000 Shares. Fred Wilkinson, Chief Operating Officer and
Senior Vice President, Sales and Marketing of Watson, beneficially owns 300
Shares. Michael Boxer, Senior Vice President and Chief Financial Officer of
Watson, beneficially owns 1,000 Shares.
Except as provided in the merger agreement and as otherwise described in
this Offer to Purchase, neither the Purchaser nor Watson nor, to the best
knowledge of the Purchaser and Watson, any of the persons listed in Schedule I
to this Offer to Purchase has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of Schein,
including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or voting of such securities, joint
ventures, loan or option arrangements, puts or calls, guaranties of loans,
guaranties against loss or the giving or withholding of proxies. Except as set
forth in this Offer to Purchase, since June 6, 1998, neither the Purchaser nor
Watson nor, to the best knowledge of the Purchaser and Watson, any of the
persons listed in Schedule I hereto, has had any business relationship or
transaction with Schein or any of its executive officers, directors or
affiliates that is required to be reported under the rules and regulations of
the SEC applicable to the Offer. Except as set forth in this Offer to Purchase,
since June 6, 1998, there have been no contacts, negotiations or transactions
between any of the Purchaser, Watson or any of their respective subsidiaries or,
to the best knowledge of the Purchaser and Watson, any of the persons listed in
Schedule I to this Offer to Purchase, on the one hand, and Schein or its
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets.
9. PRO FORMA FINANCIAL STATEMENTS.
WATSON/SCHEIN
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
are based on the historical consolidated financial statements of Watson and
Schein, combined and adjusted to give effect to the proposed acquisition of
Schein by Watson (the "Acquisition"). The Acquisition will be completed in a
two-tiered transaction, as described below:
- In the first tier of the transaction, Watson will offer to purchase for
cash a minimum of 24,500,000 Shares for $19.50 per Share. The first tier
of this transaction is expected to close in July 2000.
- Subsequent to the consummation of the first tier of the transaction and
pursuant to the merger agreement, each remaining outstanding Share will
be converted into the right to receive a fraction of a share of Watson
common stock that is based upon the average of the closing price of a
share of Watson common stock on the New York Stock Exchange for the ten
consecutive trading days ending on the trading day two trading days prior
to the date of the special meeting of Schein stockholders relating to the
Acquisition or, if no such special meeting is required under applicable
law in order to consummate the Acquisition, the effective time of the
Acquisition (the "Watson Average Stock Price"). However, if the Watson
Average Stock Price is less than $37.82, Watson may, at its sole
discretion, exchange cash, stock or a combination thereof, as set
18
<PAGE> 20
forth in the merger agreement, to acquire the remaining outstanding
Shares. The second tier of the Acquisition is expected to close in
September 2000. Since the number of shares to be issued in the second
tier of the Acquisition will not be known until the last business day
prior to its completion (or the Schein stockholders' meeting, as
applicable), the unaudited pro forma condensed combined financial
statements have been prepared using an exchange ratio based on the
average trading price of Watson's common stock for the five business day
period from May 23, 2000 to May 30, 2000 (two days prior and subsequent
to the announcement of the Acquisition) of $45.40.
For purposes of the unaudited pro forma condensed combined financial
statements, the term "Acquisition" includes both tier one and tier two of the
proposed transaction. The following unaudited pro forma condensed combined
statements of operations for the three months ended March 31, 2000 and the year
ended December 31, 1999 give effect to the Acquisition as if it had occurred at
the beginning of each period presented. The unaudited pro forma condensed
combined statement of operations for the three months ended March 31, 2000 was
prepared based upon the unaudited consolidated statements of income of Watson
for the three months ended March 31, 2000 and of Schein for the three months
ended March 25, 2000. The unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1999 was prepared based upon the
consolidated statements of income of Watson for the year ended December 31, 1999
and of Schein for the year ended December 25, 1999.
The following unaudited pro forma condensed combined balance sheet as of
March 31, 2000 gives effect to the Acquisition as if it had occurred on such
date and was prepared based on the consolidated balance sheets of Watson as of
March 31, 2000 and of Schein as of March 25, 2000.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the Watson and Schein audited consolidated financial
statements and unaudited interim consolidated financial statements, including
the notes thereto, which are included in Watson's Annual Report on Form 10-K for
the year ended December 31, 1999, Watson's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, Schein's Annual Report on Form 10-K for the year
ended December 25, 1999 and Schein's Quarterly Report on Form 10-Q for the
quarter ended March 25, 2000. See Sections 7 and 8.
The unaudited pro forma adjustments are based upon information set forth in
this Offer to Purchase and certain assumptions included in the notes to the
unaudited pro forma condensed combined financial statements. Watson's management
believes that the pro forma assumptions are reasonable under the circumstances.
The unaudited pro forma condensed combined financial statements do not reflect
any incremental direct costs, including a significant restructuring charge
management expects to record in connection with the Acquisition, or potential
cost savings which are expected to result from the consolidation of certain
operations of Watson and Schein. Accordingly, the unaudited pro forma condensed
combined financial statements are not necessarily indicative of the results of
operations or financial position of the combined companies that would have
occurred had the Acquisition occurred at the beginning of each period presented
or on the date indicated, nor are they necessarily indicative of future
operating results or financial position.
The Acquisition will be accounted for by the purchase method of accounting.
Accordingly, Watson's total cost to acquire all of the outstanding Shares (the
"Purchase Consideration"), estimated to be $798.4 million assuming a Watson
Average Stock Price of $45.40 and including estimated direct transaction costs
of $20 million, will be allocated to the assets acquired and liabilities assumed
according to their respective fair values, with the excess Purchase
Consideration being allocated to goodwill. The total cost to acquire Schein is
subject to change, to the extent that fluctuations in the market value of Watson
common stock cause the Watson Average Stock Price to change. A change in the
Watson Average Stock Price may result in a change in goodwill and related
amortization expense. The final allocation of the Purchase Consideration is
dependent upon certain valuations and other studies that have not progressed to
a stage where there is sufficient information to make such an allocation in the
accompanying unaudited pro forma condensed combined financial statements.
Accordingly, the purchase price allocation adjustments made in connection with
the development of the unaudited pro forma condensed combined financial
statements are preliminary and have been made solely for the purpose of
developing such unaudited pro forma condensed combined financial statements.
19
<PAGE> 21
WATSON/SCHEIN
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(E)
QUARTER ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
WATSON SCHEIN ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues................................. $179,632 $ 87,898 $ $267,530
Cost of sales................................ 63,078 68,782 131,860
-------- -------- -------- --------
Gross profit....................... 116,554 19,116 135,670
-------- -------- -------- --------
Operating expenses:
Research and development................... 12,025 8,066 20,091
Selling, general and administrative........ 30,457 16,836 47,293
Amortization............................... 8,669 334 7,660(a) 16,663
Severance charges.......................... 3,500 3,500
-------- -------- -------- --------
Total operating expenses........... 51,151 28,736 7,660 87,547
-------- -------- -------- --------
Operating income (loss)............ 65,403 (9,620) (7,660) 48,123
-------- -------- -------- --------
Other income (expense):
Equity in earnings (loss) of joint
ventures................................ (2,053) (265) (2,318)
Gain on sales of Andrx securities.......... 166,930 166,930
Interest income and other income
(expense)............................... 2,933 (447) 2,486
Interest expense........................... (2,768) (4,538) (12,330)(b) (19,636)
-------- -------- -------- --------
Total other income (expense) net........... 165,042 (5,250) (12,330) 147,462
-------- -------- -------- --------
Income before income tax provision
(benefit).................................. 230,445 (14,870) (19,990) 195,585
Income tax provision (benefit)............... 85,725 (5,948) (4,562)(c) 75,215
-------- -------- -------- --------
Net income......................... $144,720 $ (8,922) $(15,428) $120,370
======== ======== ======== ========
Per share data:
Basic earnings per share................... $ 1.50 $ (0.27) $ (0.06)(d) $ 1.17
-------- -------- -------- --------
Diluted earnings per share................. $ 1.48 $ (0.27) $ (0.07)(d) $ 1.14
======== ======== ======== ========
Weighted average number of common shares
outstanding................................ 96,290 32,960 (26,340) 102,910
Common stock equivalents..................... 1,615 1,405 3,020
-------- -------- -------- --------
Diluted weighted average shares.............. 97,905 32,960 (24,935) 105,930
======== ======== ======== ========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
20
<PAGE> 22
WATSON/SCHEIN
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(e)
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
WATSON SCHEIN ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues............................... $689,232 $477,161 $ $1,166,393
Cost of sales.............................. 230,633 306,019 536,652
-------- -------- -------- ----------
Gross profit..................... 458,599 171,142 629,741
-------- -------- -------- ----------
Operating expenses:
Research and development................. 49,270 27,951 77,221
Selling, general and administrative...... 121,444 92,157 213,601
Amortization............................. 29,986 6,303 30,639(a) 66,928
Restructuring charge..................... 86,971 86,971
Merger and related expenses.............. 20,467 20,467
-------- -------- -------- ----------
Total operating expenses......... 221,167 213,382 30,639 465,188
-------- -------- -------- ----------
Operating income................. 237,432 (42,240) (30,639) 164,553
-------- -------- -------- ----------
Other income (expense):
Equity in earnings (loss) of joint
ventures.............................. (2,591) (1,079) (3,670)
Gain on sales of Andrx securities........ 44,275 44,275
Interest income and other income
(expense)............................. 4,549 (189) 4,360
Interest expense......................... (11,121) (18,661) (49,318)(b) (79,100)
-------- -------- -------- ----------
Total other income (expense),
net............................ 35,112 (19,929) (49,318) (34,135)
-------- -------- -------- ----------
Income before income tax provision
(benefit)................................ 272,544 (62,169) (79,957) 130,418
Income tax provision (benefit)............. 93,663 (27,781) (18,248)(c) 47,634
-------- -------- -------- ----------
Net income....................... $178,881 $(34,388) $(61,709) $ 82,784
======== ======== ======== ==========
Per share data:
Basic earnings per share................. $ 1.87 $ (1.05) $ (0.01)(d) $ 0.81
======== ======== ======== ==========
Diluted earnings per share............... $ 1.83 $ (1.05) --(d) $ 0.78
======== ======== ======== ==========
Weighted average number of common shares
outstanding.............................. 95,760 32,640 (26,020) 102,380
Common stock equivalents................... 2,020 1,405 3,425
-------- -------- -------- ----------
Diluted weighted average shares............ 97,780 32,640 (24,615) 105,805
======== ======== ======== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
21
<PAGE> 23
WATSON/SCHEIN
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
WATSON SCHEIN ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS COMBINED
ASSETS ---------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents....... $ 305,422 $ 18,279 $(200,000) $ 73,042 $ (a) $ 196,743
Marketable securities........... 9,670 9,670
Accounts receivable, net........ 145,254 41,560 10,000(d) 196,814
Inventories..................... 123,387 125,392 248,779
Prepaid expenses and other
current assets............... 12,335 11,306 23,641
Deferred tax assets............. 31,440 14,071 45,511
---------- -------- --------- --------- --------- ----------
Total current assets.... 627,508 210,608 (200,000) 73,042 10,000 721,158
Property and equipment, net....... 142,056 100,138 242,194
Excess of Purchase Consideration
over net tangible assets
acquired........................ 612,781 (b) 612,781
Product rights and other
intangibles, net................ 568,945 50,278 619,223
Investments and other assets...... 412,970 20,860 11,375 (c) 445,205
---------- -------- --------- --------- --------- ----------
$1,751,479 $381,884 $ 424,156 $ 73,042 $ 10,000 $2,640,561
========== ======== ========= ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses..................... $ 55,869 $ 99,183 $ $ $ (30,000)(d) $ 125,052
Current portion of long-term
debt......................... 1,555 136,142 80,000 (136,142) (d) 81,555
Income taxes payable............ 89,627 8,045 (7,481) (g) 90,191
Current liability from
acquisitions of products and
businesses................... 7,658 7,658
---------- -------- --------- --------- --------- ----------
Total current
liabilities........... 154,709 243,370 80,000 (143,623) (30,000) 304,456
Long-term debt.................... 149,346 84,428 229,125 136,142 40,000(d) 639,041
Long-term liability from
acquisitions of products and
businesses...................... 13,049 13,049
Deferred tax liabilities.......... 143,601 4,402 148,003
Other long-term liabilities....... 4,601 4,601
---------- -------- --------- --------- --------- ----------
Total liabilities....... 460,705 336,801 309,125 (7,481) 10,000 1,109,150
---------- -------- --------- --------- --------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock.................... 318 329 22 46 (375)(e,h) 340
Additional paid-in capital...... 405,369 101,817 300,615 80,477 (182,294)(e,h) 705,984
Retained earnings (deficit)..... 693,720 (61,853) (60,000) 61,853(f,h) 633,720
Accumulated other comprehensive
income....................... 191,367 7,024 (7,024)(h) 191,367
Subscription receivable......... (2,234) 2,234(h) --
---------- -------- --------- --------- --------- ----------
Total stockholders'
equity................ 1,290,774 45,083 240,637 80,523 (125,606) 1,531,411
---------- -------- --------- --------- --------- ----------
$1,751,479 $381,884 $ 549,762 $ 73,042 $(115,606) $2,640,561
========== ======== ========= ========= ========= ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
22
<PAGE> 24
WATSON/SCHEIN
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements reflect the
conversion of each outstanding Share, including the settlement of certain
benefit plans, into cash and/or shares of Watson, as follows (in thousands):
<TABLE>
<S> <C>
Cash........................................................ $ 477,750
Watson common stock......................................... 300,637(i)
---------
Total Purchase Consideration................................ 778,387
Add: Non-recurring transaction costs........................ 20,000(ii)
Less: Write-off of in-process research and development...... (60,000)(iii)
Less: Schein pro forma net tangible assets at March 25,
2000...................................................... (125,606)(iv)
---------
Excess of Purchase Consideration over net tangible assets
acquired.................................................. $ 612,781(iv)
=========
</TABLE>
---------------
(i) As of March 25, 2000, there were approximately 32,984,000 Shares
outstanding. Additionally, there were approximately 7,354,000 stock options
outstanding under Schein's existing stock option plans. The total Purchase
Consideration in the Acquisition will depend upon the number of Schein
stock options that are exercised prior to the closing of the Acquisition,
as further discussed below.
For the purposes of these unaudited pro forma condensed combined financial
statements, it is assumed that the first tier of the transaction results in
the tendering of 24,500,000 Shares at a cash price of $19.50 per Share. It
is further assumed that as part of the second tier of the transaction,
13,100,000 Shares (the remaining Shares outstanding as of March 25, 2000
and the stock options assumed to be exercised prior to the closing date, as
further described in the following paragraph) are exchanged using the
exchange ratio specified in the merger agreement based on the average
Watson common stock trading price for the five business day period from May
23, 2000 to May 30, 2000 (two days prior and subsequent to the announcement
of the Acquisition) of $45.40, thereby resulting in each Share being
converted into the right to receive a fraction of a share of Watson common
stock valued at $23.00. The value of the Purchase Consideration per Share
will be increased proportionately above $23.00 if the Watson Average Stock
Price is greater than $54.52 per share, up to a maximum value of $26.50
where the Watson Average Stock Price is greater than $62.82 per share.
Conversely, the value of the Purchase Consideration will be decreased
proportionately below $23.00, if the Watson Average Stock Price is less
than $44.61 per share down to a minimum value of $19.50 where the Watson
Average Stock Price is $37.82 per share or lower. At this minimum value of
$19.50, Watson would have the option to pay the Purchase Consideration in
cash, in stock or a combination thereof.
As a result of the Acquisition, options related to Schein's existing stock
option plans will either 1) become fully vested and the employees will have
the ability to exercise the related options prior to the closing date
(stock options not exercised prior to closing will be terminated); or 2) be
exchanged for Watson stock options in accordance with the appropriate
exchange ratio set forth in the merger agreement. For purposes of preparing
these unaudited pro forma condensed combined financial statements, it is
assumed that all employees who hold stock options that will terminate if
not exercised prior to the effective time of the merger, will exercise
their stock options. The number of such options that are expected to be
exercised is 4,587,000. Management considers this assumption to be
reasonable based on the fact that substantially all of the options have a
current exercise price which is less than the average market price of a
Share and the options are subject to accelerated vesting terms which are
triggered as a result of this Acquisition.
(ii) Estimated merger transaction costs of $20 million relate principally to
investment banking fees, legal, accounting, printing and other costs
associated with the merger.
