<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant {X}
Filed by a Party Other than the Registrant { }
Check the appropriate box:
{ } Preliminary Proxy Statement
{ } Confidential, for Use of the Commission only (as permitted by
Rule 14a-6(e)(2))
{X} Definitive Proxy Statement
{ } Definitive Additional Materials
{ } Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SCHEIN PHARMACEUTICAL, INC.
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
{X} No fee required.
{ } Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
{ } Fee paid previously with preliminary materials.
{ } Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
100 CAMPUS DRIVE
FLORHAM PARK, NEW JERSEY 07932
April 14, 2000
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend
the 2000 Annual Meeting of Stockholders of Schein Pharmaceutical, Inc. The
Annual Meeting will be held on Tuesday, May 16, 2000, beginning at 10:00 a.m.,
local time, at The Madison Hotel, One Convent Road, Morristown, New Jersey
07960. The formal Notice of Annual Meeting is set forth in the enclosed
material.
The matters expected to be acted upon at the meeting are described in
the attached Proxy Statement. During the meeting, stockholders will have the
opportunity to ask questions and comment on the Company's operation.
It is important that your views be represented whether or not you are
able to be present at the Annual Meeting. Please sign and return the enclosed
proxy card promptly.
We appreciate your investment in Schein Pharmaceutical, Inc. and urge
you to return your proxy card as soon as possible.
Sincerely,
Martin Sperber
Chairman of the Board of Directors and
Chief Executive Officer
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of Schein
Pharmaceutical, Inc. (the "Company") will be held on Tuesday, May 16, 2000,
beginning at 10:00 a.m., local time, at The Madison Hotel, One Convent Road,
Morristown, New Jersey 07960 for the following purposes:
1. to elect two directors, each for a term of three years expiring in
2003;
2. to increase the aggregate number of shares of the Company's common
stock, par value $.01 per share ("Common Stock"), subject to awards
under the Company's 1995 Non-Employee Director Stock Option Plan from
105,000 to 210,000 shares;
3. to ratify the appointment of BDO Seidman, LLP as the Company's
independent auditors for the fiscal year ending December 30, 2000; and
4. to transact such other business as may properly come before the meeting
and any postponement or adjournment thereof.
Information with respect to the above matters is set forth in the Proxy
Statement that accompanies this Notice. Financial and other information
concerning the Company is contained in the enclosed Annual Report to
Stockholders for the fiscal year ended December 25, 1999.
The Board of Directors has fixed the close of business on March 20, 2000
as the record date for determining stockholders entitled to notice of and to
vote at the meeting. A complete list of the stockholders of record entitled to
vote at the meeting will be produced at the time and place of the meeting and
will be open to stockholders of record during the whole time thereof.
<PAGE>
So that we may be sure your shares will be voted at the meeting, please
date, sign and return the enclosed proxy card promptly. For your convenience, a
postpaid return envelope is enclosed for your use in returning your proxy card.
If you attend the meeting, you may revoke your proxy and vote in person.
By Order of the Board of Directors,
Paul Feuerman
Secretary
Florham Park, New Jersey
April 14, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. EVEN
IF YOU PLAN TO BE PRESENT, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD AT YOUR EARLIEST CONVENIENCE IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY YOUR PROXY.
<PAGE>
SCHEIN PHARMACEUTICAL, INC.
100 CAMPUS DRIVE
FLORHAM PARK, NEW JERSEY 07932
April 14, 2000
------------------------------
PROXY STATEMENT
------------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2000
GENERAL INFORMATION
The enclosed proxy is solicited by the Board of Directors of Schein
Pharmaceutical, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders (the "Meeting" or "Annual Meeting") to be held on
Tuesday, May 16, 2000, beginning at 10:00 a.m., local time, at The Madison
Hotel, One Convent Road, Morristown, New Jersey 07960, and at any postponement
or adjournment thereof.
The securities of the Company entitled to vote at the Annual Meeting
consist of shares of common stock, par value $.01 per share ("Common Stock"), of
the Company. At the close of business on March 20, 2000 (the "Record Date"),
there were outstanding and entitled to vote 32,983,864 shares of Common Stock.
The holders of record of Common Stock on the Record Date will be entitled to one
vote per share. The Company's Restated Certificate of Incorporation does not
provide for cumulative voting in the election of directors.
The Annual Report to Stockholders for the year ended December 25, 1999
is being furnished with this Proxy Statement to the holders of record of Common
Stock on the Record Date. The Annual Report does not form any part of the
material for the solicitation of proxies. The Notice of Annual Meeting of
Stockholders, this Proxy Statement and the enclosed proxy card will be first
mailed to stockholders on or about April 14, 2000.
VOTING AND PROXY PROCEDURES
Properly executed proxies received in time for the Meeting will be voted
in accordance with the directions given in the proxy. The enclosed proxy card
provides a means for the holders of Common Stock to vote for both nominees for
director listed therein or to withhold authority to vote for one or both of such
nominees, and to vote for, against or abstain as to each other matter listed in
the Notice of Annual Meeting of Stockholders. Stockholders are urged to specify
their choices on the proxy, but if
<PAGE>
no choice is specified, eligible shares will be voted for (1) the election of
the two nominees for director named herein, (2) an increase in the aggregate
number of shares of Common Stock subject to awards under the 1995 Non-Employee
Director Plan, as amended (the "1995 Non-Employee Director Plan"), from 105,000
to 210,000 shares and (3) the ratification of the appointment of BDO Seidman,
LLP ("BDO") as the Company's independent auditors for the fiscal year ending
December 30, 2000.
If the enclosed proxy card is executed and returned, it may nevertheless
be revoked by a duly executed later dated proxy, by written notice filed with
the Secretary of the Company at the Company's corporate office at any time
before the proxy is exercised, or by voting in person at the Annual Meeting.
The holders of a majority of the total shares of Common Stock issued and
outstanding at the close of business on the Record Date, whether present in
person or represented by proxy, will constitute a quorum for the transaction of
business at the Annual Meeting. In accordance with the rules of the New York
Stock Exchange, the affirmative vote of a majority of the votes cast at the
Annual Meeting is required to approve the proposal to increase the aggregate
number of shares of Common Stock subject to awards under the 1995 Non-Employee
Director Plan; provided that the total votes cast on the proposal represents
over 50% of all shares of Common Stock entitled to vote on the proposal. The
affirmative vote of a plurality of the votes cast at the Annual Meeting is
required for the election of directors, and the affirmative vote of a majority
of the votes cast at the Annual Meeting is required for the ratification of the
appointment of BDO as the Company's independent auditors for the fiscal year
ending December 30, 2000 and for any other matters as may properly come before
the Annual Meeting or any postponement or adjournment thereof.
Abstentions are counted toward the calculation of a quorum but are not
treated as either a vote for or against a proposal. Any unvoted position in a
brokerage account will be considered as not voted and will not be counted toward
fulfillment of quorum requirements. Thus, abstentions and broker non-votes will
not be included in vote totals and will not affect the outcome of the vote.
The cost of solicitation of proxies will be paid by the Company. In
addition to solicitation by mail, proxies may be solicited by the directors,
officers and employees of the Company, without additional compensation, by
personal interview, telephone, telegram or otherwise. Arrangements will also be
made with brokerage firms and other custodians, nominees and fiduciaries who
hold the Common Stock of record for the forwarding of solicitation materials to
the beneficial owners thereof. The Company will reimburse such brokers,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith. The Company has no present plans to
hire special employees or paid solicitors to assist in obtaining proxies.
-2-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of March 2, 2000 certain information
with respect to shares of Common Stock beneficially owned by each of its
directors and nominees for directors, by each executive officer named in the
Summary Compensation Table, by all of its directors and executive officers as a
group and by persons who are known to the Company to be the beneficial owners of
more than five percent of the issued and outstanding shares of Common Stock.
Such persons have sole voting power and sole dispositive power with respect to
all shares set forth in the table unless otherwise specified in the footnotes to
the table.
<TABLE>
<CAPTION>
NAME, ADDRESS AND NATURE NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNERSHIP(1) BENEFICIALLY OWNED(2) CLASS
-------------------------- --------------------- -----
<S> <C> <C>
Marvin H. Schein(3)(4).................... 9,252,110 28.05%
137 Commercial Street
Plainview, NY 11803
Bayer Corporation......................... 8,141,910 24.69%
100 Bayer Road
Pittsburgh, PA 15205
Pamela Schein(3)(4)....................... 7,144,410 21.66%
140 West 57th Street
Ninth Floor
New York, NY 10019
Pamela Joseph(4).......................... 2,785,440 8.45%
Martin Sperber(4)......................... 1,313,532 3.91%
Dariush Ashrafi........................... 493,904 1.49%
Paul Feuerman............................. 119,495 *
Paul Kleutghen............................ 98,673 *
Whitney K. Stearns, Jr. .................. 76,683 *
Javier Cayado............................. 95,873 *
Richard L. Goldberg....................... 21,138 *
Harvey Rosenthal.......................... 6,292 *
Joseph A. Akers........................... 0 *
-3-
<PAGE>
<CAPTION>
NAME, ADDRESS AND NATURE NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNERSHIP(1) BENEFICIALLY OWNED(2) CLASS
-------------------------- --------------------- -----
<S> <C> <C>
Judith Hemberger.......................... 0 *
Directors and Executive Officers as a
Group (10 persons)(3)(4)......... 2,225,590 6.50%
</TABLE>
- --------------------
(*) Denotes less than 1%.
(1) Unless otherwise indicated, the address for each person is c/o Schein
Pharmaceutical, Inc., 100 Campus Drive, Florham Park, New Jersey 07932.
(2) Includes shares issuable upon the exercise of options which will become
exercisable on or before May 1, 2000 to the following: Martin Sperber
(651,475), Dariush Ashrafi (203,917), Paul Feuerman (116,767), Paul
Kleutghen (93,908), Whitney K. Stearns, Jr. (73,517), Javier Cayado
(95,416), Richard L. Goldberg (16,138), Harvey Rosenthal (1,292), and
the Directors and Executive Officers as a Group (1,252,430).
(3) Information based upon a Schedule 13D dated March 13, 2000 filed with
the Securities and Exchange Commission by Mr. Schein, certain trusts
established by Mr. Schein, Ms. Schein, certain trusts established by Ms.
Schein, Leslie J. Levine, Judith Shafran, Irving Shafran and Robert D.
Villency. The Schedule 13D reports that the filing persons have entered
into an understanding to vote all the shares over which any of them has
voting control in favor of certain matters described in the Schedule
13D.