(iii) The portion of the purchase price allocated to in-process research and
development ("IPR&D") represents the valuation of acquired,
to-be-completed research projects. As such, the amount that is determined
to be IPR&D will be charged to expense at the date of Acquisition. The
independent IPR&D valuation has not been completed as of the date these
unaudited pro forma condensed combined
23
<PAGE> 25
financial statements were prepared and therefore the final amount of IPR&D
to be charged to expense as part of this Acquisition is not known.
However, based on a preliminary assessment, it is expected that the IPR&D
charge will be between $60 - $80 million. For purposes of preparing these
unaudited pro forma condensed combined financial statements, an IPR&D
charge of $60 million has been assumed. If the final IPR&D charge were to
increase by $10 million, it would have the effect of decreasing annual
amortization expense by $0.5 million.
(iv) For purposes of preparing the unaudited pro forma condensed combined
financial statements, the estimated excess of Purchase Consideration over
net tangible assets acquired as of March 31, 2000 of $612.8 million is
being amortized on a straight-line basis over an estimated average period
of 20 years at a rate of $30.6 million per year. Management believes that a
portion of this amount will be allocated to product rights with estimated
useful lives up to twenty years. Management believes that the remaining
balance will be allocated to goodwill with an estimated useful life of
twenty to twenty-five years. After consummation of the Acquisition, Watson
will utilize the valuations and other studies to make a final allocation of
the Purchase Consideration, including allocation to tangible assets and
liabilities, identifiable intangible assets and goodwill. As a result of
this final allocation, the amount of the excess of Purchase Consideration
over net tangible assets acquired and the average amortization period may
be different from what has been assumed in the preparation of these
unaudited pro forma condensed combined financial statements. On an on-going
basis, Watson will perform periodic reviews of the goodwill and other
intangible assets arising from the Acquisition to ensure that they are
carried at recoverable amounts in the light of current business conditions.
The Schein pro forma net tangible assets as of March 25, 2000 include cash
of $73.0 million and an income tax benefit of $7.5 million arising in
connection with the assumed exercise of Schein stock options as discussed in
Note (i) above.
Certain amounts in the historical consolidated financial statements of
Watson and Schein have been reclassified to conform to the unaudited pro
forma condensed combined financial statement presentation. No adjustments
are necessary to eliminate intercompany transactions and balances in the
unaudited pro forma condensed combined financial statements as there were no
intercompany transactions or balances.
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma condensed combined statements of operations reflect the following:
(a) Amortization of the excess of the Purchase Consideration over net
tangible assets acquired on a straight-line basis over 20 years. Refer
to Note (iv) above.
(b) The total amount of funds required by Watson is estimated to be
approximately $769.7 million to (a) consummate the Acquisition
(including direct transaction costs of $20 million and fees related to
the new bank facility of $11.4 million); (b) refinance certain existing
indebtedness of Schein in the total amount of $220.6 million; and (c)
finance immediate working capital needs of Schein. For purposes of
preparing these unaudited pro forma condensed combined financial
statements, it is assumed that Watson would use $200 million of cash on
hand and new borrowings to fund this Acquisition. The incremental
interest expense resulting from the new borrowings is as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
2000 1999
--------------- ------------
<S> <C> <C>
Incremental interest on Acquisition-related
borrowings......................................... $13,263 $ 53,053
Less: Schein historical interest expense............. (4,665) (18,661)
Amortization of deferred financing costs............. 569 2,275
Reduction in interest income from use of cash on hand
to fund portion of Purchase Consideration.......... 2,500 10,000
Commitment fee on unused bank facility............... 663 2,651
------- --------
Incremental net interest expense..................... $12,330 $ 49,318
======= ========
</TABLE>
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<PAGE> 26
For purposes of preparing the unaudited pro forma condensed combined
financial statements, it is assumed that Watson will incur $11.4 million
of deferred financing costs which will be amortized using a method which
approximates the effective interest method over the expected average
term of the associated financing agreements or five years. The
incremental interest expense has been calculated based on an assumed
interest rate of 9.3125%. A change of 1/8 of 1% in the assumed interest
rate will change annual interest expense after tax by $0.4 million.
(c) Income tax effect of pro forma adjustments.
(d) Earnings per share calculations are based on the weighted average
number of shares of Watson common stock and common equivalent shares
outstanding for each period presented, including the shares of Watson
assumed to be issued in connection with the Acquisition as if they had
been issued at the beginning of each period presented. In addition,
options to purchase 2,767,000 Shares are expected to be converted into
options for Watson common stock and as such have been included in the
calculation of the diluted weighted average number of shares as if they
had been outstanding at the beginning of each period presented for
purposes of calculating the pro forma earnings per share. Earnings per
share will differ according to the number of Watson shares ultimately
issued in connection with this Acquisition. The earnings per share
calculations are also subject to change depending on the number of
Schein stock options exercised as discussed in Note (i) above.
(e) The historical financial statements of Watson include the following
significant non-recurring items:
- During the year ended December 31, 1999 and the three months ended
March 31, 2000, Watson sold 2.2 million (adjusted to reflect Andrx'
April 2000 two-for-one stock split) and 4.2 million shares (as
adjusted to reflect the stock split), respectively, of Andrx
Corporation stock on the open market for $54.6 million and $182.2
million, respectively, recording pre-tax gains of $44.3 million and
$166.9 million, respectively.
The historical financial statements of Schein include the following
significant non-recurring items:
- As a result of certain regulatory matters at Schein's sterile dosage
facilities, Schein recorded a restructuring charge of $87.0 million in
1999, as further discussed in Schein's audited consolidated financial
statements for the year ended December 25, 1999 which have been filed
by Schein with the SEC.
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma condensed combined balance sheet reflect the following:
(a) The net decrease in cash is comprised of the estimated cash used to
fund a portion of the Purchase Consideration offset by the cash
proceeds from the assumed exercise of the Schein stock options, as
further discussed in Note (i) above.
(b) Excess of Purchase Consideration over net tangible assets acquired as a
result of this Acquisition (refer to Note (iv) above).
(c) Estimated deferred financing costs to be amortized using a method
which approximates the effective interest method over the estimated
average term of the associated financing agreements or five years.
(d) New borrowings to (a) finance a portion of the Purchase Consideration;
(b) refinance existing Schein debt as of March 25, 2000; (c) pay for
direct transaction costs and fees related to the new bank facility; and
(d) provide a working capital loan to Schein in the amount of $40
million for the specific purposes set forth in the merger agreement.
(e) Watson common stock issued in exchange for a portion of the Shares
acquired.
(f) To reflect the estimated IPR&D charge, as further discussed in Note
(iii) above. This charge has been excluded from the unaudited pro
forma condensed combined statements of operations due to the
nonrecurring nature of this item.
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<PAGE> 27
(g) To reflect the income tax benefit related to the assumed exercise of
Schein stock options, as further discussed in Note (i) above.
(h) Elimination of Schein's stockholders' equity.
10. FINANCING OF THE OFFER AND THE MERGER.
The total amount of funds required by Watson and the Purchaser to (i)
consummate the Offer and the merger; (ii) refinance certain existing
indebtedness of Schein; (iii) pay fees and expenses related to the Offer and the
merger; and (iv) finance working capital and other general corporate needs of
Watson and its subsidiaries is estimated to be approximately $800 million (and
in any event no more than $1.1 billion). The Purchaser will obtain all funds
required in connection with the Offer and the merger from Watson. Watson
currently intends to obtain such funds from existing cash and cash equivalents
and/or from loans (the "Senior Bank Financing") to be made by Societe Generale
("SG") and various other lenders (SG and such other lenders being referred to as
the "Lenders").
Watson has received a commitment letter executed May 25, 2000 in which SG
has agreed, subject to certain customary conditions, to provide the Senior Bank
Financing in an aggregate amount of up to $1.1 billion. The following is a
summary of the anticipated material terms and conditions of the Senior Bank
Financing. This summary does not purport to be a complete description of the
Senior Bank Financing and is subject to the detailed provisions of various loan
documents to be negotiated and entered into in connection with the Senior Bank
Financing.
Term and Revolving Loans. The Senior Bank Financing is expected to consist
of approximately $600 million in a five-year term loan facility (the "Term A
Loans"), $350 million in a seven-year term loan facility (the "Term B Loans")
and $150 million in a revolving credit facility from which revolving loans (the
"Revolving Loans") may be borrowed, repaid and re-borrowed from time to time.
The Term A Loans and the Term B Loans are referred to in this Offer to Purchase
as the "Term Loans."
Interest. Interest on amounts outstanding under the Senior Bank Financing
will be based upon either (i) a fluctuating rate equal to SG's "Base Rate" which
is the higher of (A) SG's prime lending rate and (B) the Federal Funds Rate plus
0.50%, or (ii) a periodic fixed rate equal to SG's LIBOR (the London Interbank
Offered Rate), plus, in each case, an applicable margin. The LIBOR rate will be
fixed for interest periods of one, two, three or six months. The applicable
margin will be determined by the following grid:
<TABLE>
<CAPTION>
(X=TOTAL DEBT/EBITDA REVOLVING LOANS
(ROLLING 4 QTRS)) TERM A LOANS TERM B LOANS
----------------------- ----------------------- -----------------------
<S> <C> <C>
4.0</= X L + 2.500 / ABR + 1.500 L + 3.000 / ABR + 2.000
3.5</= X< 4.0 L + 2.250 / ABR + 1.250 L + 2.750 / ABR + 1.750
3.0</= X< 3.5 L + 1.875 / ABR + 0.875 L + 2.375 / ABR + 1.375
2.5</= X< 3.0 L + 1.625 / ABR + 0.625 L + 2.250 / ABR + 1.250
2.0</= X< 2.5 L + 1.375 / ABR + 0.375 L + 2.250 / ABR + 1.250
X < 2.0 L + 1.250 / ABR + 0.250 L + 2.250 / ABR + 1.250
</TABLE>
The applicable margins for the Revolving Loans, the Term A Loans and the
Term B Loans at the closing of the Offer will be determined by the grid using
pro forma total debt at such closing and pro forma combined EBITDA for Watson
and Schein for the last twelve months as of March 31, 2000, giving no effect to
expected synergies of the transaction and subtracting Schein extraordinary
items.
After six months, the applicable margins on the Revolving Roans and the
Term A Loans will determined by the grid. The applicable margin on the Term B
Loans will remain at that margin set at the closing of the Offer and will not be
adjusted pursuant to the above grid.
Interest will be payable at the end of each interest period of each LIBOR
rate loan, but no less frequently than quarterly. For each Base Rate loan,
interest will be payable quarterly in arrears.
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<PAGE> 28
Term Loan Repayment Terms. The Term A Loans will amortize in equal
quarterly installments based on the following annual amounts:
<TABLE>
<S> <C>
Year 1......................... $ 80,000,000
Year 2......................... 100,000,000
Year 3......................... 120,000,000
Year 4......................... 140,000,000
Year 5......................... 160,000,000
------------
$600,000,000
</TABLE>
The Term B Loans will amortize in equal quarterly installments based on the
following annual amounts:
<TABLE>
<S> <C>
Year 1......................... $ 3,500,000
Year 2......................... 3,500,000
Year 3......................... 3,500,000
Year 4......................... 3,500,000
Year 5......................... 3,500,000
Year 6......................... 166,250,000
Year 7......................... 166,250,000
------------
$350,000,000
</TABLE>
Watson will be obligated to make mandatory prepayments on the Term Loans in
certain instances, and will be permitted to voluntarily prepay the Term Loans.
Collateral; Guarantees. The indebtedness incurred under the Senior Bank
Financing will be secured by a first priority lien on (i) 100% (or 65% in the
case of a material foreign subsidiary) of the issued and outstanding capital
stock of each existing or after-acquired or organized subsidiary of Watson, and
(ii) all existing and after-acquired tangible and intangible property (other
than foreign intellectual property and non-material domestic intellectual
property) of Watson and each of its existing and after-acquired or organized
subsidiaries. Certain of Watson's domestic subsidiaries will also
unconditionally guarantee the obligations of Watson under the Senior Bank
Financing. The Lenders' interests in the collateral and guarantees will be pari
passu with the interests of Watson's senior unsecured notes due 2008.
Other Terms. The loan documents will contain customary representations,
warranties, affirmative covenants, negative covenants and financial covenants
(including with respect to minimum net worth, minimum interest coverage, maximum
leverage ratio and minimum fixed charge coverage ratio).
Conditions to Financing. The obligation of the Lenders to provide the
Senior Bank Financing is conditioned upon, among other things:
- the preparation of satisfactory definitive documentation with respect to
the Senior Bank Financing;
- since December 31, 1999, there shall not have occurred any material
adverse change in the business, assets, properties, operations,
conditions (financial or otherwise) or prospects of Watson and its
subsidiaries and Schein and its subsidiaries, taken as a whole;
- the receipt of all governmental approvals and other material consents and
the expiration of all applicable waiting periods (including those under
the HSR Act);
- the satisfaction of all conditions to the consummation of the Offer;
- the absence of any pending or threatened investigation, litigation or
proceeding that, if adversely determined, could have a material adverse
effect on the business, assets, properties, operations, condition
(financial or otherwise) on prospects of Watson and its subsidiaries and
Schein and its subsidiaries, taken as a whole or that purports to affect
any transaction contemplated by the Senior Bank Facility;
27
<PAGE> 29
- the receipt of satisfactory evidence of the solvency of Watson and its
subsidiaries, taken as a whole, both before and after the closing of the
Senior Bank Financing; and
- the absence of any disruption or change in the financial, banking or
capital markets or in the regulatory environment that in the judgment of
SG would materially and adversely affect the syndication of the Senior
Bank Financing.
As Watson currently anticipates that the Senior Bank Financing will be
available, Watson has not secured alternative financing arrangements.
Lenders' Fees and Expenses. Watson has agreed to pay the Lenders'
commitment and administrative fees, to reimburse certain expenses and to provide
certain indemnities, all of which Watson believes to be customary for
commitments of this type.
11. BACKGROUND OF THE OFFER; THE MERGER AGREEMENT; STOCKHOLDER AGREEMENTS.
BACKGROUND OF THE OFFER
The terms and conditions of the merger agreement, the Offer and the merger
are the result of arm's length negotiations between Watson and Schein. Set forth
below is a summary of the background of these negotiations and certain related
matters preceding these negotiations.
During the course of the Schein board of directors fiscal 1999 strategic
review of Schein's operating and financial performance and future prospects, the
Schein board of directors discussed with Schein's senior management possible
courses of action for Schein to achieve growth in revenues and profitability and
to maximize stockholder value. During the first half of 1999, Schein had
preliminary discussions with other companies regarding possible combinations
with or acquisitions by Schein.
In July 1999, Schein engaged Evercore Healthcare Capital LLC ("Evercore")
as a financial advisor to assist Schein in the analysis, consideration and
execution of various financial and strategic alternatives for Schein as a whole
or its branded or generic businesses independently. Evercore assisted Schein in
its evaluation of several potential acquisition and business combination
transactions, including exploring potential sources of financing for the
transactions. None of these transactions were completed, having been terminated
or abandoned at different stages in their consideration.
In September 1999, Schein was contacted by a major pharmaceutical company
inquiring whether Schein would consider selling its injectable iron branded
business. Following a November 18, 1999 board of directors meeting at which the
Schein board of directors discussed, among other things, strategic alternatives
for Schein, Schein began providing information concerning its injectable iron
branded business to several major pharmaceutical companies pursuant to
confidentiality agreements. In late December 1999 and mid-January 2000, two of
these companies expressed preliminary interest in acquiring Schein's injectable
iron branded business.
In early December 1999, Schein's senior management met with representatives
of two stockholders of Schein, Marvin Schein and Irving Shafran. These two
stockholders, who together control approximately 50% of the outstanding Shares,
communicated their desire to see Schein sold in its entirety to a third party,
and expressed a preference for a cash transaction.
In mid-January 2000, Schein retained CIBC World Markets Corp. ("CIBC World
Markets"), together with Evercore, to assist Schein in evaluating, structuring
and negotiating a possible sale of, or business combination or similar
transaction involving, Schein or its branded or generic businesses. At a meeting
held on January 18, 2000, the Schein board of directors reviewed with Evercore
and CIBC World Markets a process for exploring alternatives to enhance
stockholder value, including a possible sale of, or business combination or
similar transaction involving, Schein or its branded or generic businesses. At
that meeting, the Schein board of directors was advised that Bayer Corporation,
which controls approximately 24.6% of the outstanding Shares, had indicated a
willingness to sell its interest in Schein at an appropriate price.
28
<PAGE> 30
In January and February 2000, Schein, assisted by CIBC World Markets and
Evercore, identified and contacted parties that might be interested in
considering either acquiring or entering into a business combination or similar
transaction with Schein. As part of this initial phase of contacts, Watson was
contacted in February 2000. During January and February 2000, Schein entered
into confidentiality agreements with sixteen parties, including Watson, that
expressed interest in pursuing a possible transaction with Schein. The
confidentiality agreements signed by these parties contained customary
"standstill" provisions prohibiting these parties from acquiring securities of
Schein, engaging in a proxy contest with respect to representation on the Schein
board of directors and taking similar actions without the prior consent of
Schein.
Beginning in January and continuing through early March 2000, Schein
permitted twelve of the interested parties that had entered into confidentiality
agreements, (including Watson and the two companies that had previously
expressed a preliminary interest in acquiring Schein's injectable iron branded
business), to conduct preliminary due diligence investigations of Schein. The
due diligence investigations included reviewing documents and other written
materials relating to Schein's business and attending business presentations by
Schein's senior management. At various meetings of the Schein board of directors
held from January through March 2000, Schein's senior management and financial
advisors met with the Schein board to discuss the status of the ongoing process
of exploring alternatives for Schein.
On March 9, 2000, a letter was sent on behalf of Schein to each of the
twelve interested parties that had signed a confidentiality agreement with
Schein, including Watson, seeking from each of them by March 20, 2000 a proposal
for acquiring Schein or one or more of its businesses. The letter, which was
accompanied by a form of merger agreement that provided for a two-step
acquisition of Schein pursuant to a cash tender offer for all of the Shares
followed by a second-step cash merger for any Shares not tendered in the tender
offer, stated that Schein would evaluate any competing proposals received from
the interested parties on the basis of not only purchase price but also on the
possible effect that revisions to the form of merger agreement proposed by each
interested party would have on the timing and likelihood of completing a
transaction.
Between March 10 and March 21, 2000, Schein received proposals from eight
interested parties (including a proposal from Watson dated March 20, 2000) with
respect to acquiring Schein or one of Schein's businesses. Watson's initial
proposal provided for the acquisition of all outstanding Shares for $20.00 per
Share in a cash tender offer followed by a second-step cash merger, also at
$20.00 per Share. Watson's proposal was subject to certain conditions, including
satisfactory completion of Watson's ongoing due diligence investigation of
Schein and a condition that Watson would not be obligated to complete the
transaction unless 75% of the outstanding Shares on a fully diluted basis were
tendered. As an expression of Watson's desire to complete an acquisition of
Schein, Watson's proposal also indicated that Watson would be willing to extend
to Schein a credit facility of up to $20 million to meet Schein's immediate
working capital needs during the period prior to the completion of the
acquisition.
On March 25, 2000, the Schein board of directors met with Schein's senior
management and financial advisors to review the proposals received and to
discuss negotiation strategies, possible transaction structures and timing.
Thereafter, interested parties were requested to submit final proposals for
a possible transaction with Schein by April 10, 2000. From late March through
early April 2000, Schein provided additional due diligence materials to, and had
ongoing discussions related to due diligence matters with, the eight interested
parties, including Watson. During this period, Watson's senior management
continued to evaluate the merits of a proposed acquisition of Schein.
Between April 6 and April 13, 2000, Schein received proposals from five of
the remaining eight interested parties. Four of the proposals were for the
acquisition of the entire company, while the fifth proposal was for the
acquisition of only a portion of the company. Two of the four proposals for the
acquisition of the entire company contemplated the acquisition of the company
for cash pursuant to a cash tender offer, followed by a second-step cash merger,
one of the proposals contemplated a cash merger and the other proposal
contemplated a stock-for-stock merger.
29
<PAGE> 31
The Watson proposal provided for the acquisition of all outstanding Shares
for $21.50 per Share in a cash tender offer followed by a second-step cash
merger, also for $21.50 per Share, and again provided for the extension of a $20
million interim credit facility to Schein. Watson's proposal was subject to
certain conditions, including that the Significant Stockholders sign agreements
under which the Significant Stockholders would be obligated to tender their
Shares and satisfactory completion by Watson of its ongoing due diligence
investigation of Schein.
The other tender offer proposal provided for the acquisition of all
outstanding Shares for $22.00 per Share in a cash tender offer followed by a
second-step cash merger, also for $22.00 per Share. Both Watson and the other
tender offer bidder also provided Schein with proposed revisions to the form of
merger agreement provided to them on March 9, 2000.
The cash merger bidder's proposal provided for a merger in which each Share
would be converted into the right to receive $20.50. Furthermore, the cash
merger bidder's proposal was subject to a financing contingency.
The stock-for-stock bidder's proposal provided for a merger in which each
Share would be converted into stock of such bidder having a value of $25.00 per
Share, assuming the merger would be accounted for as a pooling of interests.
This proposal also provided for a "collar," which would have the effect of
protecting the stock-for-stock bidder and the Schein stockholders (within
certain limits) from market risks associated with change in the price of the
stock-for-stock bidder's stock during the period between the signing of a
definitive merger agreement and the completion of the merger. If, however, the
bidder's stock price exceeded the upper limits of the collar, the value of the
consideration to be received by the Schein stockholders would be increased by a
portion of the increase in the value of the bidder's stock, but if the other
bidder's stock price exceeded the upper limits of the collar by more than a
specified amount, the value of the consideration to be received by the Schein
stockholders would be capped. If the other bidder's stock price fell below the
lower limit of the collar, the value of the consideration to be received by the
Schein stockholders would be decreased by a portion of the decrease in value of
the bidder's stock until a certain threshold was reached, after which the value
of the consideration to be received by the Schein stockholders would decrease in
direct proportion to the decrease in the stock price.
On April 14, 2000, the Schein board of directors again met with Schein's
senior management, financial advisors and legal counsel to review the five
acquisition proposals received and to discuss transaction structures and timing.
Of these five proposals, the Schein board of directors, based on an analysis of
a number of factors, including the proposed amount and form (e.g., cash, stock,
etc.) of purchase price being offered, the likelihood that the proposed
transaction would actually be completed, and the speed at which a proposed
transaction would be completed, considered most favorably, and focused its
attention on, the cash tender offer proposals made by Watson and one of the
other four bidders.
During the week of April 17, 2000, Schein sent a revised form of merger
agreement to Watson and the other cash tender offer bidder reflecting Schein's
response to their comments on the March 9 form of merger agreement. Schein's
response included a request that bidders provide a $40 million interim credit
facility to Schein. Watson's senior management reviewed the revised form of
merger agreement with Bear Stearns & Co, Watson's financial advisor, and Cooley
Godward LLP, Watson's outside legal counsel, and thereafter informed Schein that
Watson desired to remain in the bidding process while Watson conducted further
due diligence.
On April 24, 2000, Marvin Schein, Irving Shafran and related parties
commenced litigation against Schein and certain of its directors and officers
seeking, among other things, to gain a number of seats on Schein's board of
directors. The action was settled on May 2, 2000, with, among other things,
Messrs. Schein and Shafran being elected to Schein's Board of Directors.
In early May 2000, the other cash tender offer bidder indicated that it was
no longer interested in acquiring Schein. Schein continued making due diligence
materials available to Watson and the bidder that had proposed to acquire Schein
pursuant to a stock-for-stock merger. Schein, through its senior management,
financial advisors and legal counsel, separately commenced negotiations of
definitive merger agreements with Watson and the other bidder, which
negotiations continued through the first three weeks of May 2000.
30
<PAGE> 32
On May 5, 2000, at the request of the stock-for stock bidder and in order
to induce such bidder to continue negotiations with Schein, Schein agreed with
such bidder not to enter into a definitive merger agreement with another party
before the close of business on May 12, 2000, although Schein was not prohibited
from continuing its negotiations with other parties. During the week of May 8,
2000, Schein sent a revised form of merger agreement to such bidder, reflecting
Schein's response to such bidder's comments to the form of merger agreement
previously provided.
On May 10, 2000, Schein's senior management, financial advisors and legal
counsel met with Watson's senior management, financial advisor and legal counsel
to discuss open due diligence items and to negotiate a definitive form of merger
agreement. During the course of such negotiations, Schein indicated to Watson
that the Watson proposal, which included several conditions to the completion of
the transaction, did not provide sufficient certainty that the transaction would
be completed. At the conclusion of the meeting, Watson advised Schein that
Watson would provide Schein with a revised proposal.
On May 11, 2000, as a result of information obtained by Watson during its
ongoing due diligence investigation and after consultation with its financial
advisor, Watson delivered a revised proposal of $17.00 per Share in a cash
tender offer followed by a second-step cash merger, also at $17.00 per Share.
Watson's revised proposal indicated that it was contingent upon, among other
things, Watson getting greater comfort with regard to certain aspects of
Watson's due diligence review. Watson also provided Schein with a revised form
of merger agreement that attempted to address some of the concerns expressed by
Schein relating to the conditions to the completion of the acquisition set forth
in Watson's prior proposal.
On May 11 and May 12, 2000, Schein's senior management, financial advisors
and legal counsel met with the stock-for-stock bidder's management, financial
advisor and legal counsel to discuss open due diligence items and to negotiate a
form of merger agreement. The stock-for-stock bidder revised its proposal to
provide for a merger in which each Share would be converted into stock of such
bidder having a value of between $18.00 and $20.00 per Share if the merger was
accounted for as a purchase, and $25.00 per Share if the merger was accounted
for as a pooling of interests. The stock-for-stock bidder's revised proposal was
subject to a collar similar to the one presented in its prior proposal; however,
the revised proposal also provided that if such bidder's stock price fell to a
certain level below the collar, Schein could terminate the merger agreement,
unless the other bidder increased the aggregate value of the stock offered to
Schein's stockholders so that the value was greater than the aggregate value at
which Schein would have had the right to terminate the merger agreement.
On May 12, 2000, the stock-for-stock bidder revised its proposal to $21.00
per Share in such bidder's stock if the merger was accounted for as a purchase,
and $24.00 per Share in such bidder's stock if the merger was accounted for as a
pooling of interests. This proposal contained collar provisions similar to those
presented in such bidder's May 11 proposal, but eliminated the potential
increase in the value per share that would have accrued to Schein's stockholders
if the value of such bidder's stock increased between signing of a merger
agreement and the completion of the merger.
On May 13, 2000, legal counsel for Schein met with legal counsel for the
stock-for-stock bidder to continue to negotiate a form of merger agreement.
On May 15, 2000, Watson, after further review of available due diligence
materials and consultation with Watson's financial advisor and legal counsel,
revised its proposal to $19.00 per Share in a cash tender offer followed by a
second-step cash merger, also at $19.00 per Share, and eliminated many of the
remaining conditions to the completion of the acquisition. The Schein board of
directors viewed the revised Watson proposal as providing certain advantages
over the proposal of the stock-for-stock bidder. These advantages included the
cash tender offer element of the proposal, which would enable those Schein
stockholders who desired to do so to receive cash for their Shares in a
relatively short period of time as compared with the longer period of time
associated with the merger structure contemplated by the stock-for-stock
bidder's proposal.
Notwithstanding these advantages, however, the Schein board of directors
concluded that the purchase price proposed by Watson was not acceptable.
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<PAGE> 33
On May 19, 2000, Watson notified Schein that Watson would restructure its
proposal to provide for $19.00 per Share in a cash tender offer for all Shares,
followed by a second-step merger involving up to $23.00 per Share in Watson
stock. The revised proposal was structured such that if less than 80% of the
outstanding capital stock of Schein (assuming that stock options and warrants
were exercised on a "net exercise" basis) was tendered for cash, the value of
the Watson stock in the second-step merger would be reduced below $23.00 per
Share. The revised proposal also contemplated that (i) there would be a collar
on Watson's stock price (similar to the collar that was ultimately included in
the final merger agreement), (ii) in the second-step merger, Watson would
provide Schein stockholders with consideration having a value of at least $19.00
per Share, and (iii) promptly after the signing of a definitive merger
agreement, Watson would, as requested by Schein, increase to $40 million the
amount of the credit facility Watson had previously offered to provide to Schein
to assist it in meeting its immediate working capital needs.
During the period beginning on May 17 and continuing through May 24, 2000,
representatives of Schein and representatives of Watson, together with their
respective financial advisors and legal counsel, held extensive negotiations
regarding the purchase price of the proposed transaction as well as the terms
and conditions of the merger agreement. In addition, during this period,
Watson's legal counsel, Schein's legal counsel and legal counsel for the
Significant Stockholders, held extensive negotiations regarding the stockholder
agreements that Watson was requiring be signed by the Significant Stockholders.
During the period beginning May 17 and continuing through May 22, 2000,
negotiations regarding purchase price and the terms and conditions of a proposed
merger agreement and stockholder agreements continued between Schein and the
stock-for-stock bidder.
On May 20, 2000, the Watson board of directors held a meeting to discuss
the proposed terms and conditions of the merger agreement and to evaluate the
strategic opportunities presented by the proposed merger. Members of Watson's
senior management, Watson's financial advisor and Watson's legal counsel were
present at that meeting. Members of the Watson board of directors inquired as to
the results of the due diligence efforts undertaken by Watson's senior
management as well as the potential benefits and risks to Watson of the proposed
transaction. Watson's financial advisor discussed with the board its financial
analysis of the proposed transaction and Watson's legal counsel discussed with
the board certain legal matters relating to the proposed transaction. At the
conclusion of the board meeting, the Watson board of directors authorized
Watson's senior management to continue to negotiate the merger agreement and
related agreements with Schein.
The Watson board of directors held a further meeting with Watson's senior
management, financial advisor and legal counsel on May 21 to continue to discuss
the proposed transaction. At the May 21 meeting, after extensive discussion of
the proposed transaction, Bear Stearns provided the Watson board of directors
with an oral opinion that, based upon certain assumptions and qualifications,
the proposed consideration being offered by Watson to Schein's stockholders was
fair, from a financial point of view, to Watson. The Watson board of directors
then voted unanimously to approve the merger agreement at the $19.00/$23.00
price structure described above and the transactions contemplated by the merger
agreement, subject to the satisfactory completion of final negotiations on the
other terms of the merger agreement.
On May 21, 2000, the stock-for-stock bidder revised its proposal to $24.00
per Share in such bidder's stock, regardless of the accounting treatment of the
proposed merger. This proposal preserved many of the features of the collar
provisions presented in such bidder's May 12 proposal (as well as Schein's
termination right if the value of such bidder's stock declined substantially).
In addition, on May 22, 2000, the stock-for-stock bidder advised Schein that it
would not continue negotiations unless Schein agreed to negotiate exclusively
with it. Schein's board of directors determined that it would not be advisable
to do so given the continued interest expressed by Watson in negotiating a
transaction along the lines of Watson's then-current proposal. After May 22,
2000, Schein had no further discussions with the stock-for-stock bidder
regarding its proposal.
At a meeting of the Schein board of directors held on May 22, 2000,
representatives of holders of approximately 74% of the outstanding Shares
indicated their preference, as stockholders, for the form of transaction
proposed by Watson and their disfavor of the other bidder's proposal. The
representatives of these
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<PAGE> 34
stockholders indicated that they preferred Watson's proposal for a number of
reasons, including, among other reasons, because it (i) included a substantial
cash component as compared with the all-stock transaction proposed by the other
bidder and (ii) contemplated a tender offer that was likely to be completed much
more quickly than the merger proposed by the stock-for-stock bidder.
On May 22, 2000, Schein informed Watson that the Schein board of directors
did not approve the amount and structure of the price previously proposed by
Watson. Throughout the day and evening on May 22 numerous discussions between
Watson and Schein and their respective financial advisors relating to the amount
and structure of the proposed price being offered by Watson occurred.
On May 23, 2000, Watson presented a revised proposal of $19.50 per Share in
a cash tender offer for all Shares, followed by a second-step merger involving
$23.00 per Share in Watson stock. The second-step of the revised proposal was
different than the second-step in Watson's previous proposal because the revised
proposal was structured such that even if less than 80% of the outstanding
capital stock of Schein (assuming that stock options and warrants were exercised
on a "net exercise" basis) was tendered for cash, the value of the Watson stock
in the second-step merger would remain at $23.00 per Share, subject to a collar
on Watson's stock price. Watson indicated to Schein that the revised proposal
was subject to approval of the Watson board of directors.