(4) Includes all shares for which such stockholder is either the direct
beneficial owner or holds in trust for his or her family members'
benefit and/or charities for which such stockholder is trustee.
-4-
<PAGE>
MATTERS TO COME BEFORE THE ANNUAL MEETING
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides that the
Board of Directors will consist of not fewer than five or more than nine
persons, unless otherwise determined by the Board of Directors. The Board of
Directors has fixed the authorized number of directors at seven.
The Restated Certificate of Incorporation of the Company provides that
the Board of Directors shall be divided into three classes, with such classes to
be as nearly equal in number as the total number of directors constituting the
entire Board of Directors permits. The terms of office of the respective classes
expire in successive years. At the Annual Meeting, two members are to be elected
to the Board of Directors to serve for a term of three years until the annual
meeting of stockholders in 2003. Each of the nominees is now a director of the
Company and is standing for reelection. The Board of Directors has no reason to
believe that either of the nominees will be unable to serve if elected to office
and, to the knowledge of the Board, the nominees intend to serve the entire term
for which election is sought. Should either or both of the nominees named herein
become unable or unwilling to accept nomination or election, the persons named
in the proxy will vote for such other person or persons as the Board of
Directors may recommend.
Pursuant to the Restructuring Agreements (as defined on page 30), until
Bayer Corporation owns less than 10% of the Company's outstanding Common Stock,
Bayer Corporation is entitled to nominate a number of members of the Board of
Directors of the Company equal to the product of the number of members of the
Board of Directors and its percentage stockholdings of Common Stock at the time
of nomination. In this regard, Bayer Corporation nominated Joseph A. Akers as a
member of the Board of Directors. Until May 15, 2001, Bayer Corporation and
certain of the Company's principal stockholders must vote for the election of
Bayer Corporation's nominee(s). See "Restructuring Agreements."
NOMINEES FOR ELECTION TO TERM EXPIRING 2003
DARIUSH ASHRAFI
Mr. Ashrafi, 53, has been President and Chief Operating Officer since
November 1999, and a director of the Company since September 1997. He was
previously Executive Vice President and Chief Financial Officer from October
1995 until November 1999 and Senior Vice President and Chief Financial Officer
from May 1995 until September 1995. From 1990 to 1995, Mr. Ashrafi was Senior
Vice President, Chief Financial Officer and director of The Warnaco Group, Inc.,
an apparel company. Prior to joining Warnaco, he spent 18 years with Ernst &
Young LLP and became a partner in 1983. Mr. Ashrafi received his B.S. degrees in
Aeronautical and Astronautical Engineering and in Management Science from the
Massachusetts Institute of Technology and his M.S. in Finance from the
Massachusetts Institute of Technology Sloan School.
-5-
<PAGE>
HARVEY ROSENTHAL
Mr. Rosenthal, 57, has been a director of the Company since August 1998.
He is Chair of the Audit Committee and a member of the Compensation Committee of
the Board of Directors of the Company. Mr. Rosenthal served as President and
Chief Operating Officer of Melville Corporation from December 1993 to October
1996, and as a member of its board of directors until June 1997. Prior to
assuming his position as President and Chief Operating Officer, Mr. Rosenthal
held key positions at CVS, a chain drugstore company and division of Melville,
for over 24 years, including 10 years as President and CEO. Mr. Rosenthal is a
member of the board of directors of LoJack Corporation and a member of the board
of trustees for EQ Advisors Trust. He is also a trustee and executive committee
member of the Dana-Farber Cancer Institute. Mr. Rosenthal is a graduate of
Harvard College and earned an MBA from Harvard Business School. He also holds an
Honorary Doctor of Science in Pharmacy from Massachusetts College of Pharmacy.
INCUMBENT DIRECTORS - TERM EXPIRING 2001
JOSEPH A. AKERS
Mr. Akers, 54, has been a director of the Company since May 1999. Mr.
Akers is currently the Executive Vice President and Chief Administrative and
Financial Officer of Bayer Corporation. Mr. Akers joined Bayer in Berkeley,
California, in 1970. From 1979 to 1981, he worked in the Pharmaceutical Division
of Bayer's parent company, Bayer A.G., in Germany. He transferred in 1986 to
Bayer's Pharmaceutical Division in West Haven, Connecticut, and held various
positions in finance. He joined Bayer's Diagnostics Division in Tarrytown, New
York, in 1992, where he held the position of Senior Vice President and head of
the Europe Region and Senior Vice President, Finance, Controlling and
Administration. In April 1999, he became Executive Vice President and Chief
Administrative and Financial Officer of Bayer Corporation. Mr. Akers received
his B.S. degree in marketing and an M.B.A. in finance from the University of
California at Berkeley.
PAUL FEUERMAN
Mr. Feuerman, 40, has been General Counsel since 1991, Executive Vice
President, Corporate Affairs, since January 2000, and a director of the Company
since September 1997. Previously, he was a Senior Vice President of the Company
from February 1997 until December 1999 and a Vice President from January 1993
until February 1997. Mr. Feuerman previously was associated with the law firm
Proskauer Rose LLP. He received his B.A. from Trinity College and his J.D. from
Columbia Law School.
JUDITH HEMBERGER
Dr. Hemberger, 52, has been a director of the Company since August 1999.
She is Chair of the Compensation Committee and a member of the Audit Committee
of the Board of Directors of the
-6-
<PAGE>
Company. Dr. Hemberger is currently Executive Vice President, Chief Operating
Officer and a director of Pharmion Corporation. She previously served as Senior
Vice President, Business Development for AVAX Technologies, Inc., Senior Vice
President, Global Drug Regulatory Affairs for Hoechst Marion Roussel and Vice
President, Commercial Development and Medical Affairs for Marion Merrell Dow
Inc. Dr. Hemberger is currently an adjunct assistant professor, University of
Missouri, Kansas City School of Pharmacy. In addition, she is a member of the
boards of directors of Cell Pathways Inc. and Pharmaceutical Research Associates
International, Inc. Previously, she was a member of the board of directors of
NexStar Pharmaceuticals, Inc. prior to its merger with Gilead Sciences, Inc. and
Marion Merrell Dow before it merged with Hoechst Marion Roussel. In addition to
a master's degree in business administration, Dr. Hemberger holds a doctorate
degree in Pharmacology from the University of Missouri, Kansas City.
INCUMBENT DIRECTORS - TERM EXPIRING 2002
RICHARD L. GOLDBERG
Mr. Goldberg, 64, has been a director of the Company since September
1994. He is currently a Senior Partner at Proskauer Rose LLP and has been a
member of that law firm since 1990. Prior to 1990, he was a Senior Partner at
Botein Hays & Sklar. Mr. Goldberg is also a member of the board of directors of
Comtech Telecommunications Corp. (NASDAQ). He is a graduate of Brooklyn College
and received his J.D. from Columbia Law School.
MARTIN SPERBER
Mr. Sperber, 68, has been Chairman, Chief Executive Officer and a
director of the Company since 1989. From 1985 until November 1999, Mr. Sperber
was also President of the Company. Mr. Sperber has been employed in various
positions in the Schein organization for over 40 years. Mr. Sperber is a member
of the Board of the Generic Pharmaceutical Industry Association, a member of the
Board of the American Foundation for Pharmaceutical Education, a member of the
American Pharmaceutical Association and a member of the Council of Overseers of
the Long Island University Arnold and Marie Schwartz College of Pharmacy. Mr.
Sperber received his B.S. degree in Pharmacy from Columbia University.
-----------------------------
The Company's Restated Certificate of Incorporation provides that
nominations for the election of directors may be made: (a) by or at the
direction of the Board of Directors or (b) by or on behalf of a stockholder of
the Company, or a duly authorized proxy for such stockholder, who is a
stockholder of record at the time of giving notice and who shall be entitled to
vote for the election of directors at the meeting. Nominations by stockholders
shall be made by notice, in writing to the Secretary of the Company delivered or
mailed to, and received at, the principal executive offices of the Company not
fewer than 60 days or more than 90 days prior to the anniversary date of the
immediately preceding annual meeting, provided that if the annual meeting with
respect to which such notice is to be tendered
-7-
<PAGE>
is not held within 30 days before or after such anniversary date, notice by the
stockholder to be timely must be received not earlier than 90 days prior to such
annual meeting and not later than 60 days prior to such annual meeting. Each
such notice shall set forth (a) as to each person whom the stockholder proposes
to nominate for election or reelection as a director, all information relating
to such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (including such person's written consent to being named as a
nominee and to serving as a director, if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the Company's
books, of such stockholder, (ii) the class and number of shares of stock of the
Company beneficially owned by such stockholder and represented by proxy and
(iii) a description of all arrangements or understandings between such
stockholder and any other person or persons (including their names) in
connection with such nomination and any material interest of such stockholder in
such nomination.
The Company was advised on March 13, 2000 by certain stockholders that
they or their agents (the "Marvin Schein/Irving Shafran Group") intend, among
other things, to nominate two individuals to be elected as directors with a term
expiring in 2003 to the Board of Directors of the Company. In the event the
Marvin Schein/Irving Shafran Group nominates two persons to be elected as
directors with a term expiring in 2003 in opposition to the Board of Directors'
nominees identified above, and such Group's nominees are elected to the Board of
Directors at the Annual Meeting, the remaining members of the Board of Directors
intend, as soon as practicable thereafter, to increase the size of the Board of
Directors and re-elect Dariush Ashrafi, the President and Chief Operating
Officer of the Company, and Harvey Rosenthal, the Chairman of the Audit
Committee of the Board of Directors and one of the two outside directors on the
Compensation Committee of the Board of Directors. It is anticipated that Mr.
Ashrafi would be placed in the class of directors whose term expires in 2003 and
that Mr. Rosenthal would be placed in the class of directors whose term expires
in 2002. Such an increase in the size of the Board of Directors would permit
Bayer Corporation to designate one director in addition to Mr.
Akers. See "Restructuring Agreements."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has two standing committees: the
Compensation Committee and the Audit Committee. The Compensation Committee
approves the compensation for senior executives of the Company and administers
the Company's stock option plans. The members of the Compensation Committee are
Dr. Hemberger and Mr. Rosenthal.
The Audit Committee has general responsibility for surveillance of
financial controls, as well as for accounting and audit activities of the
Company. The Audit Committee annually reviews the qualifications of the
Company's independent certified public accountants, makes recommendations to the
Board of Directors as to their selection and reviews the plan, fees and results
of their audit. The members of the Audit Committee are Dr. Hemberger and Mr.
Rosenthal.
-8-
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ended December 25, 1999, the Board of Directors
met 13 times, the Compensation Committee met 13 times and the Audit Committee
met 1 time. Prior to the formation of the Audit Committee in 1999, Mr.
Rosenthal, the current Chair of the Audit Committee, met periodically with
management.
COMPENSATION OF DIRECTORS
Directors who are also officers of the Company do not receive any fee or
remuneration for services as members of the Board of Directors. Each outside
director receives a retainer at an annual rate of $20,000, unless he or she
waives such retainer in favor of receiving a greater number of options under the
1995 Non-Employee Director Plan, as well as a fee of $1,000 for each meeting of
the Board of Directors attended in person and $500 if participated in by
telephone. In addition, a fee of $500 per meeting is paid to directors for
attendance at or participation in any meeting of a committee of the Board of
Directors. In fiscal 1999, Mr. Akers received $8,500, Mr. Goldberg received
$14,500 and Dr. Hemberger received $9,500 (each of whom waived the annual
retainer). Mr. Rosenthal (who did not waive the annual retainer) received
$38,500. As a result of waiving the annual retainer, Mr. Akers, Mr. Goldberg and
Dr. Hemberger each received additional options to purchase shares of Common
Stock as described below.
Under the 1995 Non-Employee Director Plan, on the first business day
after January 1 of each year, each outside director is automatically granted
options to purchase a number of shares of Common Stock determined by dividing
$50,000 ($100,000 in the case of an outside director who has waived the annual
retainer) by the Fair Market Value of a share of Common Stock on the grant date.
A pro rata grant is made to directors who join the Board of Directors during the
year. The exercise price per share is 100% of the Fair Market Value on the date
of grant. The options vest over a period of three years and expire after ten
years. In fiscal 1999, Mr. Goldberg was granted options to purchase up to 6,504
shares of Common Stock at a price per share of $15.38; Mr. Akers was granted
options to purchase up to 5,129 shares of Common Stock at a price per share of
$12.13; Dr. Hemberger was granted options to purchase up to 2,670 shares of
Common Stock at a price per share of $15.19; and Mr. Rosenthal was granted
options to purchase up to 3,252 shares of Common Stock at a price per share of
$15.38.
VOTE REQUIRED
The affirmative vote of a plurality of the votes cast at the Annual
Meeting is required for the election of directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR THE ELECTION OF EACH OF THE NOMINEES.
-9-
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report on the
Company's executive compensation policies. This report describes the
Compensation Committee's compensation policies applicable to the Company's
executive officers and provides specific information regarding the compensation
of the Company's Chief Executive Officer. (The information contained in the
"Report of the Compensation Committee of the Board of Directors" shall not be
deemed to be "soliciting material" or to be "filed" with the Securities and
Exchange Commission (the "Commission"), nor shall such information be
incorporated by reference into any future filings under the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, except to the
extent that the Company specifically incorporates it by reference into such
filing.)
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors, which also serves
as the Stock Option Committee, has responsibility for determining the Company's
compensation program for its executive officers, including the named executive
officers. In so doing, the Committee seeks to ensure that the program is
competitive in level and structure with the programs of other pharmaceutical
businesses and comparable-size companies in general, and that it is both
supportive of the Company's financial and operating objectives and aligned with
the financial interests of the Company's stockholders. The Company and the
Compensation Committee receive advice from an independent executive compensation
consulting firm regarding the program, and members of the Committee regularly
discuss the performance of executive officers with the Chief Executive Officer
and, as occasion permits, observe the executive officers' performances directly.
PROGRAM COMPONENTS AND ORIENTATION
The Company's executive officer compensation program is intended to
enable the Company to attract and retain high quality, effective executives
whose ultimate responsibility is to enhance stockholder value, and to compensate
these persons based on their and the Company's performance and on the
longer-term value they create for the Company's stockholders. The components of
the compensation program have traditionally consisted of base salary, annual
incentive payments and periodic grants of stock options.
The competitiveness of the Company's compensation program is measured
relative to the practices of other pharmaceutical companies and comparable-size
companies in general. Salaries, incentive payment opportunities and stock option
grants, in the aggregate, are generally oriented to the 50th to 75th percentile
of competitive practices, with exceptions occurring when considered necessary
-10-
<PAGE>
by the Committee, on the recommendation of the Chief Executive Officer, to
achieve objectives significant to the Company's interest at the time.
BASE SALARY
The Committee annually reviews executive officer salaries (other than
for the Company's Chief Executive Officer whose salary is set forth in his
employment agreement) and, after consideration with the Chief Executive Officer,
makes adjustments as warranted based on competitive practices and the
individual's performance. Salary increases, if made, generally occur during the
first quarter of the calendar year retroactive to January 1st of that year.
Salaries of the named executive officers for 1999, excluding Mr. Sperber (and
Mr. Cayado who became a part-time employee effective August 1, 1999), reflect
increases which place these salaries in about the 90th percentile of competitive
practices, in the view of the Company's executive compensation consulting firm.
ANNUAL INCENTIVE COMPENSATION
Annual incentive compensation for executive officers under the Company's
Management Incentive Plan ("MIP") is designed to incentivize these key people
and reward the achievement of pre-established corporate, business unit and
individual performance goals annually determined by the Chief Executive Officer.
Corporate and business unit goals are typically financial, while individual
performance goals are person-specific and include items such as compliance,
pipeline management and production targets.
Following year-end, the Chief Executive Officer reviews that year's
corporate, business unit and individual performances against MIP goals and award
opportunities previously established and determines MIP award payments, all of
which is then presented to the Committee for its consideration and action.
Against the background of the Company's financial results for 1999, no MIP
awards were recommended or made to the named executive officers.
STOCK OPTIONS
The Committee believes that stock options play a major role in directly
aligning the long-term financial interests of the Company's officers and
stockholders, and in retaining key executives, and makes grants on an annual or
more frequent basis. In fiscal 1999, the Committee granted options to the named
executive officers at an average exercise price of $10.49 per share. These
grants took into account the options previously granted to each of the named
executive officers, none of which had been exercised, and reflected special
retention needs of the Company.
-11-
<PAGE>
THE CHIEF EXECUTIVE OFFICER
Mr. Sperber had voluntarily reduced by 10% his contractual salary of
$700,000 for 1998. In view of the extraordinary time and effort required to deal
with the challenges facing the Company, in 1999 Mr. Sperber's salary was
restored to the level provided for in his contract but the Committee, in
concurrence with Mr. Sperber, did not award any incentive compensation to him
for 1999. During 1999, the Committee determined that it would be in the best
interests of the Company to extend the term of Mr. Sperber's employment contract
to January 1, 2001. His employment agreement was also amended to provide that in
the event of a termination in relation to a change of control, he will receive
(together with a "gross-up" amount) a payment equal to two times the sum of his
base salary plus $375,000 and all of his stock options will fully vest and
remain exercisable for a period of three years from the date of termination. The
amended agreement also provides that if the Company fails to offer to extend Mr.
Sperber's employment agreement for a period of one year beyond its then current
term, he will receive a payment equal to the sum of his base salary plus
$375,000. Mr. Sperber's employment contract is more fully described under
"Employment Agreements" elsewhere in this Proxy Statement.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code prohibits the Company from
deducting annual compensation in excess of $1 million paid to any of the named
executive officers, unless such compensation satisfies certain conditions. No
named executive officer was paid compensation in excess of $1 million in 1999.
The Company intends to structure future compensation in a manner that will
achieve maximum deductibility under Section 162(m) without materially
interfering with its corporate objectives or structure.
Members of the Compensation Committee
Judith Hemberger
Harvey Rosenthal
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
David R. Ebsworth, an Executive Vice President of Bayer Corporation,
which has relationships and agreements with the Company referred to under
"Restructuring Agreements" on page 30 and "Certain Transactions" on page 33, was
a director of the Company until he resigned on May 19, 1999. Richard L. Goldberg
is a member of Proskauer Rose LLP, which rendered legal services to the Company
in 1999 and continues to render such services in 2000. Mr. Ebsworth served as a
member of the Compensation Committee of the Board of Directors until May 1999,
when he was replaced by Harvey Rosenthal. Mr. Goldberg served as a member of the
Compensation Committee of the Board
-12-
<PAGE>
of Directors until August 1999, when he was replaced by Dr. Judith Hemberger.
None of these directors is or has been an officer or employee of the Company.
-13-
<PAGE>
EXECUTIVE COMPENSATION SUMMARY TABLE
The following table sets forth certain information concerning
compensation for the fiscal years ended December 25, 1999, December 26, 1998 and
December 27, 1997 of the Company's Chief Executive Officer and the four other
most highly compensated executive officers (the "named executive officers").
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
---------------------- ------ -------
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(#) PAYOUTS($)(2) COMPENSATION(3)
--------------------------- ------ ----- ------------ ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Martin Sperber............................. 1999 $ 700,000 $ -- $ 8,860 75,000 $ -- $ 23,828(4)
Chairman of the Board of Directors 1998 630,000 -- 9,381 222,000 35,734(4)
and Chief Executive Officer 1997 700,000 400,000 9,436 -- 33,602(4)
Dariush Ashrafi............................ 1999 416,730 -- 2,813 80,000 75,000 57,878(5)
President, Chief Operating Officer and 1998 347,000 -- 5,418 77,500 75,000 43,807(5)
Director 1997 341,000 93,000 10,300 57,750 75,000 25,274(5)
Paul Feuerman.............................. 1999 275,000 -- 8,610 180,000 150,000 5,578(6)
Executive Vice President, Corporate 1998 239,000 -- 8,011 73,575 150,000 23,494(6)
Affairs, General Counsel and Director 1997 225,000 61,000 8,596 15,750 100,000 17,462(6)
Paul Kleutghen............................. 1999 265,000 -- 8,519 20,000 150,000 12,042(7)
Senior Vice President, Strategic 1998 239,000 -- 10,364 51,875 150,000 43,237(7)
Development 1997 211,000 37,300 9,362 8,925 100,000 37,142(7)
Whitney K. Stearns, Jr..................... 1999 206,000 -- 5,967 12,500 100,000 6,041(8)
Senior Vice President and 1998 170,000 -- 6,027 26,800 100,000 19,831(8)
Chief Financial Officer 1997 163,000 30,000 5,314 8,400 100,000 14,991(8)
Javier Cayado.............................. 1999 234,000 -- 2,679 15,000 75,000 25,401(9)
Former Senior Vice President, 1998 239,000 -- 10,209 72,250 75,000 42,279(9)
Technical Operations 1997 220,000 37,000 398 10,500 100,000 30,625(9)
</TABLE>
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<PAGE>
- -----------------
(1) The compensation described in this table does not include medical, dental
or other benefits available generally to all salaried employees of the
Company, as well as certain perquisites and other personal benefits, the
value of which does not exceed the lesser of $50,000 or 10% of the named
executive officer's total salary and bonus reported in this table.