On May 23, 2000, the Watson board of directors held a meeting to consider
the revised proposal and to review further the principal terms and conditions of
the proposed transaction. At the meeting, representatives of Bear Stearns
presented additional financial analysis and representatives of Watson's legal
counsel discussed legal aspects of the transaction. At the May 23 meeting, after
extensive discussion of the proposed transaction, Bear Stearns again provided
the Watson board of directors with an oral opinion, subsequently confirmed in
writing, that, based upon certain assumptions and qualifications, the proposed
consideration being offered to Schein's stockholders was fair, from a financial
point of view, to Watson. After further discussion, the directors voted
unanimously to approve the proposed acquisition based on the revised proposal
described in the merger agreement, subject to successful completion of
negotiations, and authorized the officers of Watson to complete negotiations and
finalize and execute the merger agreement and the related agreements. Following
the meeting of the Watson board of directors, Watson contacted Schein to inform
it that the Watson board of directors had approved the revised proposal.
Schein's board of directors held six meetings from May 21 through May 23,
2000, during which it held extensive discussions with Schein's financial
advisors and legal counsel regarding the revised proposals Schein had received
from Watson and the stock-for-stock bidder. At these meetings, the Schein board
of directors considered not only the purchase price offered by Watson and the
stock-for-stock bidder, but also the timing of each of the proposed
transactions, the likelihood that each of the proposed transactions would close,
and the terms and condition of each of the proposed forms of merger agreement.
At a meeting held on May 23, 2000, the Schein board of directors reviewed
the revised Watson proposal, including the latest draft form of merger agreement
negotiated with Watson. At this meeting, CIBC World Markets reviewed with the
Schein board of directors, among other things, the history and status of
negotiations, the financial terms of the proposed merger agreement, historical
market prices of Watson's common stock, including its public float and trading
activity, and a financial analysis of the consideration to be paid by Watson in
the proposed transaction. Following this review, Schein's legal counsel reviewed
the terms and conditions of the proposed merger agreement, including the
termination provisions as modified through negotiations and the provisions of
the $40 million credit facility. The Schein board of directors was also advised
that Watson had entered into a commitment letter with Societe Generale to
provide funds for the acquisition, and the intention of the Significant
Stockholders to enter into the Stockholder Agreements. CIBC World Markets then
delivered to the Schein board of directors CIBC World Markets' oral opinion
(which opinion was subsequently confirmed by delivery of a written opinion dated
May 24, 2000, the date of the execution of the merger agreement), to the effect
that, as of the date of the opinion and based upon and subject to certain
matters described therein, the consideration to be received by the holders of
Shares in the Offer and the merger was fair from a financial point of view to
such holders (other than Watson, the Significant Stockholders and their
affiliates, as to whom CIBC World Markets expressed no opinion). After full
discussion, the Schein board of directors, among other things, unanimously
authorized its officers to
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<PAGE> 35
execute the merger agreement on behalf of Schein substantially in the form
presented to the board of directors and recommended that the stockholders tender
their shares in the Offer and/or vote to adopt the merger agreement.
On the evening of May 24, 2000, Schein, Watson and the Purchaser executed
the merger agreement and the Significant Stockholders entered into the
Stockholder Agreements with Watson. Before the opening of trading on the New
York Stock Exchange on May 25, 2000, Watson and Schein issued a joint press
release announcing the transaction.
On June 6, 2000, the Purchaser commenced the Offer.
THE MERGER AGREEMENT
The following is a summary of the merger agreement, a copy of which is
filed as an exhibit to the Tender Offer Statement on Schedule TO (the "Schedule
TO") filed by the Purchaser and Watson with the SEC in connection with the
Offer. Such summary is qualified in its entirety by reference to the merger
agreement.
The Offer. The merger agreement provides for the commencement of the Offer
as promptly as reasonably practicable. The Purchaser has commenced the Offer in
accordance with the terms of the merger agreement.
The merger agreement provides that the obligation of the Purchaser to
consummate the Offer and accept for payment, and pay for, any Shares tendered
and not withdrawn pursuant to the Offer is subject only to the conditions set
forth in Section 15 (the "Certain Conditions of the Offer") (any of which may be
waived in whole or in part by Watson or the Purchaser in their sole discretion,
except that neither Watson nor the Purchaser may waive the Minimum Condition
without the prior written consent of Schein). Watson and the Purchaser expressly
reserved in the merger agreement the right, subject to compliance with the
Exchange Act, to modify the terms of the Offer, except that, without the express
written consent of Schein, neither Watson nor the Purchaser may amend or waive
the Minimum Condition, decrease the Offer Price, decrease the maximum number of
Shares to be purchased in the Offer or amend any other term or condition of the
Offer in any manner or impose any term or condition that is adverse to the
holders of the Shares.
The Purchaser shall (unless otherwise notified by Schein), and the
Purchaser shall otherwise be entitled to, extend the expiration date of the
Offer two times in increments of up to 10 business days each (unless otherwise
agreed by Watson and Schein) until the earliest to occur of (x) the satisfaction
or waiver of each Offer condition, (y) the termination of the merger agreement
in accordance with its terms and (z) either November 13, 2000, if the HSR
Condition has not been satisfied, or October 16, 2000 if any Offer condition has
not been satisfied. In addition, the Purchaser may, without the consent of
Schein, extend the expiration date of the Offer for up to 10 business days if,
on the scheduled or any extended expiration date of the Offer, the Shares
validly tendered pursuant to the Offer and not withdrawn are sufficient to
satisfy the Minimum Condition but total less than 90% of the outstanding Shares,
so long as the Purchaser waives the satisfaction of any of the conditions to the
Offer (other than the conditions set forth in the first and third paragraphs
following the preamble of Section 15) that subsequently may not be satisfied
during any such extension of the Offer.
Directors. The merger agreement provides that promptly upon the acceptance
for payment of, and payment for, not less than a majority of the outstanding
Shares pursuant to the Offer, the Purchaser shall be entitled to designate such
number of directors on the board of directors of Schein as will give the
Purchaser, subject to compliance with Section 14(f) of the Exchange Act, a
majority of such directors, and Schein shall, at such time, cause the
Purchaser's designees to be so elected by the existing board of directors of
Schein; provided, however, that in the event that the Purchaser's designees are
elected to the board of directors of Schein, until the effective time of the
merger such board of directors shall have at least two directors who were
directors of Schein on the date of the merger agreement and who were not
executive officers of Schein (the "Independent Directors").
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<PAGE> 36
The Merger. Upon the terms and subject to the conditions set forth in the
merger agreement, following the consummation of the Offer, the Purchaser will be
merged into Schein, the separate corporate existence of the Purchaser will cease
and Schein will continue as the surviving corporation.
The merger will become effective when a certificate of merger is duly filed
with the Secretary of State of the State of Delaware, or at such other time
specified in the certificate of merger as Watson and Schein shall agree.
The merger agreement provides that the directors of the Purchaser
immediately prior to the effective time of the merger will be the initial
directors of the surviving corporation and that the officers of Schein
immediately prior to the effective time of the merger will be the initial
officers of the surviving corporation. The merger agreement also provides that
the certificate of incorporation of Schein as in effect immediately prior to the
effective time of the merger, and as amended at the effective time of the merger
in accordance with the merger agreement, shall be the certificate of
incorporation of the surviving corporation. The merger agreement further
provides that the by-laws of Schein as in effect immediately prior to the
effective time of the merger will be the by-laws of the surviving corporation.
Conversion of Securities. The merger agreement provides that as of the
effective time of the merger, by virtue of the merger and without any action on
the part of Watson, the Purchaser, Schein or holders of any of the securities of
Schein:
- each Share that is held in the treasury of Schein and each Share that is
owned by Watson or the Purchaser, or any direct or indirect wholly-owned
subsidiary of Schein or Watson ("Ineligible Shares"), will automatically
be canceled and retired and will cease to exist, and no consideration
will be delivered in exchange therefor; and
- each issued and outstanding Share, other than Dissenting Shares (as
defined below) and Ineligible Shares, will be converted into the right to
receive the Merger Consideration (as such term is defined below), upon
the surrender of the certificate formerly representing such Share.
The "Merger Consideration" into which each issued and outstanding Share,
other than Dissenting Shares and Ineligible Shares, will be converted is based
upon the "Parent Average Stock Price," which is defined as the average of the
closing price of a share of Watson common stock on the New York Stock Exchange
for the ten consecutive trading days ending on the trading day two trading days
prior to the date of the special meeting of stockholders relating to the merger
or, if no special meeting is required under applicable law in order to
consummate the merger, the effective time of the merger.
If the Parent Average Stock Price is EQUAL TO OR GREATER THAN $37.82, the
Merger Consideration will be that number of shares of common stock, par value
$0.0033 per share, of Watson equal to the "Exchange Ratio." "Exchange Ratio"
means the quotient (rounded to the nearest hundred thousandth) obtained by
dividing $23.00 by the Parent Average Stock Price; provided, however, that:
- if the Parent Average Stock Price is greater than or equal to $37.82 but
less than $44.61, the Exchange Ratio will be 0.51562;
- if the Parent Average Stock Price is greater than $54.52 but less than or
equal to $62.82, the Exchange Ratio will be 0.42187; and
- if the Parent Average Stock Price is greater than $62.82, the Exchange
Ratio will be the quotient (rounded to the nearest hundred thousandth)
obtained by dividing $26.50 by the Parent Average Stock Price.
If the Parent Average Stock Price is LESS THAN $37.82, the Merger
Consideration will be one of the following, as determined by Watson in its sole
discretion:
- that number of shares of Watson common stock equal to the quotient
(rounded to the nearest hundred thousandth) obtained by dividing $19.50
by the Parent Average Stock Price;
- $19.50 in cash; or
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<PAGE> 37
- the aggregate of (x) 0.51562 of a share of Watson common stock and (y) a
dollar amount in cash equal to $19.50 minus the product of 0.51562
multiplied by the Parent Average Stock Price.
The following table shows the fraction of a share of Watson common stock
that stockholders of Schein would receive for each Share they own based upon a
range of values for the Parent Average Stock Price and also shows the implied
value of that fraction of a share of Watson common stock:
<TABLE>
<CAPTION>
AND THE IMPLIED VALUE* OF
THEN EACH SHARE WOULD BE THE FRACTION OF A SHARE OF
CONVERTED INTO THE WATSON COMMON STOCK
FOLLOWING APPROXIMATE THAT A SCHEIN STOCKHOLDER
IF THE PARENT AVERAGE FRACTION OF A SHARE OF WOULD RECEIVE FOR EACH
STOCK PRICE IS: WATSON COMMON STOCK SHARE WOULD BE:
--------------------- ------------------------- --------------------------
<S> <C> <C>
$65.00 0.40769 $26.50
$64.00 0.41406 $26.50
$63.00 0.42063 $26.50
$62.82 0.42187 $26.50
$62.00 0.42187 $26.16
$61.00 0.42187 $25.73
$60.00 0.42187 $25.31
$59.00 0.42187 $24.89
$58.00 0.42187 $24.47
$57.00 0.42187 $24.05
$56.00 0.42187 $23.62
$55.00 0.42187 $23.20
$54.52 0.42186 $23.00
$54.00 0.42593 $23.00
$53.00 0.43396 $23.00
$52.00 0.44231 $23.00
$50.00 0.46000 $23.00
$49.00 0.46939 $23.00
$48.00 0.47917 $23.00
$47.00 0.48936 $23.00
$46.00 0.50000 $23.00
$45.00 0.51111 $23.00
$44.61 0.51558 $23.00
$44.00 0.51562 $22.69
$43.00 0.51562 $22.17
$42.00 0.51562 $21.66
$41.00 0.51562 $21.14
$40.00 0.51562 $20.62
$39.00 0.51562 $20.11
$38.00 0.51562 $19.59
$37.82 0.51562 $19.50
$37.00 ** $19.50
$36.00 ** $19.50
$35.00 ** $19.50
</TABLE>
---------------
* The "implied value" is based on the Parent Average Stock Price. Implied value
may be significantly greater than or less than the value determined by
reference to the actual trading price of Watson common stock at the time of
the special meeting of Schein stockholders to approve the merger, completion
of the merger, the date that stockholders of Schein receive shares of Watson
common stock or the date Schein stockholders sell Watson common stock.
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<PAGE> 38
** At a Parent Average Stock Price of less than $37.82, the minimum value of the
Merger Consideration is $19.50 per Share. Watson will have the option to pay
such minimum Merger Consideration in cash, in stock or in a mix of cash and
stock as described above.
Stock Options. The merger agreement provides that:
- in accordance with the terms of the Schein 1999 Stock Option Plan and the
Schein 1995 Non-Employee Director Stock Option Plan, respectively, at the
effective time of the merger all rights to acquire Shares under each
option then outstanding under the Schein 1999 Stock Option Plan and the
Schein 1995 Non-Employee Director Stock Option Plan shall be converted
into and become rights to acquire the Merger Consideration; and
- all outstanding unexercised options granted pursuant to the Schein 1993
Stock Option Plan and the Schein 1997 Stock Option Plan ("Terminating
Options") shall be terminated effective as of the effective time of the
merger in accordance with the terms of each such plan, respectively, and
Schein shall deliver a notice of termination to each holder of a
Terminating Option at least 20 days prior to the effective time of the
merger; provided that, during the period from the date on which such
notice of termination is delivered to the effective time of the merger,
each holder of a Terminating Option shall have the right to exercise in
full all of his or her Terminating Options that are then outstanding
(whether vested or unvested and without regard to limitations on exercise
otherwise contained in the agreement evidencing the Terminating Option),
but contingent on occurrence of the merger, and provided that, if the
merger does not take place within 180 days after giving such notice for
any reason whatsoever, the notice and exercise shall be null and void.
Stock Purchase Plan. Prior to the effective time of the merger, Schein
shall take all actions as are necessary to terminate Schein's stock purchase
plan and to cause the exercise date applicable to the then current offering
period to be the last trading day on which Shares are traded on the New York
Stock Exchange immediately prior to the effective time of the merger; provided
that, such termination and change in the exercise date shall be conditioned upon
the consummation of the merger. On such exercise date, Schein shall apply the
funds credited as of such date under the stock purchase plan within each
participant's payroll withholdings account to the purchase of whole Shares in
accordance with the terms of the stock purchase plan.
Representations and Warranties. The merger agreement contains various
customary representations and warranties of the parties thereto, including
representations by Schein relating to:
- organization and qualification and subsidiaries;
- certificate of incorporation and by-laws;
- capitalization;
- authority relative to the merger agreement;
- material contracts, no conflict, required filings and consents;
- compliance, permits;
- SEC filings, financial statements;
- absence of certain changes or events;
- absence of undisclosed liabilities;
- absence of litigation;
- employee benefit plans, employment agreements;
- labor matters;
- restrictions on business activities;
- title to property;
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- taxes;
- environmental matters;
- brokers;
- intellectual property;
- warranties;
- products liability;
- vote required;
- takeover statutes; and
- opinion of financial advisor.
The merger agreement also contains representations and warranties by Watson
and the Purchaser, including those relating to:
- organization and qualification;
- capitalization;
- authority relative to the merger agreement;
- no conflict and required filings and consents;
- SEC filings; financial statements;
- absence of certain changes or events;
- absence of undisclosed liabilities; and
- availability of funds needed to consummate the Offer.