(2) LTIP Payouts reflect Long Term Incentive Plan ("LTIP") payments pursuant
to various deferred compensation agreements.
(3) For 1998 and 1997, includes the Company's Book Equity Appreciation Rights
Program (the "BEARs Program"), which allows certain employees to benefit
from an increase in the Company's book value (calculated according to a
formula defined in the BEARs Program). In 1999 the BEARs Program was
terminated and all BEARs were converted to cash and paid out to
participants. All participants were fully vested in their book equity
appreciation rights ("BEARs"). For 1999, 1998 and 1997, the method used
to determine the cost of term life insurance coverage provided by the
Company has been changed to reflect the economic benefit designated by
the Internal Revenue Code Section 79(c) for uniform premiums for group
term life insurance (the "IRS Benefit") to the named executive officer
instead of the cost to the Company.
(4) In 1999 All Other Compensation includes $19,028 for the IRS Benefit for
term life insurance coverage provided by the Company and $4,800 for the
Company Retirement Plan employer matching contributions. In 1998 All
Other Compensation includes $8,000 for the Company Retirement Plan of
Schein Pharmaceutical, Inc. & Affiliates discretionary contribution,
$22,934 for the IRS Benefit for term life insurance coverage provided by
the Company and $4,800 for the Company Retirement Plan employer matching
contributions. In 1997 All Other Compensation includes $8,000 for the
Company Retirement Plan discretionary contribution, $24,402 for the IRS
Benefit for term life insurance coverage provided by the Company and
$1,200 for the Company Retirement Plan employer matching contribution.
(5) In 1999 All Other Compensation includes $49,867 for the value of the
Split Dollar Life Insurance Plan (the "Life Insurance Plan"), $4,800 for
the Company Retirement Plan employer matching contribution and $3,211 for
the IRS Benefit for term life insurance coverage provided by the Company.
In 1998 All Other Compensation includes $14,000 for the Company's
Supplemental Retirement Plan contribution, $8,000 for the Company
Retirement Plan discretionary contribution, $13,204 for the value of the
Split Dollar Life Insurance Plan, $4,800 for the Company Retirement Plan
employer matching contribution and $3,803 for the IRS Benefit for term
life insurance coverage provided by the Company. In 1997 All Other
Compensation includes $12,363 for the Supplemental Retirement Plan
contribution, $8,000 for the Company Retirement Plan discretionary
contribution, $1,200 for the Company Retirement Plan employer matching
contribution and $3,711 for the IRS Benefit for term life insurance
coverage provided by the Company.
(6) In 1999 All Other Compensation includes $4,800 for the Company Retirement
Plan employer matching contribution and $778 for the IRS Benefit for term
life insurance coverage provided by the Company. In 1998 All Other
Compensation includes $3,207 for the value of the BEARs Program, $8,000
for the Company Retirement Plan discretionary contribution, $6,925 for
the Supplemental Retirement Plan contribution, $4,800 for the Company
Retirement Plan employer matching
-15-
<PAGE>
contribution and $562 for the IRS Benefit for term life insurance
coverage provided by the Company. In 1997 All Other Compensation includes
$2,583 for the value of the BEARs Program, $8,000 for the Company
Retirement Plan discretionary contribution, $5,086 for the Supplemental
Retirement Plan contribution, $1,200 for the Company Retirement Plan
employer matching contribution and $593 for the IRS Benefit for term life
insurance coverage provided by the Company.
(7) In 1999 All Other Compensation includes $1,819 for the value of the Split
Dollar Life Insurance Plan, $4,800 for the Company Retirement Plan
employer matching contribution and $1,228 for the IRS Benefit for term
life insurance coverage provided by the Company, and $4,195 for a
forgiven personal loan. In 1998 All Other Compensation includes $4,009
for the value of the BEARs Program, $12,095 for a forgiven equity loss
loan, $8,000 for the Company Retirement Plan discretionary contribution,
$5,713 for a forgiven personal loan, $5,777 for the Supplemental
Retirement Plan contribution, $4,800 for the Company Retirement Plan
employer matching contribution, $1,340 for the value of the Split Dollar
Life Insurance Plan and $1,503 for the IRS Benefit for term life
insurance provided by the Company. In 1997 All Other Compensation
includes $3,229 for the value of the BEARs Program, $12,095 for a
forgiven equity loss loan, $8,000 for the Company Retirement Plan
discretionary contribution, $5,713 for a forgiven personal loan, $4,693
for the Supplemental Retirement Plan contribution, $1,200 for the Company
Retirement Plan employer matching contribution, $892 for the value of the
Split Dollar Life Insurance Plan and $1,320 for the IRS Benefit for term
life insurance provided by the Company.
(8) In 1999 All Other Compensation includes $353 for the value of the Split
Dollar Life Insurance Plan, $4,800 for the Company Retirement Plan
employer matching contribution, and $888 for the for the IRS Benefit for
term life insurance coverage provided by the Company. In 1998 All Other
Compensation Includes $4,009 for the value of the BEARs Program, $2,004
for the Company's Supplemental Retirement Plan contribution, $8,000 for
the Company Retirement Plan discretionary contribution, $ 4,800 for the
Company Retirement Plan employer matching contribution and $1,018 for the
IRS Benefit for term life insurance coverage provided by the Company. In
1997 All Other Compensation includes $3,229 for the value of the BEARs
Program, $1,604 for the Company's Supplemental Retirement Plan
contribution, $8,000 for the Company Retirement Plan discretionary
contribution, $1,200 for the Company Retirement Plan employer matching
contribution and $958 for the IRS Benefit for term life insurance
coverage provided by the Company.
(9) In 1999 All Other Compensation includes $17,991 for the value of the
Split Dollar Life Insurance Plan, $4,800 for the Company Retirement Plan
employer matching contribution and $2,610 for the IRS Benefit for term
life insurance coverage provided by the Company. In 1998 All Other
Compensation includes $8,017 for the value of the BEARs Program, $8,000
for the Company Retirement Plan discretionary contribution, $13,300 for
the value of the Split Dollar Life Insurance Plan, $5,965 for the
Supplemental Retirement Plan contribution, $4,800 for the Company
Retirement Plan employer matching contribution and $2,197 for the IRS
Benefit for term life insurance coverage provided by the Company. In 1997
All Other Compensation includes $6,458 for the value of the BEARs
Program, $8,000 for the Company Retirement Plan discretionary
contribution, $7,543 for the value of the Split Dollar Life Insurance
Plan, $5,402 for the Supplemental Retirement Plan contribution, $1,200
for the Company Retirement Plan employer matching contribution and $2,022
for the IRS Benefit for term life insurance coverage provided by the
Company.
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<PAGE>
OPTION GRANTS FOR FISCAL 1999
The following table provides information concerning grants of stock
options by the Company to the named executive officers in fiscal 1999.
OPTION GRANTS DURING FISCAL 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME DATE OF GRANT GRANTED FISCAL 1999 SHARE DATE 5% 10%
- --------------------------- ------------- ------------- ----------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Martin Sperber.............. 05/19/99 75,000 $12.13 05/19/09 $572,137 $1,449,907
-------------
75,000 7.13
=============
Dariush Ashrafi............. 05/19/99 30,000 $12.13 05/19/09 $228,855 $579,963
11/18/99 50,000 $8.94 11/18/09 $281,116 $712,403
-------------
80,000 7.60
=============
Paul Feuerman............... 05/19/99 30,000 $12.13 05/19/09 $228,855 $579,963
12/16/99 150,000 $9.00 12/16/09 $849,008 $2,151,552
------------
180,000 17.11
============
Paul Kleutghen.............. 05/19/99 20,000 $12.13 05/19/09 $152,570 $386,642
------------
20,000 1.90
============
Whitney K. Stearns, Jr. .... 05/19/99 12,500 $12.13 05/19/09 $95,356 $241,651
------------
12,500 1.19
============
Javier Cayado............... 05/19/99 15,000 $12.13 05/19/09 $114,427 $289,981
------------
15,000 1.43
============
</TABLE>
-17-
<PAGE>
OPTION EXERCISES AND VALUES FOR FISCAL 1999
The following table provides information concerning options exercised in
fiscal 1999 by the named executive officers and the value of such officers'
unexercised options at December 25, 1999.
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND
FISCAL YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-The-Money
Underlying Unexercised Options at
Shares Options at Fiscal Year-End Fiscal Year-End
Acquired Value --------------------------- ------------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin Sperber.............. 0 0 602,475 198,000 0 0
Dariush Ashrafi............. 0 0 152,467 157,283 0 $25,000
Paul Feuerman............... 0 0 91,392 233,833 0 $66,000
Paul Kleutghen.............. 0 0 77,808 53,392 0 0
Whitney K. Stearns, Jr. .... 0 0 65,117 29,833 0 0
Javier Cayado............... 0 0 76,166 58,334 0 0
</TABLE>
EMPLOYMENT AGREEMENTS
AGREEMENTS WITH MR. SPERBER. The Company entered into an employment
agreement with Martin Sperber dated September 30, 1994, as amended as of March
6, 1998, November 18, 1999 and December 31, 1999, pursuant to which Mr. Sperber
serves as Chairman of the Board and Chief Executive Officer of the Company. Mr.
Sperber receives a base salary under this agreement of $700,000 per year and
incentive compensation ranging from $250,000 to $500,000 per year, in an amount
to be determined by the Compensation Committee. If Mr. Sperber's employment is
terminated prior to January 1, 2001, such incentive compensation shall be based
on objective criteria established by the Compensation Committee or, if no such
criteria are established by the Compensation Committee, $250,000 plus the
product of (x) the fraction derived by dividing (i) the sum of the actual cash
incentive compensation earned by each of the three most senior executives of the
Company other than Mr. Sperber in the year Mr. Sperber's employment is
terminated less the sum of the minimum cash incentive compensation contemplated
for such executives for such year, by (ii) the sum of the maximum cash incentive
compensation contemplated for such executives for such year less the sum of the
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<PAGE>
minimum cash incentive compensation contemplated for such executives for such
year and (y) $250,000.
Under this agreement, the term of Mr. Sperber's employment commenced on
January 1, 1994 and terminates on January 1, 2001, unless earlier terminated by
the death of Mr. Sperber, by action of the Board of Directors with or without
cause, due to the disability of Mr. Sperber or by Mr. Sperber upon 30 days
written notice or by Mr. Sperber following a material breach by the Company of
his employment or stock option agreement that is not cured within 30 days. If
the Company fails to offer Mr. Sperber the opportunity to extend his employment
expiration date on or prior to such date, Mr. Sperber is entitled to receive an
amount equal to his base salary on the employment expiration date plus $375,000.