Conduct of Business. Under the merger agreement, Schein has agreed that,
until the earliest to occur of the effective time of the merger, the time the
designees of Watson constitute a majority of Schein's board of directors or
termination of the merger agreement, except as otherwise contemplated by the
merger agreement or to the extent that Watson shall otherwise consent in
writing, Schein shall, and shall cause each of its subsidiaries to, carry on its
business in all material respects in the ordinary course consistent with past
practice and, to the extent consistent therewith, use reasonable commercial
efforts to preserve, substantially intact its business organization, keep
available the services of its officers, employees and consultants and preserve
its relationships with customers, suppliers and others having significant
business dealings with it. The merger agreement provides that without limiting
the generality of the foregoing, during the period from the date of the merger
agreement until the earliest to occur of the effective time of the merger, the
time the designees of Watson constitute a majority of Schein's board of
directors or the termination of the merger agreement, Schein shall not, and
shall not permit any of its subsidiaries to (except as expressly permitted by
the merger agreement or as set forth in certain schedules thereto or to the
extent that Watson shall otherwise consent in writing which consent can
generally not be unreasonably withheld after July 28, 2000):
- amend or otherwise change Schein's or any of its subsidiaries'
certificates of incorporation, by-laws or other equivalent organizational
documents;
- issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock
of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest)
of Schein or any of its subsidiaries or affiliates (except for the
issuance of Shares pursuant to the exercise of options under the stock
option plans and certain warrants issued by Schein, which options and
warrants are outstanding on the date of the merger agreement, the
issuance of Shares pursuant to the stock purchase plan and the issuance
of preferred stock of Schein pursuant to the merger agreement);
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- sell, pledge, dispose of or encumber any assets of Schein or any of its
subsidiaries (except for sales of assets in the ordinary course of
business and in a manner consistent with past practice, dispositions of
obsolete or worthless assets and as otherwise agreed,
- except as provided in the merger agreement, amend or change the period
(or permit any acceleration, amendment or change) of exercisability of
options granted under the stock option plans or the warrants or authorize
cash payments in exchange for any such options or warrants;
- declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, except that a wholly-owned
subsidiary of Schein may declare and pay a dividend to its parent, split,
combine or reclassify any of its outstanding capital stock or issue or
authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or except
as provided in the merger agreement, amend the terms of, repurchase,
redeem or otherwise acquire, or permit any subsidiary to repurchase,
redeem or otherwise acquire, any of its securities or any securities of
its subsidiaries, or propose to do any of the foregoing, except in
connection with the purchase of Shares by the trustees of Schein's
retirement plan;
- sell, transfer, license, sublicense or otherwise dispose of any of
Schein's intellectual property or amend or modify any existing agreements
with respect to any of Schein's intellectual property or intellectual
property rights of a third party;
- acquire (by merger, consolidation or acquisition of stock or assets) any
corporation, partnership or other business organization or division
thereof; incur any indebtedness for borrowed money, issue any debt
securities, assume, guarantee, endorse or otherwise as an accommodation
become responsible for the obligations of any person, or make any loans
or advances except for the incurrence of indebtedness for borrowed money
under that certain Amended and Restated Credit Agreement, dated as of
November 6, 1998, among Schein, the lenders (as defined therein), and
Chemical Bank, and up to an aggregate of $40,000,000 of new indebtedness
pursuant to the credit facility to be provided by Watson; enter into any
material contract; authorize or make any capital expenditures or
purchases of fixed assets that are not currently budgeted; terminate any
material contract; or enter into or amend any contract, agreement,
commitment or arrangement to effect any of the matters prohibited by the
merger agreement;
- except for contracts or amendments that serve to reduce the cost to
Schein of severance arrangements, increase the compensation payable or to
become payable to its employees, officers or directors or grant any
severance or termination pay to, or enter into any employment or
severance agreement with, any managerial employee, director or officer of
Schein or any of its subsidiaries or establish, adopt, enter into,
terminate or amend any employee benefit plan (except as may otherwise be
required by applicable law);
- take any action, other than as required by generally accepted accounting
principles, to change accounting policies or procedures (including,
without limitation, procedures with respect to revenue recognition,
capitalization of development costs, payments of accounts payable and
collection of accounts receivable);
- make any material Tax election inconsistent with past practice or settle
or compromise any material Tax liability, except to the extent the amount
of any such settlement or compromise has been reserved for on the
consolidated financial statements contained in Schein SEC reports;
- pay, discharge, settle or satisfy any material lawsuits, claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement
or satisfaction in the ordinary course of business of liabilities
reflected or reserved against in the financial statements of Schein or
incurred in the ordinary course of business; provided that, for the
purpose of this paragraph, (1) all liabilities or obligations of Schein
or any of its subsidiaries to its directors, officers or affiliates shall
be deemed to be material and not in the ordinary course, and (2) that any
discharge, settlement or satisfaction that would result in the imposition
of any obligation
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on Schein or any of its subsidiaries other than for the payment of money
shall be deemed to be not in the ordinary course;
- except as currently budgeted, permit any material increase in the number
of employees employed by Schein or any of its subsidiaries on the date of
the merger agreement;
- commence any litigation, other than collection actions in the ordinary
course of business; or
- take or fail to take, or agree in writing or otherwise to take or fail to
take any of the actions described above.
Stockholders Meetings; Registration Statement. The merger agreement
provides that if Schein is required to obtain approval from its stockholders of
the merger and adoption of the merger agreement under applicable law, Schein
will, as soon as practicable following the acceptance for payment of, and
payment for, Shares by the Purchaser duly call, give notice of, convene and hold
a special meeting of its stockholders for the purpose of obtaining approval of
Schein stockholders. The merger agreement provides that notwithstanding the
foregoing, if the Purchaser or any other subsidiary of Watson shall acquire at
least 90% of the outstanding Shares, the parties shall, at the request of
Watson, take all necessary and appropriate action to cause the merger to become
effective as soon as practicable after the expiration of the Offer without a
stockholders meeting in accordance with Section 253 of the DGCL.
The merger agreement provides that Schein and Watson shall prepare and
Watson shall file with the SEC a registration statement on Form S-4 (or on such
other form as shall be appropriate) relating to the issuance of Watson common
stock in the merger and (if approval of Schein stockholders is required by law)
relating to the adoption of the merger agreement by the stockholders of Schein,
and shall use all reasonable efforts to cause the registration statement to
become effective as soon thereafter as practicable. Watson shall vote, or cause
to be voted, all of the Shares then beneficially owned by it, the Purchaser or
any of its other subsidiaries or affiliates in favor of the adoption of the
merger agreement.
No Solicitation. The merger agreement provides that:
- Schein will not, and will not permit or cause any of its subsidiaries to,
and shall direct its subsidiaries' employees, agents and representatives
(including any investment banker, attorney or accountant retained by it
or any of its subsidiaries) not to, directly or indirectly, initiate or
solicit any inquiries or the making of any proposal or offer with respect
to a merger, reorganization, share exchange, tender offer, consolidation
or similar transaction involving, or any purchase of assets (other than
inventory in the ordinary course of business) or outstanding shares of
capital stock of, Schein or any of its subsidiaries (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal"), or
engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating
to an Acquisition Proposal, whether made before or after the date of the
merger agreement, or otherwise facilitate any effort or attempt to make
or implement an Acquisition Proposal; provided, however, that nothing
contained in the merger agreement shall prevent Schein or the board of
directors from complying with the Exchange Act with regard to an
Acquisition Proposal or disclosure obligations under state law or at any
time prior to the earlier to occur of payment for Shares pursuant to the
Offer or the approval of the merger by the requisite vote of the
stockholders of Schein, providing information in response to a request
therefor by a person who has made an unsolicited bona fide written
Superior Proposal (as defined below) (so long as such proposal did not
result from a breach of the merger agreement) if the Schein board of
directors receives from the person so requesting such information an
executed confidentiality agreement with customary terms (which shall not
preclude the making of an Superior Proposal); or engaging in any
negotiations or discussions with any person who has made an unsolicited
bona fide written Superior Proposal, if and only to the extent that in
each such case the board of directors determines in good faith, after
consultation with Schein's outside legal counsel, that such action is
necessary in order for Schein's directors to comply with their fiduciary
duties under applicable law;
- Schein will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing;
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- Schein will promptly request each individual or entity that has executed,
within twelve months prior to the date of the merger agreement, a
confidentiality agreement in connection with his or its consideration of
a possible Acquisition Proposal to return promptly or destroy all
confidential information heretofore furnished to such individual or
entity by or on behalf of Schein or any of its subsidiaries;
- Schein will not release or permit the release or any waiver of any
provision of, any confidentiality, "standstill" or similar agreement to
which Schein or any of its subsidiaries is a party, and will enforce or
cause to be enforced each such agreement at the request of Watson;
- Schein will notify Watson immediately (but in any event within 24 hours)
if any such inquiries, proposals or offers are received by, any such
information requested from, or any such discussions or negotiations are
sought to be initiated or continued with any of its representatives
indicating, in connection with such notice, the name of such person and
the material terms and conditions of any proposals or offers and
thereafter shall keep Watson informed, on a current basis, on the status
and terms of any such proposals or offers and the status of any such
negotiations or discussions;
- Schein will, through its board of directors, recommend to its
stockholders that its stockholders accept the Offer and tender their
Shares to the Purchaser pursuant to the Offer and/or adopt the merger
agreement(the "Company Board Recommendation"); and
- neither the board of directors nor any committee thereof shall (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse
to Watson or the Purchaser, the Company Board Recommendation, (ii)
approve or recommend, or propose to approve or recommend, any Acquisition
Proposal by a third party or (iii) terminate the merger agreement in
order to enter into a definitive agreement with respect to any
third-party Acquisition Proposal; provided, however, that the Schein
board of directors or a committee thereof may take the actions described
(A) under clause (i) of this paragraph if the Schein board of directors
shall have determined in good faith, after consultation with outside
counsel, that such action is necessary in order for its directors to
comply with their fiduciary duties under applicable law and (B) under
clause (ii) if the Schein board of directors shall have made the
determination required in (A) above and also determined in good faith,
after consultation with its financial advisor, that such Acquisition
Proposal is a Superior Proposal.
"Superior Proposal" shall mean an unsolicited, bona fide, written Acquisition
Proposal for all of Schein that the board of directors of Schein determines, in
its reasonable judgment, after consulting with an independent financial advisor
of nationally recognized reputation, to be more favorable to Schein's
stockholders than the terms of the Offer and the merger; provided, however, that
any such proposal shall not be deemed to be a "Superior Proposal" if any
financing required to consummate the transaction contemplated by such proposal
is not committed and, in the judgment of the board of directors of Schein, is
not reasonably capable of being obtained by such third party.
Indemnification. The merger agreement provides that, from and after the
effective time of the merger:
- the surviving corporation, to the fullest extent permitted under
applicable law, shall indemnify and hold harmless each present and former
director and officer of Schein against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to actions
taken or omitted to be taken by such indemnified parties in their
capacity as a director, officer, employee or agent of Schein or any of
its subsidiaries or, while serving at the request of Schein, in their
capacity as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise at or
prior to the effective time of the merger (including, without limitation,
the transactions contemplated by the merger agreement);
- the surviving corporation shall advance expenses to an indemnified party,
as incurred, with respect to the foregoing actions or failures to act, to
the fullest extent permitted under applicable law; provided that the
indemnified party to whom expenses are advanced provides an undertaking
to repay such
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advances if it is ultimately determined that such indemnified party is
not entitled to indemnification; and
- the surviving corporation shall not have any obligation under these
indemnification provisions to any indemnified party when and if a court
of competent jurisdiction shall ultimately determine (and such
determination shall have become final) that the indemnification of such
indemnified party in the manner contemplated hereby is prohibited by
applicable law.
Watson has guaranteed the indemnification obligations of the surviving
corporation set forth above.
In addition, the merger agreement provides that for a period of not less
than six years after the effective time of the merger, the surviving corporation
shall cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by Schein (provided that the surviving
corporation may substitute therefor policies with reputable and financially
sound carriers of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims arising from
or related to facts or events existing or occurring at or prior to the effective
time of the merger (including, without limitation, the transactions contemplated
by the merger agreement); provided, however, that the surviving corporation
shall not be obligated to make annual premium payments for such insurance to the
extent such premiums exceed 150% of the annual premiums paid as of the date
hereof by Schein for such insurance.
Interim Financing. The merger agreement provides that, by June 5, 2000,
Watson will enter into such agreements with Schein, Schein's current lenders and
others, and will make funds available or provide credit support or other
financial accommodation, as may be necessary to provide Schein with immediate
borrowing availability in the amount of $40,000,000. On June 2, 2000, Watson
complied with its obligations under the merger agreement with respect to the
$40,000,000 interim financing by entering into certain agreements, including a
guarantee, with certain of Schein's existing lenders. In connection therewith,
$40,000,000 was made available to Schein on terms and conditions substantially
similar to the terms and conditions of Schein's existing bank facility.
Conditions to the Merger. The merger agreement provides that the respective
obligation of each party to effect the merger shall be subject to the
satisfaction at or prior to the effective time of the merger of the following
conditions:
- the registration statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
registration statement shall have been issued by the SEC or proceedings
for a stop order initiated or threatened by the SEC;
- the merger agreement shall have been adopted by the requisite vote of the
stockholders of Schein to the extent required by the DGCL and the
restated certificate of incorporation of Schein;
- no temporary restraining order, preliminary or permanent injunction or
other order issued by any governmental entity preventing the consummation
of the merger shall be in effect, and there shall not be any statute,
rule, regulation or order enacted, entered or enforced by any
governmental entity which makes the consummation of the merger illegal;
and
- Watson, the Purchaser or their affiliates shall have purchased, or caused
to be purchased, Shares pursuant to the Offer.
The merger agreement also provides that the obligation of Schein to effect the
merger is also subject to the condition that the shares of Watson common stock
to be issued in the merger shall have been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange.
Termination. The merger agreement may be terminated and the merger may be
abandoned at any time prior to the effective time of the merger, notwithstanding
the adoption of the merger agreement by the stockholders of Schein:
- by mutual written consent duly authorized by the board of directors of
Watson and the board of directors of Schein; or
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- by either Watson or Schein if a governmental entity shall have issued a
non-appealable final order, decree or ruling, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
acceptance for payment of, or payment for, Shares pursuant to the Offer
or the merger or (ii) any statute, rule, regulation or order is enacted,
entered or enforced by any governmental entity which makes the
consummation of the Offer or the merger illegal; or
- by either Watson or Schein, if Shares have not been purchased pursuant to
the Offer prior to November 13, 2000 (the "Termination Date") (provided
that the right to terminate the merger agreement under this provision
shall not be available to any party whose failure to fulfill any
obligations under the merger agreement has been the cause of or resulted
in the failure to consummate the Offer prior to such date); or
- as long as Shares have not been purchased pursuant to the Offer, by
Watson, if any Triggering Event (as defined below) shall have occurred. A
"Triggering Event" shall be deemed to have occurred if: (i) the board of
directors of Schein shall have failed to recommend to Schein's
stockholders that they tender their Shares pursuant to the Offer and/or
vote to approve and adopt the merger agreement or the merger, or shall
have withdrawn or modified in a manner adverse to Watson or the Purchaser
the Company Board Recommendation; (ii) Schein shall have failed to
include in the Schedule 14D-9 (or shall have refused to permit the
inclusion in any other offer document of) the Company Board
Recommendation or a statement to the effect that the board of directors
of Schein has determined and believes that the Offer, the merger
agreement, the merger and the transactions contemplated by the merger
agreement are in the best interests of Schein's stockholders; (iii) the
board of directors of Schein shall have approved, endorsed or recommended
any Acquisition Proposal made by a third party; (iv) Schein shall have
entered into any letter of intent or similar document (other than a
confidentiality agreement) or any contract relating to any Acquisition
Proposal made by a third party; (v) a tender or exchange offer relating
to securities of Schein shall have been commenced by a third party and
Schein shall not have sent to its securityholders, within ten business
days after the commencement of such tender or exchange offer, a statement
disclosing that Schein recommends rejection of such tender or exchange
offer; (vi) any person (other than Watson or the Purchaser or any
affiliate of Watson or the Purchaser) or "group" (as defined in the
Exchange Act and the rules promulgated thereunder) of persons directly or
indirectly acquires beneficial ownership of securities representing more
than 20% of the outstanding securities of any class of voting securities
of Schein or any of its subsidiaries; or (vii) Schein shall have
materially breached the "no solicitation" provisions contained in the
merger agreement; or
- as long as Shares have not been purchased pursuant to the Offer, by
Watson, (i) upon a breach in any material respect of any covenant or
agreement on the part of Schein set forth in the merger agreement or (ii)
if any representation or warranty of Schein (A) shall have been
inaccurate or incomplete when made or (B) shall have become inaccurate as
of a date subsequent to the date of the merger agreement, in either case
where certain Offer Conditions would not be satisfied; provided that, if
such an event in clause (i) or (ii)(A) is curable prior to the expiration
of 20 days from notice by Watson to Schein of its occurrence (but in no
event later than the Termination Date) by Schein through the exercise of
its reasonable best efforts and for so long as Schein continues to
exercise such reasonable best efforts, Watson may not terminate the
merger agreement until the expiration of such period without such event
having been cured; provided, further, that if an event in clause (ii)(B)
is curable prior to the scheduled or any extended expiration date of the
Offer (but in no event later than the Termination Date) by Schein through
the exercise of its reasonable best efforts and for so long as Schein
continues to exercise such reasonable best efforts, Watson may not
terminate the merger agreement until the expiration date of the Offer; or
- by Watson or Schein, if the Offer has expired or has been terminated in
accordance with the terms set forth in the merger agreement without any
Shares having been purchased pursuant to the Offer (provided that the
right to terminate the merger agreement under this provision shall not be
available to any party whose failure to fulfill any obligations under the
merger agreement has been the cause of
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or resulted in the failure to consummate the Offer prior to the
expiration or termination of the Offer); or
- as long as Shares have not been purchased pursuant to the Offer, by
Schein, (i) upon a breach in any material respect of any covenant or
agreement on the part of Watson or the Purchaser set forth in the merger
agreement or (ii) if any representation or warranty of Watson or the
Purchaser (A) shall have been inaccurate or incomplete when made or (B)
shall have become inaccurate as of a date subsequent to the date of the
merger agreement (as if made on such subsequent date) and, in either
case, the applicable event would materially adversely affect Watson's or
the Purchaser's ability to consummate (or materially delays commencement
or consummation of) the Offer; provided that, if an event in clause (i)
or (ii)(A) above is curable prior to the expiration of 20 days from
notice by Schein to Watson of its occurrence (but in no event later than
the Termination Date) by Watson or the Purchaser through the exercise of
its reasonable best efforts and for so long as Watson or the Purchaser
continues to exercise such reasonable best efforts, Schein may not
terminate the merger agreement until the expiration of such period;
provided, further, that, if an event in clause (ii)(B) above is curable
prior to the scheduled or any extended expiration date of the Offer (but
in no event later than the Termination Date) by Watson or the Purchaser
through the exercise of its reasonable best efforts and for so long as
Watson or the Purchaser continues to exercise such reasonable best
efforts, Schein may not terminate the merger agreement until the
expiration date of the Offer.