Mr. Sperber is also entitled to receive a gross-up payment on any payments made
to him that are subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code. If Mr. Sperber's employment is terminated without cause,
in addition to all accrued but unpaid compensation to the date of termination,
he is entitled to receive as severance compensation his base salary from the
date of termination through January 1, 2001 and an amount equal to the product
of (i) a fraction, the numerator of which is the amount of earned incentive
compensation for the last full year before termination and the denominator of
which is 365 and (ii) the number of days from termination until January 1, 2001.
If Mr. Sperber voluntarily terminates his employment prior to January 1, 2001
(other than for an uncured breach by the Company), in addition to all accrued
but unpaid compensation to the date of termination, he is only entitled to such
severance pay as is determined by the Compensation Committee. If Mr. Sperber's
employment is terminated for any reason other than his death or disability or
for cause or by Mr. Sperber pursuant to Section 4.1(c) of his employment
agreement, in each case within two years following a change in control or 90
days prior to such change in control, Mr. Sperber shall be entitled to receive a
cash lump sum payment within 30 days of the later of such termination date and
the change in control date, in an amount equal to twice the sum of his base
salary on such termination date plus $375,000, reduced by any amounts paid or
payable to Mr. Sperber pursuant to Sections 5.4(b) and (c) of his employment
agreement. If Mr. Sperber's employment is terminated pursuant to Section 4.1 of
his employment agreement upon his death, disability, retirement at or after age
65, or by the Company other than for cause, all unvested stock options held by
Mr. Sperber on the date of such termination or retirement shall vest immediately
and be fully exercisable and all stock options held by Mr. Sperber (including
those vesting by reason of the preceding provision), shall remain exercisable
(to the extent not exercised) for three years from the date of such termination
or retirement. Mr. Sperber is prohibited from competing with the Company during
the term of the agreement and until the second anniversary of the date the
Company makes its final base salary payment to Mr. Sperber pursuant to the
agreement.
Following termination of Mr. Sperber's employment other than for cause,
Mr. Sperber will be entitled during his lifetime and for the life of his spouse
to continue to participate in, or receive benefits that, on an after-tax basis,
are the same as those under all medical and dental benefit plans, policies and
programs in effect at the termination of his employment. In addition, unless Mr.
Sperber's employment is terminated for cause, Mr. Sperber will be entitled to a
pension, beginning after the termination of his employment and continuing until
the later of the death of Mr. Sperber or his spouse, in an amount equal to 45%
of the average total cash compensation for the highest three of the last seven
years prior to
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<PAGE>
termination, reduced generally by the sum of the amount Mr. Sperber would be
entitled to receive under all of the Company's qualified retirement plans
(within the meaning of Section 401(a) of the Internal Revenue Code) and under
Social Security if he commenced receiving such benefit payments at age 65.
AGREEMENTS WITH MR. ASHRAFI. The Company entered into an employment
agreement with Dariush Ashrafi dated November 18, 1999, as amended as of
December 31, 1999, pursuant to which Mr. Ashrafi serves as President and Chief
Operating Officer of the Company. Mr. Ashrafi receives a base salary under this
agreement of $550,000 per year, additional compensation of $75,000 per year and
an annual bonus calculated according to a formula based upon increases in the
Company's earnings per share (as defined in the agreement) for the bonus year.
Mr. Ashrafi also received a loan from the Company in the amount of $2,234,375
for the purchase of 250,000 shares of Common Stock at the closing price of the
Common Stock on the effective date of the agreement. The loan bears interest at
the rate payable from time to time by the Company under its principal bank
revolving credit facility. Under this agreement, the term of Mr. Ashrafi's
employment began on November 18, 1999 and terminates on the fifth anniversary of
such date, unless earlier terminated by the Company with or without cause, by
Mr. Ashrafi with or without Good Reason (as defined in the employment agreement)
or upon the death or disability of Mr. Ashrafi. On each anniversary date of Mr.
Ashrafi's employment agreement beginning with the fifth anniversary, the
employment term shall be automatically extended for an additional one year
period unless earlier terminated under the employment agreement or unless the
Company or Mr. Ashrafi has notified the other at least six months prior to the
fifth anniversary or any subsequent anniversary date that the employment term
shall terminate at the end of the then current term. If the Company elects not
to renew the employment agreement at the end of the term, the Company shall pay
Mr. Ashrafi (i) for twelve months following the date of termination, an amount
equal to the sum of the Reference Salary plus the Reference Bonus (as defined in
the employment agreement) and (ii) for six months thereafter, an amount equal to
one-half times the sum of the Reference Salary plus the Reference Bonus.
If Mr. Ashrafi's employment with the Company is terminated due to death
or disability, he is entitled to receive his unpaid base salary, and additional
compensation through the date of termination, any awarded but unpaid incentive
compensation, a pro rata bonus, reimbursement for any unreimbursed business
expenses, any amounts or benefits due under any equity or benefit plan, grant or
program and continued participation in all welfare plans for one year from the
date of termination or such longer period in accordance with Company policy. If
Mr. Ashrafi's employment is terminated by the Company without cause or by Mr.
Ashrafi for Good Reason, Mr. Ashrafi is entitled to receive (A) a severance
payment (i) if termination occurs prior to the third anniversary of the date of
the agreement, of at least $1.5 million, equal to the product of two times the
sum of the Reference Salary and Reference Bonus, (ii) if termination occurs on
or after the third anniversary of the date of the agreements, equal to the
product of the sum of the Reference Salary plus the Reference Bonus multiplied
by a fraction, numerator of which is the remaining number of full months in the
employment term and the denominator of which is twelve and (iii) if termination
occurs following a change in control, equal to two times the sum of the
Reference Salary and Reference Bonus but not less than $1.5 million; (B)
continued participation in all welfare plans for the period of severance
payments (without regard to
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<PAGE>
any acceleration of such payments or two years if a lump sum payment); (C)
immediate full vesting of any outstanding stock options; and (D) payment for up
to one year of executive outplacement services. Mr. Ashrafi is also entitled to
receive a gross-up payment on any payments made to him that are subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code. If Mr.
Ashrafi's employment is terminated by the Company for cause or by Mr. Ashrafi
without Good Reason, Mr. Ashrafi shall be entitled to receive all amounts or
benefits due under any equity plan or program.
AGREEMENTS WITH MR. FEUERMAN. The Company entered into an employment
agreement with Paul Feuerman dated as of January 1, 2000, pursuant to which Mr.
Feuerman serves as Executive Vice President, Corporate Affairs and General
Counsel of the Company. Mr. Feuerman receives a base salary under this agreement
of $350,000 per year, an incentive bonus in accordance with the Company's
incentive plan or policies and additional compensation payable in four annual
installments of $150,000 on December 31, 2000, 2001, 2002 and 2003. Under this
agreement, the term of Mr. Feuerman's employment began on January 1, 2000 and
terminates 60 days after either Mr. Feuerman or the Company gives written notice
that he or it does not wish to continue the employment. If Mr. Feuerman's
employment with the Company is terminated for any reason, he is entitled to
receive his base salary through the date of termination, any incentive
compensation previously awarded but not yet paid, unreimbursed business expenses
and any amounts due under benefit plans, as well as one year of outplacement
services. In addition, upon termination of Mr. Feuerman's employment by the
Company for any reason other than for Cause (as defined in the agreement),
Disability (as defined in the agreement) or death, or by Mr. Feuerman for Good
Reason (as defined in the agreement), he is entitled to receive, as a lump sum,
an amount equal to one times (three times, in the event of such a termination
within two years after or 90 days prior to a Change of Control (as defined in
the agreement)) the sum of (a) his then current base salary, (b) his Target
Bonus (as defined in the agreement) and (c) any additional compensation with
respect to the year of termination. Mr. Feuerman is also entitled to receive a
gross-up payment on any payments made to him that are subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code. Further, if Mr. Feuerman
is terminated other than for Cause, Disability or death, or if he voluntarily
terminates his employment for Good Reason, he is entitled to any unpaid
additional compensation and to participate in the Company's welfare plans for
one year (three years, if such termination occurs within two years after or 90
days prior to a Change of Control) following termination or until his earlier
commencement of other full-time employment providing comparable welfare
benefits.
AGREEMENTS WITH MR. KLEUTGHEN. The Company entered into an employment
agreement with Paul Kleutghen dated as of January 1, 2000, pursuant to which Mr.
Kleutghen serves as Senior Vice President, Strategic Development of the Company.
Mr. Kleutghen receives a base salary under this agreement of $265,000 per year,
an incentive bonus in accordance with the Company's incentive plan or policies
and additional compensation payable in four annual installments of $150,000 on
December 31, 2000, 2001, 2002 and 2003. Under this agreement, the term of Mr.
Kleutghen's employment began on January 1, 2000 and terminates 60 days after
either Mr. Kleutghen or the Company gives written notice that he or it does not
wish to continue the employment. If Mr. Kleutghen's employment with the Company
is terminated for any reason, he is entitled to receive his base salary through
the date of termination, any incentive compensation previously awarded but not
yet paid, unreimbursed business
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<PAGE>
expenses and any amounts due under benefit plans, as well as one year of
outplacement services. In addition, upon termination of Mr. Kleutghen's
employment by the Company for any reason other than for Cause (as defined in the
agreement), Disability (as defined in the agreement) or death, or by Mr.
Kleutghen for Good Reason (as defined in the agreement), he is entitled to
receive, as a lump sum, an amount equal to one times (two times, in the event of
such a termination within two years after or 90 days prior to a Change of
Control (as defined in the agreement)) the sum of (a) his then current base
salary, (b) his Target Bonus (as defined in the agreement) and (c) any
additional compensation with respect to the year of termination. Mr. Kleutghen
is also entitled to receive a gross-up payment on any payments made to him that
are subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code. Further, if Mr. Kleutghen is terminated other than for Cause, Disability
or death, or if he voluntarily terminates his employment for Good Reason, he is
entitled to any unpaid additional compensation and to participate in the
Company's welfare plans for one year (two years if such termination occurs
within two years after or 90 days prior to a Change of Control) following
termination or until his earlier commencement of other full-time employment
providing comparable welfare benefits.
AGREEMENTS WITH MR. STEARNS. The Company entered into an agreement with
Whitney K. Stearns, Jr. dated as of January 1, 2000, pursuant to which Mr.
Stearns serves as Senior Vice President and Chief Financial Officer of the
Company. Mr. Stearns receives a base salary under this agreement of $250,000 per
year, an incentive bonus in accordance with the Company's incentive plan or
policies and additional compensation payable in four annual installments of
$100,000 on December 31, 2000, 2001, 2002 and 2003. Under this agreement, the
term of Mr. Stearns' employment began on January 1, 2000 and terminates 60 days
after either Mr. Stearns or the Company gives written notice that he or it does
not wish to continue the employment. If Mr. Stearns' employment with the Company
is terminated for any reason, he is entitled to receive his accrued but unpaid
base salary, any incentive compensation previously awarded but not yet paid,
unreimbursed business expenses and any amounts due under benefit plans, as well
as one year of outplacement services. In addition, upon termination of Mr.
Stearns' employment by the Company for any reason other than for Cause (as
defined in the agreement), Disability (as defined in the agreement) or death, or
by Mr. Stearns for Good Reason (as defined in the agreement), he is entitled to
receive, as a lump sum, an amount equal to one times (two times, in the event of
such a termination within two years after or 90 days prior to a Change of
Control (as defined in the agreement)) the sum of (a) his then-current base
salary, (b) his Target Bonus (as defined in the agreement) and (c) in the event
of such a termination within two years after or 90 days prior to a Change of
Control, any additional compensation payable with respect to the year of
termination. Mr. Stearns is also entitled to receive a gross-up payment on any
payments made to him that are subject to the excise tax imposed by Section 4999
of the Internal Revenue Code. Further, if Mr. Stearns is terminated other than
for Cause, Disability or death, or if he voluntarily terminates his employment
for Good Reason, he is entitled to any unpaid additional compensation and to
participate in the Company's welfare plans for one year (two years, if such
termination occurs within two years or 90 days prior to a Change of Control)
following termination or until his earlier commencement of other full-time
employment providing comparable welfare benefits.
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AGREEMENTS WITH MR. CAYADO. The Company entered into an agreement with
Javier Cayado dated August 1, 1999, pursuant to which Mr. Cayado serves as
Senior Vice President on a part-time basis. Mr. Cayado receives a base salary
under this agreement of $150,000 per year, payable in equal quarterly
installments of $37,500 on the first day of each quarter, an assignment fee of
$3,000 per day for certain assignments from time to time and certain other
benefits. Under this agreement, the term of Mr. Cayado's part-time employment
began on August 1, 1999 and terminates on July 31, 2001, subject to earlier
termination by Mr. Cayado upon 90 days' written notice to the Company, by the
Company at any time for Cause (as defined in the agreement) or the death of Mr.
Cayado. Mr. Cayado terminated the agreement effective March 6, 2000. Under this
agreement, all unvested options held by Mr. Cayado became fully vested on the
date of termination, and each option held by him remains exercisable until the
earlier of one year from the date of termination or ten years from the date of
grant of such option.
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PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Common Stock with the cumulative total stockholder return of the S&P
Smallcap 600 Index and a peer group index*. The graph assumes that a $100
investment was made on April 9, 1998 (the date of the Company's initial public
offering) in each of the Common Stock, the S&P Smallcap 600 Index and the peer
group index, and that all dividends were reinvested quarterly.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG SCHEIN PHARMACEUTICAL INC., THE S&P
SMALLCAP 600 INDEX, AND A PEER GROUP INDEX
ANNUAL RETURN PERCENTAGE
YEARS ENDING
Company Name/Index 12/28/98 12/25/99
SCHEIN PHARMACEUTICAL INC -46.20 -23.73
S&P SMALLCAP 600 INDEX -14.32 12.36
PEER GROUP 18.98 2.75
INDEXED RETURNS
BASE YEARS ENDING
PERIOD
Company Name/Index 4/8/98 12/28/98 12/25/99
SCHEIN PHARMACEUTICAL INC 100 53.80 41.02
S&P SMALLCAP 600 INDEX 100 85.65 95.27
100 118.96 122.21
PEER GROUP COMPANIES
ALPHARMA INC -CL A
BARR LABORATORIES INC
IVAX CORP
MYLAN LABORATORIES
TEVA PHARM INDS -ADR
WATSON PHARMACEUTICALS INC.
The foregoing graph is based on historical data and is not necessarily
indicative of future performance. This graph shall not be deemed to be
"soliciting material" or to be "filed" with the Commission or subject to
Regulations 14A and 14C under the Exchange Act or to the liabilities of Section
18 under the Exchange Act.
- ----------------
* Based on information for a self-constructed peer group consisting
of the following companies: Alpharma Inc., Barr Laboratories Inc.,
IVAX Corporation, Mylan Laboratories, Inc., Teva Pharmaceutical
Industries Ltd. and Watson Pharmaceuticals Inc.
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PROPOSAL 2: INCREASE THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK AVAILABLE
UNDER THE 1995 NON-EMPLOYEE DIRECTOR PLAN FROM 105,000 TO 210,000.
The Board of Directors has approved an amendment to the 1995
Non-Employee Director Plan, subject to stockholder approval, to increase the
aggregate number of shares of Common Stock authorized for issuance under the
1995 Non-Employee Directors Plan from 105,000 to 210,000.
The following description of the 1995 Non-Employee Director Plan is a
summary of the principal provisions of the 1995 Non-Employee Director Plan and
is qualified in its entirety by reference to the 1995 Non-Employee Director
Plan.
PURPOSE OF THE 1995 NON-EMPLOYEE DIRECTOR PLAN
The Company adopted the 1995 Non-Employee Director Plan to enable the
Company to attract, retain and motivate directors who will be important to the
success of the Company and to increase the identity of interest between
directors and stockholders of the Company by granting certain directors
non-qualified options to purchase Common Stock ("Options").
AVAILABLE SHARES
Under the 1995 Non-Employee Director Plan, as proposed to be amended, up
to 210,000 shares of Common Stock are available for issuance upon the exercise
of Options granted to non-employee directors of the Company. The 1995
Non-Employee Director Plan currently authorizes the issuance of up to 105,000
shares of Common Stock upon the exercise of Options granted to non-employee
directors of the Company. In general, if Options are for any reason canceled,
expire or terminate unexercised, the shares covered by such Options will again
be available for the grant of Options. In the event of a stock split, stock
dividend, merger, consolidation or reorganization, appropriate adjustments will
be made in the number and kind of securities receivable upon the exercise of
Options.
ELIGIBILITY
All non-employee directors of the Company are eligible to be granted
Options under the 1995 Non-Employee Director Plan. A non-employee director is a
member of the Company's Board of Directors who is not an active employee of the
Company or any subsidiary of the Company. There are two classes of non-employee
director for purposes of the 1995 Non-Employee Director Plan.
o "Eligible Director -- Class 1," consists of all non-employee
directors who are not in "Eligible Director -- Class 2."
o "Eligible Director -- Class 2," consists of each non-employee
director who is designated by the Board of Directors as such at
the time the director is first elected to
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serve on the Board of Directors or, in the case of a member of the
Board of Directors at the time the Plan was adopted, a director of
the Company designated by the Board of Directors as such at that
time. It is intended (but not required) that the Board of
Directors will designate a director as an Eligible Director
--Class 2 only if, at the time of the designation, the director
has waived all future annual fees for serving as a director of the
Company (but not fees for attending Board of Directors' meetings
or committee meetings or reimbursement of out-of-pocket expenses
for traveling to and from and attending such meetings).
GRANT OF OPTIONS
Under the 1995 Non-Employee Director Plan, Options are automatically
granted on the first business day after January 1st of each year without action
by the Board of Directors or the stockholders of the Company to each
non-employee director (the "Annual Option Grant"). The size of each Annual
Option Grant is determined as follows:
o With respect to a non-employee director who is in Eligible
Director-- Class 1, by dividing $50,000 by the fair market value
of a share of Common Stock on the grant date.
o With respect to a non-employee director who is in Eligible
Director-- Class 2, by dividing $100,000 by the fair market value
of a share of Common Stock on the grant date.
EXERCISE OF OPTIONS
The exercise price of an Option will be the greater of (i) the fair
market value (as defined in the 1995 Non-Employee Director Plan) of a share of
Common Stock at the time of the grant or (ii) the par value of a share of Common
Stock.
Each Option granted on or after August 8, 1996 is exercisable with
respect to one-third of the shares on each anniversary of the date of grant.
Each Option granted prior to August 8, 1996 is exercisable with respect to 20%
of the shares subject to the Option on or after the first anniversary of the
date of grant and with respect to an additional 20% of the shares subject to the
Option on or after each of the next four anniversaries of the date of grant.
All Options granted and not previously exercisable will become vested
and immediately exercisable upon a change in control of the Company, as defined
in the 1995 Non-Employee Director Plan. If a non-employee director's service on
the Company's Board of Directors is terminated for any reason other than cause,
all outstanding options will continue to vest and remain exercisable until the
expiration of the Option. Upon a termination of the non-employee director's
directorship for cause, all outstanding Options will terminate and become null
and void.
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Except where an Option expires earlier, if not previously exercised,
each Option will expire upon the tenth anniversary of the date of grant.
ADMINISTRATION
The 1995 Non-Employee Director Plan is administered and interpreted by
the Board of Directors of the Company or a committee comprised of two or more
members of the Board of Directors to which the Board of Directors has delegated
its powers and functions under the 1995 Non-Employee Director Plan. Each of
those directors is intended to be a "non-employee director" as provided by Rule
16b-3 under the Exchange Act to the extent then required. Currently, the members
of the committee designated to administer the 1995 Non-Employee Director Plan
are Dr. Hemberger and Mr. Rosenthal. The members of the committee are generally
empowered to:
o interpret the 1995 Non-Employee Director Plan and to decide any
questions and settle any controversies or disputes that may arise
in connection with the 1995 Non-Employee Director Plan;
o to establish, amend and rescind rules for carrying out the 1995
Non-Employee Director Plan;
o administer the 1995 Non-Employee Director Plan;
o prescribe the forms of instruments evidencing Options and any
other instruments required under the 1995 Non-Employee Director
Plan and to change such forms from time to time; and
o make all other determinations and to take all actions in
connection with the 1995 Non-Employee Director Plan and the
Options as the committee, in its sole discretion, deems necessary
or desirable.
Any determination, action or conclusion of the committee is final, conclusive
and binding.