Effect of Termination. In the event of the termination of the merger
agreement and the abandonment of the merger, the merger agreement shall
forthwith become void and there shall be no liability on the part of any party
thereto (or any of its affiliates, directors, officers, employees, agents, legal
and financial advisors or other representatives), except for the termination fee
(as defined below) and as otherwise set forth in the merger agreement and except
that nothing set forth in the merger agreement shall relieve any party from
liability or damages resulting from any willful breach of the merger agreement.
Fees and Expenses. Except as set forth in the merger agreement, all fees
and expenses incurred in connection with the merger agreement and the
transactions contemplated thereby shall be paid by the party incurring such fees
and expenses, whether or not the merger is consummated.
Schein shall pay Watson a fee of $21,300,000 (the "Termination Fee"), plus
actual, documented and reasonable out-of-pocket expenses of Watson and the
Purchaser relating to the transactions contemplated by the merger agreement not
in excess of $2,500,000 (including, but not limited to, fees and expenses of
counsel), if the merger agreement is terminated by Watson as a consequence of a
Triggering Event or for any breach by Schein of any covenant or agreement or
inaccuracy in any representation or warranty of Schein. However, in the case of
termination for inaccuracy in any representation or warranty as of a date after
the date of the merger agreement, but subject to any liability for a willful
breach of the merger agreement, Schein shall only be obligated to pay to Watson
the expense reimbursement. No Termination Fee or expense reimbursement shall be
payable by Schein if Watson or the Purchaser shall then be in willful material
breach of its obligations under the merger agreement.
Watson shall pay Schein a fee of $21,300,000 plus actual, documented and
reasonable out-of-pocket expenses of Schein relating to the transactions
contemplated by the merger agreement, not in excess of $2,500,000 (including,
but not limited to, fees and expenses of Schein's counsel), if the merger
agreement is terminated by Schein for any breach by Watson or the Purchaser of
any covenant or agreement or inaccuracy in any representation or warranty of
Watson or the Purchaser, No fee or expense reimbursement shall be payable by
Watson pursuant to the merger agreement if Schein shall then be in willful
material breach of its obligations under the merger agreement.
The fees and expense reimbursement payable pursuant to the merger agreement
shall be paid within two business days after being notified of such by the other
party. The Termination Fee shall not be payable to Watson until the earliest of
the date six months after the termination of the merger agreement, the date of
closing of a debt financing by Schein which increases Schein's aggregate
indebtedness for borrowed money by not less than $30,000,000 and the closing of
a definitive agreement for any Acquisition Proposal, at which time the
Termination Fee shall be paid immediately.
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Extension; Waiver. The merger agreement provides that at any time prior to
the effective time of the merger, the parties to the merger agreement, may, to
the extent legally allowed, extend the time for the performance of any of the
obligations or other acts of the other parties to the merger agreement, waive
any inaccuracies in the representations and warranties of the other parties to
the merger agreement contained in the merger agreement or in any document
delivered pursuant thereto or waive compliance with any of the agreements or
conditions of the other parties to the merger agreement contained in the merger
agreement.
Amendment. The merger agreement provides that it may be amended by the
parties thereto, by action taken or authorized by their respective boards of
directors, at any time prior to the effective time of the merger. After approval
of the merger by the stockholders of Schein, no amendment may be made that by
law requires further approval by such stockholders without obtaining such
further approval.
THE STOCKHOLDER AGREEMENTS
In order to induce Watson and the Purchaser to enter into the merger
agreement, the following stockholders of Schein (the "Significant Stockholders")
entered into Stockholder Agreements with Watson and the Purchaser:
- Bayer Corporation
- Marvin H. Schein, and related trusts
- Pamela Schein, and related trusts
The following is a summary of the material terms of the Stockholder
Agreements. The full text of a form of Stockholder Agreement is filed as an
exhibit to the Schedule TO. The summary is qualified in its entirely by
reference to the form of Stockholder Agreement.
Agreement Not to Transfer. Each Significant Stockholder has agreed that
during the period from the date of the Stockholder Agreement through the
"Stockholder Agreement Expiration Date" (as defined below), such Significant
Stockholder will not permit 46.9% of the Shares or other securities of Schein
owned by such Significant Stockholder to be transferred or encumbered, and will
insure that no proxy is granted and no voting agreement is entered into with
respect to any such Shares or other securities. For purposes of the Stockholder
Agreement, "Stockholder Agreement Expiration Date" means the earlier of:
- the date on which the merger agreement is validly terminated in
accordance with its terms;
- the date on which the merger becomes effective; and
- the date on which payment is made to the Significant Stockholder of the
full purchase price for all Shares tendered by the Significant
Stockholder and not withdrawn pursuant to the Offer.
Notwithstanding the foregoing, if fewer than 24,500,000 Shares are validly
tendered on or before the fifth business day after the commencement of the Offer
or if prior to the termination of the merger agreement, the board of directors
of Schein changes its recommendation in favor of the Offer or the merger (or
takes similar actions that indicate that the board of directors of Schein does
not support the Offer or the merger), "Stockholder Agreement Expiration Date"
shall mean the date one year following either the fifth business day after the
commencement of the Offer or the termination of the merger agreement, as the
case may be.
Agreement to Tender. During the period from the date of the Stockholder
Agreements through the Stockholder Agreement Expiration Date, each Significant
Stockholder has agreed to validly tender for exchange in the Offer not less than
46.9% of the Shares that are owned by such Significant Stockholder at the time
of the commencement of the Offer. In the aggregate, the Significant Stockholders
have agreed to tender approximately 11,508,522 Shares, which constitute
approximately 34.8% of the outstanding Shares as of May 24, 2000.
Agreement to Vote. During the period from the date of the Stockholder
Agreements through the Stockholder Agreement Expiration Date, each Significant
Stockholder has agreed that at any meeting of the stockholders of Schein (and
pursuant to any action by written consent of stockholders), the Significant
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Stockholder will cause 46.9% of all outstanding Shares that are owned by the
Significant Stockholder as of the record date fixed for such meeting or consent
to be voted:
- in favor of the approval and adoption of the merger agreement and the
approval of the merger, and in favor of each of the other actions
contemplated by the merger agreement as necessary for the consummation of
the merger;
- against any action or agreement that would result in a breach of any
representation, warranty, covenant or obligation of Schein in the merger
agreement; and
- except as otherwise agreed to in writing in advance by Watson in its sole
discretion, against the following actions (other than the merger and the
transactions contemplated by the merger agreement): (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving Schein or any subsidiary of Schein; (B) any sale,
lease or transfer of a material amount of assets of Schein or any
subsidiary of Schein; (C) any reorganization, recapitalization,
dissolution or liquidation of Schein or any subsidiary of Schein; (D)
except as permitted by Section 1.03 of the merger agreement (which
provides that following consummation of the Offer, Watson may designate a
majority of the members of the board of directors of Schein), any change
in a majority of the board of directors of Schein; (E) except as
permitted by Section 2.04 of the merger agreement (which contemplates
certain amendments to the certificate of incorporation and by-laws of
Schein at the effective time of the merger), any amendment to Schein's
certificate of incorporation; (F) any change in the capitalization of
Schein or Schein's corporate structure; or (G) any other action which is
intended, or could reasonably be expected to, impede, interfere with,
delay, postpone, discourage or adversely affect the contemplated economic
benefits to Watson of the merger or any of the other transactions
contemplated by the merger agreement or the Stockholder Agreements.
Each Significant Stockholder has also granted an irrevocable proxy to
Watson with respect to the number of Shares and the matters described above in
this section.
Options to Purchase Shares. In addition to the agreement to tender and
voting agreements referred to above, each Significant Stockholder has agreed
that:
- if less than 24,500,000 Shares are validly tendered on or before the
fifth business day following the commencement of the Offer, then, for a
period of one year, the Purchaser will have the right to purchase up to
an aggregate of forty-six and nine-tenths percent of all of the
outstanding Shares owned by the Significant Stockholder, at a price of
$12.00 per Share;
- if (i) the merger agreement has not been terminated, (ii) a proposal for
the acquisition of shares or significant assets of Schein has been
disclosed, announced, commenced, submitted or made by a person or entity
(other than Watson or the Purchaser), and (iii) the Significant
Stockholder has, directly or indirectly, either (A) taken any action, or
failed to take any action, that could be construed to suggest that the
Significant Stockholder might not support the prompt completion of a
transaction with Watson and the Purchaser similar to the Offer and the
merger, including having withdrawn shares tendered pursuant to the Offer,
or (B) taken any action, or failed to take any action, that could be
construed to suggest that the Significant Stockholder might support such
a proposal disclosed, announced, commenced, submitted or made by a person
or entity (other than Watson or the Purchaser), the Purchaser will have
the right either (1) to require that the Significant Stockholder validly
tender, pursuant to the Offer, all but not less than all of the
outstanding Shares that are owned by the Significant Stockholder, or (2)
to purchase all but not less than all of the outstanding Shares that are
owned by the Significant Stockholder, at a purchase price of $19.50 per
share; and
- if (i) the merger agreement has been terminated in certain instances,
(ii) a proposal for the acquisition of shares or significant assets of
Schein has been disclosed, announced, commenced, submitted or made by a
third party (other than Watson or the Purchaser), and (iii) prior to or
during the one year period after such proposal has been disclosed,
announced, commenced, submitted or made, the Significant Stockholder has,
directly or indirectly, taken any action, or failed to take any action,
that could be construed to suggest that the Significant Stockholder might
support such proposal, the
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Purchaser will have the right to purchase all but not less than all of
the outstanding Shares that are owned by the Significant Stockholder, at
a purchase price of $19.50 per share (which right shall be exercised
(and, if not timely exercised, forfeited) on or prior to the date one
year after the occurrence of the circumstances described in clause (iii)
of this paragraph).
During the one-year period that the Purchaser is entitled to exercise any of the
options referred to in the immediately preceding two paragraphs, the Significant
Stockholder shall ensure that all Shares that are owned by the Significant
Stockholder are voted in a manner similar to the manner described above under
"Agreement to Vote."
No Solicitation. During the period from the date of the Stockholder
Agreement through the Stockholder Agreement Expiration Date, each Significant
Stockholder has agreed (in his or its capacity as a stockholder) that it will
not, and that it will ensure that its representatives do not: (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
proposal for the acquisition of shares or significant assets of Schein or take
any action that could reasonably be expected to lead to such a proposal; (ii)
furnish any information regarding Schein or any direct or indirect subsidiary of
Schein to any person in connection with or in response to any such proposal or
potential proposal; or (iii) engage in discussions with any person with respect
to any such proposal.
12. PURPOSE OF THE OFFER; PLANS FOR SCHEIN AFTER THE OFFER AND THE MERGER.
Purpose of the Offer. The purpose of the Offer is for Watson to acquire
control of, and the entire equity interest in, Schein. Following the Offer, the
Purchaser and Watson intend to acquire any remaining equity interest in Schein
not acquired in the Offer by consummating the merger. Upon consummation of the
merger, Schein will become a wholly-owned subsidiary of Watson.
Appraisal Rights. Holders of Shares do not have appraisal rights as a
result of the Offer. However, if the merger is consummated, holders of Shares
may have rights pursuant to the provisions of Section 262 of the DGCL to dissent
and demand appraisal of, and to receive payment in cash of the fair value of,
their Shares (any such shares being referred to as "Dissenting Shares"). If any
of the Merger Consideration consists of cash (other than for fractional shares)
or if the merger is effected pursuant to the short-form merger provisions of the
DGCL, Schein stockholders will have appraisal rights under Delaware law.
Otherwise, Schein stockholders will not have appraisal rights. If appraisal
rights are available and if the statutory procedures with respect to appraisal
rights or the value of the Merger Consideration were complied with, such
procedures could lead to a judicial determination of the fair value required to
be paid in cash to such dissenting holders for their Dissenting Shares. Any such
judicial determination of the fair value of the Dissenting Shares could be based
upon considerations other than, or in addition to, the Merger Consideration or
the market value of the Dissenting Shares. The value so determined could be
greater or lower than the Offer Price.
If any holder of Shares who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses his, her or its right to
appraisal, as provided in the DGCL, the Shares of such stockholder will be
converted into the right to receive the Merger Consideration. A stockholder may
withdraw his, her or its demand for appraisal by delivery to Watson of a written
withdrawal of his, her or its demand for appraisal and acceptance of the terms
of the merger.
A stockholder seeking to exercise appraisal rights under Section 262 of the
DGCL may not tender his, her or its Shares in the Offer and will be further
advised by Schein as to the steps necessary to exercise such rights. FAILURE TO
FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL
RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
Going Private Transactions. The SEC has adopted Rule 13e-3 under the
Exchange Act which is applicable to certain "going private" transactions and
which may under certain circumstances be applicable to the merger or another
business combination following the purchase of Shares pursuant to the Offer in
which the Purchaser seeks to acquire the remaining Shares not held by it.
However, Rule 13e-3 will not be applicable to the merger or any such other
business combination if (i) the Shares are deregistered under the Exchange
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Act prior to the merger or other business combination or (ii) the merger or
other business combination is consummated within one year after the purchase of
the Shares pursuant to the Offer and the value of the consideration paid per
Share in the merger or other business combination (measured at the time of
consummation of the merger) is at least equal to the amount paid per Share in
the Offer. If applicable, Rule 13e-3 requires, among other things, that certain
financial information concerning Schein and certain information relating to the
fairness of the proposed transaction and the consideration offered to minority
stockholders in such transaction be filed with the SEC and disclosed to
stockholders prior to consummation of the transaction.
Plans for Schein. It is expected that, initially following the merger, the
business and operations of Schein will, except as set forth in this Offer to
Purchase, be continued by Schein substantially as they are currently being
conducted. Watson will continue to evaluate the business and operations of
Schein during the pendency of the Offer and after the consummation of the Offer
and the merger, and will take such actions as it deems appropriate under the
circumstances then existing. Watson intends to seek additional information about
Schein during this period.
Except as indicated in this Offer to Purchase, Watson does not have any
present plans or proposals that relate to or would result in an extraordinary
corporate transaction, such as a merger, reorganization or liquidation,
involving Schein or any of its subsidiaries, a sale or transfer of a material
amount of assets of Schein or any of its subsidiaries, any material change in
Schein's capitalization or dividend policy or any other material change in
Schein's corporate structure or business.
13. DIVIDENDS AND DISTRIBUTIONS.
The merger agreement provides that Schein may not, between the date of the
merger agreement and the effective time of the merger, without the prior written
consent of Watson, declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, except that a wholly-owned subsidiary of
Schein may declare and pay a dividend to its parent, or, except in connection
with the merger, amend the terms of, repurchase, redeem or otherwise acquire, or
permit any subsidiary to repurchase, redeem or otherwise acquire, any of its
securities or any securities of its subsidiaries, or propose to do any of the
foregoing, except in connection with the purchase of Shares by the trustees of
Schein's Retirement Plan. See Section 11.
14. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, EXCHANGE LISTING AND
EXCHANGE ACT REGISTRATION.