AMENDMENT AND TERMINATION OF THE PLAN
The 1995 Non-Employee Director Plan provides that it may be amended by
the Committee or the Board of Directors at any time, and from time to time, to
effect (i) amendments necessary or desirable in order that the 1995 Non-Employee
Director Plan and the Options granted thereunder conform to all applicable laws,
and (ii) any other amendments deemed appropriate. However, to the extent
required by law, no amendment may be made that would require the approval of the
stockholders of the Company under applicable law unless such approval is
obtained. The 1995 Non-Employee Director Plan may be amended or terminated at
any time by the stockholders of the Company. Except as otherwise required by
law, no termination, amendment or modification of the 1995 Non-Employee Director
Plan may, without the consent of the holder of an Option or the
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permitted transferee of the holder's Option, alter or impair the rights and
obligations under any then outstanding Option.
MISCELLANEOUS
Awards under the 1995 Non-Employee Director Plan are generally
nontransferable, otherwise than by will or under applicable laws of descent and
distribution, and may be exercised only by the optionee or the optionee's
guardian or legal representative.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the principal U.S. federal income tax
consequences with respect to Options under the 1995 Non-Employee Director Plan
is based on statutory authority and judicial and administrative interpretations
as of the date of this Proxy Statement, which are subject to change at any time
(possibly with retroactive effect) and may vary in individual circumstances.
Therefore, the following is designed to provide only a general understanding of
the federal income tax consequences (state and local income tax and estate tax
consequences are not addressed below). This discussion is limited to the U.S.
federal income tax consequences to individuals who are citizens or residents of
the U.S., other than those individuals who are taxed on a residence basis in a
foreign country.
In general, an optionee will realize no taxable income upon the grant of
nonqualified stock options and the Company will not receive a deduction at the
time of such grant, unless the option has a readily ascertainable fair market
value (as determined under applicable tax law) at the time of grant. Upon
exercise of a nonqualified stock option, an optionee generally will recognize
ordinary income in an amount equal to the excess of the fair market value of the
stock on the date of exercise over the exercise price, but such amount will not
be subject to federal wage withholding or employment taxes. Upon a subsequent
sale of the stock by the optionee, the optionee will recognize short-term or
long-term capital gain or loss, depending upon his or her holding period for the
stock. The Company will generally be allowed a deduction equal to the amount
recognized by the optionee as ordinary income.
As a result of Section 16(b) of the Exchange Act and the rules and
regulations thereunder, the timing of income recognition may be deferred
following the exercise of an Option. In addition, any entitlement to a tax
deduction on the part of the Company is subject to the applicable federal tax
rules, and in the event that the exercisability of an Option is accelerated
because of a change in control, payments relating to the Options, either alone
or together with certain other payments may constitute parachute payments under
Section 280G of the Internal Revenue Code, which excess amounts may be subject
to excise taxes and be nondeductible by the Company.
The 1995 Non-Employee Director Plan is not subject to any of the
requirements of the Employee Retirement Income Security Act of 1974, as amended.
The 1995 Non-Employee Director Plan is not, nor is it intended to be, qualified
under Section 401(a) or 421 of the Internal Revenue Code.
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<PAGE>
VOTE REQUIRED
Approval of the amendment to the 1995 Non-Employee Director Plan
requires the affirmative vote of a majority of the votes cast at the Annual
Meeting, provided that the total votes cast on such proposal represents over 50%
of all shares of Common Stock entitled to vote on the proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR THE ADOPTION OF THIS PROPOSAL
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors requests that the stockholders ratify its
selection of BDO to serve as the Company's independent auditors for the fiscal
year ending December 30, 2000. BDO examined the consolidated financial
statements of the Company for the fiscal year ended December 25, 1999.
Representatives of BDO will be present at the Annual Meeting to make a statement
if they desire to do so and to respond to questions by stockholders.
VOTE REQUIRED
The affirmative vote of a majority of the shares voted at the meeting is
required for the ratification of the Board's selection of BDO as the Company's
independent auditors for the fiscal year ending December 30, 2000.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR THE ADOPTION OF THIS PROPOSAL.
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RESTRUCTURING AGREEMENTS
In September 1994, in connection with Bayer Corporation's acquisition of
its interest in the Company, the Company, Bayer Corporation, Mr. Sperber, and
certain other principal stockholders entered into certain agreements (the
"Restructuring Agreements") relating to the governance of the Company and
certain other matters.
AGREEMENTS RELATING TO CONTROL OF THE COMPANY
The Restructuring Agreements provide that, until Bayer Corporation owns
less than 10% of the outstanding Common Stock (the "Governance Termination
Date"), Bayer Corporation shall be entitled to nominate a number of members of
the Board of Directors of the Company equal to the product of (a) the number of
members of the Board of Directors and (b) its percentage stockholdings of Common
Stock at the time of nomination.
Until the earlier of May 15, 2001 and a sale of shares of Common Stock
by Bayer Corporation other than to a Permitted Assignee (as defined below), the
Company may not, without Bayer Corporation's consent, among other things, (a)
own, manage or operate any business not principally engaged in a segment of the
pharmaceutical or health care industry or any business ancillary thereto, (b)
amend or restate the Company's charter or by-laws to require more than majority
approval to elect a majority of the Board of Directors or (c) engage in
transactions with any affiliate on terms more favorable to the affiliate than
could be obtained in an arm's-length transaction, other than intercompany
transactions and transactions under the Restructuring Agreements.
The Restructuring Agreements impose certain restrictions on Bayer
Corporation and its affiliates until May 15, 2001 (the "Standstill Period").
Specifically, the Restructuring Agreements provide that Bayer Corporation may
purchase shares of Common Stock to increase its ownership up to a maximum
ownership, in the aggregate, of 33 1/3% until May 15, 2000 and 36 2/3% between
May 16, 2000 and May 15, 2001 (the "Standstill"). During the Standstill Period,
Bayer Corporation and its affiliates may not, among other things, (a) acquire,
announce an intention to acquire or offer to acquire any assets of the Company
or its subsidiaries (other than in the ordinary course) or equity securities of
the Company, (b) participate in or encourage the formation of a group or entity
that seeks to acquire equity securities of the Company, (c) solicit proxies or
become a participant in any election contest with respect to the Company, (d)
initiate or otherwise solicit stockholders for the approval of stockholder
proposals or induce any other person to initiate any stockholder proposal, (e)
seek to place designees on, or remove any member of, the Board or Directors, (f)
deposit any equity securities in a voting trust or like arrangement, (g) seek to
control the management of the Company or negotiate with any person with respect
to any form of extraordinary transaction with the Company or other transaction
not in the ordinary course of business, or be involved in a tender or exchange
offer or other attempt to violate the Standstill or (h) request the Company or
otherwise seek to amend or waive any provision of the Standstill.
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After the Standstill Period, Bayer Corporation has the right to acquire
control of the Company through open market purchases, and under certain
circumstances within six months of the end of the Standstill Period, to acquire
from certain principal stockholders of the Company or from the Company a number
of shares that would enable Bayer Corporation to own a majority of the
outstanding shares of Common Stock. During the Standstill Period, under the
terms of the Restructuring Agreements, Bayer Corporation has the right to
acquire, including under certain circumstances the right to acquire from the
Company and certain of its principal stockholders at fair market value, unless
Bayer Corporation has sold shares of Common Stock other than to certain
permitted transferees, (i) shares in connection with its exercise of certain
preemptive rights, (ii) before May 15, 2001, shares necessary to acquire
ownership of at least 21% more of the outstanding Common Stock than any other
holder of 10% or more of the Common Stock (other than an employee benefit plan
or a person who was a stockholder as of September 30, 1994) and (iii) if, on May
15, 2001, the total number of shares issued and outstanding (less restricted
securities, as defined therein) is less than 133% of the number of shares that,
when added to Bayer Corporation's shares, equals a majority of the shares then
outstanding, shares equal to such amount.
Under the Restructuring Agreements, if Bayer Corporation for any reason
acquires shares of Common Stock in excess of the New Percentage (as defined
below), until May 15, 2001, Bayer Corporation shall vote those excess shares in
accordance with the instructions of Mr. Sperber (or, in the absence of such
instructions, the excess shares shall be deemed not to be present or voting) and
those excess shares will not be considered in determining the number of director
nominees to which Bayer Corporation is entitled. The "New Percentage" means 33
1/3% before May 15, 2000, 36 2/3% thereafter and before May 15, 2001.
Under the Restructuring Agreements, each of Marvin Schein, Pamela Schein
and Pamela Joseph has agreed that such individual, and certain members of such
individual's family members, related trusts or estates, or other entities owned
exclusively by such individual, family members trusts or estates (collectively,
the "Family Group"), shall not acquire shares if, as a consequence of the
acquisition, such individual, together with such individual's Family Group, owns
in excess of (a) in the case of Marvin Schein and his Family Group, 35.85% of
the Common Stock, (b) in the case of Pamela Schein and her Family Group, 27.55%
of the Common Stock and (c) in the case of Pamela Joseph and her Family Group,
12.97% of the Common Stock.
RESTRICTIONS ON TRANSFER
Under the Restructuring Agreements, Marvin Schein, Pamela Schein, Pamela
Joseph, Martin Sperber, Stanley Bergman and certain trusts established by these
individuals (collectively, the "Continuing Stockholders") have been granted
certain registration rights. In addition, Bayer Corporation may transfer its
shares of Common Stock in connection with certain registration rights granted to
Bayer Corporation under the Restructuring Agreements or to a Permitted Assignee.
A "Permitted Assignee" is (a) a successor to all or substantially all the
business and assets of Bayer Corporation or a majority-owned subsidiary of Bayer
Corporation who agrees to be bound by the Restructuring Agreements, (b) with
respect to certain preemptive rights, rights of first refusal and rights
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of first offer, a single purchaser who, immediately after the purchase and for
60 days thereafter, owns at least 10% of the shares then owned by Bayer
Corporation and who agrees to be bound by the Standstill and (c) with respect to
certain registration rights, any person referred to in (a) above and up to three
non-affiliated purchasers who, immediately after the respective purchases and
for 60 days thereafter, own in the aggregate at least 20% of the shares then
owned by Bayer Corporation and who agree to be bound by the Standstill.
If Bayer Corporation sells any of its shares of Common Stock to any
unaffiliated third party, then the following of Bayer Corporation's rights under
the Restructuring Agreements terminate: the right to consent to certain
transactions of the Company; the right to purchase additional shares on Company
issuances of equity securities; the right to acquire shares to maintain an
ownership percentage of more than 21% of outstanding shares over certain 10%
holders; the right to acquire from the Company or Marvin Schein, Pamela Schein,
Pamela Joseph and certain trusts established by them or for their issue
(collectively, the "Family Stockholders") under certain circumstances after the
Standstill Period, shares for a controlling interest in the Company; and rights
of first refusal with regard to share transfers by Continuing Stockholders.
However, certain of those rights (i.e., rights to purchase additional shares on
Company issuances of equity securities and rights of first refusal) may be
transferred to a single purchaser who owns at least 10% of the shares of Common
Stock then owned by Bayer Corporation and who agrees to be bound by the
Standstill obligations.
Mr. Sperber and Mr. Bergman may not transfer any of their shares of
Common Stock to Bayer Corporation except in certain open market transactions and
except to the extent that Bayer Corporation first offered to purchase such
shares from the Family Stockholders and the Family Stockholders did not sell
such shares.
The Company may not transfer any of its shares of Common Stock to Bayer
Corporation, except to the extent that Bayer Corporation is entitled to purchase
shares under the Restructuring Agreements and those shares are not purchased in
the open market or from Family Stockholders.
RIGHTS OF INCLUSION AND FIRST REFUSAL
If, at any time prior to the end of the Standstill Period or at any time
that Bayer Corporation sells shares other than to a Permitted Assignee, the
Company is not entitled to exercise its right of first refusal under the
Restructuring Agreements and a Continuing Stockholder is permitted, and in good
faith wishes, to sell shares of Common Stock to a third party (other than sales
under Rule 144 under the Securities Act), Bayer Corporation shall have the right
of first offer to purchase those shares of Common Stock on the same terms as the
Continuing Stockholder wishes to sell the shares of Common Stock.
The Restructuring Agreements provide that if, at any time prior to June
15, 2000, Bayer Corporation is permitted under the Restructuring Agreements, and
in good faith wishes, to sell shares of Common Stock to a third party, the
Company and the Continuing Stockholders shall have the right of
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first offer to purchase those shares of Common Stock on the same terms as Bayer
Corporation wishes to sell the shares of Common Stock.
CERTAIN OTHER AGREEMENTS
In February 1998, the Company entered into a strategic alliance
agreement with Cheminor Drugs Limited ("Cheminor"), Dr. Reddy's Laboratories
Limited and Reddy-Cheminor, Inc. As part of the arrangement, each party is
entitled to representation on the other company's board of directors consistent
with its equity interest, at all times during which each party owns at least ten
percent of the total issued and outstanding shares of the other party.
Currently, Cheminor does not own any shares of Common Stock and, accordingly, is
not entitled to representation on the Company's Board of Directors.
CERTAIN TRANSACTIONS
In 1994, the Company entered into a Heads of Agreement with Bayer
Corporation and Bayer A.G. (collectively, "Bayer"), pursuant to which the
Company and Bayer committed together to explore business opportunities for the
U.S. and abroad. Under the agreement, the parties agreed to share expertise,
personnel, products and production facilities where appropriate to (i) explore
potential areas of mutual interest and cooperation in the U.S. domestic market,
(ii) identify multisource pharmaceutical business opportunities abroad and (iii)
explore the use of Bayer's chemical synthesis expertise to provide the Company
with chemical drug ingredients. The agreement provides that any decision to
pursue a project must be approved by both parties and based on a separately
negotiated contractual agreement.
The Company had a co-promotion agreement with Bayer Corporation,
covering INFeD(R) which expired in June 1999 (the "INFeD Agreement"). Under the
terms of the INFeD Agreement, in exchange for promotional support, the Company
shared with Bayer Corporation financial results in excess of specified threshold
amounts. The Company incurred selling expenses under the INFeD Agreement (in the
form of payments to Bayer) of approximately $1.5 million, $3.0 million and $4.2
million in 1999, 1998 and 1997, respectively. In July 1999, the Company entered
into a co-promotion agreement with Bayer covering Ferrlecit which expires on
August 31, 2000 (the "Ferrlecit Agreement"). Under the Ferrlecit Agreement, the
Company pays Bayer Corporation a service fee and shares with Bayer Corporation
financial results in excess of specified threshold amounts. The Company incurred
selling expenses under the Ferrlecit Agreement (in the form of payments to
Bayer) of approximately $500,000 in 1999.
Since 1994, the Company and Bayer, through their respective affiliates,
have entered into several joint ventures to own, manage or develop generic
pharmaceutical businesses outside of the U.S. Each of Schein and Bayer have
contributed various assets and rights and funded the operations of these
ventures, and in certain circumstances have guaranteed certain liabilities of
these ventures, such as leases and lines of credit. The Company and Bayer sell
products to certain of these ventures for resale in their local markets. From
time to time, the Company or Bayer has acquired the other party's interest
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in the joint venture. Each of the Company and Bayer continues to evaluate its
relative position in markets where it has a multisource business.
In June 1999, the Company acquired the remaining 50% interest in a
United Kingdom joint venture for a $1.2 million note payable to Bayer and the
assumption of current liabilities including $2.2 million of bank debt.
During 1998 and 1997, the Company invested approximately $0.3 million
and $0.2 million, respectively, in each of several international pharmaceutical
businesses. These businesses are jointly owned with subsidiaries of Bayer AG. At
December 25, 1999 the Company jointly owned two international pharmaceutical
businesses with Bayer subsidiaries and had guaranteed $6.1 million of borrowings
of these businesses. In 1999 these jointly owned international businesses
(including the United Kingdom joint venture through June 1999) had $14.4 million
in sales and had expenses of $16.6 million resulting in a net loss of $2.2
million for the year.
In 1997, the Company, together with the Pharmaceutical, Consumer
Healthcare, Afga Film and Diagnostics divisions of Bayer Corporation, created a
marketing collaboration called Bayer Healthcare Partners. Through Bayer
Healthcare Partners, the participants combine their sales and marketing efforts
to offer, on a case-by-case basis, a package of goods and services designed to
be more attractive to a customer, most likely a managed healthcare provider. The
participants share in the costs of these combined marketing efforts. The
Company's participation in Bayer Healthcare Partners is determined on a year to
year basis. In fiscal 1999 and in fiscal 1998, the Company incurred expenses of
approximately $0.5 million and $0.4 million, respectively, in connection with
this arrangement. Under its existing arrangement with Bayer Healthcare Partners,
the Company is not required to share revenues or profits with other
participants.
In the ordinary course of business, the Company sells pharmaceutical
products to affiliates, including Henry Schein, Inc., for distribution to their
customers. Net sales to affiliates were $3.4 million, $8.6 million and $12.8
million in fiscal 1999, 1998 and 1997, respectively. Such net sales include net
sales to Henry Schein, Inc. of $2.5 million, $5.1 million, and $10.0 million in
fiscal 1999, 1998 and 1997, respectively. Certain of the Company's principal
stockholders are principal stockholders of Henry Schein, Inc. All transactions
between the Company and its affiliates are on an arm's length basis.
In connection with his employment agreement dated as of November 18,
1999, the Company loaned Mr. Ashrafi $2,234,375 at an interest rate equal to
the interest rate payable from time to time under its principal bank
revolving credit facility. The proceeds of the loan were used by Mr. Ashrafi
to purchase Common Stock from the Company. As of February 26, 2000, the
unpaid outstanding balance of the loan was $2,287,607, which includes accrued
interest of $53,232.
Richard L. Goldberg is a member of Proskauer Rose LLP, which rendered
legal services to the Company in 1999 and continues to render such services in
2000. Mr. Goldberg is not an officer or employee of the Company.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who beneficially own more than 10% of the
Company's outstanding Common Stock to file with the Commission initial reports
of ownership and reports of changes in ownership of the Common Stock. Based
solely upon a review of Forms 3, 4 and 5 furnished to the Company with respect
to fiscal 1999, the Company believes that its executive officers, directors and
beneficial owners of more than 10% of the Company's outstanding Common Stock
complied with Section 16(a) filing requirements, except that during 1999, an
Initial Report on Form 3 was not timely filed with respect to Whitney K.
Stearns, Jr. when he became an executive officer of the Company due to clerical
oversight, and the filing of Reports on Form 5 were delayed by one day due to an
administrative error.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2001 annual
meeting of stockholders must be received by the Company in writing no later than
December 1, 2000 to be eligible for inclusion in the Company's proxy statement
for that meeting. If notice of a stockholder proposal is not received by the
Company on or before February 14, 2001, management will have discretionary
authority to vote all proxies with respect thereto in accordance with their best
judgment.
OTHER MATTERS
Upon written request addressed to the Company's Director of Investor
Relations at 100 Campus Drive, Florham Park, New Jersey 07932 from any person
solicited herein, the Company will provide, at no cost, a copy of its Annual
Report on Form 10-K filed with the Commission for the fiscal year ended December
25, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
Paul Feuerman
Secretary
DATED: April 14, 2000
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SCHEIN PHARMACEUTICAL, INC.
PROXY -- ANNUAL MEETING OF STOCKHOLDERS -- MAY 16, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please mark, sign, date and return in the enclosed envelope.
The undersigned stockholder of Schein Pharmaceutical, Inc. (the
"Company") hereby appoints Martin Sperber, Dariush Ashrafi and Paul Feuerman,
and each of them, proxies of the undersigned with full power of substitution to
vote at the Annual Meeting of Stockholders of the Company to be held on Tuesday,
May 16, 2000, beginning at 10:00 a.m., local time, at The Madison Hotel, One
Convent Road, Morristown, New Jersey 07960, and at any postponement or
adjournment thereof, the number of votes which the undersigned would be entitled
to cast if personally present:
(1) Election of Directors
{ } FOR Dariush Ashrafi
all nominees listed to the right (except as
marked to the contrary)
{ } WITHHOLD AUTHORITY Harvey Rosenthal
to vote for all nominees listed to the right
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, DRAW A LINE THROUGH OR STRIKE OUT THAT
NOMINEE'S NAME AS SET FORTH ABOVE.
(2) Proposal to increase the aggregate number of shares of the Company's
Common Stock subject to awards under the Company's 1995 Non-Employee
Director Stock Option Plan from 105,000 to 210,000 shares.
{ } FOR { } AGAINST { } ABSTAIN
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(3) Proposal to ratify the appointment of BDO Seidman, LLP as the Company's
Independent Auditors for the fiscal year ending December 30, 2000.
{ } FOR { } AGAINST { } ABSTAIN
(4) To consider and act upon any procedural matters relating to the conduct
of the meeting and any adjournment thereof.
All as more particularly described in the Proxy Statement dated April
14, 2000, relating to such meeting, receipt of which is hereby
acknowledged.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR THE NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3.
-----------------------------------
-----------------------------------
Signature(s) of Stockholder(s)
-----------------------------------
-----------------------------------
Print Name(s) of Stockholder(s)
Please sign your name exactly as it
appears hereon. Joint owners must
each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
your full title as it appears
hereon.
Dated ______________________, 2000.
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