The purchase of Shares by the Purchaser pursuant to the Offer will reduce
the number of Shares that might otherwise trade publicly and will reduce the
number of holders of Shares, which could adversely affect the liquidity and
market value of the remaining Shares held by the public.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the NYSE for continued listing and
may be delisted from the NYSE. According to the NYSE's published guidelines, the
NYSE would consider delisting the Shares if, among other things, the total
number of stockholders is less than 400, the number of record holders of at
least 100 Shares is less than 1,200 and the average monthly trading volume (for
the most recent 12 months) is less than 100,000 shares or the number of publicly
held Shares (exclusive of holdings of officers, directors and their immediate
families and other concentrated holdings of ten percent or more ("NYSE Excluded
Holdings") should fall below 600,000. If as a result of the purchase of Shares
pursuant to the Offer or otherwise, the Shares no longer meet the requirements
of the NYSE for continued listing and the listing of the Shares is discontinued,
the market for the Shares could be adversely affected.
If the NYSE were to delist the Shares, it is possible that the Shares would
continue to trade on another securities exchange or in the over-the-counter
market and that price or other quotations would be reported by such exchange or
through the National Association of Securities Dealers Automated Quotation
System ("Nasdaq") or other sources. The extent of the public market therefor and
the availability of such quotations would depend, however, upon such factors as
the number of stockholders and/or the aggregate market value
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of the Shares remaining at such time, the interest in maintaining a market in
the Shares on the part of securities firms, the possible termination of
registration under the Exchange Act as described below and other factors. The
Purchaser cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on the
market price for or marketability of the Shares or whether it would cause future
market prices to be greater or less than the Offer Price.
The Shares are currently "margin securities," as such term is defined under
the rules of the Board of Governors of the Federal Reserve System, which has the
effect, among other things, of allowing brokers to extend credit on the
collateral of the Shares. Depending upon factors similar to those described
above regarding listing and market quotations, following the Offer it is
possible that the Shares might no longer constitute "margin securities" for
purposes of the margin regulations of the Board of Governors of the Federal
Reserve System, in which event such Shares could no longer be used as collateral
for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by Schein to the SEC if the
Shares are not listed on a national securities exchange and there are fewer than
300 record holders. The termination of the registration of the Shares under the
Exchange Act would substantially reduce the information required to be furnished
by Schein to holders of Shares and to the SEC and would make certain provisions
of the Exchange Act, such as the short-swing profit recovery provisions of
Section 16(b) of the Exchange Act, the requirement of furnishing a proxy
statement in connection with stockholders' meetings and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions, no
longer applicable to the Shares. In addition, "affiliates" of Schein and persons
holding "restricted securities" of Schein may be deprived of the ability to
dispose of their Shares pursuant to Rule 144 promulgated under the Securities
Act. If registration of the Shares under the Exchange Act were terminated, the
Shares would no longer be "margin securities" or be eligible for NYSE or Nasdaq
reporting. The Purchaser currently intends to seek to cause Schein to terminate
the registration of the Shares under the Exchange Act as soon after consummation
of the Offer as the requirements for termination of registration are met.
15. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provisions of the Offer and in addition and
subject to (and not in limitation of) the Purchaser's rights or obligations to
extend and amend the Offer pursuant to the terms of the merger agreement, the
Purchaser shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act (relating to the Purchaser's obligation to pay for or return
tendered Shares promptly after termination or withdrawal of the Offer), pay for,
and may delay the acceptance for payment of or, subject to the restriction
referred to above, payment for, any tendered Shares, and may terminate the Offer
or amend the Offer, if (i) any applicable waiting period under the HSR Act or
any applicable non-United States laws regulating competition, antitrust,
investment or exchange controls shall not have expired or been terminated prior
to the expiration of the Offer (the "HSR Condition"), (ii) the Minimum Condition
shall not have been satisfied or waived (pursuant to the merger agreement) prior
to the expiration of the Offer or (iii) at any time on or after the date of the
merger agreement and before the time of acceptance of Shares for payment
pursuant to the Offer, any of the following events shall occur:
- there shall have been entered any judgment, order or injunction
applicable to Watson, the Purchaser, Schein or any subsidiary or
affiliate of Watson or Schein, or to the Offer or the merger, by any
governmental entity that (i) makes illegal or otherwise directly or
indirectly restrains or prohibits the acceptance for payment of, or
payment for, some of or all the Shares by the Purchaser or any of its
affiliates or the consummation of the merger, (ii) imposes material
limitations on the ability of the Purchaser, or renders the Purchaser
unable, to accept for payment, pay for or purchase some or all of the
Shares pursuant to the Offer, (iii) imposes material limitations on the
ability of Watson, the Purchaser or any other affiliate of Watson
effectively to exercise full rights of ownership of any Shares,
including, without limitation, the right to vote any Shares acquired by
it pursuant to the Offer or otherwise on all matters properly presented
to Schein's stockholders, including, without limitation, the adoption of
the merger agreement, (iv) otherwise would materially adversely affect
the ability of
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Schein or Watson to consummate the Offer or the merger or to perform any
of their respective obligations under the merger agreement, (v) would
materially and adversely affect the ownership of the assets or operation
of the business of Schein and its subsidiaries taken as a whole by
Watson, or (vi) compelling Watson or Schein, or any subsidiary of Watson
or Schein, to dispose of or hold separate any material assets, in
connection with the offer, the merger and the other transactions
contemplated by the merger agreement; or
- there shall have been instituted and be pending, or be threatened, any
suit, action or proceeding brought by any U.S. governmental entity, (i)
challenging or seeking to make illegal, materially delay or otherwise
directly or indirectly restrain or prohibit or make materially more
costly the making of the Offer, the acceptance for payment of, or payment
for, any Shares by Watson, the Purchaser or any other affiliate of Watson
pursuant to the Offer, or the consummation of any other transaction, or
seeking to obtain from Watson, the Purchaser or Schein damages in
connection with any transaction that are material in relation to Schein
taken as a whole, (ii) seeking to impose material limitations on the
ability of the Purchaser, or rendering the Purchaser unable, to accept
for payment, pay for or purchase some or all of the Shares pursuant to
the Offer, (iii) seeking to impose material limitations on the ability of
Watson, the Purchaser or any other affiliate of Watson effectively to
exercise full rights of ownership of any Shares, including, without
limitation, the right to vote any Shares acquired by it pursuant to the
Offer or otherwise on all matters properly presented to Schein's
stockholders, including, without limitation, the adoption of the merger
agreement, (iv) which otherwise would materially adversely affect the
ability of Schein or Watson to consummate the Offer or the merger or to
perform any of their respective obligations under the merger agreement,
(v) which would materially and adversely affect the right of Watson,
Schein or any subsidiary of Watson or Schein to own the assets or operate
the business of Schein and its subsidiaries taken as a whole, or (vi)
subject to Watson's compliance with the covenants of the merger agreement
relating to notices and consents from governmental entities, compelling,
or seeking to compel Watson or Schein, or any subsidiary of Watson or
Schein, to dispose of or hold separate any material assets, in connection
with the transactions; or
- there shall have been any statute, rule, regulation, legislation or
interpretation enacted, entered, enforced, promulgated, amended, issued
or deemed applicable to (i) Watson, Schein or any subsidiary or affiliate
of Watson or Schein or (ii) the Offer or the merger by any governmental
entity, other than the application to the Offer or the merger of the
applicable waiting periods under the HSR Act or any applicable non-United
States laws regulating competition, antitrust, investment or exchange
controls, that would result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of the paragraph
immediately above; or
- there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on the NYSE for a period in excess
of 24 hours (excluding suspensions or limitations resulting solely from
physical damage or interference with the NYSE not related to market
conditions or suspensions or limitations triggered on the NYSE by price
fluctuations on a trading day), (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory) or (iii) in the case of any of
the foregoing existing at the time of the commencement of the Offer, a
material acceleration or worsening thereof not contemplated as of the
date of the merger agreement; or
- there shall have occurred any changes, conditions, events, developments
or effects that, individually or in the aggregate, has resulted in or
could reasonably be expected to result in a Company Material Adverse
Effect; or
- there shall have occurred any Triggering Event; or
- the representations and warranties of Schein set forth in the merger
agreement shall not have been accurate in all respects when made, except
that any inaccuracies in such representations and warranties will be
disregarded if the circumstances giving rise to all such inaccuracies
(considered collectively) do not, and could not reasonably be expected to
constitute, a Company Material Adverse Effect; provided, however, that
for purposes of determining the accuracy of such representations and
warranties, (i) all
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"Material Adverse Effect" qualifications and other materiality
qualifications, and any similar qualifications, contained in such
representations and warranties shall be disregarded, and (ii) any update
of or modification to the Schein Disclosure Schedule made or purported to
have been made after the date of the merger agreement shall be
disregarded; or
- the representations and warranties of Schein relating to the equity
capitalization of Schein and its subsidiaries shall not have been true
and correct as of the date when made or the covenants relating to the
equity capitalization of Schein and it subsidiaries shall not have been
complied with by Schein in all respects, except to the extent that the
cost to Watson and the Purchaser in the aggregate of all inaccuracies in
such representations and warranties and noncompliance with such covenants
does not exceed $500,000; or
- the representations and warranties of Schein set forth in the merger
agreement shall not be accurate in all respects as if such
representations and warranties were made at the time of such
determination (except for those representations and warranties which
address matters only as of a particular date, which shall be accurate as
of such date), except that any inaccuracies in such representations and
warranties will be disregarded if the circumstances giving rise to all
such inaccuracies (considered collectively) do not constitute, have not
had and could not reasonably be expected to constitute, a Company
Material Adverse Effect; provided, however, that for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other materiality
qualifications, and any similar qualifications, contained in such
representations and warranties shall be disregarded, and (ii) any update
of or modification to the Schein Disclosure Schedule made or purported to
have been made after the date of the merger agreement shall be
disregarded; or
- Schein shall have failed to comply with or perform any obligation,
agreement or covenant to be complied with or performed by it under the
merger agreement in all material respects; or
- all consents and waivers necessary to the consummation of the Offer or
the merger from governmental entities shall not have been obtained, other
than consents the failure to obtain which, individually or in the
aggregate, has not had and could not reasonably be expected to have a
Company Material Adverse Effect; or
- the merger agreement shall have been terminated in accordance with its
terms;
which in the reasonable good faith judgment of Watson or the Purchaser, in any
such case, and regardless of the circumstances (including any action or inaction
by Watson or the Purchaser or any of their affiliates) giving rise to such
condition, makes it inadvisable to proceed with the Offer and/or with such
acceptance for payment of or payment for Shares.
The foregoing conditions are for the sole benefit of Watson and the
Purchaser, and may (subject to the terms of the merger agreement and except for
the Minimum Condition) be waived by Watson or the Purchaser, in whole or in
part, at any time and from time to time in the sole discretion of Watson or the
Purchaser. The failure by Watson or the Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
As used herein:
"Company Material Adverse Effect" shall mean any change, condition, event,
development or effect that, individually or when taken together with all other
such changes, conditions, events, developments or effects that have occurred
prior to the date of such determination, is materially adverse to the business,
condition, capitalization, assets, liabilities, operations or financial
performance of Schein and its subsidiaries, taken as a whole; provided, however,
that in determining whether there has been a Company Material Adverse Effect,
any adverse effect attributable to the following shall be disregarded: (i)
general economic, business or financial market conditions; (ii) any change in
any law, rule or regulation or generally accepted accounting principles or
interpretations thereof that applies to, and any conditions affecting, the
pharmaceutical industry
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generally; (iii) the taking of any action required by the merger agreement or
the announcement of the merger agreement; (iv) the breach by Watson or the
Purchaser of the merger agreement; or (v) the failure of Schein or any of its
subsidiaries to obtain any approval, consent or waiver which may be required
under any agreement to which any of them is a party under which the execution
and delivery of the merger agreement, the performance of the merger agreement or
the consummation of the transactions may result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or impair Schein's or any of its subsidiaries' rights or alter
the rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any material
contract, or result in the creation of a lien or encumbrance on any of the
assets or properties of Schein or any of its subsidiaries pursuant to any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Schein or any of its
subsidiaries is a party or by which Schein or any of its subsidiaries or its or
any of their respective assets or properties is bound or affected.
16. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.
General. Based upon its examination of publicly available information with
respect to Schein, the review of certain information furnished by Schein to
Watson and discussions of representatives of Watson with representatives of
Schein during Watson's investigation of Schein (see Section 11), neither the
Purchaser nor Watson is aware of any license or other regulatory permit that
appears to be material to the business of Schein and its subsidiaries, taken as
a whole, that might be adversely affected by the acquisition of Shares by the
Purchaser pursuant to the Offer or, except as set forth below, of any approval
or other action by any domestic (federal or state) or foreign governmental,
administrative or regulatory authority or agency that would be required prior to
the acquisition of Shares by the Purchaser pursuant to the Offer. Should any
such approval or other action be required, it is the Purchaser's present
intention to seek such approval or action. There can be no assurance that any
such approval or other action, if needed, would be obtained without substantial
conditions or that adverse consequences might not result to the business of
Schein, the Purchaser or Watson or that certain parts of the businesses of
Schein, the Purchaser or Watson might not have to be disposed of or held
separate or other substantial conditions complied with in order to obtain such
approval or other action or in the event that such approval was not obtained or
such other action was not taken. The Purchaser's obligation under the Offer to
accept for payment, and pay for, Shares is subject to certain conditions,
including conditions relating to the legal matters discussed in this Section 16.
See Section 15.
State Takeover Laws. Schein is incorporated under the laws of the State of
Delaware. In general, Section 203 of the DGCL prevents an "interested
stockholder" (generally a person who owns or has the right to acquire 15% or
more of a corporation's outstanding voting stock or an affiliate or associate
thereof) from engaging in a "business combination" (defined to include mergers
and certain other transactions) with a Delaware corporation for a period of
three years following the date such person became an interested stockholder
unless, among other things, prior to such date the board of directors of the
corporation approved either the business combination or the transaction in which
the interested stockholder became an interested stockholder. The board of
directors has approved the merger agreement and the Purchaser's acquisition of
Shares pursuant to the Offer, the merger, and the Stockholder Agreements and,
therefore, Section 203 of the DGCL is inapplicable to the merger.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations that are incorporated, or have
substantial assets, stockholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In Edgar v. Mite Corp., the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover Statute, that, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However, in 1987 in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court of the United States
held that the State of Indiana may, as a matter of corporate law and, in
particular, with respect to those aspects of corporate law concerning corporate
governance, constitutionally disqualify a potential acquirer from voting on the
affairs of a target corporation without the prior approval of the remaining
stockholders, provided that such laws were applicable only under certain
conditions. Subsequently, in TLX Acquisition Corp. v. Telex Corp., a Federal
district court in Oklahoma ruled that the
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Oklahoma takeover statutes were unconstitutional insofar as they applied to
corporations incorporated outside Oklahoma in that they would subject such
corporations to inconsistent regulations. Similarly, in Tyson Foods, Inc. v.
McReynolds, a Federal district court in Tennessee ruled that four Tennessee
takeover statutes were unconstitutional as applied to corporations incorporated
outside Tennessee. This decision was affirmed by the United States Court of
Appeals for the Sixth Circuit. In December 1988, a Federal district court in
Florida held in Grand Metropolitan plc v. Butterworth that the provisions of the
Florida Affiliated Transactions Act and Florida Control Share Acquisition Act
were unconstitutional as applied to corporations incorporated outside of
Florida.
Schein, directly or through subsidiaries, conducts business in a number of
states throughout the United States, some of which may have enacted takeover
laws. The Purchaser does not know whether any of these laws will, by their
terms, apply to the Offer or the merger and has not attempted to comply with any
such laws. Should any person seek to apply any state takeover law to the Offer
or the merger, the Purchaser reserves the right to challenge the validity or
applicability of any such statute in appropriate court proceedings or otherwise,
and nothing contained in this Offer to Purchase nor any action taken in
connection herewith is intended as a waiver of that right. In the event it is
asserted that one or more state takeover laws applies to the Offer or the
merger, and an appropriate court does not determine that it is inapplicable or
invalid as applied to the Offer or the merger, the Purchaser might be required
to file certain information with, or receive approvals from, the relevant state
authorities. In addition, if enjoined, the Purchaser might be unable to accept
for payment any Shares tendered pursuant to the Offer or be delayed in
continuing or consummating the Offer and the merger. In such case, the Purchaser
may not be obligated to accept for payment, or pay for, any Shares tendered. See
Section 15.
Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied. The acquisition of Shares by the Purchaser pursuant to the Offer is
subject to such requirements. See Section 2.
Pursuant to the HSR Act, Watson will file Premerger Notification and Report
Forms (the "HSR Reports") with the Antitrust Division and the FTC in connection
with the purchase of Shares pursuant to the Offer. Under the provisions of the
HSR Act applicable to the Offer, Watson may not consummate the purchase of
Shares pursuant to the Offer until the expiration of a 15-calendar day waiting
period following the filing. If either the FTC or the Antitrust Division were to
request additional information or documentary material from Watson with respect
to the filing, the waiting period with respect to the Offer would expire at
11:59 p.m., New York City time, on the tenth calendar day after the date of
substantial compliance by Watson with such request. Thereafter, the waiting
period could be extended only by court order. If the acquisition of Shares is
delayed pursuant to a request by the FTC or the Antitrust Division for
additional information or documentary material pursuant to the HSR Act, the
Offer may be extended and, in any event, the purchase of and payment for Shares
will be deferred until ten days after the request is substantially complied
with, unless the waiting periods are sooner terminated by the FTC and the
Antitrust Division. The HSR Act and the rules promulgated thereunder authorize
only one extension of the waiting period pursuant to a request for additional
information, except by court order. Any extension of the waiting period will not
give rise to any withdrawal rights not otherwise provided for by applicable law.
See Section 4. It is a condition to the Offer that the waiting period applicable
under the HSR Act to the Offer expire or be terminated. See Section 2 and
Section 15.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
the Purchaser pursuant to the Offer. At any time before or after the purchase of
Shares pursuant to the Offer by the Purchaser, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer, or seeking the divestiture of Shares purchased by
the Purchaser or the divestiture of substantial assets of Watson, Schein or
their respective subsidiaries. Private parties and state attorneys general may
also bring legal action under federal or state antitrust laws under certain
circumstances. Based upon an examination of information available to
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Watson relating to the businesses in which Watson, Schein and their respective
subsidiaries are engaged, Watson and the Purchaser believe that the Offer will
not violate the antitrust laws. Nevertheless, there can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if such a
challenge is made, what the result would be. See Section 15 for certain
conditions to the Offer, including conditions with respect to litigation.
17. FEES AND EXPENSES.
Except as set forth below, the Purchaser will not pay any fees or
commissions to any broker, dealer or other person for soliciting tenders of
Shares pursuant to the Offer.
Bear, Stearns & Co. Inc., financial advisor to Watson in connection with
the acquisition of Schein, is acting as Dealer Manager for the Offer. No fee is
payable to Bear, Stearns & Co. Inc. for acting as Dealer/ Manager, as such, but
Watson has agreed to pay Bear, Stearns & Co. Inc. for its financial advisory
services rendered to Watson in connection with the Offer and the merger: (i) a
fee of $1,000,000, payable upon delivery of a fairness opinion and (ii) if the
acquisition is completed, an additional fee of $3,500,000. Watson has also
agreed to reimburse Bear, Stearns & Co. Inc. for all reasonable out-of-pocket
expenses incurred by it, including the reasonable fees and expenses of legal
counsel, and to indemnify Bear, Stearns & Co. Inc. against certain liabilities
and expenses in connection with its engagement, including certain liabilities
under the federal securities laws.
The Purchaser and Watson have retained D.F. King & Co., Inc., as the
Information Agent, and ChaseMellon Shareholder Services, L.L.C., as the
Depositary, in connection with the Offer. The Information Agent may contact
holders of Shares by mail, telephone, telex, telecopy, telegraph and personal
interview and may request banks, brokers, dealers and other nominee stockholders
to forward materials relating to the Offer to beneficial owners.
The Information Agent and the Depositary will receive reasonable and
customary compensation for their services in connection with the Offer, plus
reimbursement for their reasonable out-of-pocket expenses, and will be
indemnified against certain liabilities in connection with the Offer, including
certain liabilities under the federal securities laws. Brokers, dealers,
commercial banks and trust companies will be reimbursed by the Purchaser for
customary handling and mailing expenses incurred by them in forwarding material
to their customers.
18. MISCELLANEOUS.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. Neither the Purchaser nor Watson is aware of any jurisdiction in
which the making of the Offer or the tender of Shares in connection therewith
would not be in compliance with the laws of such jurisdiction. To the extent the
Purchaser or Watson becomes aware of any state law that would limit the class of
offerees in the Offer, the Purchaser will amend the Offer and, depending on the
timing of such amendment, if any, will extend the Offer to provide adequate
dissemination of such information to holders of Shares prior to the expiration
of the Offer. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Purchaser by the Dealer Manager or by one or
more registered brokers or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF WATSON, THE PURCHASER OR SCHEIN NOT CONTAINED IN
THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, Watson and the Purchaser have filed with the SEC the Schedule TO,
together with exhibits, furnishing certain additional information with respect
to the Offer. The Schedule TO and any amendments thereto, including exhibits,
may be inspected at, and copies may be obtained from, the same places and in the
same manner as set forth in
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Section 7 "-- Available Information" (except that they will not be available at
the regional offices of the SEC).
WS Acquisition Corporation
JUNE 6, 2000
Facsimiles of the Letter of Transmittal will be accepted. The Letter of
Transmittal and certificates evidencing Shares and any other required documents
should be sent or delivered by each stockholder or his, her or its broker,
dealer, commercial bank, trust company or other nominee to the Depository at its
address set forth on the last page of this Offer to Purchase.
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
WATSON AND THE PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF WATSON. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employment during the last five years, of each director and executive officer of
Watson. Unless otherwise indicated, the current business address of each person
is Watson Pharmaceuticals, Inc., 311 Bonnie Circle, Corona, CA 92880. Each such
person is a citizen of the United States of America and, unless otherwise
indicated, has held his or her present position as set forth below for the past
five years. Unless otherwise indicated, each occupation set forth opposite an
individual's name refers to employment with Watson.
DIRECTORS
NAME, AGE AND
BUSINESS ADDRESS POSITION WITH WATSON; PRINCIPAL OCCUPATION OR
EMPLOYMENT; 5-YEAR EMPLOYMENT HISTORY
RONALD A. TAYLOR, 52 Director since 1994. Ronald R. Taylor, has been a
consultant to Cardinal Health, Inc. ("Cardinal Health"),
a leading provider of health-care products and services,
since May 1996. Mr. Taylor was a founder and was
formerly Chairman of Pyxis Corporation, a developer and
marketer of systems designed to manage drugs and
supplies, from 1987 until 1996, at which time Pyxis
Corporation became a wholly-owned subsidiary of Cardinal
Health. Since April 1, 1998, Mr. Taylor has been a
general partner of Enterprise Partners Venture Capital,
a venture capital firm. He is a board member of
Cavanaugh's Hospitality Corporation, a hotel company,
and Medica Logic, Inc., a healthcare information
company.
ANDREW L. TURNER, 53 Director since 1997. Andrew L. Turner, is the founder of
Sun Healthcare Group, Inc. ("Sun Healthcare"), a
diversified international long-term care provider, and
has been the Chairman and Chief Executive Officer of Sun
Healthcare since its formation in 1989. Sun Healthcare
filed for Chapter 11 Bankruptcy in 1999. Mr. Turner also
founded and previously served as Chief Operating Officer
of Horizon Healthcare Corporation, also a health care
service provider, from 1986 to 1989. Mr. Turner is the
President of Rio Ranchito, Inc. and serves on the board
of directors of The Sports Club Co., Sun Health Systems,
Alpha Healthcare (Australia), and The Armand Hammer
United World College.
ALLEN Y. CHAO, PH.D., 54Director since 1985. Allen Y. Chao, a co-founder of
Watson, has been Chief Executive Officer of Watson since
1985, Chairman of Watson since May 1996 and President of
Watson since February 1998. Dr. Chao also serves on the
board of directors of Somerset Pharmaceuticals, Inc.
("Somerset"), which is fifty percent (50%) owned by
Watson. Dr. Chao served as Director of Pharmaceutical
Technology and Packaging Development at Searle
Laboratories, Inc. from September 1979 to August 1983,
where he had overall responsibility for new product
implementation and new pharmaceutical technology
development. He received a Ph.D. in industrial and
physical pharmacy from Purdue University in 1973.
MICHEL J. FELDMAN, 57 Director since 1985. Michel J. Feldman, is a member of
the law firm of D'Ancona & Pflaum LLC, Chicago,
Illinois, where he has practiced since June 1991.
D'Ancona & Pflaum LLC provides legal services to Watson.
Mr. Feldman served as the Secretary of Watson from 1995
to 1998. From 1977
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to 1981, Mr. Feldman was President and Chief Executive
Officer of Avanti Communications, a cellular antenna
manufacturer, which was acquired in 1981 by The Allen
Group, Inc. Mr. Feldman is also a director of Neff
Motivation, Inc., a private corporation which
manufactures and markets award recognition products. Mr.
Feldman received a B.S.B.A. from Northwestern University
in 1965 and a J.D. from Northwestern University School
of Law in 1968 and is a Certified Public Accountant.
FRED G. WEISS, 58 Director since 2000. Fred G. Weiss has been the managing
director of FGW Associates since 1997. Mr. Weiss served
as Vice President, Planning, Investment and Development
of Warner-Lambert from 1983 to 1996 and prior to that
served as Vice President and Treasurer of Warner-Lambert
from 1979 to 1983 where he was involved in both
strategic planning and corporate development. Mr. Weiss
is also a director of numerous Merrill Lynch-sponsored
mutual funds. Mr. Weiss was a member of the board of
Glaxo Wellcome/ Warner-Lambert OTC Joint Venture,
Warner-Chilcott plc and Noven Pharmaceuticals, Inc. He
received a B.S. from the Wharton School at the
University of Pennsylvania in 1963 and an M.B.A. from
the University of Chicago in 1967.
MICHAEL J. FEDIDA, 53 Director since 1995. Michael J. Fedida, a registered
pharmacist, has served for the past thirteen years as an
officer and director of several retail pharmacies wholly
or partially owned by him. Mr. Fedida served on the
board of directors of Circa Pharmaceuticals, Inc.
("Circa"), from 1988 to 1995, at which time Circa was
acquired by Watson.
ALBERT F. HUMMEL, 55 Director since 1986 (except for a period from July 1991
to October 1991). Mr. Hummel is currently a partner in
Affordable Residential Communities, a property
management firm. Additionally, Mr. Hummel is President
of Pentech Pharmaceuticals, Inc., a development stage
pharmaceutical company. Mr. Hummel received a B.S. from
St. Joseph's College in 1967 and an M.B.A. from the
University of Chicago in 1969.
EXECUTIVE OFFICERS
NAME, AGE AND
BUSINESS ADDRESS POSITION WITH WATSON; PRINCIPAL OCCUPATION OR
EMPLOYMENT; 5-YEAR EMPLOYMENT HISTORY
ALLEN Y. CHAO, PH.D., 54Dr. Chao, a co-founder of Watson, has been Chairman
since May 1996, Chief Executive Officer since 1985 and
President since February 1998. Dr. Chao also serves on
the board of directors of Somerset. Dr. Chao served as
Director of Pharmaceutical Technology and Packaging
Development at Searle Laboratories, Inc. from September
1979 to August 1983, where he had overall responsibility
for new product implementation and new pharmaceutical
technology development. He received a Ph.D. in
industrial and physical pharmacy from Purdue University
in 1973.
MICHAEL E. BOXER, 38 Mr. Boxer has served as Senior Vice President and Chief
Financial Officer since June 1999; previously he served
as Chief Financial Officer since July 1998. Before
joining Watson, Mr. Boxer was President of The
Enterprise Group, a financial advisory firm, which
provided consulting services to Watson. From 1991 to
1997, he was Vice President of the Health Care Group at
Furman Selz, LLC, a New York-based investment bank.
While at Furman Selz, Mr. Boxer participated in Watson's
public financings and its acquisition of Oclassen
Pharmaceuticals, Inc. Mr. Boxer received a M.B.A. from
the University of Chicago in 1991.
57
<PAGE> 59
CHARLES D. EBERT, PH.D.,
46 Dr. Ebert has served as Senior Vice President, Research
and Development since May 2000. Previously, Dr. Ebert
was the Senior Vice President Proprietary Research and
Development since June 1999 and has served as TheraTech,
Inc. (now Watson Laboratories, Inc. -- Utah) Executive
Vice President, Research and Development since 1992, and
as Vice President, Research and Development from 1987 to
1992. Prior to joining TheraTech, he was Director of
Research and Development at Cygnus Therapeutic Systems
from 1986 to 1987 where he directed the development of
transdermal products. From 1984 to 1986, he was Senior
Research Scientist and Manager in the Systems
Development Group of Ciba-Geigy Corporation, responsible
for the development of new transdermal, gastrointestinal
and mucosal drug delivery systems. Dr. Ebert received
his B.S. in Biology from the University of Utah in 1977
and his Ph.D. in Pharmaceutics from the University of
Utah in 1981.
ROBERT C. FUNSTEN, 40 Mr. Funsten has served as Senior Vice President, General
Counsel and Secretary since June 1999. Previously, Mr.
Funsten was the Vice President, General Counsel and
Secretary of Watson from December 1998 to June 1999, and
was Vice President, Legal Affairs from July 1998 to
December 1998. Before joining Watson, Mr. Funsten was
the Vice President and General Counsel of Chiron Vision
Corporation, an ophthalmic surgical device company, from
August 1995 to June 1998 and previously served as its
Vice President and Corporate Counsel from November 1993
to August 1995. Prior to joining Chiron Vision
Corporation, Mr. Funsten was in private practice at
Stradling, Yocca, Carlson & Rauth. Mr. Funsten received
a J.D. from Stanford School of Law in 1986.
DAVID C. HSIA, PH.D., 55Dr. Hsia has served as Watson's Senior Vice President,
Scientific Affairs since May 1995 and as acting Vice
President, Quality Assurance since April 1999. He has
been a Vice President of Watson since 1985. Dr. Hsia is
also co-founder of Watson. He has been involved in the
development of pharmaceutical formulations for oral
contraceptives, sustained-release products and novel
dosage forms. Dr. Hsia received a Ph.D. in industrial
and physical pharmacy from Purdue University in 1975.
Dr. Hsia is Dr. Chao's brother-in-law.
G. FREDERICK WILKINSON,
43 Mr. Wilkinson has been Chief Operating Officer and
Senior Vice President, Sales and Marketing since June
1999. Previously, Mr. Wilkinson was Vice President since
July 1997, and Executive Vice President -- Sales &
Marketing of Watson Laboratories, Inc. since July 1996.
Mr. Wilkinson also serves as a director of Somerset.
Prior to his employment with Watson, Mr. Wilkinson was
the President and General Manager of Creighton
Pharmaceuticals, a wholly-owned subsidiary of Sandoz
Pharmaceuticals, Inc. ("Sandoz") from 1994 to 1996.
Prior to that, he held various marketing management
positions at Sandoz since 1980. Mr. Wilkinson received
his M.B.A. from Capital University in 1984 and his B.S.
in Pharmacy from Ohio Northern University in 1979.
2. DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER. The directors of the
Purchaser are Allen Y. Chao, G. Frederick Wilkinson and Michael E. Boxer. The
executive officers of the Purchaser are Allen Y. Chao (President), Michael E.
Boxer (Chief Financial Officer and Treasurer), G. Frederick Wilkinson (Vice
President) and Robert C. Funsten (Secretary). The biographical information for
such directors and executive officers is listed above.
58
<PAGE> 60
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<CAPTION>
By Mail By Hand: By Overnight Delivery:
------- -------- ----------------------
<S> <C> <C>
Reorganization Department Reorganization Department Reorganization Department
P.O. Box 3301 120 Broadway 85 Challenger Road
South Hackensack, NJ 07606 13th Floor Mail Stop -- Reorg
New York, NY 10271 Ridgefield Park, NJ 07660
</TABLE>
By Fax Transmission (for eligible institutions only):
(201) 296-4293
For Fax Confirmation Only by Telephone:
(201) 296-4860
------------------------
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and the Notice of the Guaranteed Delivery may be obtained from the
Dealer Manager or the Information Agent. A stockholder may also contact brokers,
dealers, commercial banks or trust companies for assistance concerning the
Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Bankers and Brokers Call Collect: (212) 269-5550
All Others Call Toll Free: (800) 628-8509
THE DEALER MANAGER FOR THE OFFER IS:
BEAR, STEARNS & CO. INC.
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Call Toll Free: (800) 967-7915
(Attention: Tom Monaghan)
59
